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 ~~June 30, 2019~~March 31, 2020



☐	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:~~



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
~~1.100%~~1.1% Notes due 2022	MA22	New York Stock Exchange
~~2.100%~~2.1% Notes due 2027	MA27	New York Stock Exchange
~~2.500%~~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):



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	☒

~~Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes~~ ☐ No ☒

As of ~~July 25, 2019,~~April 24, 2020, there were ~~1,003,110,553~~993,040,739 shares outstanding of the registrant’s Class A common stock, par value $0.0001 per share; and ~~11,448,914~~10,699,604 shares outstanding of the registrant’s Class B common stock, par value $0.0001 per share.

MASTERCARD INCORPORATED

FORM 10-Q

TABLE OF CONTENTS



	~~Page~~
PART I	5	Item 1.	Consolidated financial statements (unaudited)
	~~PART I — FINANCIAL INFORMATION~~27	Item 2.	Management’s discussion and analysis of financial condition and results of operations
	39	Item 3.	Quantitative and qualitative disclosures about market risk
	39	Item 4.	Controls and procedures


PART II	~~ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~41	5 Item 1.	Legal proceedings
	~~Consolidated Balance Sheet — June 30, 2019 and December 31, 2018~~41	5 Item 1A.	Risk factors
	~~Consolidated Statement of Operations — Three and Six Months Ended June 30, 2019 and 2018~~41	6 Item 2.	Unregistered sales of equity proceeds and use of proceeds
	~~Consolidated Statement of Comprehensive Income — Three and Six Months Ended June 30, 2019 and 2018~~42	7 Item 5.	Other information
	~~Consolidated Statement of Changes in Equity — Three and Six Months Ended June 30, 2019 and 2018~~43	8 Item 6.	Exhibits
	~~Consolidated Statement of Cash Flows — Six Months Ended June 30, 2019 and 2018~~	10
~~Notes to Consolidated Financial Statements~~	11
~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~	32
~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~	44
~~ITEM 4. CONTROLS AND PROCEDURES~~ -	44 Signatures

~~PART II — OTHER INFORMATION~~

~~ITEM 1. LEGAL PROCEEDINGS~~	45
~~ITEM 1A. RISK FACTORS~~	45
~~ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~	45
~~ITEM 5. OTHER INFORMATION~~	45
~~ITEM 6. EXHIBITS~~	45
~~SIGNATURES~~	47

32 MASTERCARD MARCH 31, 2020 FORM 10-Q

~~Table of Contents~~

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

Forward-Looking Statements

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

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

regulation directly related to the payments industry (including regulatory, legislative and litigation activity with respect to interchange rates ~~surcharging~~ and ~~the extension of current regulatory activity to additional jurisdictions or products)~~surcharging)

the impact of preferential or protective government actions

regulation of privacy, data, ~~protection,~~ security and the digital economy

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

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

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

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

the challenges relating to rapid technological developments and changes

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

the impact of information security incidents, account data breaches ~~fraudulent activity~~ or service disruptions

issues related to our relationships with our financial institution customers (including loss of substantial business from significant customers, competitor relationships with our customers and banking industry consolidation)

~~the impact of our relationships with other stakeholders, including~~, merchants and governments

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

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

the impact of the coronavirus (COVID-19) outbreak and measures taken in response to the outbreak

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

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

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

issues related to our Class A common stock and corporate governance structure

Please see a complete discussion of these risk factors in Part I, Item 1A - Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 and in Part II, Item 1A - Risk Factors of this Report. We caution you that the important factors referenced above may not contain all of the factors that are important to you. Our forward-looking statements speak only as of the date of this Report or as of the date they are made, and we undertake no obligation to update our forward-looking statements.

4MASTERCARD MARCH 31, 2020 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

~~Table of Contents~~

Stockholders’ Equity
Common Stock Additional
Paid-In
Capital Class A
Treasury
Stock
Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Non-
Controlling
Interests
Total Equity
Class A Class B
(in millions, except per share data)
Balance at December 31, 2018 $ —
$ —
$ 4,580
$ (25,750 ) $ 27,283
$ (718 ) $ 23
$ 5,418
Net income —
—
—
—
1,862
—
—
1,862
Activity from non-controlling interests —
—
—
—
—
—
(1 ) (1 )
Other comprehensive income, net of tax —
—
—
—
—
45
—
45
Cash dividends declared on Class A and Class B common stock, $0.33 per share —
—
—
—
(339 ) —
—
(339 )
Purchases of treasury stock —
—
—
(1,790 ) —
—
—
(1,790 )
Share-based payments —
—
(11 ) 6
—
—
—
(5 )
Balance at March 31, 2019 —
—
4,569
(27,534 ) 28,806
(673 ) 22
5,190
Net income —
—
—
—
2,048
—
—
2,048
Activity from non-controlling interests —
—
—
—
—
—
5
5
Other comprehensive income, net of tax —
—
—
—
—
(57 ) —
(57 )
Cash dividends declared on Class A and Class B common stock, $0.33 per share —
—
—
—
(337 ) —
—
(337 )
Purchases of treasury stock —
—
—
(1,920 ) —
—
—
(1,920 )
Share-based payments —
—
106
—
—
—
—
106
Balance at June 30, 2019 $ —
$ —
$ 4,675
$ (29,454 ) $ 30,517
$ (730 ) $ 27
$ 5,035



Consolidated Balance Sheet (unaudited)
	March 31, 2020			December 31, 2019
	(in millions, except per share data)
Assets
Current assets:
Cash and cash equivalents	$	10,207		$	6,988
Restricted cash for litigation settlement	587			584
Investments	477			688
Accounts receivable	2,441			2,514
Settlement due from customers	1,164			2,995
Restricted security deposits held for customers	1,518			1,370
Prepaid expenses and other current assets	1,729			1,763
Total current assets	18,123			16,902
Property, equipment and right-of-use assets, net of accumulated depreciation and amortization of $1,165 and $1,100, respectively	1,901			1,828
Deferred income taxes	550			543
Goodwill	4,070			4,021
Other intangible assets, net of accumulated amortization of $1,312 and $1,296, respectively	1,447			1,417
Other assets	4,557			4,525
Total Assets	$	30,648		$	29,236
Liabilities, Redeemable Non-controlling Interests and Equity
Current liabilities:
Accounts payable	$	371		$	489
Settlement due to customers	1,149			2,714
Restricted security deposits held for customers	1,518			1,370
Accrued litigation	852			914
Accrued expenses	4,676			5,489
Other current liabilities	1,146			928
Total current liabilities	9,712			11,904
Long-term debt	12,466			8,527
Deferred income taxes	82			85
Other liabilities	2,890			2,729
Total Liabilities	25,150			23,245
Commitments and Contingencies
Redeemable Non-controlling Interests	75			74
Stockholders’ Equity
Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,392 and 1,391 shares issued and 993 and 996 shares outstanding, respectively	—			—
Class B common stock, $0.0001 par value; authorized 1,200 shares, 11 shares issued and outstanding	—			—
Additional paid-in-capital	4,735			4,787
Class A treasury stock, at cost, 399 and 395 shares, respectively	(33,531		)	(32,205		)
Retained earnings	35,273			33,984
Accumulated other comprehensive income (loss)	(1,079		)	(673		)
Mastercard Incorporated Stockholders' Equity	5,398			5,893
Non-controlling interests	25			24
Total Equity	5,423			5,917
Total Liabilities, Redeemable Non-controlling Interests and Equity	$	30,648		$	29,236

The Company estimates the fair value of its settlement and other guarantees using market assumptions for relevant though not directly comparable undertakings, as the latter are not observable in the market given the proprietary nature of such guarantees. At June 30, 2019 and December 31, 2018, the carrying value and fair value of settlement and other guarantee liabilities were not material and accordingly are not included in the Valuation Hierarchy table above. Settlement and other guarantee liabilities are classified within Level 3 of the Valuation Hierarchy as their valuation requires substantial judgment and estimation of factors that are not observable in the market. See Note 16 (Settlement and Other Risk Management) for additional information regarding the Company’s settlement and other guarantee liabilities.

