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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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13-4172551
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer
Identification Number)
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2000 Purchase Street
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10577
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Purchase, NY
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(Zip Code)
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(Address of principal executive offices)
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Page
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ITEM 1.
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ITEM 1A.
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ITEM 1B.
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ITEM 2.
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ITEM 3.
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ITEM 4.
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ITEM 5.
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ITEM 6.
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ITEM 7.
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ITEM 7A.
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ITEM 8.
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ITEM 9.
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ITEM 9A.
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ITEM 9B.
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ITEM 10.
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ITEM 11.
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ITEM 12.
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ITEM 13.
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ITEM 14.
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ITEM 15.
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ITEM 16.
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direct regulation of the payments industry (including regulatory, legislative and litigation activity with respect to interchange fees, surcharging and the extension of current regulatory activity to additional jurisdictions or products)
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the impact of preferential or protective government actions
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regulation to which we are directly or indirectly subject based on our participation in the payments industry (including anti-money laundering and economic sanctions, financial sector oversight, real-time account-based payment systems, issuer practice regulation and regulation of internet and digital transactions)
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the impact of changes in laws, including the recent U.S. tax legislation, regulations and interpretations thereof, or challenges to our tax positions
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regulation of privacy, data protection and security
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potential or incurred liability and limitations on business resulting from litigation
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the impact of competition in the global payments industry (including disintermediation and pricing pressure)
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the challenges relating to rapid technological developments and changes
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the challenges relating to operating an account-based payment system in addition to our core network and to working with new customers and end users
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the impact of information security incidents, account data breaches, fraudulent activity or service disruptions on our business
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issues related to our relationships with our financial institution customers (including loss of substantial business from significant customers, competitor relationships with our customers and banking industry consolidation)
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the impact of our relationships with other stakeholders, including merchants and governments
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exposure to loss or illiquidity due to settlement guarantees and other significant third-party obligations
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the impact of global economic and political events and conditions (including global financial market activity, declines in cross-border activity, negative trends in consumer spending, the effect of adverse currency fluctuation and the effects of the U.K.’s proposed withdrawal from the E.U.)
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reputational impact, including impact related to brand perception
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issues related to acquisition integration, strategic investments and entry into new businesses
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issues related to our Class A common stock and corporate governance structure
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adding new players to our customer base in new and existing markets by working with partners such as governments, merchants, technology companies (such as digital players and mobile providers) and other businesses
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expanding capabilities based on our core network into new areas to provide opportunities for electronic payments and to capture more payment flows, such as B2C transfers, B2B transfers, P2P transfers, including in the areas of transit and government disbursements
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driving acceptance at merchants of all sizes
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broadening financial inclusion for the unbanked and underbanked
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creating and acquiring differentiated products to provide unique, innovative solutions that we bring to market, such as real-time account-based payment, Mastercard B2B Hub™ and Mastercard Send™ platforms
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providing value-added services across safety and security, consulting, data analytics, processing and loyalty.
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Digital Payments
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Numerous trends in the digital economy, such as demand for faster payments and the application of emerging technology, present opportunities for growth and impetus for change in our business. We have launched and extended products and platforms that take advantage of the growing digital economy, where consumers are increasingly using technology to interact with other consumers and merchants. Among our recent developments in 2017 we:
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expanded our use of Masterpass globally, which is live in dozens of markets around the world. Masterpass is a global digital payment service that allows consumers to make fast, simple and secure transactions on any device and across any channel. Over the last year, we have enhanced the browser and in-app checkout experience globally and made significant platform improvements to make it easier and faster for consumers to checkout. We have also launched a new merchant onboarding experience and a new package of software to make it easier for merchants to integrate with Masterpass.
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continued to expand and scale Mastercard Send™ capabilities, using HomeSend, to connect more people, businesses and governments to facilitate the transfer of funds quickly and securely both domestically and cross-border in over 100 markets.
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broadened our acceptance solutions to offer Quick Response (“QR”) codes under a common set of new global specifications developed in conjunction with EMVCo and other industry players. Masterpass QR provides people with mobile phones the ability to safely make in-person purchases without a card and avoids the need for expensive point of sale equipment.
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Real-time Account-based Payment Systems.
In 2017, we completed the acquisition of a controlling interest in Vocalink. Vocalink operates systems for ACH payments and ATM processing platforms in the United Kingdom and other countries. ACH payments constitute a significant amount of all payments made by consumers, businesses and governments. Adding ACH payments to our core card-based business will expand our ability to offer more electronic payment options to consumers, businesses and governments, and help us capture more payment flows.
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Safety and Security.
As new technologies and cyber-security threats evolve, including organized cyber-crime and nation state attacks, there is a growing need to protect transactions and people’s identities regardless of the device or channel used to make a purchase, while at the same time continuing to improve the payment experience for all stakeholders. Our focus on security is embedded in our products, our systems and our networks, as well as our analytics to prevent fraud. In 2017, we:
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acquired Brighterion, Inc., a software company specializing in Artificial Intelligence (“AI”), that enhances our networks, improves our existing product suite and helps us build the next generation of solutions to tackle fraud and cybersecurity threats.
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acquired NuData Security, a global technology company that helps businesses prevent online and mobile fraud using session and behavioral biometric indicators, to enhance security of the internet of things (the “IoT”), including device-level security and authentication.
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launched Early Detection System™, a service that provides issuers with a unique predictive capability to identify accounts with a heightened risk of fraud based on their exposure to security incidents or data breaches. Early Detection System determines if an account is at risk and sends an alert to the issuer with a quantification of the level of risk. The issuer then uses the level of risk to more accurately prioritize what action to take; from monitoring transactions more closely to proactively issuing a replacement card.
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embedded AI across our network with Decision Intelligence™, a comprehensive decision and fraud detection solution that utilizes our networks to increase approvals and reduce false declines. This solution now applies AI scoring to every processed transaction on our networks and is used by multiple issuers globally.
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expanded Safety Net, a technology that intelligently detects and blocks large scale fraud events resulting from cyber-attacks against our issuers. This technology now features new advanced detection capabilities, and acts as an extra layer of defense for every issuer we work with globally, monitoring every processed transaction on our networks.
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helped stakeholders to increase approvals and reduce declines for consumers with our account continuity solution, Automated Billing Updater. This solution automatically updates expired card numbers at merchant card-on-file locations and is increasingly used by major digital merchants.
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leveraged MDES to tokenize Masterpass and enable third-party token vaults compliant with EMV® (the global standard for chip technology) to tokenize Mastercard-branded products and services and extended the utility of MDES to tokenize credentials-on-file.
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Commercial.
Our market share in commercial products is growing globally, as we offer solutions with travel and entertainment, procurement, fleet and virtual cards. We estimate there is $120 trillion in addressable payment flows in B2B globally, of which approximately $100 trillion is related to accounts payable. To address this opportunity, we are expanding our capabilities to capture non-carded payment flows with new solutions, such as the Mastercard B2B Hub, Mastercard Send for cross-border payments, and real-time account-based payment systems for ACH transactions. We launched the innovative Mastercard B2B Hub platform in 2017 to enable small and midsized businesses to optimize their invoice and payment processes with automation tools that improve the speed, ease and security of their commercial payments.
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Financial Inclusion
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We are focused on addressing financial inclusion, reaching people without access to an account that allows them to store and use money. In 2015, we made a commitment to reach 500 million people previously excluded from financial services by 2020. We are more than halfway to delivering on that commitment. In 2017, we worked with governments across several geographies to develop and roll out electronic payments solutions, social payment distribution mechanisms and digital identity solutions. We also worked with merchants globally to help drive acceptance necessary to support these inclusion efforts.
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Legal and Regulatory
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We operate in a dynamic and rapidly evolving legal and regulatory environment, with heightened regulatory and legislative scrutiny, expansion of local regulatory schemes and other legal challenges, particularly with respect to interchange fees (as discussed below under “Our Operations and Network”). These create both risks and opportunities for our industry. See Part I, Item 1A for a more detailed discussion of our legal and regulatory developments and risks. Also see Note 18 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8. Our recent legal and regulatory developments include:
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European Union
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In 2015, the European Commission issued a statement of objections related to the interregional interchange rates we set and our central acquiring rules within the European Economic Area (the “EEA”). The statement of objections preliminarily concludes that these practices have anticompetitive effects, and the European Commission has indicated it intends to seek fines if it confirms these conclusions. We submitted a response in April 2016 and participated in a related oral hearing in May 2016.
Since that time, we have remained in discussions with the European Commission and expect to obtain greater clarity with respect to these issues in the first half of 2018.
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E.U. member states were required to finish transposing the EEA’s revised Payment Services Directive (commonly referred to as “PSD2”) into their national laws by January 2018. This directive requires financial institutions to provide third party payment processors access to consumer payment accounts, which may enable these processors to route transactions away from Mastercard products by offering certain services directly to people who currently use our products. This directive also requires a new standard for authentication of transactions, which requires additional verification information from consumers to complete transactions. This may increase the number of transactions that consumers abandon if we are unable to ensure a frictionless authentication experience under the new standards.
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In 2016, the European Parliament passed the General Data Protection Regulation (the “GDPR”), a new data protection regulation that will increase our compliance burden for using and processing personal and sensitive data of EEA residents. We have implemented an approach to achieve compliance by the May 2018 deadline.
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United States
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Merchant Class Litigation.
In June 2016, the U.S. Court of Appeals for the Second Circuit reversed the approval of a settlement of an antitrust litigation among a class of merchants, Mastercard, Visa and a number of financial institutions. The court vacated the class action certification and sent the case back to the district court for further proceedings. The parties are proceeding with discovery while at the same time are involved in mediation.
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Tax Cuts and Jobs Act.
On December 22, 2017, the U.S. passed a comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). Among other things, the TCJA reduces the U.S. corporate income tax rate from 35% to 21% in 2018, puts into effect the migration towards a territorial tax system and imposes a one-time deemed repatriation tax on accumulated foreign earnings (the “Transition Tax”). The enactment of the tax legislation has resulted in additional tax expense of
$873 million
in the fourth quarter and year ended December 31, 2017, due primarily to provisional amounts recorded for the Transition Tax and the remeasurement of U.S. deferred tax assets and liabilities at lower enacted corporate tax rates. These provisional amounts are based on our initial analysis of the TCJA and may be adjusted in 2018. See
Note 17 (Income Taxes)
to the consolidated financial statements included in Part II, Item 8 for further discussion of the TCJA.
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United Kingdom
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Beginning in May 2012, a number of retailers filed claims or threatened litigation against us seeking damages for alleged anti-competitive conduct with respect to our cross-border interchange fees and our U.K. and Ireland domestic interchange fees. In 2016, a tribunal in one of these cases issued a judgment against us for damages, and we entered into settlements with additional claimants. In January 2017, we received a favorable liability judgment on all significant matters in a separate action brought by
ten
of the claimants (who were seeking over
$500 million
in damages). Both the negative judgment and positive judgment for us are being appealed before the U.K. appellate court.
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In connection with the Vocalink part of our business, we expect to enter into a period of consultation with the U.K. Treasury regarding the possible extension of the U.K. payment systems oversight regime to include Vocalink’s role as a service provider.
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China
- In 2017, People’s Bank of China issued the Service Guidelines for Market Access of Bank Card Clearing Institutions, providing more guidance and clarity in addition to the 2016 regulations on license application and operational requirements for network operators, including international networks such as ours, to process domestic payments in China. We have been engaged with regulators and other stakeholders in connection with steps required to advance an application. In the meantime, we continue to work to expand issuance and acceptance of Mastercard-branded products in the Chinese market to support our existing cross-border business and to prepare for potential domestic opportunities.
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Interchange Fees.
Interchange fees reflect the value merchants receive from accepting our products and play a key role in balancing the costs consumers and merchants incur. We do not earn revenues from interchange fees. Generally, interchange fees are collected from acquirers and paid to issuers to reimburse the issuers for a portion of the costs incurred. These costs are incurred by issuers in providing services that benefit all participants in the system, including acquirers and merchants, whose participation in the network enables increased sales to their existing and new customers, efficiencies in the delivery of existing and new products, guaranteed payments and improved experience for their customers. We (or, alternatively, financial institutions) establish “default interchange fees” that apply when there are no other established settlement terms in place between an issuer and an acquirer. We administer the collection and remittance of interchange fees through the settlement process.
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Additional Four-Party System Fees.
The merchant discount rate is established by the acquirer to cover its costs of both participating in the four-party system and providing services to merchants. The rate takes into consideration the amount of the interchange fee which the acquirer generally pays to the issuer. Additionally, acquirers may charge merchants processing and related fees in addition to the merchant discount rate, and issuers may also charge account holders fees for the transaction, including, for example, fees for extending revolving credit.
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Authorization, Clearing and Settlement.
Through our core network, we enable the routing of a transaction to the issuer for its approval, facilitate the exchange of financial transaction information between issuers and acquirers after a successfully conducted transaction, and help to settle the transaction by facilitating the determination and exchange of funds between parties via settlement banks chosen by us and our customers.
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Cross-Border and Domestic.
