MASTERCARD INC, 10-K filed on 2/14/2020
Annual Report
v3.19.3.a.u2
Cover Page - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2019
Feb. 11, 2020
Jun. 28, 2019
Document Type 10-K    
Document Transition Report false    
Document Period End Date Dec. 31, 2019    
Document Annual Report true    
Entity File Number 001-32877    
Entity Registrant Name Mastercard Incorporated    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 13-4172551    
Entity Address, Postal Zip Code 10577    
Entity Address, State or Province NY    
Entity Address, City or Town Purchase,    
Entity Address, Address Line One 2000 Purchase Street    
City Area Code 914    
Local Phone Number 249-2000    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 235.9
Entity Central Index Key 0001141391    
Current Fiscal Year End Date --12-31    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Amendment Flag false    
Class A Common Stock      
Title of 12(b) Security Class A Common Stock, par value $0.0001 per share    
Trading Symbol MA    
Security Exchange Name NYSE    
Entity Common Stock, Shares Outstanding   994,281,310  
One Point One Percent Notes Due 2022 [Member]      
Title of 12(b) Security 1.100% Notes due 2022    
Trading Symbol MA22    
Security Exchange Name NYSE    
Two Point One Percent Notes Due 2027 [Member]      
Title of 12(b) Security 2.100% Notes due 2027    
Trading Symbol MA27    
Security Exchange Name NYSE    
Two Point Five Percent Notes Due 2030 [Member]      
Title of 12(b) Security 2.500% Notes due 2030    
Trading Symbol MA30    
Security Exchange Name NYSE    
Class B Common Stock      
Entity Common Stock, Shares Outstanding   10,827,654  
v3.19.3.a.u2
Consolidated Statement of Operations - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Income Statement [Abstract]      
Net revenue $ 16,883 $ 14,950 $ 12,497
Operating Expenses      
General and administrative 5,763 5,174 4,653
Advertising and marketing 934 907 771
Depreciation and amortization 522 459 436
Provision for litigation 0 1,128 15
Total operating expenses 7,219 7,668 5,875
Operating income 9,664 7,282 6,622
Other Income (Expense)      
Investment income 97 122 56
Gains (losses) on equity investments, net 167 0 0
Interest expense (224) (186) (154)
Other income (expense), net 27 (14) (2)
Total other income (expense) 67 (78) (100)
Income before income taxes 9,731 7,204 6,522
Income tax expense 1,613 1,345 2,607
Net Income $ 8,118 $ 5,859 $ 3,915
Basic Earnings per Share $ 7.98 $ 5.63 $ 3.67
Basic weighted-average shares outstanding 1,017 1,041 1,067
Diluted Earnings per Share $ 7.94 $ 5.60 $ 3.65
Diluted weighted-average shares outstanding 1,022 1,047 1,072
v3.19.3.a.u2
Consolidated Statement of Comprehensive Income - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Comprehensive Income [Abstract]      
Net Income $ 8,118 $ 5,859 $ 3,915
Other comprehensive income (loss):      
Foreign currency translation adjustments 10 (319) 565
Income tax effect 13 40 2
Foreign currency translation adjustments, net of income tax effect 23 (279) 567
Translation adjustments on net investment hedge 36 96 (236)
Income tax effect (8) (21) 83
Translation adjustments on net investment hedge, net of income tax effect 28 75 (153)
Cash flow hedges 14 0 0
Income tax effect (3) 0 0
Cash flow hedges, net of income tax effect 11 0 0
Defined benefit pension and other postretirement plans (22) (18) 15
Income tax effect 3 3 (1)
Defined benefit pension and other postretirement plans, net of income tax effect (19) (15) 14
Investment securities available-for-sale 3 (3) (3)
Income tax effect (1) 1 2
Investment securities available-for-sale, net of income tax effect 2 (2) (1)
Other comprehensive income (loss), net of income tax effect 45 (221) 427
Comprehensive Income $ 8,163 $ 5,638 $ 4,342
v3.19.3.a.u2
Consolidated Balance Sheet - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
Assets    
Cash and cash equivalents $ 6,988 $ 6,682
Restricted cash for litigation settlement 584 553
Investments 688 1,696
Accounts receivable 2,514 2,276
Settlement due from customers 2,995 2,452
Restricted security deposits held for customers 1,370 1,080
Prepaid expenses and other current assets 1,763 1,432
Total current assets 16,902 16,171
Property, equipment and right-of-use assets, net 1,828 921
Deferred income taxes 543 570
Goodwill 4,021 2,904
Other intangible assets, net 1,417 991
Other assets 4,525 3,303
Total Assets 29,236 24,860
Liabilities, Redeemable Non-controlling Interests and Equity    
Accounts payable 489 537
Settlement due to customers 2,714 2,189
Restricted security deposits held for customers 1,370 1,080
Accrued litigation 914 1,591
Accrued expenses 5,489 4,747
Current portion of long-term debt 0 500
Other current liabilities 928 949
Total current liabilities 11,904 11,593
Long-term debt 8,527 5,834
Deferred income taxes 85 67
Other liabilities 2,729 1,877
Total Liabilities 23,245 19,371
Commitments and Contingencies
Redeemable non-controlling interests 74 71
Stockholders’ Equity    
Additional paid-in-capital 4,787 4,580
Class A treasury stock, at cost, 395 and 368 shares, respectively (32,205) (25,750)
Retained earnings 33,984 27,283
Accumulated other comprehensive income (loss) (673) (718)
Mastercard Incorporated Stockholders' Equity 5,893 5,395
Non-controlling interests 24 23
Total Equity 5,917 5,418
Total Liabilities, Redeemable Non-controlling Interests and Equity 29,236 24,860
Class A Common Stock    
Stockholders’ Equity    
Common stock value 0 0
Total Equity 0 0
Class B Common Stock    
Stockholders’ Equity    
Common stock value 0 0
Total Equity $ 0 $ 0
v3.19.3.a.u2
Consolidated Balance Sheet (Parenthetical) - $ / shares
Dec. 31, 2019
Dec. 31, 2018
Class A treasury stock, shares 395,000,000 368,000,000
Class A Common Stock    
Common stock, par value $ 0.0001 $ 0.0001
Common stock, authorized shares 3,000,000,000 3,000,000,000
Common stock, issued 1,391,000,000 1,387,000,000
Common stock, outstanding 996,000,000 1,019,000,000
Class B Common Stock    
Common stock, par value $ 0.0001 $ 0.0001
Common stock, authorized shares 1,200,000,000 1,200,000,000
Common stock, issued 11,000,000 12,000,000
Common stock, outstanding 11,000,000 12,000,000
v3.19.3.a.u2
Consolidated Statement of Changes in Equity - USD ($)
$ in Millions
Total
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Additional Paid-In Capital
Class A Treasury Stock
Mastercard Incorporated Stockholders' Equity
Non- Controlling Interests
Class A Common Stock
Class B Common Stock
Beginning balance at Dec. 31, 2016 $ 5,684 $ 19,418 $ (924) $ 4,183 $ (17,021) $ 5,656 $ 28 $ 0 $ 0
Net income 3,915 3,915       3,915      
Activity related to non-controlling interests 1           1    
Redeemable non-controlling interest adjustments (2) (2)       (2)      
Other comprehensive income (loss) 427   427     427      
Dividends (967) (967)       (967)      
Purchases of treasury stock (3,747)       (3,747) (3,747)      
Shared-based payments 186     182 4 186      
Ending balance at Dec. 31, 2017 5,497 22,364 (497) 4,365 (20,764) 5,468 29 0 0
Net income 5,859 5,859       5,859      
Activity related to non-controlling interests (6)           (6)    
Redeemable non-controlling interest adjustments (3) (3)       (3)      
Other comprehensive income (loss) (221)   (221)     (221)      
Dividends (1,120) (1,120)       (1,120)      
Purchases of treasury stock (4,991)       (4,991) (4,991)      
Shared-based payments 220     215 5 220      
Ending balance at Dec. 31, 2018 5,418 27,283 (718) 4,580 (25,750) 5,395 23 0 0
Net income 8,118 8,118       8,118      
Activity related to non-controlling interests 1           1    
Redeemable non-controlling interest adjustments (9) (9)       (9)      
Other comprehensive income (loss) 45   45     45      
Dividends (1,408) (1,408)       (1,408)      
Purchases of treasury stock (6,463)     0 (6,463) (6,463)      
Shared-based payments 215     207 8 215      
Ending balance at Dec. 31, 2019 $ 5,917 $ 33,984 $ (673) $ 4,787 $ (32,205) $ 5,893 $ 24 $ 0 $ 0
v3.19.3.a.u2
Consolidated Statement of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Operating Activities      
Net income $ 8,118 $ 5,859 $ 3,915
Adjustments to reconcile net income to net cash provided by operating activities:      
Amortization of customer and merchant incentives 1,141 1,235 1,001
Depreciation and amortization 522 459 437
(Gains) losses on equity investments, net (167) 0 0
Share-based compensation 250 196 176
Deferred income taxes (7) (244) 86
Venezuela charge 0 0 167
Other 24 31 59
Changes in operating assets and liabilities:      
Accounts receivable (246) (317) (445)
Income taxes receivable (202) (120) (8)
Settlement due from customers (444) (1,078) (281)
Prepaid expenses (1,661) (1,769) (1,402)
Accrued litigation and legal settlements (662) 869 (12)
Restricted security deposits held for customers 290 (6) 94
Accounts payable (42) 101 290
Settlement due to customers 477 849 394
Accrued expenses 657 439 589
Long-term taxes payable 2 (20) 577
Net change in other assets and liabilities 133 (261) 27
Net cash provided by operating activities 8,183 6,223 5,664
Investing Activities      
Purchases of investment securities available-for-sale (643) (1,300) (714)
Purchases of investments held-to-maturity (215) (509) (1,145)
Proceeds from sales of investment securities available-for-sale 1,098 604 304
Proceeds from maturities of investment securities available-for-sale 376 379 500
Proceeds from maturities of investments held-to-maturity 383 929 1,020
