MASTERCARD INC, 10-Q filed on 10/29/2019
Quarterly Report
v3.19.3
Cover - shares
9 Months Ended
Sep. 30, 2019
Oct. 24, 2019
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2019  
Document Transition Report false  
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, Address Line One 2000 Purchase Street  
Entity Address, Postal Zip Code 10577  
Entity Address, City or Town Purchase,  
Entity Address, State or Province NY  
City Area Code 914  
Local Phone Number 249-2000  
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 Central Index Key 0001141391  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Class A Common Stock    
Title of 12(b) Security Class A Common Stock  
Trading Symbol MA  
Security Exchange Name NYSE  
Entity Common Stock, Shares Outstanding   997,449,179
Class B Common Stock    
Entity Common Stock, Shares Outstanding   11,414,514
1.100% Notes due 2022    
Title of 12(b) Security 1.100% Notes due 2022  
Trading Symbol MA22  
Security Exchange Name NYSE  
2.100% Notes due 2027    
Title of 12(b) Security 2.100% Notes due 2027  
Trading Symbol MA27  
Security Exchange Name NYSE  
2.500% Notes due 2030    
Title of 12(b) Security 2.500% Notes due 2030  
Trading Symbol MA30  
Security Exchange Name NYSE  
v3.19.3
Consolidated Balance Sheet - USD ($)
$ in Millions
Sep. 30, 2019
Dec. 31, 2018
ASSETS    
Cash and cash equivalents $ 5,101 $ 6,682
Restricted cash for litigation settlement 666 553
Investments 751 1,696
Accounts receivable 2,500 2,276
Settlement due from customers 2,723 2,452
Restricted security deposits held for customers 1,173 1,080
Prepaid expenses and other current assets 1,933 1,432
Total Current Assets 14,847 16,171
Property, equipment and right-of-use assets, net of accumulated depreciation of $1,020 and $847, respectively 1,492 921
Deferred income taxes 518 570
Goodwill 3,724 2,904
Other intangible assets, net of accumulated amortization of $1,253 and $1,175, respectively 1,310 991
Other assets 4,090 3,303
Total Assets 25,981 24,860
LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY    
Accounts payable 505 537
Settlement due to customers 2,158 2,189
Restricted security deposits held for customers 1,173 1,080
Accrued litigation 938 1,591
Accrued expenses 4,985 4,747
Current portion of long-term debt 0 500
Other current liabilities 955 949
Total Current Liabilities 10,714 11,593
Long-term debt 7,735 5,834
Deferred income taxes 97 67
Other liabilities 2,386 1,877
Total Liabilities 20,932 19,371
Commitments and Contingencies
Redeemable Non-controlling Interests 74 71
Stockholders’ Equity    
Additional paid-in-capital 4,725 4,580
Class A treasury stock, at cost, 391 and 368 shares, respectively (31,207) (25,750)
Retained earnings 32,289 27,283
Accumulated other comprehensive income (loss) (858) (718)
Total Stockholders’ Equity 4,949 5,395
Non-controlling interests 26 23
Total Equity 4,975 5,418
Total Liabilities, Redeemable Non-controlling Interests and Equity 25,981 24,860
Class A Common Stock    
Stockholders’ Equity    
Common stock 0 0
Class B Common Stock    
Stockholders’ Equity    
Common stock $ 0 $ 0
v3.19.3
Consolidated Balance Sheet (Parenthetical) - USD ($)
$ in Millions
Sep. 30, 2019
Dec. 31, 2018
Less accumulated depreciation and amortization $ 1,020 $ 847
Other intangible assets, accumulated amortization $ 1,253 $ 1,175
Class A treasury stock, shares 391,000,000 368,000,000
Class A Common Stock    
Common stock, par value $ 0.0001 $ 0.0001
Common stock, authorized 3,000,000,000 3,000,000,000
Common stock, issued 1,390,000,000 1,387,000,000
Common stock, outstanding 999,000,000 1,019,000,000
Class B Common Stock    
Common stock, par value $ 0.0001 $ 0.0001
Common stock, authorized 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
Consolidated Statement of Operations - USD ($)
shares in Millions, $ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Income Statement [Abstract]        
Net Revenue $ 4,467 $ 3,898 $ 12,469 $ 11,143