Our core network switches transactions throughout the world when the merchant country and issuer country are different (“cross-border transactions”), providing account holders with the ability to use, and merchants to accept, our products and services across country borders. We also provide switched transaction services to customers where the merchant country and the issuer country are the same (“domestic transactions”). We switch approximately half of all transactions using Mastercard and Maestro-branded cards, including nearly all cross-border transactions. We switch the majority of Mastercard and Maestro-branded domestic transactions in the United States, United Kingdom, Canada, Brazil and a select number of other countries. Outside of these countries, most domestic transactions on our products are switched without our involvement.
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a distributed (peer-to-peer) switching structure for transactions that require fast, reliable switching to ensure they are switched close to where the transaction occurred; and
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a centralized (hub-and-spoke) switching structure for transactions that require value-added switching, such as real-time access to transaction data for fraud scoring or rewards at the point-of-sale.
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Year Ended December 31, 2017
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As of December 31, 2017
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GDV
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Cards
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(in billions)
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Growth (Local)
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% of Total GDV
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(in millions)
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Percentage Increase from December 31, 2016
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Mastercard Branded Programs
1,2
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Consumer Credit
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$
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2,289
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8
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%
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44
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%
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768
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6
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%
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Consumer Debit and Prepaid
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2,369
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12
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%
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45
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%
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991
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14
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%
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Commercial Credit and Debit
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583
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15
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%
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11
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%
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67
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16
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%
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Delivering better digital experiences everywhere.
We work to enable digital payment services across all channels and devices. We are using our technologies and security protocols to develop solutions to make digital shopping and selling experiences, such as on smartphones and other connected devices, simpler, faster and safer for both consumers and merchants. We also offer products that make it easier for merchants to accept payments and expand their customer base and are developing products and practices to facilitate acceptance via mobile devices. The successful implementation of our loyalty and reward programs is an important part of enabling these digital purchasing experiences.
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Securing more transactions.
We are leveraging tokenization, biometrics and machine learning technologies in our push to secure every transaction. These efforts include driving EMV-level security and benefits through all our payment channels.
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Digitizing personal and business payments.
Through Mastercard Send, we provide money transfer and global remittance solutions to enable our customers to facilitate consumers sending and receiving money quickly and securely domestically and around the world. These solutions allow our customers to address new payment flows with the goal of enabling the movement of money from any funding source, such as cash, card, bank account or mobile money account, to any destination globally, securely and in real time.
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Simplifying access to, and integration of, our digital assets.
Our Mastercard Developer platform makes it easy for customers and partners to leverage our many digital assets and services. By providing a single access point with tools and capabilities to find what we believe are some of the best in class Application Program Interfaces (“APIs”) across a broad range of Mastercard services, we enable easy integration of our services into new and existing solutions.
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Identifying and experimenting with future technologies, start-ups and trends.
Through Mastercard Labs, our global innovation and development arm, we continue to bring customers and partners access to thought leadership, innovation methodologies, new technologies and relevant early-stage fintech players.
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The “Prevent” layer protects infrastructure, devices and data from attacks. We have continued to grow global usage of EMV chip and contactless security technology, helping to reduce fraud. Greater usage of this technology has increased the number EMV cards issued and the transaction volume on EMV cards. While this technology is prevalent in Europe, the U.S. market has been adopting this technology in recent years.
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The “Identify” layer allows us to help banks and merchants verify genuine consumers during the payment process. Examples of solutions under this layer include Mastercard Identity Check™, a fingerprint, face and iris scanning biometric technology to verify online purchases on mobile devices, and our recently launched Biometric Card which has a fingerprint scanner built in to the card and is compatible with existing EMV payment terminals
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The “Detect” layer spots fraudulent behavior and cyber-attacks and takes action to stop these activities once detected. Examples of our capabilities under this layer include our Early Detection System, Decision Intelligence and Safety Net services and technologies.
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The “Experience” layer improves the security experience for our stakeholders in areas from the speed of transactions, improving approvals for online and card-on-file payments, to the ability to differentiate good consumers from fraudsters. Our offerings in this space include Mastercard In Control®, for consumer alerts and controls and our suite of digital token services available through our Mastercard Digital Enablement Service (“MDES”).
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Issuer solutions designed to provide customers with a complete processing solution to help them create differentiated products and services and allow quick deployment of payments portfolios across banking channels.
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Payment gateways that offer a single interface to provide e-commerce merchants with the ability to process secure online and in-app payments and offer value-added solutions, including outsourced electronic payments, fraud prevention and alternative payment options.
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Mobile gateways that facilitate transaction routing and processing for mobile-initiated transactions for our customers.
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cash and checks
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card-based payments, including credit, charge, debit, ATM and prepaid products, as well as limited-use products such as private label
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contactless, mobile and e-commerce payments, as well as cryptocurrency
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other electronic payments, including ACH payments, wire transfers, electronic benefits transfers and bill payments
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Cash, Check and legacy ACH
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Cash and checks continue to represent one of the most widely used forms of payment. However, an even larger share of payments on a U.S. dollar volume basis are made via legacy, or “slow,” ACH platforms. When combined, cash, checks and legacy ACH payments represent 90 percent of the $225 trillion of addressable payment flows.
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General Purpose Payment Networks
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We compete worldwide with payment networks such as Visa, American Express, JCB, China UnionPay and Discover, among others. Some of the competitors have more market share than we do in certain jurisdictions. Some also have different business models that may provide an advantage in pricing, regulatory compliance burdens or otherwise. In addition, several governments are promoting, or considering promoting, local networks for domestic switching. See “Risk Factors” in Part I, Item 1A for a discussion of the risks related to payments system regulation and government actions that may prevent us from competing effectively for a more detailed discussion.
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Debit and Local Networks.
We compete with ATM and point-of-sale debit networks in various countries. In addition, in many countries outside of the United States, local debit brands serve as the main domestic brands, while our brands are used mostly to enable cross-border transactions (typically representing a small portion of overall transaction volume). Certain jurisdictions have also created domestic card schemes that are focused mostly on debit (including MIR in Russia).
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Competition for Customer Business
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We compete intensely with other payments networks for customer business. Globally, financial institutions typically issue both Mastercard and Visa-branded payment products, and we compete with Visa for business on the basis of individual portfolios or programs. In addition, a number of our customers issue American Express and/or Discover-branded payment cards in a manner consistent with a four-party system.
We continue to face intense competitive pressure on the prices we charge our issuers and acquirers, and we seek to enter into business agreements with them through which we offer incentives and other support to issue and promote our payment products. We also compete for non-financial institution partners, such as merchants, governments and mobile providers.
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Real-time Account-based Payment Systems.
Through our acquisition of Vocalink, we now face competition in the real-time account-based payment space from other companies that provide these payment solutions. In addition, real-time account-based payments face competition from other payment methods, such as cash and checks, credit cards, electronic, mobile and e-commerce payment platforms, cryptocurrencies and other payments networks.
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Alternative Payments Systems and New Entrants
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As the global payments industry becomes more complex, we face increasing competition from alternative payment systems and emerging payment providers. Many of these providers have developed payments systems focused on online activity in e-commerce and mobile channels (in some cases, expanding to other channels), and may process payments using in-house account transfers, real-time account-based payment networks or global or local networks. Examples include digital wallet providers (such as Paytm, PayPal, Alipay and Amazon), mobile operator services, mobile phone-based money transfer and microfinancing services (such as mPesa), handset manufacturers and cryptocurrencies. In some circumstances, these providers can be a partner or customer, as well as a competitor.
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Value-Added Products and Services.
We face competition from companies that provide alternatives to our value-added products and services, including information services and consulting firms that provide consulting services and insights to financial institutions, as well as companies that compete against us as providers of loyalty and program management solutions. In addition, our integrated products and services offerings face competition and potential displacement from transaction processors throughout the world, which are seeking to enhance their networks that link issuers directly with point-of-sale devices for payment transaction authorization and processing services. Regulatory initiatives could also lead to increased competition in this space.
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globally recognized brands
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highly adaptable global acceptance network built over 50 years
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expertise in real-time account-based payments through our Vocalink acquisition
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adoption of innovative products and digital solutions
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Masterpass global digital payments ecosystem
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safety and security solutions embedded in our networks
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Mastercard Advisors group dedicated solely to the payments industry
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ability to serve a broad array of participants in global payments due to our expanded on-soil presence in individual markets and a heightened focus on working with governments
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world class talent
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The European Union’s adoption of its Interchange Fee Regulation in 2015 regulating electronic payments issued and acquired within the EEA, including caps on consumer credit and debit interchange fees (described in more detail in the risk factors below) and the separation of brand and switching (which Mastercard implemented in 2016)
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Several jurisdictions’ creation or grant of authority to create new regulations that either have or would enable the authority to regulate or increase formal oversight over payment systems, including the United Kingdom and India (both of which have designated us as a payments system subject to regulation), as well as Brazil, Hong Kong, Mexico and Russia
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The EEA’s implementation of the revised PSD2, which requires:
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financial institutions to provide third party payment processors access to consumer payment accounts. This may enable these third party payment processors to route transactions away from Mastercard products by offering account information or payment initiation services directly to people who currently use our products.
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a different standard for authentication of transactions (strong customer authentication (“SCA”), as opposed to risk-based authentication). The new authentication standard requires additional verification information from consumers to complete transactions and may increase the number of transactions that consumers abandon if we are unable to ensure a frictionless authentication experience. An increase in the rate of abandoned transactions could adversely impact our volumes or other operations metrics.
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A Statement of Objections issued by the European Commission in July 2015 related to our interregional interchange fees and central acquiring rules within the EEA, to which we have responded and remain in discussions.
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Legislation regulating the level of domestic interchange rates that has been enacted, or is being considered, in many jurisdictions (for example, debit interchange in the United States is capped by statute for certain regulated entities).
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Merchants and consumers are also seeking interchange fee reductions and acceptance rule changes through litigation. See
Note 18 (Legal and Regulatory Proceedings)
to the consolidated financial statements included in Part II, Item 8 for more details.
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Governments in some countries are considering, or may consider, regulatory requirements that mandate switching of domestic payments either entirely in that country or by only domestic companies. In particular, we are currently excluded from domestic switching in China and are seeking market access, which is uncertain and subject to a number of factors, including receiving regulatory approval. In 2017, People’s Bank of China issued the Service Guidelines for Market Access of Bank Card Clearing Institutions, which provide some guidance on the 2016 regulations on license application and operational requirements for network operators to process domestic payments in China. We have been engaged with regulators, business partners and other stakeholders in connection with steps required to advance an application. Additionally, Russia has amended its National Payments Systems laws to require all payment systems to process domestic transactions through a government-owned payment switch. As a result, all of our domestic transactions in Russia are currently processed by that system instead of by us.
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Geopolitical events and resulting OFAC sanctions, adverse trade policies or other types of government actions could lead jurisdictions affected by those sanctions to take actions in response that could adversely affect our business.
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Regional groups of countries, such as the Gulf Cooperation Countries in the Middle East and a number of countries in South East Asia, are considering, or may consider, efforts to restrict our participation in the switching of regional transactions.
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Anti-Money Laundering, Counter Terrorist Financing, Economic Sanctions and Anti-Corruption
- We are subject to AML and CTF laws and regulations globally, including the U.S. Bank Secrecy Act and the USA PATRIOT Act, as well as the various economic sanctions programs, including those imposed and administered by OFAC. We have implemented a comprehensive AML/CTF program, comprised of policies, procedures and internal controls, including the designation of a compliance officer, which is designed to prevent our payment network from being used to facilitate money laundering and other illicit activity and to address these legal and regulatory requirements and assist in managing money laundering and terrorist financing risks. The economic sanctions programs administered by OFAC restrict financial transactions and other dealings with certain countries and geographies (specifically Crimea, Cuba, Iran, North Korea and Syria) and with persons and entities included in OFAC sanctions lists including the SDN List. We take measures to prevent transactions that do not comply with OFAC and other applicable sanctions, including establishing a risk-based compliance program that has policies, procedures and controls designed to prevent us from having unlawful business dealings with prohibited countries, regions, individuals or entities. As part of this program, we obligate issuers and acquirers to comply with their local sanctions obligations and the U.S. sanctions programs, including requiring the screening of account holders and merchants, respectively, against OFAC sanctions lists (including the SDN List). Iran, Sudan and Syria have been identified by the U.S. State Department as terrorist-sponsoring states, and we have no offices, subsidiaries or affiliated entities located in any of these countries or geographies and do not license entities domiciled there. We are also subject to anti-corruption laws and regulations globally, including the U.S. Foreign Corrupt
|
•
|
Financial Sector Oversight -
In the United States, we are subject to regulation by a number of agencies charged with oversight of, among other things, consumer protection, financial and banking matters. These regulators have supervisory and independent examination authority as well as enforcement authority that we may be subject to because of the services we provide to financial institutions that issue and acquire our products. It is often not clear whether and/or to what extent these institutions will regulate broader aspects of payment networks.