Purchases of property and equipment (422) (330) (300)
Capitalized software (306) (174) (123)
Purchases of equity investments (467) (91) (147)
Acquisition of businesses, net of cash acquired (1,440) 0 (1,175)
Other investing activities (4) (14) (1)
Net cash used in investing activities (1,640) (506) (1,781)
Financing Activities      
Purchases of treasury stock (6,497) (4,933) (3,762)
Dividends paid (1,345) (1,044) (942)
Proceeds from debt 2,724 991 0
Payment of debt (500) 0 (64)
Contingent consideration paid (199) 0 0
Tax withholdings related to share-based payments (161) (80) (47)
Cash proceeds from exercise of stock options 126 104 57
Other financing activities (15) (4) (6)
Net cash used in financing activities (5,867) (4,966) (4,764)
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents (44) (6) 200
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents 632 745 (681)
Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period 8,337 7,592 8,273
Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period $ 8,969 $ 8,337 $ 7,592
v3.19.3.a.u2
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
Organization
Mastercard Incorporated and its consolidated subsidiaries, including Mastercard International Incorporated (“Mastercard International” and together with Mastercard Incorporated, “Mastercard” or the “Company”), is a technology company in the global payments industry that connects consumers, financial institutions, merchants, governments, digital partners, businesses and other organizations worldwide, enabling them to use electronic forms of payment instead of cash and checks. The Company makes payments easier and more efficient by providing a wide range of payment solutions and services through its family of well-known brands, including Mastercard®, Maestro® and Cirrus®. The Company is a multi-rail network that offers customers one partner to turn to for their domestic and cross-border payment needs. Through its unique and proprietary global payments network, which is referred to as the core network, the Company switches (authorizes, clears and settles) payment transactions and delivers related products and services. Mastercard has additional payment capabilities that include automated clearing house (“ACH”) transactions (both batch and real-time account-based payments). The Company also provides integrated value-added offerings such as cyber and intelligence products, information and analytics services, consulting, loyalty and reward programs and processing. The Company’s payment solutions offer customers choice and flexibility and are designed to ensure safety and security for the global payments system.
A typical transaction on the Company’s core network involves four participants in addition to the Company: account holder (a person or entity who holds a card or uses another device enabled for payment), issuer (the account holder’s financial institution), merchant and acquirer (the merchant’s financial institution). The Company does not issue cards, extend credit, determine or receive revenue from interest rates or other fees charged to account holders by issuers, or establish the rates charged by acquirers in connection with merchants’ acceptance of the Company’s products. In most cases, account holder relationships belong to, and are managed by, the Company’s financial institution customers.
Significant Accounting Policies
Consolidation and basis of presentation - The consolidated financial statements include the accounts of Mastercard and its majority-owned and controlled entities, including any variable interest entities (“VIEs”) for which the Company is the primary beneficiary. Investments in VIEs for which the Company is not considered the primary beneficiary are not consolidated and are accounted for as equity method or measurement alternative method investments and recorded in other assets on the consolidated balance sheet.  At December 31, 2019 and 2018, there were no significant VIEs which required consolidation and the investments were not considered material to the consolidated financial statements. The Company consolidates acquisitions as of the date in which the Company has obtained a controlling financial interest. Intercompany transactions and balances have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the 2019 presentation. The Company follows accounting principles generally accepted in the United States of America (“GAAP”).
Prior to December 31, 2017, the Company included the financial results from its Venezuela subsidiaries in the consolidated financial statements using the consolidation method of accounting. In 2017, due to foreign exchange regulations restricting access to U.S. dollars in Venezuela, an other-than-temporary lack of exchangeability between the Venezuelan bolivar and U.S. dollar impacted the Company’s ability to manage risk, process cross-border transactions and satisfy U.S. dollar denominated liabilities related to operations in Venezuela.  As a result of these factors, Mastercard concluded that effective December 31, 2017, it did not meet the accounting criteria for consolidation of these Venezuelan subsidiaries, and therefore would transition to the measurement alternative method of accounting as of December 31, 2017. This accounting change resulted in a pre-tax charge of $167 million ($108 million after tax or $0.10 per diluted share) that was recorded in general and administrative expenses on the consolidated statement of operations for the year ended December 31, 2017.
Non-controlling interests represent the equity interest not owned by the Company and are recorded for consolidated entities in which the Company owns less than 100% of the interests. Changes in a parent’s ownership interest while the parent retains its controlling interest are accounted for as equity transactions, and upon loss of control, retained ownership interests are remeasured at fair value, with any gain or loss recognized in earnings. For 2019, 2018 and 2017, net losses from non-controlling interests were not material and, as a result, amounts are included on the consolidated statement of operations within other income (expense).
Use of estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the Company’s consolidated financial statements may change as new events occur, as more experience is
acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results may differ from these estimates.
Revenue recognition - Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services. Revenue is primarily generated by charging fees to issuers, acquirers and other stakeholders for providing switching services, as well as by assessing customers based primarily on the dollar volume of activity, or gross dollar volume, on the products that carry the Company’s brands. Revenue is generally derived from transactional information accumulated by Mastercard’s systems or reported by customers.
Volume-based revenue (domestic assessments and cross-border volume fees) is recorded as revenue in the period it is earned, which is when the related volume is generated on the cards. Certain volume-based revenue is based upon information reported by customers. Transaction-based revenue (transaction processing) is primarily based on the number and type of transactions and is recognized as revenue in the same period in which the related transactions occur. Other payment-related products and services are recognized as revenue in the period in which the related services are performed or transactions occur.
Mastercard has business agreements with certain customers that provide for rebates or other support when the customers meet certain volume hurdles as well as other support incentives, which are tied to performance. Rebates and incentives are recorded as a reduction of gross revenue primarily when volume- and transaction-based revenues are recognized over the contractual term. Rebates and incentives are calculated based upon estimated customer performance and the terms of the related business agreements. In addition, Mastercard may make payments to a customer directly related to entering into an agreement, which are generally capitalized and amortized over the life of the agreement on a straight-line basis.
Contract assets include unbilled consideration typically resulting from executed data analytic and consulting services performed for customers in connection with Mastercard’s payment network service arrangements. Collection for these services typically occurs over the contractual term. Contract assets are included in prepaid expenses and other current assets and other assets on the consolidated balance sheet.
The Company defers the recognition of revenue when consideration has been received prior to the satisfaction of performance obligations. As these performance obligations are satisfied, revenue is subsequently recognized. Deferred revenue is primarily derived from data analytic and consulting services. Deferred revenue is included in other current liabilities and other liabilities on the consolidated balance sheet.
Business combinations - The Company accounts for business combinations under the acquisition method of accounting. The Company measures the tangible and intangible identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquiree, at fair value as of the acquisition date. Acquisition-related costs are expensed as incurred and are included in general and administrative expenses. Any excess purchase price over the fair value of net assets acquired, including identifiable intangible assets, is recorded as goodwill. Measurement period adjustments, if any, to the preliminary estimated fair value of the intangibles assets as of the acquisition date will be recorded in goodwill.