Operating Expenses        
General and administrative 1,448 1,268 4,184 3,774
Advertising and marketing 227 203 644 604
Depreciation and amortization 137 111 376 346
Provision for litigation 0 29 0 371
Total operating expenses 1,812 1,611 5,204 5,095
Operating income 2,655 2,287 7,265 6,048
Other Income (Expense)        
Investment income 26 31 77 79
Gains (losses) on equity investments, net (100) 0 48 0
Interest expense (63) (48) (160) (139)
Other income (expense), net 16 (6) 26 1
Total other income (expense) (121) (23) (9) (59)
Income before income taxes 2,534 2,264 7,256 5,989
Income tax expense 426 365 1,238 1,029
Net Income $ 2,108 $ 1,899 $ 6,018 $ 4,960
Basic Earnings per Share $ 2.08 $ 1.83 $ 5.90 $ 4.75
Basic weighted-average shares outstanding 1,013 1,037 1,020 1,044
Diluted Earnings per Share $ 2.07 $ 1.82 $ 5.87 $ 4.73
Diluted weighted-average shares outstanding 1,019 1,043 1,025 1,050
v3.19.3
Consolidated Statement of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Statement of Comprehensive Income [Abstract]        
Net Income $ 2,108 $ 1,899 $ 6,018 $ 4,960
Other comprehensive income (loss):        
Foreign currency translation adjustments (193) (42) (216) (233)
Income tax effect 9 4 12 9
Foreign currency translation adjustments, net of income tax effect (184) (38) (204) (224)
Translation adjustments on net investment hedge 72 2 80 70
Income tax effect (16) (1) (18) (16)
Translation adjustments on net investment hedge, net of income tax effect 56 1 62 54
Defined benefit pension and other postretirement plans 0 0 (1) (1)
Income tax effect 0 0 0 0
Defined benefit pension and other postretirement plans, net of income tax effect 0 0 (1) (1)
Investment securities available-for-sale 0 (1) 4 (2)
Income tax effect 0 0 (1) 0
Investment securities available-for-sale, net of income tax effect 0 (1) 3 (2)
Other comprehensive income (loss), net of tax (128) (38) (140) (173)
Comprehensive Income $ 1,980 $ 1,861 $ 5,878 $ 4,787
v3.19.3
Consolidated Statement of Changes in Equity - USD ($)
$ in Millions
Total
Common Stock
Class A
Common Stock
Class B
Additional Paid-In Capital
Class A Treasury Stock
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Non- Controlling Interests
Balance at beginning of period at Dec. 31, 2017 $ 5,497 $ 0 $ 0 $ 4,365 $ (20,764) $ 22,364 $ (497) $ 29
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 1,492         1,492    
Activity related to non-controlling interests (1)             (1)
Other comprehensive income, net of tax 124           124  
Cash dividends declared on Class A and Class B common stock (262)         (262)    
Purchases of treasury stock (1,383)       (1,383)      
Share-based payments 6     2 4      
Balance at end of period at Mar. 31, 2018 5,656 0 0 4,367 (22,143) 23,777 (373) 28
Balance at beginning of period at Dec. 31, 2017 5,497 0 0 4,365 (20,764) 22,364 (497) 29
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 4,960              
Other comprehensive income, net of tax (173)              
Balance at end of period at Sep. 30, 2018 5,796 0 0 4,526 (24,807) 26,726 (670) 21
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Adoption of new accounting principle | Adoption of revenue standard 366         366    
Adoption of new accounting principle | Adoption of intra-entity asset transfers standard (183)         (183)    
Balance at beginning of period at Mar. 31, 2018 5,656 0 0 4,367 (22,143) 23,777 (373) 28
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 1,569         1,569    
Activity related to non-controlling interests (6)             (6)
Other comprehensive income, net of tax (259)           (259)  
Cash dividends declared on Class A and Class B common stock (260)         (260)    
Purchases of treasury stock (1,507)       (1,507)      
Share-based payments 86     86 0      
Balance at end of period at Jun. 30, 2018 5,279 0 0 4,453 (23,650) 25,086 (632) 22
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 1,899         1,899    