|
•
|
Real-time Account-based Payment Systems
– In 2017, we completed the acquisition of a controlling interest in Vocalink. In the U.K., the Bank of England has expanded its oversight of certain payment system providers that are systemically important to U.K.’s payment network. As a result of these changes, aspects of our Vocalink business could become subject to the U.K. payment system oversight regime and be directly overseen by the Bank of England.
|
•
|
Issuer Practice Legislation and Regulation
- Our financial institution customers are subject to numerous regulations, which impact us as a consequence. In addition, certain regulations, such as PSD2 in the EEA, may disintermediate issuers. If our customers are disintermediated in their business, we could face diminished demand for our integrated products and services. In addition, existing or new regulations in these or other areas may diminish the attractiveness of our products to our customers.
|
•
|
Regulation of Internet and Digital Transactions
- Proposed legislation in various jurisdictions relating to Internet gambling and other digital areas such as cyber-security, copyright, trademark infringement and privacy could impose additional compliance burdens on us and/or our customers, including requiring us or our customers to monitor, filter, restrict, or otherwise oversee various categories of payment transactions.
|
•
|
Within the global general purpose payments industry, we face substantial and increasingly intense competition worldwide.
|
•
|
In certain jurisdictions, including the United States, Visa has greater volume, scale and market share than we do, which may provide significant competitive advantages.
|
•
|
Some of our traditional competitors, as well as alternative payment service providers, may have substantially greater financial and other resources than we have, may offer a wider range of programs and services than we offer or may use more effective advertising and marketing strategies to achieve broader brand recognition or merchant acceptance than we have.
|
•
|
Our ability to compete may also be affected by the outcomes of litigation, competition-related regulatory proceedings, central bank activity and legislative activity.
|
•
|
Parties that process our transactions in certain countries may try to eliminate our position as an intermediary in the payment process. For example, merchants could switch (and in some cases are switching) transactions directly with issuers. Additionally, processors could process transactions directly between issuers and acquirers. Large scale consolidation within processors could result in these processors developing bilateral agreements or in some cases switching the entire transaction on their own network, thereby disintermediating us.
|
•
|
Regulation in the EEA may disintermediate us by enabling third-party processors opportunities to route payment transactions away from our networks and towards other forms of payment.
|
•
|
Although we partner with technology companies (such as digital players and mobile providers) that leverage our technology, platforms and networks to deliver their products, they could develop platforms or networks that disintermediate us from digital payments and impact our ability to compete in the digital economy. This risk is heightened when we have relationships with these entities where we share Mastercard data. While we share this data in a controlled manner subject to applicable anonymization and data privacy standards, without proper oversight we could inadvertently share too much data which could give the partner a competitive advantage.
|
•
|
Competitors, customers, technology companies, governments and other industry participants may develop products that compete with or replace value-added products and services we currently provide to support our switched transaction and payment offerings. These products could replace our own switching and payments offerings or could force us to change our pricing or practices for these offerings. In addition, governments that develop national payment platforms may promote their platforms in such a way that could put us at a competitive disadvantage in those markets.
|
•
|
Participants in the payments industry may merge, create joint ventures or form other business combinations that may strengthen their existing business services or create new payment services that compete with our services.
|
•
|
Technological changes, including continuing developments of technologies in the areas of smart cards and devices, contactless and mobile payments, e-commerce, cryptocurrency and block chain technology, machine learning and AI, could result in new technologies that may be superior to, or render obsolete, the technologies we currently use in our programs and services. Moreover, these changes could result in new and innovative payment methods and programs that could place us at a competitive disadvantage and that could reduce the use of our products.
|
•
|
We rely in part on third parties, including some of our competitors and potential competitors, for the development of and access to new technologies. The inability of these companies to keep pace with technological developments, or the acquisition of these companies by competitors, could negatively impact our offerings.
|
•
|
Our ability to develop and adopt new services and technologies may be inhibited by industry-wide solutions and standards (such as those related to EMV, tokenization or other safety and security technologies), and by resistance from customers or merchants to such changes.
|
•
|
Our ability to develop evolving systems and products may be inhibited by any difficulty we may experience in attracting and retaining technology experts.
|
•
|
Our ability to adopt these technologies can also be inhibited by intellectual property rights of third parties. We have received, and we may in the future receive, notices or inquiries from patent holders (for example, other operating companies or non-practicing entities) suggesting that we may be infringing certain patents or that we need to license the use of their patents to avoid infringement. Such notices may, among other things, threaten litigation against us or our customers or demand significant license fees.
|
•
|
Our ability to develop new technologies and reflect technological changes in our payments offerings will require resources, which may result in additional expenses.
|
•
|
We work with technology companies (such as digital players and mobile providers) that use our technology to enhance payment safety and security and to deliver their payment-related products and services quickly and efficiently to consumers. Our inability to keep pace technologically could negatively impact the willingness of these customers to work with us, and could encourage them to use their own technology and compete against us.
|
•
|
Governmental entities typically fund projects through appropriated monies. Changes in governmental priorities or other political developments, including disruptions in governmental operations, could impact approved funding and result in changes in the scope, or lead to the termination of, the arrangements or contracts we or financial institutions enter into with respect to our payment products and services.
|
•
|
Our work with governments subjects us to U.S. and international anti-corruption laws, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. A violation and subsequent judgment or settlement under these laws could subject us to substantial monetary penalties and damages and have a significant reputational impact.
|
•
|
Working or contracting with governments, either directly or via our financial institution customers, can subject us to heightened reputational risks, including extensive scrutiny and publicity, as well as a potential association with the policies of a government as a result of a business arrangement with that government. Any negative publicity or negative association with a government entity, regardless of its accuracy, may adversely affect our reputation.
|
•
|
principal customers, which are customers that participate directly in our programs and are responsible for their own settlement and other activities as well as those of their sponsored affiliate customers
|
•
|
affiliate debit licensees
|
•
|
We may incur obligations in connection with transaction settlements if an issuer or acquirer fails to fund its daily settlement obligations due to technical problems, liquidity shortfalls, insolvency or other reasons.
|
•
|
If our principal customer or affiliate debit licensee is unable to fulfill its settlement obligations to other customers, we may bear the loss.
|
•
|
Although we are not obligated to do so, we may elect to keep merchants whole if an acquirer defaults on its merchant payment obligations, or to keep prepaid cardholders whole if an issuer defaults on its obligation to safeguard unspent prepaid funds.
|
•
|
Our customers may:
|
Ø
|
restrict credit lines to account holders or limit the issuance of new Mastercard products to mitigate increasing account holder defaults
|
Ø
|
implement cost reduction initiatives that reduce or eliminate payment product marketing or increase requests for greater incentives or greater cost stability
|
Ø
|
default on their settlement obligations, including as a result of sovereign defaults, causing a liquidity crisis for our other customers
|
•
|
Consumer spending can be negatively impacted by:
|
Ø
|
declining economies, foreign currency fluctuations and the pace of economic recovery, which can change cross-border travel patterns, on which a significant portion of our revenues is dependent
|
Ø
|
low levels of consumer and business confidence typically associated with recessionary environments and those markets experiencing relatively high unemployment
|
•
|
Government intervention (including the effect of laws, regulations and/or government investments on or in our financial institution customers), as well as uncertainty due to changing political regimes in executive, legislative and/or judicial branches of government, may have potential negative effects on our business and our relationships with customers or otherwise alter their strategic direction away from our products.
|
•
|
Tightening of credit availability could impact the ability of participating financial institutions to lend to us under the terms of our credit facility.
|
•
|
our stockholders are not entitled to the right to cumulate votes in the election of directors
|
•
|
our stockholders are not entitled to act by written consent
|
•
|
a vote of 80% or more of all of the outstanding shares of our stock then entitled to vote is required for stockholders to amend any provision of our bylaws
|
•
|
any representative of a competitor of Mastercard or of Mastercard Foundation is disqualified from service on our board of directors
|
|
2017
|
|
2016
|
||||||||||||
|
High
|
|
Low
|
|
High
|
|
Low
|
||||||||
First Quarter
|
$
|
113.50
|
|
|
$
|
104.01
|
|
|
$
|
95.83
|
|
|
$
|
78.52
|
|
Second Quarter
|
126.19
|
|
|
111.01
|
|
|
100.00
|
|
|
87.59
|
|
||||
Third Quarter
|
143.59
|
|
|
120.65
|
|
|
102.31
|
|
|
86.65
|
|
||||
Fourth Quarter
|
154.65
|
|
|
140.61
|
|
|
108.93
|
|
|
99.51
|
|
Period
|
|
Total Number
of Shares
Purchased
|
|
Average Price
Paid per Share
(including
commission cost)
|
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
|
|
Dollar Value of
Shares that may yet
be Purchased under
the Plans or
Programs
1
|
||||||
October 1 – 31
|
|
2,276,450
|
|
|
$
|
144.78
|
|
|
2,276,450
|
|
|
$
|
1,935,087,778
|
|
November 1 – 30
|
|
2,314,860
|
|
|
150.22
|
|
|
2,314,860
|
|
|
1,587,353,507
|
|
||
December 1 – 31
|
|
2,353,069
|
|
|
150.22
|
|
|
2,353,069
|
|
|
5,233,867,141
|
|
||
Total
|
|
6,944,379
|
|
|
148.44
|
|
|
6,944,379
|
|
|
|
|
Years Ended December 31,
|
||||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
||||||||||
|
(in millions, except per share data)
|
||||||||||||||||||
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Net revenue
|
$
|
12,497
|
|
|
$
|
10,776
|
|
|
$
|
9,667
|
|
|
$
|
9,441
|
|
|
$
|
8,312
|
|
Total operating expenses
|
5,875
|
|
|
5,015
|
|
|
4,589
|
|
|
4,335
|
|
|
3,809
|
|
|||||
Operating income
|
6,622
|
|
|
5,761
|
|
|
5,078
|
|
|
5,106
|
|
|
4,503
|
|
|||||
Net income
|
3,915
|
|
|
4,059
|
|
|
3,808
|
|
|
3,617
|
|
|
3,116
|
|
|||||
Basic earnings per share
|
3.67
|
|
|
3.70
|
|
|
3.36
|
|
|
3.11
|
|
|
2.57
|
|
|||||
Diluted earnings per share
|
3.65
|
|
|
3.69
|
|
|
3.35
|
|
|
3.10
|
|
|
2.56
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Total assets
|
$
|
21,329
|
|
|
$
|
18,675
|
|
|
$
|
16,250
|
|
|
$
|
15,329
|
|
|
$
|
14,242
|
|
Long-term debt
|
5,424
|
|
|
5,180
|
|
|
3,268
|
|
|
1,494
|
|
|
—
|
|
|||||
Equity
|
5,497
|
|
|
5,684
|
|
|
6,062
|
|
|
6,824
|
|
|
7,495
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash dividends declared per share
|
$
|
0.91
|
|
|
$
|
0.79
|
|
|
$
|
0.67
|
|
|
$
|
0.49
|
|
|
$
|
0.29
|
|
|
Year ended December 31,
|
|
Increase/(Decrease)
|
|
Year ended December 31,
|
|
Increase/(Decrease)
|
||||||||||||
|
2017
|
|
2016
|
|
|
2016
|
|
2015
|
|
||||||||||
|
($ in millions, except per share data)
|
||||||||||||||||||
Net revenue
|
$
|
12,497
|
|
|
$
|
10,776
|
|
|
16%
|
|
$
|
10,776
|
|
|
$
|
9,667
|
|
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Operating expenses
|
$
|
5,875
|
|
|
$
|
5,015
|
|
|
17%
|
|
$
|
5,015
|
|
|
$
|
4,589
|
|
|
9%
|
Operating income
|
$
|
6,622
|
|
|
$
|
5,761
|
|
|
15%
|
|
$
|
5,761
|
|
|
$
|
5,078
|
|
|
13%
|
Operating margin
|
53.0
|
%
|
|
53.5
|
%
|
|
(0.5) ppt
|
|
53.5
|
%
|
|
52.5
|
%
|
|
0.9 ppt
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Income tax expense
|
$
|
2,607
|
|
|
$
|
1,587
|
|
|
64%
|
|
$
|
1,587
|
|
|
$
|
1,150
|
|
|
38%
|
Effective income tax rate
|
40.0
|
%
|
|
28.1
|
%
|
|
11.9 ppt
|
|
28.1
|
%
|
|
23.2
|
%
|
|
4.9 ppt
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net income
|
$
|
3,915
|
|
|
$
|
4,059
|
|
|
(4)%
|
|
$
|
4,059
|
|
|
$
|
3,808
|
|
|
7%
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Diluted earnings per share
|
$
|
3.65
|
|
|
$
|
3.69
|
|
|
(1)%
|
|
$
|
3.69
|
|
|
$
|
3.35
|
|
|
10%
|
Diluted weighted-average shares outstanding
|
1,072
|
|
|
1,101
|
|
|
(3)%
|
|
1,101
|
|
|
1,137
|
|
|
(3)%
|
|
Year ended December 31,
|
|
Increase/(Decrease)
|
|
Year ended December 31,
|
|
Increase/(Decrease)
|
||||||||||||||||
|
2017
|
|
2016
|
|
As adjusted
|
|
Currency-neutral
|
|
2016
|
|
2015
|
|
As adjusted
|
|
Currency-neutral
|
||||||||
|
($ in millions, except per share data)
|
||||||||||||||||||||||
Net revenue
|
$
|
12,497
|
|
|
$
|
10,776
|
|
|
16%
|
|
15%
|
|
$
|
10,776
|
|
|
$
|
9,667
|
|
|
11%
|
|
13%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Adjusted operating expenses
|
$
|
5,693
|
|
|
$
|
4,898
|
|
|
16%
|
|
16%
|
|
$
|
4,898
|
|
|
$
|
4,449
|
|
|
10%
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Adjusted operating margin
|
54.4
|
%
|
|
54.5
|
%
|
|
(0.1) ppt
|
|
(0.2) ppt
|
|
54.5
|
%
|
|
54.0
|
%
|
|
0.6 ppt
|
|
0.6 ppt
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Adjusted effective income tax rate
|
26.8
|
%
|
|
28.1
|
%
|
|
(1.3) ppt
|
|
(1.3) ppt
|
|
28.1
|
%
|
|
23.4
|
%
|
|
4.6 ppt
|
|
4.7 ppt
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Adjusted net income
|
$
|
4,906
|
|
|
$
|
4,144
|
|
|
18%
|
|
17%
|
|
$
|
4,144
|
|
|
$
|
3,903
|
|
|
6%
|
|
7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Adjusted diluted earnings per share
|
$
|
4.58
|
|
|
$
|
3.77
|
|
|
21%
|
|
21%
|
|
$
|
3.77
|
|
|
$
|
3.43
|
|
|
10%
|
|
11%
|
•
|
Net revenue increased
16%
, or
15%
on a currency-neutral basis, in
2017
versus
2016
, primarily driven by:
|
Ø
|
Switched transaction growth of
17%
|
Ø
|
Cross border growth of
15%
on a local currency basis
|
Ø
|
An increase of
10%
in gross dollar volume, on a local currency basis and adjusted for the impact of the 2016 EU regulation change
|
Ø
|
Acquisitions contributed
2
percentage points of growth
|
Ø
|
These increases were partially offset by higher rebates and incentives
|
•
|
Operating expenses increased
17%
in
2017
versus
2016
. Excluding the impact of Special Items, adjusted operating expenses increased
16%
, both as adjusted and on a currency-neutral basis, in
2017
versus
2016
. The impact of acquisitions contributed
6
percentage points of growth for the
twelve months ended December 31, 2017
. Other factors contributing to the increase were continued investments in strategic initiatives as well as foreign exchange related charges.