Goodwill and other intangible assets - Indefinite-lived intangible assets consist of goodwill, which represents the synergies expected to arise after the acquisition date and the assembled workforce, and customer relationships. Finite-lived intangible assets consist of capitalized software costs, trademarks, tradenames, customer relationships and other intangible assets. Intangible assets with finite useful lives are amortized over their estimated useful lives, on a straight-line basis, which range from one to twenty years. Capitalized software includes internal and external costs incurred directly related to the design, development and testing phases of each capitalized software project.
Impairment of assets - Goodwill and indefinite-lived intangible assets are not amortized but tested annually for impairment at the reporting unit level in the fourth quarter, or sooner when circumstances indicate an impairment may exist.  The impairment evaluation for goodwill utilizes a qualitative assessment to determine whether it is more likely than not that goodwill is impaired. The qualitative factors may include, but are not limited to, macroeconomic conditions, industry and market conditions, operating environment, financial performance and other relevant events. If it is determined that it is more likely than not that goodwill is impaired, then the Company is required to perform a quantitative goodwill impairment test. If the fair value of a reporting unit exceeds the carrying value, goodwill is not impaired. If the fair value of the reporting unit is less than its carrying value, then goodwill is impaired and the excess of the reporting unit’s carrying value over the fair value is recognized as an impairment charge.
The impairment test for indefinite-lived intangible assets consists of a qualitative assessment to evaluate relevant events and circumstances that could affect the significant inputs used to determine the fair value of indefinite-lived intangible assets.  If the qualitative assessment indicates that it is more likely than not that indefinite-lived intangible assets are impaired, then a quantitative assessment is required. 
Long-lived assets, other than goodwill and indefinite-lived intangible assets, are tested for impairment whenever events or circumstances indicate that their carrying amount may not be recoverable. If the carrying value of the asset cannot be recovered from estimated
future cash flows, undiscounted and without interest, the fair value of the asset is calculated using the present value of estimated net future cash flows. If the carrying amount of the asset exceeds its fair value, an impairment is recorded.
Impairment charges, if any, are recorded in general and administrative expenses on the consolidated statement of operations.
Litigation - The Company is a party to certain legal and regulatory proceedings with respect to a variety of matters. The Company evaluates the likelihood of an unfavorable outcome of all legal or regulatory proceedings to which it is a party and accrues a loss contingency when the loss is probable and reasonably estimable. Loss contingencies are recorded in provision for litigation on the consolidated statement of operations. These judgments are subjective based on the status of the legal or regulatory proceedings, the merits of its defenses and consultation with in-house and external legal counsel. Legal costs are expensed as incurred and recorded in general and administrative expenses on the consolidated statement of operations.
Settlement and other risk management - Mastercard’s rules guarantee the settlement of many of the transactions between its customers. Settlement exposure is the outstanding settlement risk to customers under Mastercard’s rules due to the difference in timing between the payment transaction date and subsequent settlement. While the term and amount of the guarantee are unlimited, the duration of settlement exposure is short term and typically limited to a few days.
The Company also 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. 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.
The Company accounts for each of its guarantees by recording the guarantee at its fair value at the inception or modification date through earnings.
Income taxes - The Company follows an asset and liability based approach in accounting for income taxes as required under GAAP. Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences between the financial statement carrying amounts and income tax bases of assets and liabilities. Deferred income taxes are displayed separately as noncurrent assets and liabilities on the consolidated balance sheet. Valuation allowances are provided against assets which are not more likely than not to be realized. The Company recognizes all material tax positions, including uncertain tax positions in which it is more likely than not that the position will be sustained based on its technical merits and if challenged by the relevant taxing authorities. At each balance sheet date, unresolved uncertain tax positions are reassessed to determine whether subsequent developments require a change in the amount of recognized tax benefit. The allowance for uncertain tax positions is recorded in other current and noncurrent liabilities on the consolidated balance sheet. The Company records interest expense related to income tax matters as interest expense on the consolidated statement of operations. The Company includes penalties related to income tax matters in the income tax provision.
Cash and cash equivalents - Cash and cash equivalents include certain investments with daily liquidity and with an original maturity of three months or less from the date of purchase. Cash equivalents are recorded at cost, which approximates fair value.
Restricted cash - The Company classifies cash and cash equivalents as restricted when it is unavailable for withdrawal or use in its general operations. The Company has the following types of restricted cash and restricted cash equivalents which are included in the reconciliation of beginning-of-period and end-of-period amounts shown on the consolidated statement of cash flows:
Restricted cash for litigation settlement - The Company has restricted cash for litigation within a qualified settlement fund related to the settlement agreement for the U.S. merchant class litigation. The funds continue to be restricted for payments until the litigation matter is resolved.
Restricted security deposits held for customers - The Company requires collateral from certain customers for settlement of their transactions. The majority of collateral for settlement is in the form of standby letters of credit and bank guarantees which are not recorded on the consolidated balance sheet. Additionally, the Company holds cash deposits and certificates of deposit from certain customers as collateral for settlement of their transactions, which are recorded as assets on the consolidated balance sheet. These assets are fully offset by corresponding liabilities included on the consolidated balance sheet. These security deposits are typically held for the duration of the agreement with the customers.
Other restricted cash balances - The Company has other restricted cash balances which include contractually restricted deposits, as well as cash balances that are restricted based on the Company’s intention with regard to usage. These funds are classified on the consolidated balance sheet within prepaid expenses and other current assets and other assets.
Fair value - The Company measures certain financial assets and liabilities at fair value on a recurring basis by estimating the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. The Company classifies these recurring fair value measurements into a three-level hierarchy (“Valuation Hierarchy”).
The Valuation Hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the Valuation Hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of the Valuation Hierarchy are as follows: 
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in inactive markets and inputs that are observable for the asset or liability
Level 3 - inputs to the valuation methodology are unobservable and cannot be directly corroborated by observable market data
Certain assets are measured at fair value on a nonrecurring basis. The Company’s non-financial assets measured at fair value on a nonrecurring basis include property, equipment and right-of-use assets, goodwill and other intangible assets. These assets are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.
The valuation methods for goodwill and other intangible assets acquired in business combinations involve assumptions concerning comparable company multiples, discount rates, growth projections and other assumptions of future business conditions. The Company uses various valuation techniques to determine fair value, primarily discounted cash flows analysis, relief-from-royalty, and multi-period excess earnings for estimating the fair value of its intangible assets. As the assumptions employed to measure these assets are based on management’s judgment using internal and external data, these fair value determinations are classified in Level 3 of the Valuation Hierarchy.