Activity related to non-controlling interests (1)             (1)
Other comprehensive income, net of tax (38)           (38)  
Cash dividends declared on Class A and Class B common stock (259)         (259)    
Purchases of treasury stock (1,158)       (1,158)      
Share-based payments 74     73 1      
Balance at end of period at Sep. 30, 2018 5,796 0 0 4,526 (24,807) 26,726 (670) 21
Balance at beginning of period at Dec. 31, 2018 5,418 0 0 4,580 (25,750) 27,283 (718) 23
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 1,862         1,862    
Activity related to non-controlling interests (1)             (1)
Other comprehensive income, net of tax 45           45  
Cash dividends declared on Class A and Class B common stock (339)         (339)    
Purchases of treasury stock (1,790)       (1,790)      
Share-based payments (5)     (11) 6      
Balance at end of period at Mar. 31, 2019 5,190 0 0 4,569 (27,534) 28,806 (673) 22
Balance at beginning of period at Dec. 31, 2018 5,418 0 0 4,580 (25,750) 27,283 (718) 23
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 6,018         6,018    
Other comprehensive income, net of tax (140)              
Balance at end of period at Sep. 30, 2019 4,975 0 0 4,725 (31,207) 32,289 (858) 26
Balance at beginning of period at Mar. 31, 2019 5,190 0 0 4,569 (27,534) 28,806 (673) 22
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 2,048         2,048    
Activity related to non-controlling interests 5             5
Other comprehensive income, net of tax (57)           (57)  
Cash dividends declared on Class A and Class B common stock (337)         (337)    
Purchases of treasury stock (1,920)       (1,920)      
Share-based payments 106     106 0      
Balance at end of period at Jun. 30, 2019 5,035 0 0 4,675 (29,454) 30,517 (730) 27
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 2,108         2,108    
Activity related to non-controlling interests (1)             (1)
Other comprehensive income, net of tax (128)           (128)  
Cash dividends declared on Class A and Class B common stock (336)         (336)    
Purchases of treasury stock (1,755)       (1,755)      
Share-based payments 52     50 2      
Balance at end of period at Sep. 30, 2019 $ 4,975 $ 0 $ 0 $ 4,725 $ (31,207) $ 32,289 $ (858) $ 26
v3.19.3
Consolidated Statement of Changes in Equity (Parenthetical) - $ / shares
3 Months Ended
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Common Stock            
Cash dividends declared on Class A and Class B common stock (USD per share) $ 0.33 $ 0.33 $ 0.33 $ 0.25 $ 0.25 $ 0.25
v3.19.3
Consolidated Statement of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Operating Activities    
Net income $ 6,018 $ 4,960
Adjustments to reconcile net income to net cash provided by operating activities:    
Amortization of customer and merchant incentives 878 885
Depreciation and amortization 376 346
(Gains) losses on equity investments, net (48) 0
Share-based compensation 207 153
Deferred income taxes 14 (209)
Other 21 11
Changes in operating assets and liabilities:    
Accounts receivable (278) (317)
Settlement due from customers (171) 39
Prepaid expenses (1,440) (1,174)
Accrued litigation and legal settlements (637) 202
Restricted security deposits held for customers 93 (51)
Accounts payable (36) (44)
Settlement due to customers (77) (186)
Accrued expenses 266 461
Net change in other assets and liabilities 17 (185)
Net cash provided by operating activities 5,203 4,891
Investing Activities    
Purchases of investment securities available-for-sale (549) (953)
Purchases of investments held-to-maturity (167) (400)
Proceeds from sales of investment securities available-for-sale 1,003 491
Proceeds from maturities of investment securities available-for-sale 305 291
Proceeds from maturities of investments held-to-maturity 334 762
Purchases of property and equipment (306) (255)
Capitalized software (237) (126)
Purchases of equity investments (391) (32)