|
•
|
The effective income tax rate increased
11.9
percentage points to
40.0%
in
2017
versus
28.1%
in
2016
, primarily due to the Tax Cuts and Jobs Act (the “TCJA”). Excluding the impact of the TCJA and other Special Items, the 2017 adjusted effective income tax rate improved by
1.3
percentage points to
26.8%
from
28.1%
in 2016 primarily due to a more favorable geographical mix of taxable earnings, partially offset by a lower U.S. foreign tax credit benefit.
|
•
|
We generated net cash flows from operations of
$5.6 billion
in
2017
, versus
$4.5 billion
in
2016
.
|
•
|
We repurchased
30 million
shares of our common stock for
$3.8 billion
and paid dividends of
$942 million
in
2017
.
|
•
|
We acquired businesses for total consideration of
$1.5 billion
in
2017
, the largest of which was VocaLink Holdings Limited (“Vocalink”), which expanded our capability, among other things, to process real-time account-based payment transactions.
|
•
|
The TCJA, enacted in 2017, will reduce the U.S. corporate income tax rate from 35% to 21% beginning in 2018, imposes a one-time deemed repatriation tax on accumulated foreign earnings (the “Transition Tax”) and puts into effect the migration towards a territorial tax system. While the enactment of the TCJA resulted in additional tax expense of
$873 million
in 2017, it is expected to have a favorable impact on our effective tax rate in future periods. See
Note 17 (Income Taxes)
to the consolidated financial statements included in Part II, Item 8 for further discussion of the TCJA impact.
|
•
|
In 2017, due to the passage of the TCJA, we incurred additional tax expense of
$873 million
,
$0.81
per diluted share, which includes
$825 million
of provisional charges attributable to the Transition Tax, the remeasurement of our net deferred tax asset balance in the U.S. and the recognition of a deferred tax liability related to a change in assertion regarding reinvestment of foreign earnings, as well as
$48 million
in additional tax expense related to a foregone foreign tax credit benefit on current year repatriations (collectively the “Tax Act Impact”). See Financial Results of this section and
Note 17 (Income Taxes)
to the consolidated financial statements included in Part II, Item 8 for further discussion of the TCJA.
|
•
|
In 2017, we recorded a pre-tax charge of
$167 million
(
$108 million
after tax, or
$0.10
per diluted share) in general and administrative expenses related to the deconsolidation of our Venezuelan subsidiaries (the “Venezuela Charge”). See Impact of Foreign Currency of this section and
Note 1 (Summary of Significant Accounting Policies)
to the consolidated financial statements included in Part II, Item 8 for further discussion of the Venezuela Charge.
|
•
|
In 2017, we recorded a pre-tax charge of
$15 million
(
$10 million
after tax, or
$0.01
per diluted share) in provision for litigation settlements expense, related to a litigation settlement with Canadian merchants (the “Canadian Merchant Litigation Provision”). In 2016 and 2015, we recorded a pre-tax charge of
$117 million
(
$85 million
after tax, or
$0.08
per diluted share) and
$61 million
(
$45 million
after tax, or
$0.04
per diluted share), respectively, in provision for litigation settlements expense, related to separate litigations with merchants in the U.K. (collectively the “U.K. Merchant Litigation Provision”). See
Note 18 (Legal and Regulatory Proceedings)
to the consolidated financial statements included in Part II, Item 8 for further discussion of the Canadian Merchant Litigation Provision and the U.K. Merchant Litigation Provision.
|
•
|
In 2015, we recorded a settlement charge of
$79 million
(
$50 million
after tax, or
$0.04
per diluted share) in general and administrative expenses, relating to the termination of our qualified U.S. defined benefit pension plan (the “U.S.
|
|
Year ended December 31, 2017
|
||||||||||||||||
|
Operating expenses
|
|
Operating margin
|
|
Effective income tax rate
|
|
Net income
|
|
Diluted earnings per share
|
||||||||
|
($ in millions, except per share data)
|
||||||||||||||||
Reported - GAAP
|
$
|
5,875
|
|
|
53.0
|
%
|
|
40.0
|
%
|
|
$
|
3,915
|
|
|
$
|
3.65
|
|
Tax Act Impact
|
**
|
|
|
**
|
|
|
(13.4
|
)%
|
|
873
|
|
|
0.81
|
|
|||
Venezuela Charge
|
(167
|
)
|
|
1.3
|
%
|
|
0.2
|
%
|
|
108
|
|
|
0.10
|
|
|||
Canadian Merchant Litigation Provision
|
(15
|
)
|
|
0.1
|
%
|
|
—
|
%
|
|
10
|
|
|
0.01
|
|
|||
Non-GAAP
|
$
|
5,693
|
|
|
54.4
|
%
|
|
26.8
|
%
|
|
$
|
4,906
|
|
|
$
|
4.58
|
|
|
Year ended December 31, 2016
|
||||||||||||||||
|
Operating expenses
|
|
Operating margin
|
|
Effective income tax rate
|
|
Net income
|
|
Diluted earnings per share
|
||||||||
|
($ in millions, except per share data)
|
||||||||||||||||
Reported - GAAP
|
$
|
5,015
|
|
|
53.5
|
%
|
|
28.1
|
%
|
|
$
|
4,059
|
|
|
$
|
3.69
|
|
U.K. Merchant Litigation Provision
|
(117
|
)
|
|
1.0
|
%
|
|
—
|
%
|
|
85
|
|
|
0.08
|
|
|||
Non-GAAP
|
$
|
4,898
|
|
|
54.5
|
%
|
|
28.1
|
%
|
|
$
|
4,144
|
|
|
$
|
3.77
|
|
|
Year ended December 31, 2015
|
||||||||||||||||
|
Operating expenses
|
|
Operating margin
|
|
Effective income tax rate
|
|
Net income
|
|
Diluted earnings per share
|
||||||||
|
($ in millions, except per share data)
|
||||||||||||||||
Reported - GAAP
|
$
|
4,589
|
|
|
52.5
|
%
|
|
23.2
|
%
|
|
$
|
3,808
|
|
|
$
|
3.35
|
|
U.S. Employee Pension Plan Settlement Charge
|
(79
|
)
|
|
0.8
|
%
|
|
0.1
|
%
|
|
50
|
|
|
0.04
|
|
|||
U.K. Merchant Litigation Provision
|
(61
|
)
|
|
0.6
|
%
|
|
0.1
|
%
|
|
45
|
|
|
0.04
|
|
|||
Non-GAAP
|
$
|
4,449
|
|
|
54.0
|
%
|
|
23.4
|
%
|
|
$
|
3,903
|
|
|
$
|
3.43
|
|
|
Year Ended December 31, 2017 as compared to the Year Ended December 31, 2016
|
||||||||||||||
|
Increase/(Decrease)
|
||||||||||||||
|
Net revenue
|
|
Operating expenses
|
|
Operating margin
|
|
Effective income tax rate
|
|
Net income
|
|
Diluted earnings per share
|
||||
Reported - GAAP
|
16
|
%
|
|
17
|
%
|
|
(0.5) ppt
|
|
11.9 ppt
|
|
(4
|
)%
|
|
(1
|
)%
|
Tax Act Impact
|
**
|
|
|
**
|
|
|
**
|
|
(13.4) ppt
|
|
21
|
%
|
|
22
|
%
|
Venezuela Charge
|
**
|
|
|
(3
|
)%
|
|
1.3 ppt
|
|
0.2 ppt
|
|
3
|
%
|
|
3
|
%
|
Canadian Merchant Litigation Provision
|
**
|
|
|
—
|
%
|
|
0.1 ppt
|
|
– ppt
|
|
—
|
%
|
|
—
|
%
|
U.K. Merchant Litigation Provision
|
**
|
|
|
3
|
%
|
|
(1.1) ppt
|
|
– ppt
|
|
(2
|
)%
|
|
(3
|
)%
|
Non-GAAP
|
16
|
%
|
|
16
|
%
|
|
(0.1) ppt
|
|
(1.3) ppt
|
|
18
|
%
|
|
21
|
%
|
Foreign currency
1
|
(1
|
)%
|
|
(1
|
)%
|
|
(0.1) ppt
|
|
– ppt
|
|
(1
|
)%
|
|
1
|
%
|
Non-GAAP - currency-neutral
|
15
|
%
|
|
16
|
%
|
|
(0.2) ppt
|
|
(1.3) ppt
|
|
17
|
%
|
|
21
|
%
|
|
Year Ended December 31, 2016 as compared to the Year Ended December 31, 2015
|
||||||||||||||
|
Increase/(Decrease)
|
||||||||||||||
|
Net revenue
|
|
Operating expenses
|
|
Operating margin
|
|
Effective income tax rate
|
|
Net income
|
|
Diluted earnings per share
|
||||
Reported - GAAP
|
11
|
%
|
|
9
|
%
|
|
0.9 ppt
|
|
4.9 ppt
|
|
7
|
%
|
|
10
|
%
|
U.K. Merchant Litigation Provision
|
**
|
|
|
(1
|
)%
|
|
0.5 ppt
|
|
(0.1) ppt
|
|
1
|
%
|
|
1
|
%
|
U.S. Employee Pension Plan Settlement Charge
|
**
|
|
|
2
|
%
|
|
(0.8) ppt
|
|
(0.2) ppt
|
|
(1
|
)%
|
|
(1
|
)%
|
Non-GAAP
|
11
|
%
|
|
10
|
%
|
|
0.6 ppt
|
|
4.6 ppt
|
|
6
|
%
|
|
10
|
%
|
Foreign currency
1
|
1
|
%
|
|
1
|
%
|
|
– ppt
|
|
0.1 ppt
|
|
1
|
%
|
|
1
|
%
|
Non-GAAP - currency-neutral
|
13
|
%
|
|
12
|
%
|
|
0.6 ppt
|
|
4.7 ppt
|
|
7
|
%
|
|
11
|
%
|
•
|
domestic or cross-border transactions
|
•
|
signature-based or PIN-based transactions
|
•
|
geographic region or country in which the transaction occurs
|
•
|
volumes/transactions subject to tiered rates
|
•
|
processed or not processed by us
|
•
|
amount of usage of our other products or services
|
•
|
amount of rebates and incentives provided to customers
|
1.
|
Domestic assessments
are fees charged to issuers and acquirers based primarily on the dollar volume of activity on cards and other devices that carry our brands where the merchant country and the issuer country are the same. Domestic assessments include items such as card assessments, which are fees charged on the number of cards issued or assessments for specific purposes, such as acceptance development or market development programs.
|
2.