Contingent consideration - Certain business combinations involve the potential for future payment of consideration that is contingent upon the achievement of performance milestones. These liabilities are classified within Level 3 of the Valuation Hierarchy as the inputs used to measure fair value are unobservable and require management’s judgment. The fair value of the contingent consideration at the acquisition date and subsequent periods is determined utilizing an income approach based on a Monte Carlo technique and is recorded in other current liabilities and other liabilities on the consolidated balance sheet. Changes to projected performance milestones of the acquired businesses could result in a higher or lower contingent consideration liability. The changes in fair value as a result of updated assumptions will be recorded in general and administrative expenses on the consolidated statement of operations.
Investment securities - The Company classifies investments as available-for-sale or held-to-maturity at the date of acquisition.
Available-for-sale debt securities:
Available-for-sale securities that are available to meet the Company’s current operational needs are classified as current assets and the securities that are not available for current operational needs are classified as non-current assets on the consolidated balance sheet.
The investments in debt securities are carried at fair value, with unrealized gains and losses, net of tax, recorded as a separate component of accumulated other comprehensive income (loss) on the consolidated statement of comprehensive income. Net realized gains and losses on debt securities are recognized in investment income on the consolidated statement of operations. The specific identification method is used to determine realized gains and losses.
The Company evaluates its debt securities for other-than-temporary impairment on an ongoing basis. When there has been a decline in fair value of a debt security below the amortized cost basis, the Company recognizes an other-than-temporary impairment if: (1) it has the intent to sell the security; (2) it is more likely than not that it will be required to sell the security before recovery of the amortized cost basis; or (3) it does not expect to recover the entire amortized cost basis of the security. The credit loss component of the impairment would be recognized in other income (expense), net on the consolidated statement of operations while the non-credit loss would remain in accumulated other comprehensive income (loss) until realized from a sale or an other-than-temporary impairment.
Held-to-maturity securities:
Time deposits - The Company classifies time deposits with original maturities greater than three months as held-to-maturity. Held-to-maturity securities that mature within one year are classified as current assets within investments on the consolidated balance sheet while held-to-maturity securities with maturities of greater than one year are classified as non-current assets. Time deposits are carried at amortized cost on the consolidated balance sheet and are intended to be held until maturity.
Equity investments - The Company holds equity securities of publicly traded and privately held companies.
Marketable equity securities - Marketable equity securities are strategic investments in publicly traded companies and are measured at fair value using quoted prices in their respective active markets with changes recorded through gain (losses) on equity investments, net on the consolidated statement of operations. Securities that are not for use in current operations are classified in other assets on the consolidated balance sheet.
Nonmarketable equity investments - The Company’s nonmarketable equity investments, which are reported in other assets on the consolidated balance sheet, include investments in privately held companies without readily determinable market values. The Company uses discounted cash flows and market assumptions to estimate the fair value of its nonmarketable equity investments when certain events or circumstances indicate that impairment may exist. The Company’s nonmarketable equity investments are accounted for under the equity method or measurement alternative method.
Equity method - The Company accounts for investments in common stock or in-substance common stock under the equity method of accounting when it has the ability to exercise significant influence over the investee, generally when it holds between 20% and 50% ownership in the entity. In addition, investments in flow-through entities such as limited partnerships and limited liability companies are also accounted for under the equity method when the Company has the ability to exercise significant influence over the investee, generally when the investment ownership percentage is equal to or greater than 5% of the outstanding ownership interest. The excess of the cost over the underlying net equity of investments accounted for under the equity method is allocated to identifiable tangible and intangible assets and liabilities based on fair values at the date of acquisition. The amortization of the excess of the cost over the underlying net equity of investments and Mastercard’s share of net earnings or losses of entities accounted for under the equity method of accounting is included in other income (expense), net on the consolidated statement of operations.
Measurement alternative method - The Company accounts for investments in common stock or in-substance common stock under the measurement alternative method of accounting when it does not exercise significant influence, generally when it holds less than 20% ownership in the entity or when the interest in a limited partnership or limited liability company is less than 5% and the Company has no significant influence over the operation of the investee. Investments in companies that Mastercard does not control, but that are not in the form of common stock or in-substance common stock, are also accounted for under the measurement alternative method of accounting. Measurement alternative investments are measured at cost, less any impairment and adjusted for changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. Fair value adjustments, as well as impairments, are included in gain (losses) on equity investments, net on the consolidated statement of operations.
Derivative and hedging instruments - The Company’s derivative financial instruments are recorded as either assets or liabilities on the balance sheet and measured at fair value. The Company’s foreign exchange and interest rate derivative contracts are included in Level 2 of the Valuation Hierarchy as the fair value of the contracts are based on inputs, which are observable based on broker quotes for the same or similar instruments. As the Company does not designate foreign exchange contracts as hedging instruments, realized and unrealized gains and losses from the change in fair value of the contracts are recognized immediately in current-period earnings. The Company’s foreign exchange contracts are not entered into for trading or speculative purposes.
The Company’s derivatives that are designated as hedging instruments are required to meet established accounting criteria. In addition, an effectiveness assessment is required to demonstrate that the derivative is expected to be highly effective at offsetting changes in fair value or cash flows of the underlying exposure both at inception of the hedging relationship and on an ongoing basis. The method of assessing hedge effectiveness and measuring hedge results is formally documented at hedge inception and assessed at least quarterly throughout the designated hedge period. For cash flow hedges, the fair value adjustments are recorded, net of tax, in other comprehensive income (loss). Any gains and losses deferred in other comprehensive income (loss) are then recognized in current-period earnings when earnings are affected by the variability of cash flows of the hedged forecasted transaction.
The Company has numerous investments in its foreign subsidiaries.  The net assets of these subsidiaries are exposed to volatility in foreign currency exchange rates.  The Company uses foreign currency denominated debt to hedge a portion of its net investment in foreign operations against adverse movements in exchange rates. The effective portion of the foreign currency gains and losses related to the foreign currency denominated debt are reported in accumulated other comprehensive income (loss) on the consolidated balance sheet as part of the cumulative translation adjustment component of equity. The Company evaluates the effectiveness of the net investment hedge each quarter.
Settlement due from/due to customers - The Company operates systems for clearing and settling payment transactions among customers. Net settlements are generally cleared daily among customers through settlement cash accounts by wire transfer or other bank clearing means. However, some transactions may not settle until subsequent business days, resulting in amounts due from and due to customers.
Property, equipment and right-of-use assets - Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets. Depreciation of leasehold improvements and amortization of finance leases is included in depreciation and amortization expense on the consolidated statement of operations. Operating lease amortization expense is included in general and administrative expenses on the consolidated statement of operations.
The useful lives of the Company’s assets are as follows:
Asset Category
 