The 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 municipal securities, government and agency securities, corporate securities and asset-backed 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.


²	The 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 relating to foreign exchange and interest rates for similar derivative instruments. See Note 17 (Derivative and Hedging Instruments) for further details.


³	The 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.

⁴

The 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.


⁵	The 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 - Non-Recurring Measurements

~~Held-to-Maturity~~Nonmarketable Securities

~~Investments on the consolidated balance sheet include both available-for-sale and short-term held-to-maturity securities. Held-to-maturity~~The Company’s Nonmarketable securities are ~~not measured~~recorded at fair value on a ~~recurring~~non-recurring basis ~~and are not included~~ in the Valuation Hierarchy table above. At June 30, 2019 and December 31, 2018, the Company held $151 million and $264 million, respectively, of held-to-maturity securities due within one year. The cost of these securities approximates fair value.

~~Nonmarketable Equity Investments~~

~~The Company’s nonmarketable equity investments are accounted for~~periods after initial recognition under the equity method or measurement alternative method. The Company’s share of net earnings or losses of equity method investments is included in other income (expense), net on the consolidated statement of operations. Measurement alternative investments do not have readily determinable fair values, and therefore are measured at cost, less any impairment and adjusted for changes resulting from identifiable price changes in orderly transactions for the identical or similar investments of the same issuer. Fair value adjustments of measurement alternative investments are included in gain (losses) of equity investments, net on the consolidated statement of operations. Nonmarketable ~~equity investments~~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 equity investments~~Nonmarketable securities when certain events or circumstances indicate that impairment may exist. ~~Nonmarketable equity investments are included in other assets on the consolidated balance sheet.~~See Note 6 (Investments) for further details.

~~At June 30, 2019, the carrying value of measurement alternative and equity method investments was $265 million and $115 million, respectively. At December~~

MASTERCARD MARCH 31, ~~2018, the carrying value of measurement alternative and equity method investments was $232 million and $105 million, respectively.~~2020 FORM 10-Q 16

PART I

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

Debt

The Company estimates the fair value of its long-term debt based on quoted market ~~quotes.~~prices. These debt ~~instruments are not traded in active markets and~~securities are classified as Level 2 of the Valuation ~~Hierarchy.~~Hierarchy as they are not traded in active markets. At ~~June 30, 2019,~~March 31, 2020, the carrying value and fair value of total long-term debt ~~outstanding~~ was ~~$7.8~~$12.5 billion and ~~$8.4~~$13.9 billion, respectively. At December 31, ~~2018,~~2019, the carrying value and fair value of ~~total~~ long-term debt ~~outstanding (including the current portion)~~ was ~~$6.3~~$8.5 billion and ~~$6.5~~$9.2 billion, respectively.

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 due from customers, restricted security deposits held for customers, accounts payable, settlement due to customers and other accrued liabilities.

~~Table of Contents~~

~~MASTERCARD INCORPORATED~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

~~Gains (Losses) on Equity Investments~~

Gains (losses) on equity investments consists of realized and unrealized gains or losses on marketable equity investments and fair value adjustments, including impairments, of nonmarketable equity investments. During the three and six months ended June 30, 2019, the Company recorded a gain of $143 million and $148 million, respectively, primarily related to unrealized gains in certain marketable equity securities.

~~Contingent Consideration~~

The contingent consideration attributable to acquisitions made in 2017 was primarily based on the achievement of 2018 revenue targets and was measured at fair value on a recurring basis. This contingent consideration liability of $219 million was included in other current liabilities on the consolidated balance sheet at December 31, 2018. This liability was classified within Level 3 of the Valuation Hierarchy due to the absence of quoted market prices and unobservable inputs used to measure fair value that require management’s judgment. During the six months ended June 30, 2019, the Company paid $219 million to settle the contingent consideration.

~~Amortized Costs and Fair Values – Available-for-Sale Investment Securities~~

The major classes of the Company’s available-for-sale investment securities, for which unrealized gains and losses are recorded as a separate component of other comprehensive income (loss) on the consolidated statement of comprehensive income, and their respective amortized cost basis and fair values as of June 30, 2019 and December 31, 2018 were as follows:

June 30, 2019 December 31, 2018

Amortized
Cost

Gross
Unrealized
Gain

Gross
Unrealized
Loss

Fair
Value

Amortized
Cost

Gross
Unrealized
Gain

Gross
Unrealized
Loss

Fair
Value
(in millions)
Municipal securities $ 3
$ —
$ —
$ 3
$ 15
$ —
$ —
$ 15
Government and agency securities 121
—
—
121
157
—
—
157
Corporate securities 430
1
—
431
1,044
1
(2 ) 1,043
Asset-backed securities 102
1
—
103
217
—
—
217
Total $ 656
$ 2
$ —
$ 658
$ 1,433
$ 1
$ (2 ) $ 1,432

The Company’s available-for-sale investment securities held at June 30, 2019 and December 31, 2018 primarily carried a credit rating of A- or better. The municipal securities are primarily comprised of state tax-exempt bonds. Government and agency securities include U.S. government bonds, U.S. government sponsored agency bonds and foreign government bonds with similar credit quality to that of the U.S. government bonds. Corporate securities are comprised of commercial paper and corporate bonds. The asset-backed securities are investments in bonds which are collateralized primarily by automobile loan receivables.

~~Investment Maturities~~

~~The maturity distribution based on the contractual terms of the Company’s investment securities at June 30, 2019 was as follows:~~

Available-For-Sale

Amortized
Cost
Fair Value
(in millions)
Due within 1 year $ 216
$ 217
Due after 1 year through 5 years 440
441
Total $ 656
$ 658

~~Table of Contents~~

~~MASTERCARD INCORPORATED~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

~~Investment Income~~

Investment income primarily consists of interest income generated from cash, cash equivalents and debt securities. Gross realized gains and losses are recorded within investment income on the consolidated statement of operations. The gross realized gains and losses from the sales of available-for-sale securities for the three and six months ended June 30, 2019 and 2018 were not significant.