|
Cross-border volume fees
are charged to issuers and acquirers based on the dollar volume of activity on cards and other devices that carry our brands where the merchant country and the issuer country are different. In general, a cross-border transaction generates higher revenue than a domestic transaction since cross-border fees are higher than domestic fees, and may include fees for currency conversion.
|
3.
|
Transaction processing
revenue is earned for both domestic and cross-border transactions and is primarily based on the number of transactions. Transaction processing includes the following:
|
•
|
Switched transactions
include the following products and services:
|
Ø
|
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, on behalf of the issuer approve in accordance with either the issuer’s instructions or applicable rules (also known as “stand-in”).
|
Ø
|
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. We clear transactions among customers through our central and regional processing systems.
|
Ø
|
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 our 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.
|
4.
|
Other revenues:
Other revenues consist of other payment-related products and services and are primarily associated with the following:
|
•
|
Consulting, data analytic and research fees
are primarily generated by Mastercard Advisors, our professional advisory services group.
|
•
|
Safety and security services fees
are for products and services we offer to prevent, detect and respond to fraud and to ensure the safety of transactions made on our products. We work with issuers, merchants and governments to help deploy standards for safe and secure transactions for the global payments system.
|
•
|
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. For merchants, we provide targeted offers and rewards campaigns and management services for publishing offers, as well as opportunities for holders of co-brand or loyalty cards and rewards program members to obtain rewards points faster.
|
•
|
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.
|
•
|
Real-time account-based payment services
relating to ACH and other ACH related services.
|
•
|
We also charge for a variety of other payment-related products and services, including account and transaction enhancement services, rules compliance and publications.
|
5.
|
Rebates and incentives (contra-revenue):
Rebates and incentives are provided to certain of our customers and are recorded as contra-revenue.
|
|
For the Years Ended December 31,
|
|
Percent Increase (Decrease)
|
||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
||||||
|
(in millions, except percentages)
|
||||||||||||||
Domestic assessments
|
$
|
5,130
|
|
|
$
|
4,411
|
|
|
$
|
4,086
|
|
|
16%
|
|
8%
|
Cross-border volume
|
4,174
|
|
|
3,568
|
|
|
3,225
|
|
|
17%
|
|
11%
|
|||
Transaction processing
|
6,188
|
|
|
5,143
|
|
|
4,345
|
|
|
20%
|
|
18%
|
|||
Other revenues
|
2,853
|
|
|
2,431
|
|
|
1,991
|
|
|
17%
|
|
22%
|
|||
Gross revenue
|
18,345
|
|
|
15,553
|
|
|
13,647
|
|
|
18%
|
|
14%
|
|||
Rebates and incentives (contra-revenue)
|
(5,848
|
)
|
|
(4,777
|
)
|
|
(3,980
|
)
|
|
22%
|
|
20%
|
|||
Net revenue
|
$
|
12,497
|
|
|
$
|
10,776
|
|
|
$
|
9,667
|
|
|
16%
|
|
11%
|
|
For the Years Ended December 31,
|
||||||||||||||||||||||||||||
|
Volume
|
|
Acquisitions
|
|
Foreign Currency
1
|
|
Other
2
|
|
Total
|
||||||||||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||||
Domestic assessments
|
10
|
%
|
|
11
|
%
|
|
—
|
%
|
|
—
|
%
|
|
1
|
%
|
|
(2
|
)%
|
|
6
|
%
|
3
|
(1
|
)%
|
3
|
16
|
%
|
|
8
|
%
|
Cross-border volume
|
14
|
%
|
|
11
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
(3
|
)%
|
|
3
|
%
|
|
2
|
%
|
|
17
|
%
|
|
11
|
%
|
Transaction processing
|
15
|
%
|
|
14
|
%
|
|
1
|
%
|
|
—
|
%
|
|
1
|
%
|
|
—
|
%
|
|
4
|
%
|
|
5
|
%
|
|
20
|
%
|
|
18
|
%
|
Other revenues
|
**
|
|
|
**
|
|
|
7
|
%
|
|
3
|
%
|
|
1
|
%
|
|
—
|
%
|
|
9
|
%
|
4
|
19
|
%
|
4
|
17
|
%
|
|
22
|
%
|
Rebates and incentives
|
10
|
%
|
|
8
|
%
|
|
—
|
%
|
|
—
|
%
|
|
1
|
%
|
|
(2
|
)%
|
|
11
|
%
|
5
|
14
|
%
|
5
|
22
|
%
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net revenue
|
11
|
%
|
|
11
|
%
|
|
2
|
%
|
|
1
|
%
|
|
1
|
%
|
|
(1
|
)%
|
|
2
|
%
|
|
1
|
%
|
|
16
|
%
|
|
11
|
%
|
|
Years Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
||||||||
|
Growth (USD)
|
|
Growth (Local)
|
|
Growth (USD)
|
|
Growth (Local)
|
||||
Mastercard-branded GDV
1
|
9
|
%
|
|
9
|
%
|
|
6
|
%
|
|
9
|
%
|
Asia Pacific/Middle East/Africa
|
9
|
%
|
|
10
|
%
|
|
7
|
%
|
|
11
|
%
|
Canada
|
13
|
%
|
|
10
|
%
|
|
6
|
%
|
|
10
|
%
|
Europe
|
10
|
%
|
|
10
|
%
|
|
5
|
%
|
|
10
|
%
|
Latin America
|
18
|
%
|
|
16
|
%
|
|
2
|
%
|
|
15
|
%
|
United States
|
5
|
%
|
|
5
|
%
|
|
6
|
%
|
|
6
|
%
|
Cross-border Volume
1
|
|
|
15
|
%
|
|
|
|
12
|
%
|
||
Switched Transactions Growth
|
|
|
17
|
%
|
|
|
|
16
|
%
|
|
For the Years Ended December 31,
|
||
|
2017
|
|
2016
|
|
Growth (Local)
|
||
GDV
1
|
|
|
|
Worldwide as reported
|
9%
|
|
9%
|
Worldwide as adjusted for EU Regulation
|
10%
|
|
11%
|
|
|
|
|
Europe as reported
|
10%
|
|
10%
|
Europe as adjusted for EU Regulation
|
16%
|
|
18%
|
|
Year ended December 31,
|
|
Increase (Decrease)
|
||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
||||||||
|
($ in millions)
|
||||||||||||||||
General and administrative
|
$
|
4,526
|
|
|
$
|
3,714
|
|
|
$
|
3,341
|
|
|
22
|
%
|
|
11
|
%
|
Advertising and marketing
|
898
|
|
|
811
|
|
|
821
|
|
|
11
|
%
|
|
(1
|
)%
|
|||
Depreciation and amortization
|
436
|
|
|
373
|
|
|
366
|
|
|
17
|
%
|
|
2
|
%
|
|||
Provision for litigation settlement
|
15
|
|
|
117
|
|
|
61
|
|
|
**
|
|
|
**
|
|
|||
Total operating expenses
|
5,875
|
|
|
5,015
|
|
|
4,589
|
|
|
17
|
%
|
|
9
|
%
|
|||
Special Items
1
|
(182
|
)
|
|
(117
|
)
|
|
(140
|
)
|
|
(1
|
)%
|
|
1
|
%
|
|||
Adjusted total operating expenses (excluding Special Items
1
)
|
$
|
5,693
|
|
|
$
|
4,898
|
|
|
$
|
4,449
|
|
|
16
|
%
|
|
10
|
%
|
|
For the Years Ended December 31,
|
||||||||||||||||||||||||||||
|
Operational
|
|
Special Items
1
|
|
Acquisitions
|
|
Foreign Currency
2
|
|
Total
|
||||||||||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||||
General and administrative
|
11
|
%
|
|
15
|
%
|
|
5
|
%
|
|
(3
|
)%
|
|
6
|
%
|
|
1
|
%
|
|
1
|
%
|
|
(1
|
)%
|
|
22
|
%
|
|
11
|
%
|
Advertising and marketing
|
9
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
1
|
%
|
|
—
|
%
|
|
1
|
%
|
|
(1
|
)%
|
|
11
|
%
|
|
(1
|
)%
|
Depreciation and amortization
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
17
|
%
|
|
4
|
%
|
|
—
|
%
|
|
(2
|
)%
|
|
17
|
%
|
|
2
|
%
|
Provision for litigation settlements
|
**
|
|
|
**
|
|
|
**
|
|
|
**
|
|
|
**
|
|
|
**
|
|
|
**
|
|
|
**
|
|
|
**
|
|
|
**
|
|
Total operating expenses
|
10
|
%
|
|
11
|
%
|
|
1
|
%
|
|
(1
|
)%
|
|
6
|
%
|
|
1
|
%
|
|
1
|
%
|
|
(1
|
)%
|
|
17
|
%
|
|
9
|
%
|
|
For the Years Ended December 31,
|
|
Percent Increase (Decrease)
|
||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
||||||
|
(in millions, except percentages)
|
||||||||||||||
Personnel
|
$
|
2,687
|
|
|
$
|
2,225
|
|
|
$
|
2,105
|
|
|
21%
|
|
6%
|
Professional fees
|
355
|
|
|
337
|
|
|
310
|
|
|
5%
|
|
9%
|
|||
Data processing and telecommunications
|
504
|
|
|
420
|
|
|
362
|
|
|
20%
|
|
16%
|
|||
Foreign exchange activity
|
106
|
|
|
34
|
|
|
(82
|
)
|
|
**
|
|
**
|
|||
Other
|
874
|
|
|
698
|
|
|
646
|
|
|
25%
|
|
8%
|
|||
General and administrative expenses
|
4,526
|
|
|
3,714
|
|
|
3,341
|
|
|
22%
|
|
11%
|
|||
Special Item
1
|
(167
|
)
|
|
—
|
|
|
(79
|
)
|
|
(5)%
|
|
3%
|
|||
Adjusted general and administrative expenses (excluding Special Item)
1
|
$
|
4,359
|
|
|
$
|
3,714
|
|
|
$
|
3,262
|
|
|
17%
|
|
14%
|
•
|
Personnel expenses increased
21%
and
6%
in
2017
and
2016
, respectively, versus the prior year. Excluding the impact of U.S. Employee Pension Plan Settlement Charge of
$79 million
recorded in 2015, personnel expense grew 10% for
2016
versus
2015
. The
2017
and
2016
increases were driven by a higher number of employees to support our continued investment in the areas of real-time account payments, digital, services, data analytics and geographic expansion. The impact of acquisitions contributed
6
and 1 percentage points of growth for
2017
and
2016
, respectively.
|
•
|
Professional fees consist primarily of third-party services, legal costs to defend our outstanding litigation and the evaluation of regulatory developments that impact our industry and brand. The increase in
2017
was primarily due to merger and acquisition related consulting costs. The increase in
2016
was primarily due to higher legal costs to defend litigation.
|
•
|
Data processing and telecommunication charges consist of expenses to support our global payments network infrastructure, expenses to operate and maintain our computer systems and other telecommunication systems. These expenses increased in both
2017
and
2016
due to capacity growth of our business and higher third-party processing costs.
|
•
|
Foreign exchange activity includes gains and losses on foreign exchange derivative contracts and the impact of remeasurement of assets and liabilities denominated in foreign currencies. See
Note 20 (Foreign Exchange Risk Management)
to the consolidated financial statements included in Part II, Item 8 for further discussion. During
2017
, foreign exchange activity negatively impacted general and administrative expense growth by
2
percentage points versus the comparable period in
2016
, due to greater losses from foreign exchange derivative contracts versus the prior year. During
2016
, foreign exchange activity negatively impacted general and administrative expense growth by 4 percentage points versus the comparable period in
2015
, due to the impact from foreign exchange derivative contracts and the lapping of balance sheet remeasurement gains in the prior year.
|
•
|
Other expenses include costs to provide loyalty and rewards solutions, travel and meeting expenses and rental expense for our facilities and other miscellaneous charges. Other expenses increased
25%
and
8%
in
2017
and
2016
, respectively, versus the prior year. In
2017
, other expenses increased due to the impact of the Venezuelan Charge of
$167 million
. In
2016
, other expenses increased primarily due to higher cardholder services and loyalty costs.