Acquisition of businesses, net of cash acquired (1,170) 0
Other investing activities (2) (15)
Net cash used in investing activities (1,180) (237)
Financing Activities    
Purchases of treasury stock (5,503) (4,045)
Dividends paid (1,012) (785)
Proceeds from debt 1,980 991
Payment of debt (500) 0
Contingent consideration paid (199) 0
Tax withholdings related to share-based payments (161) (79)
Cash proceeds from exercise of stock options 107 92
Other financing activities 3 (7)
Net cash used in financing activities (5,285) (3,833)
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents (103) 65
Net (decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents (1,365) 886
Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period 8,337 7,592
Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period $ 6,972 $ 8,478
v3.19.3
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 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.
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. At September 30, 2019 and December 31, 2018, there were no significant VIEs which required consolidation. 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”).
The balance sheet as of December 31, 2018 was derived from the audited consolidated financial statements as of December 31, 2018. The consolidated financial statements for the three and nine months ended September 30, 2019 and 2018 and as of September 30, 2019 are unaudited, and in the opinion of management, include all normal recurring adjustments that are necessary to present fairly the results for interim periods. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year.
The accompanying unaudited consolidated financial statements are presented in accordance with the U.S. Securities and Exchange Commission (“SEC”) requirements for Quarterly Reports on Form 10-Q. Reference should be made to the Mastercard Incorporated Annual Report on Form 10-K for the year ended December 31, 2018 for additional disclosures, including a summary of the Company’s significant accounting policies.
Non-controlling interest amounts are included in the consolidated statement of operations within other income (expense). For the three and nine months ended September 30, 2019 and 2018, activity from non-controlling interests was not material to the respective period results.
Recently adopted accounting pronouncements
Comprehensive income - In February 2018, the Financial Accounting Standards Board (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.
Leases - In February 2016, 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 financing 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 8 (Property, Equipment and Right-of-Use Assets).
Recent 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 expects to adopt this guidance effective January 1, 2020 by applying the prospective approach as of the date of adoption and is in the process of evaluating the potential effects this guidance will have on its consolidated financial statements and, at this time, does not expect the impacts to be material.
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 expects to adopt this guidance effective January 1, 2020 and does not expect the impacts to be material.
v3.19.3
Acquisitions
9 Months Ended
Sep. 30, 2019
Business Combinations [Abstract]  
Business Combination Disclosure
During the nine months ended September 30, 2019, the Company acquired several businesses in separate transactions for total consideration of $1.2 billion, primarily in cash. 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) to the consolidated financial statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, 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 is not expected to be deductible for local tax purposes.
The Company is evaluating and finalizing the purchase accounting. The preliminary estimated fair values of the purchase price allocations in aggregate, as of the acquisition dates, are noted below:
 