Note 7. 8. Prepaid Expenses and Other Assets

Prepaid expenses and other current assets consisted of the following:


	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	(in millions)				(in millions)
Customer and merchant incentives	$	874	$	778	$	886	$	872
Prepaid income taxes	218		51		50		105
Other	694		603		793		786
Total prepaid expenses and other current assets	$	1,786	$	1,432	$	1,729	$	1,763

¹~~Relates to the 2014 USD Notes, which was classified in current liabilities as of December 31, 2018, matured and was paid during the second quarter of 2019~~


¹	Relates to euro-denominated debt issuance of €1.650 billion in December 2015

In ~~May 2019,~~March 2020, the Company issued ~~$1.0~~$1 billion principal amount of notes due ~~June 2029 and $1.0~~March 2027, $1.5 billion principal amount of notes due ~~June 2049~~March 2030 and $1.5 billion principal amount notes due March 2050 (collectively the ~~“2019~~“2020 USD Notes”). The net proceeds from the issuance of the ~~2019~~2020 USD Notes, after deducting the original issue discount, underwriting discount and offering expenses, were ~~$1.980~~$3.959 billion.

The net proceeds, after deducting the original issue discount, underwriting discount and offering expenses, from the issuance of the 2018 USD Notes, 2016 USD Notes, the 2015 Euro Notes and the 2014 USD Notes, were $991 million, ~~$1.969 billion, $1.723 billion and $1.484 billion, respectively.~~

~~Table of Contents~~

~~MASTERCARD INCORPORATED~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)~~

The outstanding debt described above is not subject to any financial covenants and it 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. The proceeds of the notes are to be used for general corporate purposes.

Note 11. 11. Stockholders' Equity

The Company declared a quarterly cash dividend on its Class A and Class B Common Stock during the three months ended March 31, 2020 and 2019. For the three months ended March 31, 2020 and 2019, the Company declared total per share dividends of $0.40 and $0.33, respectively, resulting in total quarterly dividends of $402 million and $337 million, respectively.

The Company’s Board of Directors have approved share repurchase programs authorizing the Company to repurchase shares of its Class A Common Stock. These programs become effective after the completion of the previously authorized share repurchase program. During the first quarter of 2020, the Company temporarily suspended its 2020 share repurchase activity. The share repurchase program remains authorized by the Company’s Board of Directors and it may resume share repurchases in the future at any time.

MASTERCARD MARCH 31, 2020 FORM 10-Q 18

PART I

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

The following table summarizes the Company’s share repurchase authorizations of its Class A common stock through ~~June 30, 2019,~~March 31, 2020, as well as historical purchases:

Board authorization dates December
2018 December
2017 December
2016

Date program became effective
January
2019
March
2018 April
2017 Total
(in millions, except average price data)
Board authorization $ 6,500
$ 4,000
$ 4,000
$ 14,500
Dollar value of shares repurchased during the six months ended June 30, 2018 $ —
$ 1,647
$ 1,234
$ 2,881
Remaining authorization at December 31, 2018 $ 6,500
$ 301
$ —
$ 6,801
Dollar value of shares repurchased during the six months ended June 30, 2019 $ 3,440
$ 301
$ —
$ 3,741
Remaining authorization at June 30, 2019 $ 3,060
$ —
$ —
$ 3,060

Shares repurchased during the six months ended June 30, 2018 —
9.0
7.2
16.2
Average price paid per share during the six months ended June 30, 2018 $ —
$ 183.84
$ 171.11
$ 178.16
Shares repurchased during the six months ended June 30, 2019 14.8
1.6
—
16.4
Average price paid per share during the six months ended June 30, 2019 $ 232.42
$ 188.38
$ —
$ 228.13
Cumulative shares repurchased through June 30, 2019 14.8
20.6
28.2
63.6
Cumulative average price paid per share $ 232.42
$ 194.27
$ 141.99
$ 179.98



Board authorization dates	December 2019		December 2018		December 2017
Date program became effective	January 2020		January 2019		March 2018		Total
	(in millions, except average price data)
Board authorization	$	8,000	$	6,500	$	4,000	$	18,500
Dollar value of shares repurchased during the three months ended March 31, 2019	$	—	$	1,523	$	301	$	1,824
Remaining authorization at December 31, 2019	$	8,000	$	304	$	—	$	8,304
Dollar value of shares repurchased during the three months ended March 31, 2020	$	1,079	$	304	$	—	$	1,383
Remaining authorization at March 31, 2020	$	6,921	$	—	$	—	$	6,921
Shares repurchased during the three months ended March 31, 2019	—		7.1		1.6		8.7
Average price paid per share during the three months ended March 31, 2019	$	—	$	213.68	$	188.38	$	209.05
Shares repurchased during the three months ended March 31, 2020	3.7		1.0		—		4.7
Average price paid per share during the three months ended March 31, 2020	$	290.86	$	304.89	$	—	$	293.83
Cumulative shares repurchased through March 31, 2020	3.7		25.8		20.6		50.1
Cumulative average price paid per share	$	290.86	$	251.72	$	194.27	$	231.02

The following table presents the changes in the Company’s outstanding Class A and Class B common stock for the ~~six~~three months ended ~~June 30, 2019:~~March 31, 2020:


	Outstanding Shares				Outstanding Shares
	Class A		Class B		Class A		Class B
	(in millions)				(in millions)
Balance at December 31, 2018	1,018.6		11.8
Balance at December 31, 2019					996.0		11.2
Purchases of treasury stock	(16.4	)	—		(4.7	)	—
Share-based payments	2.4		—		1.3		—
Conversion of Class B to Class A common stock	0.3		(0.3	)	0.4		(0.4	)
Balance at June 30, 2019	1,004.9		11.5
Balance at March 31, 2020					993.0		10.8


**	Not applicable


¹	Represents the translational and transactional impact of currency.

Key Metrics

In addition to the financial measures described above in “Financial Results Overview”, we review the following metrics to evaluate and identify trends in our business, measure our performance, prepare financial projections and make strategic decisions. We believe that the key metrics presented facilitate an understanding of our operating and financial performance and provide a meaningful comparison of our results between periods.

Gross Dollar Volume (“GDV”)¹~~For~~ measures dollar volume of activity on cards carrying our brands during the ~~three~~period. Dollar volume represents purchase volume plus cash volume and ~~six months ended June 30, 2019, we updated our non-GAAP methodology to exclude~~includes the impact of ~~gains~~balance transfers and ~~losses~~convenience checks; “purchase volume” means the aggregate dollar amount of purchases made with Mastercard-branded cards for the relevant period; and “cash volume” means the aggregate dollar amount of cash disbursements obtained with Mastercard-branded cards for the relevant period. Information denominated in U.S. dollars relating to GDV is calculated by applying an established U.S. dollar/local currency exchange rate for each local currency in which Mastercard volumes are reported. These exchange rates are calculated on ~~our equity investments. Prior year periods were not restated as~~a quarterly basis using the ~~impact of the change was de minimis in relation to our non-GAAP results.~~

² ~~Represents the foreign currency translational and transactional impact.~~average exchange rate for each quarter. Mastercard

3630 MASTERCARD MARCH 31, 2020 FORM 10-Q

PART I

~~Table of Contents~~ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Impact~~reports period-over-period rates of change in purchase volume and cash volume on the basis of local currency information, in order to eliminate the impact of changes in the value of currencies against the U.S. dollar in calculating such rates of change.

Cross-border Volume² measures cross-border dollar volume initiated and switched through our network during the period, on a local currency basis and U.S. dollar-converted basis, for all Mastercard-branded programs.