|
•
|
lowers the corporate income tax rate from 35% to 21%
|
•
|
imposes a one-time deemed repatriation tax on accumulated foreign earnings (the “Transition Tax”)
|
•
|
provides for a 100% dividends received deduction on dividends from foreign affiliates
|
•
|
requires a current inclusion in U.S. federal taxable income of earnings of foreign affiliates that are determined to be global intangible low taxed income or “GILTI”
|
•
|
creates the base erosion anti-abuse tax, or “BEAT”
|
•
|
provides for an effective tax rate of 13.125% for certain income derived from outside of the U.S. (referred to as foreign derived intangible income or “FDII”)
|
•
|
introduces further limitations on the deductibility of executive compensation
|
•
|
permits 100% expensing of qualifying fixed assets acquired after September 27, 2017
|
•
|
limits the deductibility of interest expense in certain situations
|
•
|
eliminates the domestic production activities deduction
|
|
For the Years Ended December 31,
|
|||||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|||||||||||||||
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|||||||||
|
(in millions, except percentages)
|
|||||||||||||||||||
Income before income taxes
|
$
|
6,522
|
|
|
|
|
$
|
5,646
|
|
|
|
|
$
|
4,958
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Federal statutory tax
|
2,283
|
|
|
35.0
|
%
|
|
1,976
|
|
|
35.0
|
%
|
|
1,735
|
|
|
35.0
|
%
|
|||
State tax effect, net of federal benefit
|
43
|
|
|
0.7
|
%
|
|
22
|
|
|
0.4
|
%
|
|
27
|
|
|
0.5
|
%
|
|||
Foreign earnings
|
(380
|
)
|
|
(5.8
|
)%
|
|
(188
|
)
|
|
(3.3
|
)%
|
|
(144
|
)
|
|
(2.9
|
)%
|
|||
Impact of foreign tax credits
1
|
(27
|
)
|
|
(0.4
|
)%
|
|
(141
|
)
|
|
(2.5
|
)%
|
|
(281
|
)
|
|
(5.7
|
)%
|
|||
Impact of settlements with tax authorities
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
(147
|
)
|
|
(2.9
|
)%
|
|||
Transition Tax
|
629
|
|
|
9.6
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|||
Remeasurement of U.S. deferred taxes
|
157
|
|
|
2.4
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|||
Other, net
|
(98
|
)
|
|
(1.5
|
)%
|
|
(82
|
)
|
|
(1.5
|
)%
|
|
(40
|
)
|
|
(0.8
|
)%
|
|||
Income tax expense
|
$
|
2,607
|
|
|
40.0
|
%
|
|
$
|
1,587
|
|
|
28.1
|
%
|
|
$
|
1,150
|
|
|
23.2
|
%
|
|
2017
|
|
2016
|
||||
|
(in billions)
|
||||||
Cash, cash equivalents and investments
1
|
$
|
7.8
|
|
|
$
|
8.3
|
|
Unused line of credit
|
3.8
|
|
|
3.8
|
|
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in millions)
|
||||||||||
Cash Flow Data:
|
|
|
|
|
|
||||||
Net cash provided by operating activities
|
$
|
5,555
|
|
|
$
|
4,535
|
|
|
$
|
4,101
|
|
Net cash used in investing activities
|
(1,779
|
)
|
|
(1,167
|
)
|
|
(715
|
)
|
|||
Net cash used in financing activities
|
(4,764
|
)
|
|
(2,344
|
)
|
|
(2,516
|
)
|
|
2017
|
|
2016
|
||||
|
(in millions)
|
||||||
Balance Sheet Data:
|
|
|
|
||||
Current assets
|
$
|
13,797
|
|
|
$
|
13,228
|
|
Current liabilities
|
8,793
|
|
|
7,206
|
|
||
Long-term liabilities
|
6,968
|
|
|
5,785
|
|
||
Equity
|
5,497
|
|
|
5,684
|
|
|
Years Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in millions, except per share data)
|
||||||||||
Cash dividend, per share
|
$
|
0.88
|
|
|
$
|
0.76
|
|
|
$
|
0.64
|
|
Cash dividends paid
|
$
|
942
|
|
|
$
|
837
|
|
|
$
|
727
|
|
|
Authorization Dates
|
||||||||||||||
|
December 2017
|
|
December 2016
|
|
December 2015
|
|
Total
|
||||||||
|
(in millions, except average price data)
|
||||||||||||||
Board authorization
|
$
|
4,000
|
|
|
$
|
4,000
|
|
|
$
|
4,000
|
|
|
$
|
12,000
|
|
Remaining authorization at December 31, 2016
|
$
|
—
|
|
|
$
|
4,000
|
|
|
$
|
996
|
|
|
$
|
4,996
|
|
Dollar-value of shares repurchased in 2017
|
$
|
—
|
|
|
$
|
2,766
|
|
|
$
|
996
|
|
|
$
|
3,762
|
|
Remaining authorization at December 31, 2017
|
$
|
4,000
|
|
|
$
|
1,234
|
|
|
$
|
—
|
|
|
$
|
5,234
|
|
Shares repurchased in 2017
|
—
|
|
|
21.0
|
|
|
9.1
|
|
|
30.1
|
|
||||
Average price paid per share in 2017
|
$
|
—
|
|
|
$
|
131.97
|
|
|
$
|
109.16
|
|
|
$
|
125.05
|
|
|
Payments Due by Period
|
||||||||||||||||||
|
Total
|
|
2018
|
|
2019 - 2020
|
|
2021 - 2022
|
|
2023 and thereafter
|
||||||||||
|
|
|
|
|
(in millions)
|
|
|
|
|
||||||||||
Debt
|
$
|
5,477
|
|
|
$
|
—
|
|
|
$
|
500
|
|
|
$
|
1,489
|
|
|
$
|
3,488
|
|
Interest on debt
|
1,453
|
|
|
136
|
|
|
256
|
|
|
238
|
|
|
823
|
|
|||||
Capital leases
|
12
|
|
|
4
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|||||
Operating leases
|
201
|
|
|
64
|
|
|
77
|
|
|
26
|
|
|
34
|
|
|||||
Other obligations
1
|
|
|
|
|
|
|
|
|
|
||||||||||
Sponsorship, licensing and other
2
|
875
|
|
|
388
|
|
|
376
|
|
|
110
|
|
|
1
|
|
|||||
Employee benefits
3
|
260
|
|
|
83
|
|
|
55
|
|
|
41
|
|
|
81
|
|
|||||
Transition Tax
4
|
629
|
|
|
52
|
|
|
100
|
|
|
100
|
|
|
377
|
|
|||||
Redeemable non-controlling interests
5
|
78
|
|
|
—
|
|
|
78
|
|
|
—
|
|
|
—
|
|
|||||
Total
6
|
$
|
8,985
|
|
|
$
|
727
|
|
|
$
|
1,450
|
|
|
$
|
2,004
|
|
|
$
|
4,804
|
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||||||||
|
Notional
|
|
Estimated Fair
Value
|
|
Notional
|
|
Estimated Fair
Value
|
||||||||
|
(in millions)
|
||||||||||||||
Commitments to purchase foreign currency
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
37
|
|
|
$
|
(2
|
)
|
Commitments to sell foreign currency
|
968
|
|
|
(26
|
)
|
|
777
|
|
|
18
|
|
||||
Options to sell foreign currency
|
27
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Maturity
|
||||||||||||||||||||||||
|
|
|
|
Fair Market Value at December 31, 2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023 and there-after
|
||||||||||||||
Financial Instrument
|
|
Summary Terms
|
|
|||||||||||||||||||||||||||
|
|
|
|
(in millions)
|
||||||||||||||||||||||||||
Municipal securities
|
|
Fixed / Variable Interest
|
|
$
|
17
|
|
|
$
|
12
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Government and agency securities
|
|
Fixed / Variable Interest
|
|
185
|
|
|
87
|
|
|
59
|
|
|
16
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|||||||
Corporate securities
|
|
Fixed / Variable Interest
|
|
876
|
|
|
212
|
|
|
277
|
|
|
287
|
|
|
76
|
|
|
23
|
|
|
1
|
|
|||||||
Asset-backed securities
|
|
Fixed / Variable Interest
|
|
70
|
|
|
3
|
|
|
24
|
|
|
35
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|||||||
Total
|
|
|
|
$
|
1,148
|
|
|
$
|
314
|
|
|
$
|
365
|
|
|
$
|
338
|
|
|
$
|
107
|
|
|
$
|
23
|
|
|
$
|
1
|
|
|
|
|
|
|
|
Maturity
|
||||||||||||||||||||||||
Financial Instrument
|
|
Summary Terms
|
|
Fair Market Value at December 31, 2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022 and there-after
|
||||||||||||||
|
|
|
|
(in millions)
|
||||||||||||||||||||||||||
Municipal securities
|
|
Fixed / Variable Interest
|
|
$
|
59
|
|
|
$
|
46
|
|
|
$
|
10
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Government and agency securities
|
|
Fixed / Variable Interest
|
|
166
|
|
|
72
|
|
|
64
|
|
|
4
|
|
|
—
|
|
|
21
|
|
|
5
|
|
|||||||
Corporate securities
|
|
Fixed / Variable Interest
|
|
855
|
|
|
317
|
|
|
220
|
|
|
180
|
|
|
119
|
|
|
19
|
|
|
—
|
|
|||||||
Asset-backed securities
|
|
Fixed / Variable Interest
|
|
80
|
|
|
2
|
|
|
20
|
|
|
49
|
|
|
7
|
|
|
2
|
|
|
—
|
|
|||||||
Total
|
|
|
|
$
|
1,160
|
|
|
$
|
437
|
|
|
$
|
314
|
|
|
$
|
236
|
|
|
$
|
126
|
|
|
$
|
42
|
|
|
$
|
5
|
|
|
|
Page
|
Mastercard Incorporated
|
|
|
As of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(in millions, except per share data)
|
||||||
ASSETS
|
|
|
|
||||
Cash and cash equivalents
|
$
|
5,933
|
|
|
$
|
6,721
|
|
Restricted cash for litigation settlement
|
546
|
|
|
543
|
|
||
Investments
|
1,849
|
|
|
1,614
|
|
||
Accounts receivable
|
1,969
|
|
|
1,416
|
|
||
Settlement due from customers
|
1,375
|
|
|
1,093
|
|
||
Restricted security deposits held for customers
|
1,085
|
|
|
991
|
|
||
Prepaid expenses and other current assets
|
1,040
|
|
|
850
|
|
||
Total Current Assets
|
13,797
|
|
|
13,228
|
|
||
Property, plant and equipment, net
|
829
|
|
|
733
|
|
||
Deferred income taxes
|
250
|
|
|
307
|
|
||
Goodwill
|
3,035
|
|
|
1,756
|
|
||
Other intangible assets, net
|
1,120
|
|
|
722
|
|
||
Other assets
|
2,298
|
|
|
1,929
|
|
||
Total Assets
|
$
|
21,329
|
|
|
$
|
18,675
|
|
LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY
|
|
|
|
||||
Accounts payable
|
$
|
933
|
|
|
$
|
609
|
|
Settlement due to customers
|
1,343
|
|
|
946
|
|
||
Restricted security deposits held for customers
|
1,085
|
|
|
991
|
|
||
Accrued litigation
|
709
|
|
|
722
|
|
||
Accrued expenses
|
3,931
|
|
|
3,318
|
|
||
Other current liabilities
|
792
|
|
|
620
|
|
||
Total Current Liabilities
|
8,793
|
|
|
7,206
|
|
||
Long-term debt
|
5,424
|
|
|
5,180
|
|
||
Deferred income taxes
|
106
|
|
|
81
|
|
||
Other liabilities
|
1,438
|
|
|
524
|
|
||
Total Liabilities
|
15,761
|
|
|
12,991
|
|
||
|
|
|
|
||||
Commitments and Contingencies
|
|
|
|
||||
|
|
|
|
||||
Redeemable Non-controlling Interests
|
71
|
|
|
—
|
|
||
|
|
|
|
||||
Stockholders’ Equity
|
|
|
|
||||
Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,382 and 1,374 shares issued and 1,040 and 1,062 outstanding, respectively
|
—
|
|
|
—
|
|
||
Class B common stock, $0.0001 par value; authorized 1,200 shares, 14 and 19 issued and outstanding, respectively
|
—
|
|
|
—
|
|
||
Additional paid-in-capital
|
4,365
|
|
|
4,183
|
|
||
Class A treasury stock, at cost, 342 and 312 shares, respectively
|
(20,764
|
)
|
|
(17,021
|
)
|
||
Retained earnings
|
22,364
|
|
|
19,418
|
|
||
Accumulated other comprehensive income (loss)
|
(497
|
)
|
|
(924
|
)
|
||
Total Stockholders’ Equity
|
5,468
|
|
|
5,656
|
|
||
Non-controlling interests
|
29
|
|
|
28
|
|
||
Total Equity
|
5,497
|
|
|
5,684
|
|
||
Total Liabilities, Redeemable Non-controlling Interests and Equity
|
$
|
21,329
|
|
|
$
|
18,675
|
|
|
For the Years Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in millions, except per share data)
|
||||||||||
Net Revenue
|
$
|
12,497
|
|
|
$
|
10,776
|
|
|
$
|
9,667
|
|
Operating Expenses
|
|
|
|
|
|
||||||
General and administrative
|
4,526
|
|
|
3,714
|
|
|
3,341
|
|
|||
Advertising and marketing
|
898
|
|
|
811
|
|
|
821
|
|
|||
Depreciation and amortization
|
436
|
|
|
373
|
|
|
366
|
|
|||
Provision for litigation settlements
|
15
|
|
|
117
|
|
|
61
|
|
|||
Total operating expenses
|
5,875
|
|
|
5,015
|
|
|
4,589
|
|
|||
Operating income
|
6,622
|
|
|
5,761
|
|
|
5,078
|
|
|||
Other Income (Expense)
|
|
|
|
|
|
||||||
Investment income
|
56
|
|
|
43
|
|
|
25
|
|
|||
Interest expense
|
(154
|
)
|
|
(95
|
)
|
|
(61
|
)
|
|||
Other income (expense), net
|
(2
|
)
|
|
(63
|
)
|
|
(84
|
)
|
|||
Total other income (expense)
|
(100
|
)
|
|
(115
|
)
|
|
(120
|
)
|
|||
Income before income taxes
|
6,522
|
|
|
5,646