(in millions)
Assets:
 
Cash and cash equivalents
$
48

Other current assets
148

Other intangible assets
303

Goodwill
881

Other assets
32

Total assets
1,412

 
 
Liabilities:
 
Other current liabilities
106

Deferred income taxes
52

Other liabilities
29

Total liabilities
187

 
 
Net assets acquired
$
1,225


The following table summarizes the identified intangible assets acquired:
 
Acquisition Date
Fair Value
 
Weighted-Average Useful Life
 
(in millions)
 
(in years)
Developed technologies
$
160

 
7.6
Customer relationships
134

 
12.7
Other
9

 
2.0
Other intangible assets
$
303

 
9.7

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.
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 $3.12 billion as of September 30, 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. Separately, in October 2019, the Company entered into commitments to acquire additional businesses for total consideration of approximately $290 million in cash, all of which are expected to close during the fourth quarter of 2019. The Company will begin consolidating these acquisitions as of the date acquired.
v3.19.3
Revenue
9 Months Ended
Sep. 30, 2019
Revenue from Contract with Customer [Abstract]  
Revenue
The Company’s disaggregated net revenue by source and geographic region were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(in millions)
Revenue by source:
 
 
 
 
 
 
 
Domestic assessments
$
1,722

 
$
1,564

 
$
5,007

 
$
4,559

Cross-border volume fees
1,517

 
1,338

 
4,154

 
3,693

Transaction processing
2,231

 
1,912

 
6,206

 
5,449

Other revenues
1,087

 
819

 
2,891

 
2,352

Gross revenue
6,557

 
5,633

 
18,258

 
16,053

Rebates and incentives (contra-revenue)
(2,090
)
 
(1,735
)
 
(5,789
)
 
(4,910
)
Net revenue
$
4,467

 
$
3,898

 
$
12,469

 
$
11,143

 
 
 
 
 
 
 
 
Net revenue by geographic region:
 
 
 
 
 
 
 
North American Markets
$
1,545

 
$
1,360

 
$
4,333

 
$
3,941

International Markets
2,877

 
2,505

 
8,013

 
7,095

Other 1
45

 
33

 
123

 
107

Net revenue
$
4,467

 
$
3,898

 
$
12,469

 
$
11,143

1 Includes revenues managed by corporate functions.
Receivables from contracts with customers of $2.3 billion and $2.1 billion as of September 30, 2019 and December 31, 2018, respectively, are recorded within accounts receivable on the consolidated balance sheet. The Company’s customers are billed quarterly or more frequently 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 September 30, 2019 in the amounts of $51 million and $109 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 September 30, 2019 in the amounts of $281 million and $108 million, respectively. The comparable amounts included in other current liabilities and other liabilities at December 31, 2018 were $218 million and $101 million, respectively. Revenue recognized from performance obligations satisfied during the three and nine months ended September 30, 2019 and 2018 was $246 million and $613 million and $202 million and $570 million, respectively.
v3.19.3
Earnings Per Share
9 Months Ended
Sep. 30, 2019
Earnings Per Share [Abstract]  
Earnings Per Share
The components of basic and diluted earnings per share (“EPS”) for common shares were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(in millions, except per share data)
Numerator
 
 
 
 
 
 
 
Net income
$
2,108

 
$
1,899

 
$
6,018

 
$
4,960

Denominator
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
1,013

 
1,037

 
1,020

 
1,044

Dilutive stock options and stock units
6

 
6

 
5

 
6

Diluted weighted-average shares outstanding 1
1,019

 
1,043

 
1,025

 
1,050

Earnings per Share
 
 
 
 
 
 
 
Basic
$
2.08

 
$
1.83

 
$
5.90

 
$
4.75

Diluted
$
2.07

 
$
1.82

 
$
5.87

 
$
4.73



1 For the periods presented, the calculation of diluted EPS excluded a minimal amount of anti-dilutive share-based payment awards.
v3.19.3
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
9 Months Ended
Sep. 30, 2019
Cash and 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.
 
December 31,
 
2018
 
2017
 
(in millions)
Cash and cash equivalents
$
6,682

 
$
5,933

Restricted cash and restricted cash equivalents
 
 
 
Restricted cash for litigation settlement
553

 
546

Restricted security deposits held for customers
1,080

 
1,085

Prepaid expenses and other current assets
22

 
28

Cash, cash equivalents, restricted cash and restricted cash equivalents -
     beginning of period
$
8,337

 
$
7,592

 
 
 
 
 
September 30,
 
2019
 
2018
 
(in millions)
Cash and cash equivalents
$
5,101

 
$
6,871

Restricted cash and restricted cash equivalents
 
 
 
Restricted cash for litigation settlement
666

 
550

Restricted security deposits held for customers
1,173

 
1,034

Prepaid expenses and other current assets
32

 
23

Cash, cash equivalents, restricted cash and restricted cash equivalents -
     end of period
$
6,972

 
$
8,478


v3.19.3
Fair Value and Investment Securities
9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value and Investment Securities
Financial Instruments – Recurring Measurements
The Company classifies its fair value measurements of financial instruments into a three-level hierarchy (the “Valuation Hierarchy”). There were no transfers made among the three levels in the Valuation Hierarchy during the nine months ended September 30, 2019.
The distribution of the Company’s financial instruments measured at fair value on a recurring basis within the Valuation Hierarchy were as follows:
 
September 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
$

 
$
8

 
$

 
$
8

 
$

 
$
15

 
$

 
$
15

Government and agency securities
96

 
52

 