Switched Transactions² measures the number of transactions switched by Mastercard. We define transactions switched as the number of transactions initiated and switched through our network during the period.

Operating Margin measures how much profit we make on each dollar of sales after our operating costs but before other income (expense) and income tax expense. Operating margin is calculated by dividing our operating income by net revenue.


¹	Data used in the calculation of GDV is provided by Mastercard customers and is subject to verification by Mastercard and partial cross-checking against information provided by Mastercard’s transaction switching systems. All data is subject to revision and amendment by Mastercard or Mastercard’s customers.


²	Normalized to eliminate the effects of differing switching and carryover days between periods. Carryover days are those where transactions and volumes from days where the company does not clear and settle are processed.

Foreign Currency ~~Rates~~

Currency Impact (Translational and Transactional)

Our primary revenue functional currencies are the U.S. dollar, euro, Brazilian real and the British pound. Our overall operating results are impacted by ~~foreign~~ currency translation, which represents the effect of translating operating results where the functional currency is different than our U.S. dollar reporting currency.

Our operating results can also be impacted by transactional ~~foreign~~ currency. The impact of the transactional ~~foreign~~ currency represents the effect of converting revenue and expense transactions occurring in a currency other than the functional currency. Changes in ~~foreign~~ currency exchange rates directly impact the calculation of gross dollar volume (“GDV”) and gross euro volume (“GEV”), which are used in the calculation of our domestic assessments, cross-border volume fees and certain volume-related rebates and incentives. In most non-European regions, GDV is calculated based on local currency spending volume converted to U.S. dollars using average exchange rates for the period. In Europe, GEV is calculated based on local currency spending volume converted to euros using average exchange rates for the period. As a result, our domestic assessments, cross-border volume fees and certain volume-related rebates and incentives are impacted by the strengthening or weakening of the U.S. dollar versus non-European local currencies and the strengthening or weakening of the euro versus other European local currencies. For example, our billing in Australia is in the U.S. dollar, however, consumer spend in Australia is in the Australian dollar. The ~~foreign~~ currency transactional impact of converting Australian dollars to our U.S. dollar billing currency will have an impact on the revenue generated. The strengthening or weakening of the U.S. dollar is evident when GDV growth on a U.S. dollar-converted basis is compared to GDV growth on a local currency basis. For the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, GDV on a U.S. dollar-converted basis increased ~~8% and 7%~~6%, ~~respectively,~~ while GDV on a local currency basis increased ~~13% and 12%~~8%, ~~respectively,~~ versus the comparable ~~periods~~period in ~~2018.~~2019. Further, the impact from transactional ~~foreign~~ currency occurs in transaction processing revenue, other revenue and operating expenses when the local currency of these items isare different than the functional currency.

The translational and transactional impact of currency (“Currency impact”) has been identified in our growth impact tables and has been excluded from our currency-neutral growth rates, which are non-GAAP financial measures. See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments.

Foreign Exchange Activity

We incur foreign currency gains and losses from remeasuring monetary assets and liabilities that are in a currency other than the functional currency and from remeasuring foreign exchange derivative contracts (“Foreign Exchange Activity”). The impact of Foreign Exchange Activity has not been eliminated in our currency-neutral results (see “Non-GAAP Financial Information”) and is recorded in general and administrative expenses on the consolidated statement of operations. We manage foreign currency balance sheet remeasurement and ~~cash flow risk~~transactional currency exposure through our foreign exchange risk management activities, which are discussed further in Note 17 ~~(Foreign Exchange Risk Management)~~(Derivative and Hedging Instruments) to the consolidated financial statements included in Part I, Item 1. Since we do not designate foreign ~~currency~~exchange derivatives as hedging instruments pursuant to the accounting standards for derivative instruments and hedging activities, we record gains and losses on foreign exchange derivatives immediately in current period earnings, with the related hedged item being recognized as the exposures materialize.

Risk of Currency Devaluation

We are exposed to currency devaluation in certain countries. In addition, we are subject to exchange control regulations that restrict the conversion of financial assets into U.S. dollars. While these revenues and assets are not material to us on a consolidated basis, we can be negatively impacted should there be a continued and sustained devaluation of local currencies relative to the U.S. dollar and/or a continued and sustained deterioration of economic conditions in these countries.

37MASTERCARD MARCH 31, 2020 FORM 10-Q 31

~~Table of Contents~~

PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Results

Revenue

~~In the three and six months ended June 30, 2019, gross~~Gross revenue increased ~~13% and 12%~~9%, or ~~17%~~ ~~and~~ ~~16%~~11% on a currency-neutral basis, ~~respectively,~~for the three months ended March 31, 2020, versus the comparable ~~periods~~period in ~~2018. Gross revenue~~2019 primarily driven by growth in ~~the three~~gross dollar volume and ~~six months ended June 30, 2019 was driven by~~switched transactions, an increase in ~~transactions, dollar volume of activity on cards carrying our brands and~~ other payment-related products and ~~services.~~services partially offset by a decline in cross-border volumes. Our gross revenue drivers were impacted by a decrease in overall economic consumption primarily due to the impact of the COVID-19 outbreak.

Rebates and incentives ~~in the three and six months ended June 30, 2019,~~ increased ~~16%~~ ~~and~~ ~~17%~~24%, or ~~20% and 21%~~26% on a currency-neutral basis, ~~respectively,~~for the three months ended March 31, 2020, versus the comparable ~~periods~~period in ~~2018,~~2019, primarily due to new and renewed deals and increased volumes.

Our net revenue ~~for the three and six months ended June 30, 2019,~~ increased ~~12% and 10%~~3%, or ~~15% and 14%~~5% on a currency-neutral basis, ~~respectively,~~for the three months ended March 31, 2020, versus the comparable ~~periods~~period in ~~2018.~~2019, including growth of 1 percentage point from our acquisitions.

~~The components of net revenue were as follows:~~

Three Months Ended June 30, Increase (Decrease) Six Months Ended June 30, Increase (Decrease)
2019 2018 2019 2018
($ in millions)
Domestic assessments $ 1,680
$ 1,537
9% $ 3,285
$ 2,995
10%
Cross-border volume fees 1,374
1,198
15% 2,637
2,355
12%
Transaction processing 2,053
1,830
12% 3,975
3,537
12%
Other revenues 962
785
23% 1,804
1,533
18%
Gross revenue 6,069
5,350
13% 11,701
10,420
12%
Rebates and incentives (contra-revenue) (1,956 ) (1,685 ) 16% (3,699 ) (3,175 ) 17%
Net revenue $ 4,113
$ 3,665
12% $ 8,002
$ 7,245
10%

~~The following table summarizes the primary drivers of net revenue growth in the three and six months ended June 30, 2019, versus the comparable periods in 2018:~~

Three Months Ended June 30, 2019
Volume Acquisitions
Foreign Currency ¹
Other ²
Total
Domestic assessments 13% —% (4)% — %
³
9%
Cross-border volume fees 15% —% (5)% 4 % 15%
Transaction processing 13% —% (3)% 2 % 12%
Other revenues ** 2% (2)% 23 %
⁴
23%
Rebates and incentives (contra-revenue) 10% —% (3)% 10 %
⁵
16%
Net revenue 12% —% (3)% 3 % 12%