Estimated Useful Life
Buildings
 
30 years
Building equipment
 
10 - 15 years
Furniture and fixtures and equipment
 
3 - 5 years
Leasehold improvements
 
Shorter of life of improvement or lease term
Right-of-use assets
 
Shorter of life of the asset or lease term

The Company determines if a contract is, or contains, a lease at contract inception. The Company’s right-of-use (“ROU”) assets are primarily related to operating leases for office space, automobiles and other equipment. Leases are included in property, equipment and right-of-use assets, other current liabilities and other liabilities on the consolidated balance sheet.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. In addition, ROU assets include initial direct costs incurred by the lessee as well as any lease payments made at or before the commencement date, and exclude lease incentives. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is determined by using the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment. Lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of one year or less are excluded from ROU assets and liabilities.
The Company excludes variable lease payments in measuring ROU assets and lease liabilities, other than those that depend on an index, a rate or are in-substance fixed payments. Lease and nonlease components are generally accounted for separately. When available, consideration is allocated to the separate lease and nonlease components in a lease contract on a relative standalone price basis using observable standalone prices.
Pension and other postretirement plans - The Company recognizes the funded status of its single-employer defined benefit pension plans and postretirement plans as assets or liabilities on its consolidated balance sheet and recognizes changes in the funded status in the year in which the changes occur through accumulated other comprehensive income (loss). The funded status is measured as the difference between the fair value of plan assets and the projected benefit obligation at December 31, the measurement date. Overfunded plans, if any, are aggregated and recorded in other assets, while underfunded plans are aggregated and recorded as accrued expenses and other liabilities on the consolidated balance sheet.
Net periodic pension and postretirement benefit cost/(income), excluding the service cost component, is recognized in other income (expense) on the consolidated statement of operations. These costs include interest cost, expected return on plan assets, amortization of prior service costs or credits and gains or losses previously recognized as a component of accumulated other comprehensive income (loss). The service cost component is recognized in general and administrative expenses on the consolidated statement of operations.
Defined contribution plans - The Company’s contributions to defined contribution plans are recorded as employees render service to the Company. The charge is recorded in general and administrative expenses on the consolidated statement of operations.
Advertising and marketing - Expenses incurred to promote Mastercard’s brand, products and services are recognized in advertising and marketing on the consolidated statement of operations. The timing of recognition is dependent on the type of advertising or marketing expense.
Foreign currency remeasurement and translation - Monetary assets and liabilities are remeasured to functional currencies using current exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are recorded at historical exchange rates. Revenue and expense accounts are remeasured at the weighted-average exchange rate for the period. Resulting exchange gains and losses related to remeasurement are included in general and administrative expenses on the consolidated statement of operations.
Where a non-U.S. currency is the functional currency, translation from that functional currency to U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted-
average exchange rate for the period. Resulting translation adjustments are reported as a component of accumulated other comprehensive income (loss).
Treasury stock - The Company records the repurchase of shares of its common stock at cost on the trade date of the transaction. These shares are considered treasury stock, which is a reduction to stockholders’ equity. Treasury stock is included in authorized and issued shares but excluded from outstanding shares.
Share-based payments - The Company measures share-based compensation expense at the grant date, based on the estimated fair value of the award and uses the straight-line method of attribution, net of estimated forfeitures, for expensing awards over the requisite employee service period. The Company estimates the fair value of its non-qualified stock option awards (“Options”) using a Black-Scholes valuation model. The fair value of restricted stock units (“RSUs”) is determined and fixed on the grant date based on the Company’s stock price, adjusted for the exclusion of dividend equivalents. The Monte Carlo simulation valuation model is used to determine the grant date fair value of performance stock units (“PSUs”) granted. All share-based compensation expenses are recorded in general and administrative expenses on the consolidated statement of operations.
Redeemable non-controlling interests - The Company’s business combinations may include provisions allowing non-controlling equity owners the ability to require the Company to purchase additional interests in the subsidiary at their discretion. The interests are initially recorded at fair value and in subsequent reporting periods are accreted or adjusted to the estimated redemption value. The adjustments to the redemption value are recorded to retained earnings or additional paid-in capital on the consolidated balance sheet. The redeemable non-controlling interests are considered temporary and reported outside of permanent equity on the consolidated balance sheet at the greater of the carrying amount adjusted for the non-controlling interest’s share of net income (loss) or its redemption value.
Earnings per share - The Company calculates basic earnings per share (“EPS”) by dividing net income by the weighted-average number of common shares outstanding during the year. Diluted EPS is calculated by dividing net income by the weighted-average number of common shares outstanding during the year, adjusted for the potentially dilutive effect of stock options and unvested stock units using the treasury stock method. The Company may be required to calculate EPS using the two-class method as a result of its redeemable non-controlling interests. If redemption value exceeds the fair value of the redeemable non-controlling interests, the excess would be a reduction to net income for the EPS calculation.
Accounting pronouncements adopted
Leases - In February 2016, the Financial Accounting Standards Board (the “FASB”) issued accounting guidance that changed how companies account for and present lease arrangements. This guidance requires companies to recognize lease assets and liabilities for both finance and operating leases on the consolidated balance sheet. The Company adopted this guidance effective January 1, 2019, under the modified retrospective transition method with the available practical expedients.
The following table summarizes the impact of the changes made to the January 1, 2019 consolidated balance sheet for the adoption of the new accounting standard pertaining to leases. The prior periods have not been restated and have been reported under the accounting standard in effect for those periods.
 
 
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


For a more detailed discussion on lease arrangements, refer to Note 10 (Property, Equipment and Right-of-Use Assets).
Comprehensive income - In February 2018, the FASB issued accounting guidance that allows for a one-time reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from U.S. tax reform. The Company adopted this guidance effective January 1, 2019, electing to retain the stranded tax effects in accumulated other comprehensive income (loss). The adoption did not result in a material impact on the Company’s consolidated financial statements.
Revenue recognition - In May 2014, the FASB issued accounting guidance that provides a single, comprehensive revenue recognition model for all contracts with customers and supersedes most of the existing revenue recognition requirements. Under this guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted this guidance effective January 1, 2018 under the modified retrospective transition method, applying the standard to contracts not completed as of January 1, 2018 and considered the aggregate amount of modifications.
This revenue guidance impacts the timing of certain customer incentives recognized in the Company’s consolidated statement of operations, as they are recognized over the life of the contract. Previously, such incentives were recognized when earned by the customer. This revenue guidance also impacts the Company’s accounting recognition for certain market development fund contributions and expenditures. Historically, these items were recorded on a net basis in net revenue and will now be recognized on a gross basis, resulting in an increase to both revenues and expenses.
The following tables summarize the impact of the revenue standard on the Company’s consolidated statement of operations and consolidated balance sheet:
 
 
Year Ended December 31, 2018
 
 
Balances excluding revenue standard
 
Impact of revenue standard
 
As reported
 
 
(in millions)
Net Revenue
 
$
14,471

 
$
479

 
$
14,950

Operating Expenses
 
 
 
 
 
 
Advertising and marketing
 
743

 
164

 
907

Income before income taxes
 
6,889

 
315

 
7,204

Income tax expense
 
1,278

 
67

 
1,345

Net Income
 
5,611

 
248

 
5,859

 
 
December 31, 2018
 
 
Balances excluding revenue standard
 
Impact of revenue standard
 
As reported
 
 
(in millions)
Assets
 
 
 
 
 
 
Accounts receivable
 
$
2,214

 
$
62

 
$
2,276

Prepaid expenses and other current assets
 
1,176

 
256

 
1,432

Deferred income taxes
 
666

 
(96
)
 
570

Other assets
 
2,388

 
915

 
3,303

Liabilities
 
 
 
 
 
 
Accounts payable
 
959

 
(422
)
 
537

Accrued expenses
 
4,375

 
372

 
4,747

Other current liabilities
 
1,085

 
(136
)
 
949

Other liabilities
 
1,145

 
732

 
1,877

Equity
 
 
 
 
 
 
Retained earnings
 
26,692

 
591

 
27,283

For a more detailed discussion on revenue recognition, refer to Note 3 (Revenue).
Intra-entity asset transfers - In October 2016, the FASB issued accounting guidance to simplify the accounting for income tax consequences of intra-entity transfers of assets other than inventory. Under this guidance, companies are required to recognize the income tax consequences of an intra-entity asset transfer when the transfer occurs. This guidance must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the period of adoption. The guidance is effective for periods beginning after December 15, 2017. The Company adopted this guidance effective January 1, 2018. See the section in this note entitled Cumulative Effect of the Adopted Accounting Pronouncements for a summary of the cumulative impact of adopting this standard as of January 1, 2018.
Cumulative effect of the 2018 adopted accounting pronouncements
The following table summarizes the cumulative impact of the changes made to the January 1, 2018 consolidated balance sheet for the adoption of the new accounting standards pertaining to revenue recognition and intra-entity asset transfers. The prior periods have not been restated and have been reported under the accounting standards in effect for those periods.
 