 
148

 
65

 
92

 

 
157

Corporate securities

 
411

 

 
411

 

 
1,043

 

 
1,043

Asset-backed securities

 
92

 

 
92

 

 
217

 

 
217

Derivative instruments 2:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency derivative assets

 
30

 

 
30

 

 
35

 

 
35

Marketable equity investments 3:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
369

 

 

 
369

 

 

 

 

Deferred compensation plan 4:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation assets
65

 

 

 
65

 
54

 

 

 
54

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments 2:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency derivative liabilities
$

 
$
(21
)
 
$

 
$
(21
)
 
$

 
$
(6
)
 
$

 
$
(6
)
Deferred compensation plan 5:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation liabilities
(66
)
 

 

 
(66
)
 
(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 currency 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 17 (Foreign Exchange Risk Management) for further details.
3 The Company’s marketable equity securities are publicly held and classified within Level 1 of the Valuation Hierarchy as the fair values are based on unadjusted quoted prices in active markets for identical assets.
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.
Marketable Equity Investments
During the nine months ended September 30, 2019, the Company invested $348 million in certain marketable equity securities. Marketable equity securities have readily determinable fair values with changes in fair value recorded in gain (losses) on equity investments, net on the consolidated statement of operations. At September 30, 2019, the fair value of these securities were $369 million and are included in other assets on the consolidated balance sheet.
Settlement and Other Guarantee Liabilities
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 September 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 assumptions 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.
Financial Instruments - Non-Recurring Measurements
Held-to-Maturity Securities
Investments on the consolidated balance sheet include both available-for-sale and short-term held-to-maturity securities. Held-to-maturity securities are not measured at fair value on a recurring basis and are not included in the Valuation Hierarchy table above. At September 30, 2019 and December 31, 2018, the Company held $92 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 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 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 when certain events or circumstances indicate that impairment may exist.
At September 30, 2019, the total carrying value of nonmarketable equity investments was $388 million, including $272 million of measurement alternative investments and $116 million of equity method investments. At December 31, 2018, the total carrying value of nonmarketable equity investments was $337 million, including $232 million measurement alternative investments and $105 million of equity method investments. Nonmarketable equity investments are included in other assets on the consolidated balance sheet.
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 September 30, 2019, the carrying value and fair value of total long-term debt outstanding was $7.7 billion and $8.5 billion, respectively. At December 31, 2018, the carrying value and fair value of total long-term debt outstanding (including the current portion) was $6.3 billion and $6.5 billion, respectively.
Other Financial Instruments
Certain financial instruments are carried on the consolidated balance sheet at cost, which approximates fair value due to their short-term, highly liquid nature. These instruments include cash and cash equivalents, restricted cash, accounts receivable, settlement due from customers, restricted security deposits held for customers, accounts payable, settlement due to customers and other accrued liabilities.
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 nine months ended September 30, 2019, the Company recorded net losses of $100 million and net gains $48 million, respectively, primarily related to unrealized fair market value adjustments on our 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 nine months ended September 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 September 30, 2019 and December 31, 2018 were as follows:
 
September 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
$
8

 
$

 
$

 
$
8

 
$
15

 
$

 
$

 
$
15

Government and agency securities
148

 

 

 
148

 
157

 

 

 
157

Corporate securities
410

 
1

 

 
411

 
1,044

 
1

 
(2
)
 
1,043

Asset-backed securities
91

 
1

 

 
92

 
217

 

 

 
217

Total
$
657

 
$
2

 
$

 
$
659

 
$
1,433

 
$
1

 
$
(2
)
 
$
1,432


The Company’s available-for-sale investment securities held at September 30, 2019 and December 31, 2018 primarily carried a credit rating of A- or better. 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.
Investment Maturities
The maturity distribution based on the contractual terms of the Company’s investment securities at September 30, 2019 was as follows:
 