Six Months Ended June 30, 2019
Volume Acquisitions
Foreign Currency ¹
Other ²
Total
Domestic assessments 12% —% (5)% 2 %
³
10%
Cross-border volume fees 14% —% (5)% 3 % 12%
Transaction processing 14% —% (3)% 2 % 12%
Other revenues ** 1% (2)% 19 %
⁴
18%
Rebates and incentives (contra-revenue) 10% —% (4)% 10 %
⁵
17%
Net revenue 12% —% (4)% 2 % 10%

~~Note: Table may not sum due to rounding.~~

** Not applicable.

¹~~Represents the foreign currency translational and transactional impact versus the comparable periods in 2018.~~

² ~~Includes impact from pricing and other non-volume based fees.~~

^{See Note 3}~~Includesimpact of the allocation of revenue to service deliverables, which are primarily recorded in other revenue when services are performed.~~

⁴~~Includes impacts from safety and security fees, Advisors fees and other payment-related products and services.~~

⁵~~Includes the impact from timing of new, renewed and expired agreements.~~

~~Table of Contents~~

The following table provides a summary of the trend in volume and transaction growth. The cross-border volume and switched transactions growth rates are adjusted for the effects of differing switching days between periods. Additionally, we adjusted the switched transactions growth rate in the prior period for the deconsolidation of our Venezuelan subsidiaries in 2017. For a more detailed discussion of the deconsolidation of our Venezuelan subsidiaries, refer to Note 1 (Summary of Significant Accounting Policies)(Revenue) in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 for further discussion of how we recognize revenue.

The components of net revenue were as follows:

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Growth (USD) Growth (Local) Growth (USD) Growth (Local) Growth (USD) Growth (Local) Growth (USD) Growth (Local)
Mastercard-branded GDV ¹
8% 13% 15% 14% 7% 12% 17% 14%
Asia Pacific/Middle East/Africa 5% 11% 17% 14% 5% 10% 18% 14%
Canada 4% 8% 14% 9% 2% 7% 14% 9%
Europe 10% 19% 22% 20% 8% 18% 26% 19%
Latin America 10% 16% 9% 17% 6% 15% 13% 17%
United States 10% 10% 9% 9% 9% 9% 10% 10%
Cross-border volume ¹
10% 16% 24% 19% 8% 15% 27% 20%
Switched Transactions 18% 17% 17% 16%



	Three Months Ended March 31,						Increase (Decrease)
	2020			2019			Increase (Decrease)
	($ in millions)
Domestic assessments	$	1,683		$	1,605		5%
Cross-border volume fees	1,217			1,263			(4)%
Transaction processing	2,200			1,922			14%
Other revenues	1,062			842			26%
Gross revenue	6,162			5,632			9%
Rebates and incentives (contra-revenue)	(2,153		)	(1,743		)	24%
Net revenue	$	4,009		$	3,889		3%

The following table summarizes the drivers of net revenue:



	Three Months Ended March 31, 2020
	Volume	Acquisitions	Currency Impact ¹	Other ²			Total
Domestic assessments	8%	—%	(3)%	—	%	³	5%
Cross-border volume fees	(2)%	—%	(2)%	—	%		(4)%
Transaction processing	12%	—%	(2)%	4	%		14%
Other revenues	**	6%	(2)%	22	%	⁴	26%
Rebates and incentives (contra-revenue)	7%	—%	(3)%	19	%	⁵	24%
Net revenue	5%	1%	(2)%	(2	)%		3%

Note: Table may not sum due to rounding.


**	Not applicable.


¹	Represents the translational and transactional impact of currency.


²	Includes impact from pricing and other non-volume based fees.


³	Includesimpact of the allocation of revenue to service deliverables, which are primarily recorded in other revenue when services are performed.


⁴	Includes impacts from cyber and intelligence fees, data analytics and consulting fees and other payment-related products and services.


⁵	Includes the impact of new, renewed and expired agreements.

¹32 ~~Excludes volume generated by Maestro~~MASTERCARD MARCH 31, 2020 FORM 10-Q

PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following tables provide a summary of the trend in volumes and ~~Cirrus cards.~~transactions versus the comparable period in 2019:



	Three Months Ended March 31,
	2020		2019
	Increase/(Decrease)
	USD	Local	USD	Local
Mastercard-branded GDV ¹	6%	8%	6%	12%
Asia Pacific/Middle East/Africa	3%	6%	5%	11%
Canada	3%	4%	1%	6%
Europe	9%	12%	5%	17%
Latin America	2%	12%	3%	13%
United States	6%	6%	7%	7%
Cross-border volume ¹	(3)%	(1)%	7%	14%


¹	Excludes volume generated by Maestro and Cirrus cards.



	Three Months Ended March 31,
	2020	2019
	Increase/(Decrease)
Switched transactions	13%	17%

MASTERCARD MARCH 31, 2020 FORM 10-Q 33

PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Operating Expenses

Operating expenses ~~decreased 1% and 3%~~increased 7% for the three ~~and six~~ months ended ~~June 30, 2019, respectively,~~March 31, 2020, versus the comparable ~~periods~~period in ~~2018.~~2019. Adjusted operating expenses increased ~~14%~~ ~~and~~ 8%7%, or ~~17%~~ ~~and~~ ~~11%~~8% on a currency-neutral basis, ~~respectively,~~ versus the comparable ~~periods~~period in ~~2018.~~2019. Current year results included growth of approximately 6 percentage points from acquisitions, partially offset by a 3 percentage point benefit primarily from foreign exchange derivative contracts. The remaining 5 percentage points of growth was primarily related to our continued investment in strategic initiatives.

The components of operating expenses were as follows:


	Three Months Ended June 30,					Increase (Decrease)		Six Months Ended June 30,							Increase (Decrease)		Three Months Ended March 31,							Increase (Decrease)
	2019		2018				2019				2018				Increase (Decrease)	2020				2019				Increase (Decrease)
	($ in millions)																($ in millions)
General and administrative	$	1,369	$	1,184		Increase (Decrease)	16%		$	2,736			$	2,505		9%		$	1,494			$	1,367		9%
Advertising and marketing	225		205			9%		417				402			4%		154				192			(20)%
Depreciation and amortization	122		115			5%		239				235			2%		144				117			23%
Provision for litigation	—		225			**		—				342			**		6				—			**
Total operating expenses	1,716		1,729			(1)%		3,392				3,484			(3)%		1,798				1,676			7%
Special Items¹	—		(225		)	**		—				(342		)	**		(6		)		—			**
Adjusted total operating expenses (excluding Special Items¹)	$	1,716	$	1,504		14%		$	3,392			$	3,142		8%		$	1,792			$	1,676		7%



		Page
Consolidated Statement of Operations — Three Months Ended March 31, 2020 and 2019		6
Consolidated Statement of Comprehensive Income — Three Months Ended March 31, 2020 and 2019		7
Consolidated Balance Sheet — March 31, 2020 and December 31, 2019		8
Consolidated Statement of Changes in Equity - Three Months Ended March 31, 2020 and 2019		9
Consolidated Statement of Cash Flows — Three Months Ended March 31, 2020 and 2019		10
Notes to consolidated financial statements		11