 
Balance at December 31, 2017
 
Impact of revenue standard
 
Impact of intra-entity asset transfers standard
 
Balance at
January 1, 2018
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
Accounts receivable
 
$
1,969

 
$
44

 
$

 
$
2,013

Prepaid expenses and other current assets
 
1,040

 
181

 
(17
)
 
1,204

Deferred income taxes
 
250

 
(69
)
 
186

 
367

Other assets
 
2,298

 
690

 
(352
)
 
2,636

Liabilities
 
 
 
 
 
 
 
 
Accounts payable
 
933

 
(495
)
 

 
438

Accrued expenses
 
3,931

 
391

 

 
4,322

Other current liabilities
 
792

 
(44
)
 

 
748

Other liabilities
 
1,438

 
628

 

 
2,066

Equity
 
 
 
 
 
 
 
 
Retained earnings
 
22,364

 
366

 
(183
)
 
22,547

Accounting pronouncements not yet adopted
Implementation costs incurred in a hosting arrangement that is a service contract - In August 2018, the FASB issued accounting guidance which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance is effective for periods beginning after December 15, 2019. Companies are required to adopt this guidance either retrospectively or by prospectively applying the guidance to all implementation costs incurred after the date of adoption. The Company will adopt this guidance effective January 1, 2020 by applying the prospective approach as of the date of adoption and this guidance will not have a material impact on its consolidated financial statements.
Disclosure requirements for fair value measurement - In August 2018, the FASB issued accounting guidance which modifies disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures. This guidance is effective for periods beginning after December 15, 2019. Companies are required to adopt the guidance for certain added disclosures prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption and all other amendments retrospectively to all periods presented upon their effective date. The Company will adopt this guidance effective January 1, 2020 and the impact will not be material.
v3.19.3.a.u2
Acquisitions Business Combination (Notes)
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Business Combination Disclosure
In 2019 and 2017, the Company acquired several businesses in separate transactions for total consideration of $1.5 billion in each year, representing both cash and contingent consideration. There were no acquisitions in 2018. These acquisitions align with the Company’s strategy to grow, diversify and build the Company’s business. Refer to Note 1 (Summary of Significant Accounting Policies) for the valuation techniques Mastercard utilizes to fair value the respective components of business combinations. The residual value allocated to goodwill is primarily attributable to the synergies expected to arise after the acquisition date and a portion of the goodwill is expected to be deductible for tax purposes.
The Company is evaluating and finalizing the purchase accounting for businesses acquired during 2019. In 2018, the Company finalized the purchase accounting for businesses acquired during 2017. The preliminary estimated and final fair values of the purchase price allocations in aggregate, as of the acquisition dates, are noted below for 2019 and 2017, respectively. There were no acquisitions in 2018.
 
 
2019
 
2017
 
 
(in millions)
Assets:
 
 
 
 
Cash and cash equivalents
 
$
54

 
$
111

Other current assets
 
143

 
110

Other intangible assets
 
395

 
488

Goodwill
 
1,076

 
1,135

Other assets
 
48

 
91

Total assets
 
1,716

 
1,935

 
 
 
 
 
Liabilities:
 
 
 
 
Other current liabilities
 
121

 
234

Deferred income taxes
 
52

 
64

Other liabilities
 
32

 
66

Total liabilities
 
205

 
364

 
 
 
 
 
Net assets acquired
 
$
1,511

 
$
1,571


The following table summarizes the identified intangible assets acquired for 2019 and 2017:
 
 
2019
 
2017
 
2019
 
2017
 
 
Acquisition Date Fair Value
 
Weighted-Average Useful Life
 
 
(in millions)
 