Available-For-Sale
 
Amortized
Cost
 
Fair Value
 
(in millions)
Due within 1 year
$
222

 
$
222

Due after 1 year through 5 years
435

 
437

Total
$
657

 
$
659


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 nine months ended September 30, 2019 and 2018 were not significant.
v3.19.3
Prepaid Expenses and Other Assets
9 Months Ended
Sep. 30, 2019
Prepaid Expense and Other Assets [Abstract]  
Prepaid Expenses and Other Assets
Prepaid expenses and other current assets consisted of the following:
 
September 30,
2019
 
December 31,
2018
 
(in millions)
Customer and merchant incentives
$
885

 
$
778

Prepaid income taxes
192

 
51

Other
856

 
603

Total prepaid expenses and other current assets
$
1,933

 
$
1,432


Other assets consisted of the following:
 
September 30,
2019
 
December 31,
2018
 
(in millions)
Customer and merchant incentives
$
2,650

 
$
2,458

Equity investments
757

 
337

Income taxes receivable
430

 
298

Other
253

 
210

Total other assets
$
4,090

 
$
3,303


Customer and merchant incentives represent payments made to customers and merchants under business agreements. Costs directly related to entering into such an agreement are generally deferred and amortized over the life of the agreement.
Equity investments represent the Company’s marketable equity securities and nonmarketable equity investments. See Note 6 (Fair Value and Investment Securities) for further details on the Company’s investments in certain marketable equity securities made during the nine months ended September 30, 2019.
v3.19.3
Property, Equipment and Right-of-Use Assets
9 Months Ended
Sep. 30, 2019
Property, Plant and Equipment [Abstract]  
Property, Equipment and Right-of-Use Assets
Property, equipment and right-of-use assets consisted of the following:
 
September 30,
2019
 
December 31,
2018
 
(in millions)
Building, building equipment and land
$
492

 
$
481

Equipment
1,155

 
987

Furniture and fixtures
87

 
85

Leasehold improvements
265

 
215

Operating lease right-of-use assets
513

 

Property, equipment and right-of-use assets
2,512

 
1,768

Less accumulated depreciation and amortization
(1,020
)
 
(847
)
Property, equipment and right-of-use assets, net
$
1,492

 
$
921


The increase in property, equipment and right-of-use assets at September 30, 2019 from December 31, 2018 was primarily due to the impact from the adoption of the new accounting standard pertaining to lease arrangements. See Note 1 (Summary of Significant Accounting Policies) for additional information on the impact of the adoption of this standard.
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. 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.
Operating lease ROU assets and operating lease liabilities are recorded on the consolidated balance sheet as follows:
 
September 30,
2019
 
(in millions)
Balance sheet location
 
Property, equipment and right-of-use assets, net
$
444

Other current liabilities
98

Other liabilities
386


Operating lease amortization expense for the three and nine months ended September 30, 2019 was $26 million and $69 million, respectively, and recorded within general and administrative expenses on the consolidated statement of operations. As of September 30, 2019, weighted-average remaining lease term of operating leases was 6.3 years and weighted-average discount rate for operating leases was 3.2%.
The following table summarizes the maturity of the Company’s operating lease liabilities at September 30, 2019 based on lease term:
 
Operating Leases
 
(in millions)
Remainder of 2019
$
26

2020
99

2021
82

2022
76

2023
67

Thereafter
174

Total operating lease payments
524

Less: Interest
(40
)
Present value of operating lease liabilities
$
484


As of September 30, 2019, the Company has entered into additional operating leases as a lessee, primarily for real estate. These leases have not yet commenced and will result in ROU assets and corresponding lease liabilities of approximately $285 million. These operating leases are expected to commence between fiscal years 2019 and 2020, with lease terms between one and sixteen years.
The following disclosures relate to periods prior to adoption of the new lease accounting standard, including those operating leases entered into during 2018, but not yet commenced:
At December 31, 2018, the Company had the following future minimum payments due under non‐cancelable leases:
 
Operating Leases
 
(in millions)
2019
$
72

2020
75

2021
76

2022
68

2023
58

Thereafter
327

Total
$
676


Consolidated rental expense for the Company’s leased office space was $94 million for the year ended December 31, 2018. Consolidated lease expense for automobiles, computer equipment and office equipment was $20 million for the year ended December 31, 2018.
v3.19.3
Accrued Expenses
9 Months Ended
Sep. 30, 2019
Accrued Liabilities, Current [Abstract]  
Accrued Expenses and Accrued Litigation
Accrued expenses consisted of the following:
 