Consolidated Statement of Cash Flows (Unaudited)
	Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2020			2019
	(in millions)						(in millions)
Operating Activities
Net income	$	3,910		$	3,061		$	1,693		$	1,862
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of customer and merchant incentives	623			578			237			345
Depreciation and amortization	239			235			144			117
(Gains) losses on equity investments, net	(148		)	—			174			5
Share-based compensation	130			98			52			57
Deferred income taxes	65			(107		)	26			38
Other	12			5			20			1
Changes in operating assets and liabilities:
Accounts receivable	(327		)	(195		)	(3		)	(320		)
Settlement due from customers	903			(158		)	1,831			1,026
Prepaid expenses	(1,015		)	(843		)	(331		)	(497		)
Accrued litigation and legal settlements	(641		)	231			(62		)	1
Restricted security deposits held for customers	(19		)	(93		)	148			(35		)
Accounts payable	(105		)	(86		)	(102		)	(22		)
Settlement due to customers	(858		)	(109		)	(1,564		)	(1,000		)
Accrued expenses	(13		)	81			(622		)	(483		)
Net change in other assets and liabilities	92			(174		)	218			217
Net cash provided by operating activities	2,848			2,524			1,859			1,312
Investing Activities
Purchases of investment securities available-for-sale	(386		)	(705		)	(74		)	(305		)
Purchases of investments held-to-maturity	(124		)	(242		)	(45		)	(99		)
Proceeds from sales of investment securities available-for-sale	935			412			179			476
Proceeds from maturities of investment securities available-for-sale	219			171			64			139
Proceeds from maturities of investments held-to-maturity	237			646			65			155
Purchases of property and equipment	(174		)	(172		)	(131		)	(83		)
Capitalized software	(150		)	(79		)	(78		)	(59		)
Purchases of equity investments	(386		)	(21		)	(135		)	—
Acquisition of businesses, net of cash acquired	(723		)	—
Settlement of interest rate derivative contracts							(175		)	—
Other investing activities	(2		)	(16		)	(177		)	(11		)
Net cash used in investing activities	(554		)	(6		)
Net cash (used in) provided by investing activities							(507		)	213
Financing Activities
Purchases of treasury stock	(3,741		)	(2,881		)	(1,383		)	(1,824		)
Dividends paid	(677		)	(525		)	(403		)	(340		)
Proceeds from debt	1,980			991
Payment of debt	(500		)	—
Contingent consideration paid	(199		)	—
Proceeds from debt, net							3,959			—
Tax withholdings related to share-based payments	(120		)	(73		)	(131		)	(116		)
Cash proceeds from exercise of stock options	91			67			31			54
Other financing activities	6			5			27			3
Net cash used in financing activities	(3,160		)	(2,416		)
Net cash provided by (used in) financing activities							2,100			(2,223		)
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents	(26		)	74			(88		)	(54		)
Net (decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents	(892		)	176
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents							3,364			(752		)
Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period	8,337			7,592			8,969			8,337
Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period	$	7,445		$	7,768		$	12,333		$	7,585



	Acquisition Date Fair Value		Weighted-Average Useful Life
	(in millions)		(in years)
Developed technologies	$	127	8.6
Customer relationships	80		13.3
Other	6		1.7
Other intangible assets	$	213	10.2


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
	(in millions, except per share data)								(in millions, except per share data)
Numerator
Net income	$	2,048	$	1,569	$	3,910	$	3,061	$	1,693	$	1,862
Denominator
Basic weighted-average shares outstanding	1,020		1,043		1,023		1,047		1,005		1,026
Dilutive stock options and stock units	5		6		5		6		5		6
Diluted weighted-average shares outstanding¹	1,025		1,049		1,028		1,053		1,010		1,032
Earnings per Share
Basic	$	2.01	$	1.50	$	3.82	$	2.92	$	1.68	$	1.81
Diluted	$	2.00	$	1.50	$	3.80	$	2.91	$	1.68	$	1.80



	Balance at December 31, 2019		Purchases (Sales), net		Changes in Fair Value ¹			Other ²			Balance at March 31, 2020
	(in millions)
Marketable securities	$	479	$	—	$	(177	)	$	(20	)	$	282
Nonmarketable securities	435		137		3			13			588
Total equity investments	$	914	$	137	$	(174	)	$	(7	)	$	870



	June 30, 2019			December 31, 2018
	(in millions, except per share data)
ASSETS
Cash and cash equivalents	$	5,691		$	6,682
Restricted cash for litigation settlement	662			553
Investments	809			1,696
Accounts receivable	2,607			2,276
Settlement due from customers	1,549			2,452
Restricted security deposits held for customers	1,061			1,080
Prepaid expenses and other current assets	1,786			1,432
Total Current Assets	14,165			16,171
Property, equipment and right-of-use assets, net of accumulated depreciation of $970 and $847, respectively	1,348			921
Deferred income taxes	478			570
Goodwill	3,524			2,904
Other intangible assets, net of accumulated amortization of $1,250 and $1,175, respectively	1,232			991
Other assets	3,984			3,303
Total Assets	$	24,731		$	24,860
LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY
Accounts payable	$	432		$	537
Settlement due to customers	1,330			2,189
Restricted security deposits held for customers	1,061			1,080
Accrued litigation	935			1,591
Accrued expenses	4,752			4,747
Current portion of long-term debt	—			500
Other current liabilities	987			949
Total Current Liabilities	9,497			11,593
Long-term debt	7,806			5,834
Deferred income taxes	95			67
Other liabilities	2,224			1,877
Total Liabilities	19,622			19,371

Commitments and Contingencies

Redeemable Non-controlling Interests	74			71

Stockholders’ Equity
Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,389 and 1,387 shares issued and 1,005 and 1,019 outstanding, respectively	—			—
Class B common stock, $0.0001 par value; authorized 1,200 shares, 11 and 12 issued and outstanding, respectively	—			—
Additional paid-in-capital	4,675			4,580
Class A treasury stock, at cost, 385 and 368 shares, respectively	(29,454		)	(25,750		)
Retained earnings	30,517			27,283
Accumulated other comprehensive income (loss)	(730		)	(718		)
Total Stockholders’ Equity	5,008			5,395
Non-controlling interests	27			23
Total Equity	5,035			5,418
Total Liabilities, Redeemable Non-controlling Interests and Equity	$	24,731		$	24,860


Consolidated Statement of Operations (Unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	(in millions, except per share data)												(in millions, except per share data)
Net Revenue	$	4,113		$	3,665		$	8,002		$	7,245		$	4,009		$	3,889
Operating Expenses
General and administrative	1,369			1,184			2,736			2,505			1,494			1,367
Advertising and marketing	225			205			417			402			154			192
Depreciation and amortization	122			115			239			235			144			117
Provision for litigation	—			225			—			342			6			—
Total operating expenses	1,716			1,729			3,392			3,484			1,798			1,676
Operating income	2,397			1,936			4,610			3,761			2,211			2,213
Other Income (Expense)
Investment income	24			31			51			48			16			27
Gains (losses) on equity investments, net	143			—			148			—			(174		)	5
Interest expense	(51		)	(48		)	(97		)	(91		)	(69		)	(46		)
Other income (expense), net	6			3			10			7			3			4
Total other income (expense)	122			(14		)	112			(36		)	(224		)	(10		)
Income before income taxes	2,519			1,922			4,722			3,725			1,987			2,203
Income tax expense	471			353			812			664			294			341
Net Income	$	2,048		$	1,569		$	3,910		$	3,061		$	1,693		$	1,862