|
|
|
4,958
|
|
|||
Income tax expense
|
2,607
|
|
|
1,587
|
|
|
1,150
|
|
|||
Net Income
|
$
|
3,915
|
|
|
$
|
4,059
|
|
|
$
|
3,808
|
|
|
|
|
|
|
|
||||||
Basic Earnings per Share
|
$
|
3.67
|
|
|
$
|
3.70
|
|
|
$
|
3.36
|
|
Basic Weighted-Average Shares Outstanding
|
1,067
|
|
|
1,098
|
|
|
1,134
|
|
|||
Diluted Earnings per Share
|
$
|
3.65
|
|
|
$
|
3.69
|
|
|
$
|
3.35
|
|
Diluted Weighted-Average Shares Outstanding
|
1,072
|
|
|
1,101
|
|
|
1,137
|
|
|
For the Years Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in millions)
|
||||||||||
Net Income
|
$
|
3,915
|
|
|
$
|
4,059
|
|
|
$
|
3,808
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
||||||
Foreign currency translation adjustments
|
565
|
|
|
(275
|
)
|
|
(460
|
)
|
|||
Income tax effect
|
2
|
|
|
(11
|
)
|
|
27
|
|
|||
Foreign currency translation adjustments, net of income tax effect
|
567
|
|
|
(286
|
)
|
|
(433
|
)
|
|||
|
|
|
|
|
|
||||||
Translation adjustments on net investment hedge
|
(236
|
)
|
|
60
|
|
|
(40
|
)
|
|||
Income tax effect
|
83
|
|
|
(22
|
)
|
|
14
|
|
|||
Translation adjustments on net investment hedge, net of income tax effect
|
(153
|
)
|
|
38
|
|
|
(26
|
)
|
|||
|
|
|
|
|
|
||||||
Defined benefit pension and other postretirement plans
|
17
|
|
|
(1
|
)
|
|
(19
|
)
|
|||
Income tax effect
|
(2
|
)
|
|
—
|
|
|
7
|
|
|||
Defined benefit pension and other postretirement plans, net of income tax effect
|
15
|
|
|
(1
|
)
|
|
(12
|
)
|
|||
|
|
|
|
|
|
||||||
Reclassification adjustment for defined benefit pension and other postretirement plans
|
(2
|
)
|
|
(1
|
)
|
|
80
|
|
|||
Income tax effect
|
1
|
|
|
—
|
|
|
(29
|
)
|
|||
Reclassification adjustment for defined benefit pension and other postretirement plans, net of income tax effect
|
(1
|
)
|
|
(1
|
)
|
|
51
|
|
|||
|
|
|
|
|
|
||||||
Investment securities available-for-sale
|
(3
|
)
|
|
3
|
|
|
(11
|
)
|
|||
Income tax effect
|
2
|
|
|
(1
|
)
|
|
—
|
|
|||
Investment securities available-for-sale, net of income tax effect
|
(1
|
)
|
|
2
|
|
|
(11
|
)
|
|||
|
|
|
|
|
|
||||||
Reclassification adjustment for investment securities available-for-sale
|
—
|
|
|
—
|
|
|
15
|
|
|||
Income tax effect
|
—
|
|
|
—
|
|
|
—
|
|
|||
Reclassification adjustment for investment securities available-for-sale, net of income tax effect
|
—
|
|
|
—
|
|
|
15
|
|
|||
|
|
|
|
|
|
||||||
Other comprehensive income (loss), net of income tax effect
|
427
|
|
|
(248
|
)
|
|
(416
|
)
|
|||
Comprehensive Income
|
$
|
4,342
|
|
|
$
|
3,811
|
|
|
$
|
3,392
|
|
|
Common Stock
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Additional
Paid-In
Capital
|
|
Class A
Treasury
Stock
|
|
Non-
Controlling
Interests
|
|
Total
|
||||||||||||||||||
|
Class A
|
|
Class B
|
|
|
|
|
||||||||||||||||||||||||
|
(in millions, except per share data)
|
||||||||||||||||||||||||||||||
Balance at December 31, 2014
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,169
|
|
|
$
|
(260
|
)
|
|
$
|
3,876
|
|
|
$
|
(9,995
|
)
|
|
$
|
34
|
|
|
$
|
6,824
|
|
Net income
|
—
|
|
|
—
|
|
|
3,808
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,808
|
|
||||||||
Activity related to non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Other comprehensive income (loss), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(416
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(416
|
)
|
||||||||
Cash dividends declared on Class A and Class B common stock, $0.67 per share
|
—
|
|
|
—
|
|
|
(755
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(755
|
)
|
||||||||
Purchases of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,532
|
)
|
|
—
|
|
|
(3,532
|
)
|
||||||||
Share-based payments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
128
|
|
|
5
|
|
|
—
|
|
|
133
|
|
||||||||
Conversion of Class B to Class A common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Balance at December 31, 2015
|
—
|
|
|
—
|
|
|
16,222
|
|
|
(676
|
)
|
|
4,004
|
|
|
(13,522
|
)
|
|
34
|
|
|
6,062
|
|
||||||||
Net income
|
—
|
|
|
—
|
|
|
4,059
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,059
|
|
||||||||
Activity related to non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
||||||||
Other comprehensive income (loss), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(248
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(248
|
)
|
||||||||
Cash dividends declared on Class A and Class B common stock, $0.79 per share
|
—
|
|
|
—
|
|
|
(863
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(863
|
)
|
||||||||
Purchases of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,503
|
)
|
|
—
|
|
|
(3,503
|
)
|
||||||||
Share-based payments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
179
|
|
|
4
|
|
|
—
|
|
|
183
|
|
||||||||
Conversion of Class B to Class A common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Balance at December 31, 2016
|
—
|
|
|
—
|
|
|
19,418
|
|
|
(924
|
)
|
|
4,183
|
|
|
(17,021
|
)
|
|
28
|
|
|
5,684
|
|
||||||||
Net income
|
—
|
|
|
—
|
|
|
3,915
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,915
|
|
||||||||
Activity related to non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
||||||||
Other comprehensive income (loss), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
427
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
427
|
|
||||||||
Cash dividends declared on Class A and Class B common stock, $0.91 per share
|
—
|
|
|
—
|
|
|
(969
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(969
|
)
|
||||||||
Purchases of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,747
|
)
|
|
—
|
|
|
(3,747
|
)
|
||||||||
Share-based payments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
182
|
|
|
4
|
|
|
—
|
|
|
186
|
|
||||||||
Conversion of Class B to Class A common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Balance at December 31, 2017
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,364
|
|
|
$
|
(497
|
)
|
|
$
|
4,365
|
|
|
$
|
(20,764
|
)
|
|
$
|
29
|
|
|
$
|
5,497
|
|
|
For the Years Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in millions)
|
||||||||||
Operating Activities
|
|
|
|
|
|
||||||
Net income
|
$
|
3,915
|
|
|
$
|
4,059
|
|
|
$
|
3,808
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||||||
Amortization of customer and merchant incentives
|
1,001
|
|
|
860
|
|
|
764
|
|
|||
Depreciation and amortization
|
437
|
|
|
373
|
|
|
366
|
|
|||
Share-based compensation
|
176
|
|
|
149
|
|
|
122
|
|
|||
Tax benefit for share-based payments
|
—
|
|
|
(48
|
)
|
|
(42
|
)
|
|||
Deferred income taxes
|
86
|
|
|
(20
|
)
|
|
(16
|
)
|
|||
Venezuela charge
|
167
|
|
|
—
|
|
|
—
|
|
|||
Other
|
59
|
|
|
29
|
|
|
(81
|
)
|
|||
Changes in operating assets and liabilities:
|
|
|
|
|
|
||||||
Accounts receivable
|
(445
|
)
|
|
(338
|
)
|
|
(35
|
)
|
|||
Settlement due from customers
|
(281
|
)
|
|
(10
|
)
|
|
(98
|
)
|
|||
Prepaid expenses
|
(1,402
|
)
|
|
(1,073
|
)
|
|
(802
|
)
|
|||
Accrued litigation and legal settlements
|
(15
|
)
|
|
17
|
|
|
(63
|
)
|
|||
Accounts payable
|
290
|
|
|
145
|
|
|
49
|
|
|||
Settlement due to customers
|
394
|
|
|
66
|
|
|
(186
|
)
|
|||
Accrued expenses
|
589
|
|
|
520
|
|
|
325
|
|
|||
Long-term taxes payable
|
577
|
|
|
—
|
|
|
—
|
|
|||
Net change in other assets and liabilities
|
7
|
|
|
(194
|
)
|
|
(10
|
)
|
|||
Net cash provided by operating activities
|
5,555
|
|
|
4,535
|
|
|
4,101
|
|
|||
Investing Activities
|
|
|
|
|
|
||||||
Purchases of investment securities available-for-sale
|
(714
|
)
|
|
(957
|
)
|
|
(974
|
)
|
|||
Purchases of investments held-to-maturity
|
(1,145
|
)
|
|
(867
|
)
|
|
(918
|
)
|
|||
Proceeds from sales of investment securities available-for-sale
|
304
|
|
|
277
|
|
|
703
|
|
|||
Proceeds from maturities of investment securities available-for-sale
|
500
|
|
|
339
|
|
|
542
|
|
|||
Proceeds from maturities of investments held-to-maturity
|
1,020
|
|
|
456
|
|
|
857
|
|
|||
Purchases of property, plant and equipment
|
(300
|
)
|
|
(215
|
)
|
|
(177
|
)
|
|||
Capitalized software
|
(123
|
)
|
|
(167
|
)
|
|
(165
|
)
|
|||
Acquisition of businesses, net of cash acquired
|
(1,175
|
)
|
|
—
|
|
|
(584
|
)
|
|||
Investment in nonmarketable equity investments
|
(147
|
)
|
|
(31
|
)
|
|
2
|
|
|||
Other investing activities
|
1
|
|
|
(2
|
)
|
|
(1
|
)
|
|||
Net cash used in investing activities
|
(1,779
|
)
|
|
(1,167
|
)
|
|
(715
|
)
|
|||
Financing Activities
|
|
|
|
|
|
||||||
Purchases of treasury stock
|
(3,762
|
)
|
|
(3,511
|
)
|
|
(3,518
|
)
|
|||
Proceeds from debt
|
—
|
|
|
1,972
|
|
|
1,735
|
|
|||
Payment of debt
|
(64
|
)
|
|
—
|
|
|
—
|
|
|||
Dividends paid
|
(942
|
)
|
|
(837
|
)
|
|
(727
|
)
|
|||
Tax benefit for share-based payments
|
—
|
|
|
48
|
|
|
42
|
|
|||
Tax withholdings related to share-based payments
|
(47
|
)
|
|
(51
|
)
|
|
(58
|
)
|
|||
Cash proceeds from exercise of stock options
|
57
|
|
|
37
|
|
|
27
|
|
|||
Other financing activities
|
(6
|
)
|
|
(2
|
)
|
|
(17
|
)
|
|||
Net cash used in financing activities
|
(4,764
|
)
|
|
(2,344
|
)
|
|
(2,516
|
)
|
|||
Effect of exchange rate changes on cash and cash equivalents
|
200
|
|
|
(50
|
)
|
|
(260
|
)
|
|||
Net (decrease) increase in cash and cash equivalents
|
(788
|
)
|
|
974
|
|
|
610
|
|
|||
Cash and cash equivalents - beginning of period
|
6,721
|
|
|
5,747
|
|
|
5,137
|
|
|||
Cash and cash equivalents - end of period
|
$
|
5,933
|
|
|
$
|
6,721
|
|
|
$
|
5,747
|
|
•
|
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.
|
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
|
Capital leases
|
|
Shorter of life of the asset or lease term
|
•
|
The Company is required to recognize the excess tax benefits and deficiencies from share-based awards on the consolidated statement of operations in the period in which they occurred rather than in additional paid-in-capital on the consolidated balance sheet. For the
year ended December 31, 2017
, the Company recorded excess tax benefits of
$49 million
within income tax expense on the consolidated statement of operations. The Company is also required to revise its calculation of diluted weighted-average shares outstanding by excluding the tax effects from the assumed proceeds available to repurchase shares. For the
year ended December 31, 2017
, diluted weighted-average shares outstanding included an additional
1 million
shares as a result of the change in this calculation. For the
year ended December 31, 2017
, the net impact of adoption resulted in an increase of
$0.04
to diluted EPS. Lastly, the Company is required to change the classification of these tax effects on the consolidated statement of cash flows and classify them as an operating activity rather than as a financing activity. Each of these above items have been adopted prospectively.