September 30,
2019
 
December 31,
2018
 
(in millions)
Customer and merchant incentives
$
3,480

 
$
3,275

Personnel costs
576

 
744

Income and other taxes
462

 
158

Other
467

 
570

Total accrued expenses
$
4,985

 
$
4,747


Customer and merchant incentives represent amounts to be paid to customers under business agreements. As of September 30, 2019 and December 31, 2018, the Company’s provision for litigation was $938 million and $1,591 million, respectively. These amounts are not included in the accrued expenses table above and are separately reported as accrued litigation on the
consolidated balance sheet. See Note 15 (Legal and Regulatory Proceedings) for additional information regarding the Company’s accrued litigation.
v3.19.3
Debt (Notes)
9 Months Ended
Sep. 30, 2019
Debt [Abstract]  
Debt
Long-term debt consisted of the following at September 30, 2019 and December 31, 2018:
Notes
 
Issuance
Date
 
Interest Payment Terms
 
Maturity
Date
 
Aggregate Principal Amount
 
Stated
Interest Rate
 
Effective
Interest Rate
 
September 30,
2019
 
December 31,
2018
 
 
 
 
 
 
 
 
(in millions, except percentages)
2019 USD Notes
 
May 2019
 
Semi-annually
 
2029
 
$
1,000

 
2.950
%
 
3.030
%
 
$
1,000

 
$

 
 
 
 
 
 
2049
 
1,000

 
3.650
%
 
3.689
%
 
1,000

 

 
 
 
 
 
 
 
 
$
2,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018 USD Notes
 
February 2018
 
Semi-annually
 
2028
 
$
500

 
3.500
%
 
3.598
%
 
500

 
500

 
 
 
 
 
 
2048
 
500

 
3.950
%
 
3.990
%
 
500

 
500

 
 
 
 
 
 
 
 
$
1,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016 USD Notes
 
November 2016
 
Semi-annually
 
2021
 
$
650

 
2.000
%
 
2.236
%
 
650

 
650

 
 
 
 
 
 
2026
 
750

 
2.950
%
 
3.044
%
 
750

 
750

 
 
 
 
 
 
2046
 
600

 
3.800
%
 
3.893
%
 
600

 
600

 
 
 
 
 
 
 
 
$
2,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015 Euro Notes
 
December 2015
 
Annually
 
2022
 
700

 
1.100
%
 
1.265
%
 
765

 
801

 
 
 
 
 
 
2027
 
800

 
2.100
%
 
2.189
%
 
875

 
916

 
 
 
 
 
 
2030
 
150

 
2.500
%
 
2.562
%
 
164

 
172

 
 
 
 
 
 
 
 
1,650

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014 USD Notes
 
March 2014
 
Semi-annually
 
2019
 
$
500

 
2.000
%
 
2.178
%
 

 
500

 
 
 
 
 
 
2024
 
1,000

 
3.375
%
 
3.484
%
 
1,000

 
1,000

 
 
 
 
 
 
 
 
$
1,500

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7,804

 
6,389

Less: Unamortized discount and debt issuance costs
 
(69
)
 
(55
)
Total debt outstanding
 
7,735

 
6,334

Less: Current portion1 
 

 
(500
)
Long-term debt
 
$
7,735

 
$
5,834

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
In May 2019, the Company issued $1.0 billion principal amount of notes due June 2029 and $1.0 billion principal amount of notes due June 2049 (collectively the “2019 USD Notes”). The net proceeds from the issuance of the 2019 USD Notes, after deducting the original issue discount, underwriting discount and offering expenses, were $1.980 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.
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.
v3.19.3
Stockholders' Equity
9 Months Ended
Sep. 30, 2019
Equity [Abstract]  
Stockholders' Equity
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.
The following table summarizes the Company’s share repurchase authorizations of its Class A common stock through September 30, 2019, 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 nine months ended September 30, 2018
$

 
$