(in years)
Developed technologies
 
$
199

 
$
319

 
7.7
 
7.5
Customer relationships
 
178

 
166

 
12.6
 
9.9
Other
 
18

 
3

 
5.0
 
1.4
Other intangible assets
 
$
395

 
$
488

 
9.7
 
8.3

Pro forma information related to the acquisitions was not included because the impact on the Company's consolidated results of operations was not considered to be material.
The businesses acquired in 2019 were not individually significant to Mastercard. For the businesses acquired in 2017, the largest acquisition relates to Vocalink, a payment systems and ATM switching platform operator, located principally in the U.K. On April 28, 2017, Mastercard acquired 92.4% controlling interest in Vocalink for cash consideration of £719 million ($929 million). In addition, the Vocalink sellers earned additional contingent consideration of £169 million ($219 million) upon meeting 2018 revenue targets in accordance with terms of the purchase agreement. Refer to Note 8 (Fair Value Measurements) for additional information related to the fair value of contingent consideration.
A majority of Vocalink’s shareholders have retained a 7.6% ownership for at least three years, which is recorded as redeemable non-controlling interests on the consolidated balance sheet. These remaining shareholders have a put option to sell their ownership interest to Mastercard on the third and fifth anniversaries of the transaction and quarterly thereafter (the “Third Anniversary Option” and “Fifth Anniversary Option”, respectively).  The Third Anniversary Option is exercisable at a fixed price of £58 million (approximately $76 million as of December 31, 2019) (“Fixed Price”). The Fifth Anniversary Option is exercisable at the greater of the Fixed Price or fair value. Additionally, Mastercard has a call option to purchase the remaining interest from Vocalink’s shareholders on the fifth anniversary of the transaction and quarterly thereafter, which is exercisable at the greater of the Fixed Price or fair value. The fair value of the redeemable non-controlling interests was determined utilizing a market approach, which extrapolated the consideration transferred that was discounted for lack of control and marketability.
Pending Acquisition
In August 2019, Mastercard entered into a definitive agreement to acquire the majority of the Corporate Services business of Nets Denmark A/S, for €2.85 billion (approximately $3.19 billion as of December 31, 2019) after adjusting for cash and certain other liabilities at closing. The pending acquisition primarily comprises the clearing and instant payment services, and e-billing solutions of Nets Denmark A/S’s Corporate Services business. While the Company anticipates completing the acquisition in the first half of 2020, the transaction is subject to regulatory approval and other customary closing conditions.
v3.19.3.a.u2
Revenue (Notes)
12 Months Ended
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]  
Revenue
Mastercard’s business model involves four participants in addition to the Company: account holders, issuers (the account holders’ financial institutions), merchants and acquirers (the merchants’ financial institutions). Revenue from contracts with customers is recognized when services are performed in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those services. Revenue recognized from domestic assessments, cross-border volume fees and transaction processing are derived from Mastercard’s payment network services. Revenue is primarily generated by charging fees to issuers, acquirers and other stakeholders for providing switching services, as well as by assessing customers based primarily on the dollar volume of activity, or gross dollar volume, on the products that carry the Company’s brands. Revenue is generally derived from transactional information accumulated by Mastercard’s systems or reported by customers. In addition, the Company recognizes revenue from other payment-related products and services in the period in which the related transactions occur or services are performed.
The price structure for Mastercard’s products and services is dependent on the nature of volumes, types of transactions and type of products and services offered to customers. Net revenue can be impacted by the following:
domestic or cross-border transactions
geographic region or country in which the transaction occurs
volumes/transactions subject to tiered rates
processed or not processed by the Company
amount of usage of the Company’s other products or services
amount of rebates and incentives provided to customers
The Company classifies its net revenue into the following five categories:
Domestic assessments are fees charged to issuers and acquirers based primarily on the dollar volume of activity on cards and other devices that carry the Company’s brands where the merchant country and the country of issuance are the same. Revenue from domestic assessments is recorded as revenue in the period it is earned, which is when the related volume is generated on the cards or other devices that carry the Company’s brands.
Cross-border volume fees are charged to issuers and acquirers based primarily on the dollar volume of activity on cards and other devices that carry the Company’s brands where the merchant country and the country of issuance are different. Revenue from cross-border volume is recorded as revenue in the period it is earned, which is when the related volume is generated on the cards or other devices that carry the Company’s brands.
Transaction processing revenue is recognized for both domestic and cross-border transactions in the period in which the related transactions occur. Transaction processing includes the following:
Switched transaction revenue is generated from the following products and services:
Authorization is the process by which a transaction is routed to the issuer for approval. In certain circumstances, such as when the issuer’s systems are unavailable or cannot be contacted, Mastercard or others approve such transactions on behalf of the issuer in accordance with either the issuer’s instructions or applicable rules (also known as “stand-in”).
Clearing is the determination and exchange of financial transaction information between issuers and acquirers after a transaction has been successfully conducted at the point of interaction. Transactions are cleared among customers through Mastercard’s central and regional processing systems.
Settlement is facilitating the exchange of funds between parties.
Connectivity fees are charged to issuers, acquirers and other financial institutions for network access, equipment and the transmission of authorization and settlement messages. These fees are based on the size of the data being transmitted and the number of connections to the Company’s network.
Other processing fees include issuer and acquirer processing solutions; payment gateways for e-commerce merchants; mobile gateways for mobile-initiated transactions; and safety and security.
Other revenues consist of value-added service offerings that are typically sold with the Company’s payment service offerings and are recognized in the period in which the related services are performed or transactions occur. Other revenues include the following:
Data analytics and consulting fees.
Cyber and intelligence fees are for products and services offered to prevent, detect and respond to fraud and to ensure the safety of transactions made primarily on Mastercard products.
Loyalty and rewards solutions fees are charged to issuers for benefits provided directly to consumers with Mastercard-branded cards, such as access to a global airline lounge network, global and local concierge services, individual insurance coverages, emergency card replacement, emergency cash advance services and a 24-hour cardholder service center. Loyalty and reward solution fees also include rewards campaigns and management services.
Program management services provided to prepaid card issuers consist of foreign exchange margin, commissions, load fees and ATM withdrawal fees paid by cardholders on the sale and encashment of prepaid cards.
Batch and real-time account-based payment services relating to ACH transactions and other ACH related services.
Other payment-related products and services, including account and transaction enhancement services, rules compliance and publications.
Rebates and incentives (contra-revenue) are provided to customers that meet certain volume targets and can be in the form of a rebate or other support incentives, which are tied to performance.  Rebates and incentives are recorded as a reduction of gross revenue primarily when volume- and transaction-based revenues are recognized over the contractual term.  In addition, Mastercard may make incentive payments to a customer directly related to entering into an agreement, which are generally capitalized and amortized over the life of the agreement on a straight-line basis.
The Company’s disaggregated net revenue by source and geographic region were as follows for the years ended December 31:
 
 
2019
 
2018
 
 
(in millions)
Revenue by source:
 
 
 
 
Domestic assessments
 
$
6,781

 
$
6,138

Cross-border volume fees
 
5,606

 
4,954

Transaction processing
 
8,469

 
7,391

Other revenues
 
4,124

 
3,348

Gross revenue
 
24,980

 
21,831

Rebates and incentives (contra-revenue)
 
(8,097
)
 
(6,881
)
Net revenue
 
$
16,883

 
$
14,950

 
 
 
 
 
Net revenue by geographic region:
 
 
 
 
North American Markets
 
$
5,843

 
$
5,312

International Markets
 
10,869

 
9,514

Other 1
 
171

 
124

Net revenue
 
$
16,883

 
$
14,950

1 
Includes revenues managed by corporate functions.
Receivables from contracts with customers of $2.3 billion and $2.1 billion as of December 31, 2019 and 2018, respectively, are recorded within accounts receivable on the consolidated balance sheet. The Company’s customers are generally billed weekly, however the frequency is dependent upon the nature of the performance obligation and the underlying contractual terms. The Company does not typically offer extended payment terms to customers.
Contract assets are included in prepaid expenses and other current assets and other assets on the consolidated balance sheet at December 31, 2019 in the amounts of $48 million and $152 million, respectively. The comparable amounts included in prepaid expenses and other current assets and other assets at December 31, 2018 were $40 million and $92 million, respectively.
Deferred revenue is included in other current liabilities and other liabilities on the consolidated balance sheet at December 31, 2019 in the amounts of $238 million and $106 million, respectively. The comparable amounts included in other current liabilities and other
liabilities at December 31, 2018 were $218 million and $101 million, respectively. In 2019 and 2018, revenue recognized from the satisfaction of such performance obligations was $904 million in each year.
The Company’s remaining performance periods for its contracts with customers for its payment network services are typically long-term in nature (generally up to 10 years). As a payment network service provider, the Company provides its customers with continuous access to its global payment processing network and stands ready to provide transaction processing and related services over the contractual term. Consideration is variable as the Company generates revenues from assessing its customers based on the GDV of activity on the products that carry the Company’s brands. The Company has elected the optional exemption to not disclose the remaining performance obligations related to its payment network services. The Company also earns revenues from other value-added services comprised of both batch and real-time account-based payment services, consulting fees, loyalty programs and other payment-related products and services. At December 31, 2019, the estimated aggregate consideration allocated to unsatisfied performance obligations for these other value-added services is $1.3 billion, which is expected to be recognized through 2022. The estimated remaining performance obligations related to these revenues are subject to change and are affected by several factors, including modifications and terminations and are not expected to be material to any future annual period.
v3.19.3.a.u2
Earnings Per Share
12 Months Ended
Dec. 31, 2019
Earnings Per Share [Abstract]  
Earnings Per Share
The components of basic and diluted EPS for common shares for each of the years ended December 31 were as follows:
 
 
2019
 
2018
 
2017
 
 
(in millions, except per share data)
Numerator
 
 
 
 
 
 
Net income
 
$
8,118

 
$
5,859

 
$
3,915

Denominator
 
 
 
 
 
 
Basic weighted-average shares outstanding
 
1,017

 
1,041

 
1,067

Dilutive stock options and stock units
 
5

 
6

 
5

Diluted weighted-average shares outstanding 1
 
1,022

 
1,047

 
1,072

Earnings per Share
 
 
 
 
 
 
Basic
 
$
7.98

 
$
5.63

 
$
3.67

Diluted
 
$
7.94

 
$
5.60

 
$
3.65


Note: Table may not sum due to rounding.
1 
For the years presented, the calculation of diluted EPS excluded a minimal amount of anti-dilutive share-based payment awards.
v3.19.3.a.u2
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents (Notes)
12 Months Ended
Dec. 31, 2019
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents [Abstract]  
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 for the years ended December 31:
 
 
2019
 
2018
 
2017
 
2016
 
 
(in millions)
Cash and cash equivalents
 
$
6,988

 
$
6,682

 
$
5,933

 
$
6,721

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

 
553

 
546

 
543

Restricted security deposits held for customers
 
1,370

 
1,080

 
1,085

 
991

Prepaid expenses and other current assets
 
27

 
22

 
28

 
3

Other assets
 

 

 