Basic Earnings per Share	$	2.01		$	1.50		$	3.82		$	2.92		$	1.68		$	1.81
Basic weighted-average shares outstanding	1,020			1,043			1,023			1,047			1,005			1,026
Diluted Earnings per Share	$	2.00		$	1.50		$	3.80		$	2.91		$	1.68		$	1.80
Diluted weighted-average shares outstanding	1,025			1,049			1,028			1,053			1,010			1,032



	Stockholders’ Equity
	Common Stock				Additional Paid-In Capital			Class A Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non- Controlling Interests			Total Equity
	Class A		Class B		Additional Paid-In Capital			Class A Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non- Controlling Interests			Total Equity
	(in millions, except per share data)
Balance at December 31, 2018	$	—	$	—	$	4,580		$	(25,750	)	$	27,283		$	(718	)	$	23		$	5,418
Net income	—		—		—			—			1,862			—			—			1,862
Activity from non-controlling interests	—		—		—			—			—			—			(1		)	(1		)
Other comprehensive income, net of tax	—		—		—			—			—			45			—			45
Cash dividends declared on Class A and Class B common stock, $0.33 per share	—		—		—			—			(339		)	—			—			(339		)
Purchases of treasury stock	—		—		—			(1,790		)	—			—			—			(1,790		)
Share-based payments	—		—		(11		)	6			—			—			—			(5		)
Balance at March 31, 2019	—		—		4,569			(27,534		)	28,806			(673		)	22			5,190
Net income	—		—		—			—			2,048			—			—			2,048
Activity from non-controlling interests	—		—		—			—			—			—			5			5
Other comprehensive income, net of tax	—		—		—			—			—			(57		)	—			(57		)
Cash dividends declared on Class A and Class B common stock, $0.33 per share	—		—		—			—			(337		)	—			—			(337		)
Purchases of treasury stock	—		—		—			(1,920		)	—			—			—			(1,920		)
Share-based payments	—		—		106			—			—			—			—			106
Balance at June 30, 2019	$	—	$	—	$	4,675		$	(29,454	)	$	30,517		$	(730	)	$	27		$	5,035



	Balance at December 31, 2018		Impact of lease standard		Balance at January 1, 2019
	(in millions)
Assets
Property, equipment and right-of-use assets, net	$	921	$	375	$	1,296
Liabilities
Other current liabilities	949		72		1,021
Other liabilities	1,877		303		2,180



	(in millions)
Assets:
Cash and cash equivalents	$	10
Other current assets	16
Other intangible assets	213
Goodwill	619
Other assets	12
Total assets	870

Liabilities:
Other current liabilities	11
Deferred income taxes	52
Other liabilities	23
Total liabilities	86

Net assets acquired	$	784


¹	For the periods presented, the calculation of diluted EPS excluded a minimal amount of anti-dilutive share-based payment awards.


	December 31,				December 31,
	2018		2017		2019		2018
	(in millions)				(in millions)
Cash and cash equivalents	$	6,682	$	5,933	$	6,988	$	6,682
Restricted cash and restricted cash equivalents
Restricted cash for litigation settlement	553		546		584		553
Restricted security deposits held for customers	1,080		1,085		1,370		1,080
Prepaid expenses and other current assets	22		28		27		22
Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period	$	8,337	$	7,592	$	8,969	$	8,337

	June 30,				March 31,
	2019		2018		2020		2019
	(in millions)				(in millions)
Cash and cash equivalents	$	5,691	$	6,210	$	10,207	$	5,857
Restricted cash and restricted cash equivalents
Restricted cash for litigation settlement	662		549		587		662
Restricted security deposits held for customers	1,061		992		1,518		1,044
Prepaid expenses and other current assets	31		17		21		22
Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period	$	7,445	$	7,768	$	12,333	$	7,585



	March 31, 2020									December 31, 2019
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in millions)
Municipal securities	$	18	$	—	$	—		$	18	$	15	$	—	$	—	$	15
Government and agency securities	18		—		—			18		108		—		—		108
Corporate securities	315		—		(5		)	310		381		1		—		382
Asset-backed securities	68		—		—			68		85		1		—		86
Total	$	419	$	—	$	(5	)	$	414	$	589	$	2	$	—	$	591



	Available-For-Sale
	Amortized Cost		Fair Value
	(in millions)
Due within 1 year	$	105	$	105
Due after 1 year through 5 years	314		309
Total	$	419	$	414


¹	Recorded in gains (losses) on equity investments, net on the consolidated statement of operations



	June 30, 2019											December 31, 2018
	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:
Municipal securities	$	—		$	3		$	—	$	3		$	—		$	15		$	—	$	15
Government and agency securities	69			52			—		121			65			92			—		157
Corporate securities	—			431			—		431			—			1,043			—		1,043
Asset-backed securities	—			103			—		103			—			217			—		217
Derivative instruments ²:
Foreign currency derivative assets	—			12			—		12			—			35			—		35
Marketable equity investments ³:
Equity securities	487			—			—		487			—			—			—		—
Deferred compensation plan ⁴:
Deferred compensation assets	64			—			—		64			54			—			—		54

Liabilities
Derivative instruments ²:
Foreign currency derivative liabilities	$	—		$	(19	)	$	—	$	(19	)	$	—		$	(6	)	$	—	$	(6	)
Deferred compensation plan ⁵:
Deferred compensation liabilities	(65		)	—			—		(65		)	(54		)	—			—		(54		)



	June 30, 2019
	(in millions)
Balance sheet location
Property, equipment and right-of-use assets, net	$	377
Other current liabilities	82
Other liabilities	336



	Operating Leases
	(in millions)
Remainder of 2019	$	47
2020	89
2021	67
2022	60
2023	54
Thereafter	146
Total operating lease payments	463
Less: Interest	(45		)
Present value of operating lease liabilities	$	418


Notes		Issuance Date	Interest Payment Terms	Maturity Date	Aggregate Principal Amount		Stated Interest Rate		Effective Interest Rate		June 30, 2019			December 31, 2018
																					March 31, 2020			December 31, 2019			Effective Interest Rate
																					(in millions)
2020 USD Notes																		3.300	%	Senior Notes due March 2027	$	1,000		$	—		3.420	%
																		3.350	%	Senior Notes due March 2030	1,500			—			3.390	%
																		3.850	%	Senior Notes due March 2050	1,500			—			3.896	%
					(in millions, except percentages)
2019 USD Notes		May 2019	Semi-annually	2029	$	1,000	2.950	%	3.030	%	$	1,000		$	—			2.950	%	Senior Notes due June 2029	1,000			1,000			3.030	%
				2049	1,000		3.650	%	3.689	%	1,000			—				3.650	%	Senior Notes due June 2049	1,000			1,000			3.689	%
					$	2,000												2.000	%	Senior Notes due March 2025	750			750			2.147	%

2018 USD Notes		February 2018	Semi-annually	2028	$	500	3.500	%	3.598	%	500			500				3.500	%	Senior Notes due February 2028	500			500			3.598	%
				2048	500		3.950	%	3.990	%	500			500				3.950	%	Senior Notes due February 2048	500			500			3.990	%
					$	1,000

2016 USD Notes		November 2016	Semi-annually	2021	$	650	2.000	%	2.236	%	650			650				2.000	%	Senior Notes due November 2021	650			650			2.236	%
				2026	750		2.950	%	3.044	%	750			750				2.950	%	Senior Notes due November 2026	750			750			3.044	%
				2046	600		3.800	%	3.893	%	600			600				3.800	%	Senior Notes due November 2046	600			600			3.893	%
					$	2,000

2015 Euro Notes		December 2015	Annually	2022	€	700	1.100	%	1.265	%	797			801
				2027	800		2.100	%	2.189	%	910			916
2015 Euro Notes ¹																		1.100	%	Senior Notes due December 2022	776			785			1.265	%
				2030	150		2.500	%	2.562	%	171			172				2.100	%	Senior Notes due December 2027	886			896			2.189	%
					€	1,650												2.500	%	Senior Notes due December 2030	166			169			2.562	%

2014 USD Notes		March 2014	Semi-annually	2019	$	500	2.000	%	2.178	%	—			500				3.375	%	Senior Notes due April 2024	1,000			1,000			3.484	%
				2024	1,000		3.375	%	3.484	%	1,000			1,000
					$	1,500															12,578			8,600
											7,878			6,389
Less: Unamortized discount and debt issuance costs	Less: Unamortized discount and debt issuance costs										(72		)	(55		)	Less: Unamortized discount and debt issuance costs				(112		)	(73		)
Total debt outstanding											7,806			6,334
Less: Current portion¹											—			(500		)
Long-term debt	Long-term debt										$	7,806		$	5,834		Long-term debt				$	12,466		$	8,527



	Foreign Currency Translation Adjustments ¹			Translation Adjustments on Net Investment Hedge			Defined Benefit Pension and Other Postretirement Plans			Investment Securities Available-for-Sale			Accumulated Other Comprehensive Income (Loss)
	(in millions)
Balance at December 31, 2018	$	(661	)	$	(66	)	$	10		$	(1	)	$	(718	)
Other comprehensive income (loss) for the period ²	(20		)	6			(1		)	3			(12		)
Balance at June 30, 2019	$	(681	)	$	(60	)	$	9		$	2		$	(730	)

Balance at December 31, 2017	$	(382	)	$	(141	)	$	25		$	1		$	(497	)
Other comprehensive income (loss) for the period ²	(186		)	53			(1		)	(1		)	(135		)
Balance at June 30, 2018	$	(568	)	$	(88	)	$	24		$	—		$	(632	)



	Foreign Currency Translation Adjustments ¹			Translation Adjustments on Net Investment Hedge ²			Cash Flow Hedges ³			Defined Benefit Pension and Other Postretirement Plans			Investment Securities Available-for-Sale ⁴			Accumulated Other Comprehensive Income (Loss)
	(in millions)
Balance at December 31, 2019	$	(638	)	$	(38	)	$	11		$	(9	)	$	1		$	(673	)
Other comprehensive income (loss)	(267		)	16			(150		)	—			(5		)	(406		)
Balance at March 31, 2020	$	(905	)	$	(22	)	$	(139	)	$	(9	)	$	(4	)	$	(1,079	)

Balance at December 31, 2018	$	(661	)	$	(66	)	$	—		$	10		$	(1	)	$	(718	)
Other comprehensive income (loss)	14			28			—			—			3			45
Balance at March 31, 2019	$	(647	)	$	(38	)	$	—		$	10		$	2		$	(673	)


⁴	During the three months ended March 31, 2020 and 2019, gains and losses on available-for-sale investment securities, reclassified from accumulated other comprehensive income (loss) to investment income, were not material. See Note 6 (Investments) for additional information.


	Grants in 2019	Weighted-Average Grant-Date Fair Value	Grants in 2020	Weighted-Average Grant-Date Fair Value
	(in millions)	(per option/unit)	(in millions)	(per option/unit)
Non-qualified stock options	0.9	$53	0.4	$55
Restricted stock units	0.9	$224	0.8	$287
Performance stock units	0.1	$231	0.2	$291


¹	The derivative contracts are subject to enforceable master netting arrangements, which contain various netting and setoff provisions.



•Net revenue
GAAP	Non-GAAP (currency-neutral)	Net revenue increased ~~12%~~ ~~and~~ ~~10%, or~~ ~~15%~~ ~~and~~ ~~14%~~5% on a currency-neutral basis, ~~respectively, versus the comparable~~ ~~periods~~ in ~~2018~~ ~~primarily driven by:~~

	which included growth of approximately 1 percentage point from acquisitions. The primary drivers of our
–up 3%	~~Switched transaction~~	up 5%	net revenue growth of ~~18%~~ ~~and~~ ~~17%, respectively~~

	were:
–	~~Cross-border volume growth of~~ ~~16%~~ ~~and~~ ~~15%~~ ~~on a local currency basis, respectively~~


–	- Gross dollar volume growth of ~~13%~~ ~~and~~ ~~12%~~8% on a local currency basis ~~respectively~~


–			- Switched transaction growth of 13%
			- Other revenues growth of ~~23% and 18%~~26%, or ~~24% and 19%,~~28% on a currency-neutral ~~basis, respectively,~~basis. This
			includes 6 percentage points of growth due to acquisitions. The remaining
			growth was primarily driven by our Cyber & Intelligence and Data & Services ~~solutions~~


–			solutions.
			These increases were partially offset ~~by higher~~by:
			- Higher rebates and incentives, which increased ~~16%~~ ~~and~~ ~~17%~~24%, or ~~20%~~26% on a
			currency-neutral basis, primarily due to the impact from new and ~~21%~~renewed
			agreements and increased volumes.
			- Cross-border volume decline of 1% on a local currency basis



Operating expenses	Adjusted operating expenses
GAAP	Non-GAAP (currency-neutral)	Adjusted operating expenses on a currency-neutral basis ~~respectively.~~


–	2 ~~and~~ 1year-ago period. The remaining 5 percentage points of growth ~~respectively, from acquisitions,~~

	was primarily related to our continued investment in strategic initiatives.
–up 7%	5 ~~and~~ 2 ~~percentage points of growth, respectively, from the impact of losses associated with foreign exchange activity for derivative contracts, as compared to gains in the prior year comparable periods.~~

	up 8%
•	~~The effective income tax rates were~~ ~~18.7%~~ ~~and~~ ~~17.2%, versus~~ ~~18.3%~~ ~~and~~ ~~17.8%, respectively, for the comparable~~ ~~periods~~ in ~~2018. Adjusted effective income tax rates were~~ ~~18.5%~~ ~~and~~ ~~17.7%, versus~~ ~~18.8%~~ ~~and~~ ~~18.2%, for the comparable~~ ~~periods~~ in ~~2018, primarily due to a more favorable geographic mix of earnings.~~



Effective income tax rate	Adjusted effective income tax rate
GAAP	Non-GAAP (currency-neutral)	Adjusted effective income tax rate of 14.9% primarily attributable to a more favorable geographic mix of earnings and discrete benefits related to share-based payments.
14.8%	14.9%