 
15

Cash, cash equivalents, restricted cash and restricted cash equivalents
 
$
8,969

 
$
8,337

 
$
7,592

 
$
8,273


v3.19.3.a.u2
Supplemental Cash Flows
12 Months Ended
Dec. 31, 2019
Supplemental Cash Flow Information [Abstract]  
Supplemental Cash Flows
The following table includes supplemental cash flow disclosures for each of the years ended December 31:
 
 
2019
 
2018
 
2017
 
 
(in millions)
Cash paid for income taxes, net of refunds
 
$
1,644

 
$
1,790

 
$
1,893

Cash paid for interest
 
199

 
153

 
135

Cash paid for legal settlements
 
668

 
260

 
47

Non-cash investing and financing activities
 
 
 
 
 
 
Dividends declared but not yet paid
 
403

 
340

 
263

Accrued property, equipment and right-of-use assets
 
468

 
10

 
30

Fair value of assets acquired, net of cash acquired
 
1,662

 

 
1,825

Fair value of liabilities assumed related to acquisitions
 
205

 

 
365


v3.19.3.a.u2
Investments (Notes)
12 Months Ended
Dec. 31, 2019
Investments, Debt and Equity Securities [Abstract]  
Investments
The Company’s investments on the consolidated balance sheet include both available-for-sale and held-to-maturity securities (see Investments section below). The Company classifies its investments in equity securities of publicly traded and privately held companies within other assets on the consolidated balance sheet (see Equity Investments section below).
Investments
Investments on the consolidated balance sheet consisted of the following at December 31:
 
 
2019
 
2018
 
 
(in millions)
Available-for-sale securities
 
$
591

 
$
1,432

Held-to-maturity securities
 
97

 
264

Total investments
 
$
688

 
$
1,696


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:
 
 
December 31, 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
 
$
15

 
$

 
$

 
$
15

 
$
15

 
$

 
$

 
$
15

Government and agency securities
 
108

 

 

 
108

 
157

 

 

 
157

Corporate securities
 
381

 
1

 

 
382

 
1,044

 
1

 
(2
)
 
1,043

Asset-backed securities
 
85

 
1

 

 
86

 
217

 

 

 
217

Total
 
$
589

 
$
2

 
$

 
$
591

 
$
1,433

 
$
1

 
$
(2
)
 
$
1,432


The Company’s available-for-sale investment securities held at December 31, 2019 and 2018, primarily carried a credit rating of A- or better with unrealized gains and losses recorded as a separate component of other comprehensive income (loss) on the consolidated statement of comprehensive income. The municipal securities are comprised of state tax-exempt bonds and are diversified across states and sectors. Government and agency securities include U.S. government bonds, U.S. government sponsored agency bonds and foreign government bonds with similar credit quality to that of the U.S. government bonds. Corporate securities are comprised of commercial paper and corporate bonds. The asset-backed securities are investments in bonds which are collateralized primarily by automobile loan receivables.
The maturity distribution based on the contractual terms of the Company’s investment securities at December 31, 2019 was as follows:
 
 
Available-For-Sale
 
 
Amortized
Cost
 
Fair Value
 
 
(in millions)
Due within 1 year
 
$
180

 
$
181

Due after 1 year through 5 years
 
409

 
410

Total
 
$
589

 
$
591


Investment income on the consolidated statement of operations primarily consists of interest income generated from cash, cash equivalents, time deposits, and realized gains and losses on the Company’s debt securities. The realized gains and losses from the sale of available-for-sale securities for 2019, 2018 and 2017 were not significant.
Held-to-Maturity Securities
The Company classifies time deposits with maturities greater than three months but less than one year as held-to-maturity. Time deposits are carried at amortized cost on the consolidated balance sheet and are intended to be held until maturity. The cost of these securities approximates fair value.
Equity Investments
Included in other assets on the consolidated balance sheet are equity investments with readily determinable fair values (“Marketable securities”) and equity investments without readily determinable fair values (“Nonmarketable securities”). Marketable securities are publicly traded companies and are measured using unadjusted quoted prices in their respective active markets. Nonmarketable securities that do not qualify for equity method accounting are measured at cost, less any impairment and adjusted for changes resulting from observable price changes in orderly transactions for the identical or similar investments of the same issuer (“measurement alternative”).
The following table is a summary of the activity related to the Company’s equity investments:
 
 
Balance at December 31, 2018
 
Purchases (Sales), net1
 
Changes in Fair Value2
 
Balance at December 31, 2019
 
 
(in millions)
Marketable securities
 
$

 
$
362

 
$
117

 
$
479

Nonmarketable securities
 
337

 
48

 
50

 
435

Total equity investments
 
$
337

 
$
410

 
$
167

 
$
914

1 
Includes impact of balance sheet foreign currency translation
2 
Recorded in gains (losses) on equity investments, net on the consolidated statement of operations

At December 31, 2019, the total carrying value of Nonmarketable securities included $317 million of measurement alternative investments and $118 million of equity method investments. At December 31, 2018, the total carrying value of Nonmarketable securities included $232 million of measurement alternative investments and $105 million of equity method investments.
v3.19.3.a.u2
Fair Value Measurements
12 Months Ended
Dec. 31, 2019
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]  
Fair Value Measurements
The Company classifies its fair value measurements of financial instruments into a three-level hierarchy within the Valuation Hierarchy. Financial instruments are categorized for fair value measurement purposes as recurring or non-recurring in nature. There were no transfers made among the three levels in the Valuation Hierarchy for 2019 and 2018.
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:
 
 
December 31, 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
 
$

 
$
15

 
$

 
$
15

 
$

 
$
15

 
$

 
$
15

Government and agency securities
 
66

 
42

 

 
108

 
65

 
92

 

 
157

Corporate securities
 

 
382

 

 
382

 

 
1,043

 

 
1,043

Asset-backed securities
 

 
86

 

 
86

 

 
217

 

 
217

Derivative instruments 2:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 

 
12

 

 
12

 

 
35

 

 
35

Interest rate contracts
 

 
14

 

 
14

 

 

 

 

Marketable securities 3:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
 
479

 

 

 
479

 

 

 

 

Deferred compensation plan 4:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation assets
 
67

 

 

 
67

 
54

 

 

 
54

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments 2:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange derivative liabilities
 
$

 
$
(32
)
 
$

 
$
(32
)
 
$

 
$
(6
)
 
$

 
$
(6
)
Deferred compensation plan 5:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation liabilities
 
(67
)
 

 

 
(67
)
 
(54
)
 

 

 
(54
)

1 
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 currency exchange rates for similar derivative instruments. See Note 23 (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
Nonmarketable Securities
The Company’s Nonmarketable securities are recorded at fair value on a non-recurring 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 7 (Investments) for further details.
Debt
The Company estimates the fair value of its long-term debt based on market quotes. These debt instruments are not traded in active markets and are classified as Level 2 of the Valuation Hierarchy. At December 31, 2019, the carrying value and fair value of total long-term debt (including the current portion) was $8.5 billion and $9.2 billion, respectively. At December 31, 2018, the carrying value and fair value of long-term debt (including the current portion) was $6.3 billion and $6.5 billion, respectively. See Note 15 (Debt) for further details.
Other Financial Instruments
Certain 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.
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 2019, the Company paid $219 million to settle the contingent consideration.
v3.19.3.a.u2
Prepaid Expenses and Other Assets
12 Months Ended
Dec. 31, 2019
Prepaid Expense and Other Assets [Abstract]  
Prepaid Expenses and Other Assets
Prepaid expenses and other current assets consisted of the following at December 31:
 
 
2019
 
2018
 
 
(in millions)
Customer and merchant incentives
 
$
872

 
$
778

Prepaid income taxes
 
105

 
51

Other
 
786