|
•
|
Retrospectively, the Company is required to change its classification of cash paid for employees’ withholding tax related to equity awards as a financing activity rather than as an operating activity on the consolidated statement of cash flows. As a result of this change in classification, cash provided by operating activities and cash used in financing activities on the consolidated statement of cash flows increased by
$51 million
and
$58 million
for the years ended
December 31, 2016
and
2015
, respectively.
|
•
|
This guidance allows a company-wide accounting policy election either to continue estimating forfeitures each period or to account for forfeitures as they occur. The Company elected to continue its existing practice to estimate the number of awards that will be forfeited. There was no impact on its consolidated financial statements.
|
|
Acquisition Date
Fair Value
|
|
Weighted-Average Useful Life
|
||
|
(in millions)
|
|
(Years)
|
||
Developed technologies
|
$
|
319
|
|
|
7.5
|
Customer relationships
|
166
|
|
|
9.9
|
|
Other
|
3
|
|
|
1.4
|
|
Other intangible assets
|
$
|
488
|
|
|
8.3
|
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in millions, except per share data)
|
||||||||||
Numerator
|
|
|
|
|
|
||||||
Net income
|
$
|
3,915
|
|
|
$
|
4,059
|
|
|
$
|
3,808
|
|
Denominator
|
|
|
|
|
|
||||||
Basic weighted-average shares outstanding
|
1,067
|
|
|
1,098
|
|
|
1,134
|
|
|||
Dilutive stock options and stock units
|
5
|
|
|
3
|
|
|
3
|
|
|||
Diluted weighted-average shares outstanding
1
|
1,072
|
|
|
1,101
|
|
|
1,137
|
|
|||
Earnings per Share
|
|
|
|
|
|
||||||
Basic
|
$
|
3.67
|
|
|
$
|
3.70
|
|
|
$
|
3.36
|
|
Diluted
|
$
|
3.65
|
|
|
$
|
3.69
|
|
|
$
|
3.35
|
|
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in millions)
|
||||||||||
Cash paid for income taxes, net of refunds
|
$
|
1,893
|
|
|
$
|
1,579
|
|
|
$
|
1,097
|
|
Cash paid for interest
|
135
|
|
|
74
|
|
|
44
|
|
|||
Cash paid for legal settlements
|
47
|
|
|
101
|
|
|
124
|
|
|||
Non-cash investing and financing activities
|
|
|
|
|
|
||||||
Dividends declared but not yet paid
|
263
|
|
|
238
|
|
|
212
|
|
|||
Capital leases and other
|
30
|
|
|
3
|
|
|
10
|
|
|||
Fair value of assets acquired, net of cash acquired
|
1,825
|
|
|
—
|
|
|
626
|
|
|||
Fair value of liabilities assumed related to acquisitions
|
365
|
|
|
—
|
|
|
42
|
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||||||||||||||||||||||||
|
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
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
59
|
|
|
$
|
—
|
|
|
$
|
59
|
|
Government and agency securities
|
81
|
|
|
104
|
|
|
—
|
|
|
185
|
|
|
49
|
|
|
117
|
|
|
—
|
|
|
166
|
|
||||||||
Corporate securities
|
—
|
|
|
876
|
|
|
—
|
|
|
876
|
|
|
—
|
|
|
855
|
|
|
—
|
|
|
855
|
|
||||||||
Asset-backed securities
|
—
|
|
|
70
|
|
|
—
|
|
|
70
|
|
|
—
|
|
|
80
|
|
|
—
|
|
|
80
|
|
||||||||
Equity securities
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
||||||||
Derivative instruments
2
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Foreign currency derivative assets
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
29
|
|
||||||||
Deferred compensation plan
3
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Deferred compensation assets
|
55
|
|
|
—
|
|
|
—
|
|
|
55
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Derivative instruments
2
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Foreign currency derivative liabilities
|
$
|
—
|
|
|
$
|
(30
|
)
|
|
$
|
—
|
|
|
$
|
(30
|
)
|
|
$
|
—
|
|
|
$
|
(13
|
)
|
|
$
|
—
|
|
|
$
|
(13
|
)
|
Deferred compensation plan
4
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Deferred compensation liabilities
|
(54
|
)
|
|
—
|
|
|
—
|
|
|
(54
|
)
|
|
(43
|
)
|
|
—
|
|
|
—
|
|
|
(43
|
)
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||||||||||||||||||||||||
|
Amortized
Cost
|
|
Gross
Unrealized
Gain
|
|
Gross
Unrealized
Loss
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gain
|
|
Gross
Unrealized
Loss
|
|
Fair
Value
|
||||||||||||||||
|
(in millions)
|
||||||||||||||||||||||||||||||
Municipal securities
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
59
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59
|
|
Government and agency securities
|
185
|
|
|
—
|
|
|
—
|
|
|
185
|
|
|
165
|
|
|
1
|
|
|
—
|
|
|
166
|
|
||||||||
Corporate securities
|
875
|
|
|
2
|
|
|
(1
|
)
|
|
876
|
|
|
853
|
|
|
3
|
|
|
(1
|
)
|
|
855
|
|
||||||||
Asset-backed securities
|
70
|
|
|
—
|
|
|
—
|
|
|
70
|
|
|
80
|
|
|
—
|
|
|
—
|
|
|
80
|
|
||||||||
Equity securities
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
||||||||
Total
|
$
|
1,147
|
|
|
$
|
3
|
|
|
$
|
(1
|
)
|
|
$
|
1,149
|
|
|
$
|
1,159
|
|
|
$
|
4
|
|
|
$
|
(1
|
)
|
|
$
|
1,162
|
|
|
Available-For-Sale
|
||||||
|
Amortized
Cost
|
|
Fair Value
|
||||
|
(in millions)
|
||||||
Due within 1 year
|
$
|
314
|
|
|
$
|
314
|
|
Due after 1 year through 5 years
|
832
|
|
|
833
|
|
||
Due after 5 years through 10 years
|
1
|
|
|
1
|
|
||
Due after 10 years
|
—
|
|
|
—
|
|
||
No contractual maturity
1
|
—
|
|
|
1
|
|
||
Total
|
$
|
1,147
|
|
|
$
|
1,149
|
|
|
2017
|
|
2016
|
||||
|
(in millions)
|
||||||
Customer and merchant incentives
|
$
|
464
|
|
|
$
|
479
|
|
Prepaid income taxes
|
77
|
|
|
118
|
|
||
Other
|
499
|
|
|
253
|
|
||
Total prepaid expenses and other current assets
|
$
|
1,040
|
|
|
$
|
850
|
|
|
2017
|
|
2016
|
||||
|
(in millions)
|
||||||
Customer and merchant incentives
|
$
|
1,434
|
|
|
$
|
1,134
|
|
Nonmarketable equity investments
|
249
|
|
|
132
|
|
||
Prepaid income taxes
|
352
|
|
|
325
|
|
||
Income taxes receivable
|
178
|
|
|
175
|
|
||
Other
|
85
|
|
|
163
|
|
||
Total other assets
|
$
|
2,298
|
|
|
$
|
1,929
|
|
|
2017
|
|
2016
|
||||
|
(in millions)
|
||||||
Building, building equipment and land
|
$
|
455
|
|
|
$
|
534
|
|
Equipment
|
841
|
|
|
606
|
|
||
Furniture and fixtures
|
81
|
|
|
63
|
|
||
Leasehold improvements
|
166
|
|
|
133
|
|
||
Property, plant and equipment
|
1,543
|
|
|
1,336
|
|
||
Less: accumulated depreciation and amortization
|
(714
|
)
|
|
(603
|
)
|
||
Property, plant and equipment, net
|
$
|
829
|
|
|
$
|
733
|
|
|
2017
|
|
2016
|
||||
|
(in millions)
|
||||||
Beginning balance
|
$
|
1,756
|
|
|
$
|
1,891
|
|
Additions
|
1,136
|
|
|
8
|
|
||
Foreign currency translation
|
143
|
|
|
(143
|
)
|
||
Ending balance
|
$
|
3,035
|
|
|
$
|
1,756
|
|
|
2017
|
|
2016
|
||||||||||||||||||||
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
||||||||||||
|
(in millions)
|
||||||||||||||||||||||
Amortized intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Capitalized software
|
$
|
1,572
|
|
|
$
|
(888
|
)
|
|
$
|
684
|
|
|
$
|
1,210
|
|
|
$
|
(768
|
)
|
|
$
|
442
|
|
Trademarks and tradenames
|
30
|
|
|
(29
|
)
|
|
1
|
|
|
26
|
|
|
(22
|
)
|
|
4
|
|
||||||
Customer relationships
|
473
|
|
|
(214
|
)
|
|
259
|
|
|
283
|
|
|
(162
|
)
|
|
121
|
|
||||||
Other
|
27
|
|
|
(26
|
)
|
|
1
|
|
|
23
|
|
|
(22
|
)
|
|
1
|
|
||||||
Total
|
2,102
|
|
|
(1,157
|
)
|
|
945
|
|
|
1,542
|
|
|
(974
|
)
|
|
568
|
|
||||||
Unamortized intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Customer relationships
|
175
|
|
|
—
|
|
|
175
|
|
|
154
|
|
|
—
|
|
|
154
|
|
||||||
Total
|
$
|
2,277
|
|
|
$
|
(1,157
|
)
|
|
$
|
1,120
|
|
|
$
|
1,696
|
|
|
$
|
(974
|
)
|
|
$
|
722
|
|
|
2017
|
|
2016
|
||||
|
(in millions)
|
||||||
Customer and merchant incentives
|
$
|
2,648
|
|
|
$
|
2,286
|
|
Personnel costs
|
613
|
|
|
496
|
|
||
Advertising
|
88
|
|
|
71
|
|
||
Income and other taxes
|
194
|
|
|
161
|
|
||
Other
|
388
|
|
|
304
|
|
||
Total accrued expenses
|
$
|
3,931
|
|
|
$
|
3,318
|
|
|
Pension Plans
|
|
Postretirement Plan
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
|
(in millions, except percentages)
|
||||||||||||||
Change in benefit obligation
|
|
|
|
|
|
|
|
||||||||
Benefit obligation at beginning of year
|
$
|
46
|
|
|
$
|
36
|
|
|
$
|
59
|
|
|
$
|
59
|
|
Benefit obligation acquired during the year
|
410
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Service cost
|
9
|
|
|
10
|
|
|
1
|
|
|
1
|
|
||||
Interest cost
|
8
|
|
|
1
|
|
|
2
|
|
|
2
|
|
||||
Actuarial (gain) loss
|
(44
|
)
|
|
2
|
|
|
3
|
|
|
1
|
|
||||
Benefits paid
|
(12
|
)
|
|
(2
|
)
|
|
(4
|
)
|
|
(4
|
)
|
||||
Transfers in
|
3
|
|
|
1
|
|
|
—
|
|
|
—
|
|
||||
Foreign currency translation
|
48
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
||||
Benefit obligation at end of year
|
468
|
|
|
46
|
|
|
61
|
|
|
59
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Change in plan assets
|
|
|
|
|
|
|
|
||||||||
Fair value of plan assets at beginning of year
|
33
|
|
|
27
|
|
|
—
|
|
|
—
|
|
||||
Fair value of plan assets acquired during the year
|
344
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Actual gain (loss) on plan assets
|
(4
|
)
|
|
1
|
|
|
—
|
|
|
—
|
|
||||
Employer contributions
|
23
|
|
|
7
|
|
|
4
|
|
|
4
|
|
||||
Benefits paid
|
(12
|
)
|
|
(2
|
)
|
|
(4
|
)
|
|
(4
|
)
|
||||
Transfers in
|
3
|
|
|
1
|
|
|
—
|
|
|
—
|
|
||||
Foreign currency translation
|
40
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
||||
Fair value of plan assets at end of year
|
427
|
|
|
33
|
|
|
—
|
|
|
—
|
|
||||
Funded status at end of year
|
$
|
(41
|
)
|
|
$
|
(13
|
)
|
|
$
|
(61
|
)
|
|
$
|
(59
|
)
|
|
|
|
|
|
|
|
|
||||||||
Amounts recognized on the consolidated balance sheet consist of:
|
|
|
|
|
|
|
|
||||||||
Other liabilities, short-term
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
Other liabilities, long-term
|
(41
|
)
|
|
(13
|
)
|
|
(58
|
)
|
|
(56
|
)
|
||||
|
$
|
(41
|
)
|
|
$
|
(13
|
)
|
|
$
|
(61
|
)
|
|
$
|
(59
|
)
|
|
|
|
|
|
|
|
|
||||||||
Accumulated other comprehensive income consists of:
|
|
|
|
|
|
|
|
||||||||
Net actuarial (gain) loss
|
$
|
(22
|
)
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
(10
|
)
|
Prior service credit
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
(10
|
)
|
||||
Balance at end of year
|
$
|
(22
|
)
|
|
$
|
—
|
|
|
$
|
(13
|
)
|
|
$
|
(20
|
)
|
|
|
|
|
|
|
|
|
||||||||
Weighted-average assumptions used to determine end of year benefit obligations
|
|
|
|
|
|
|
|
||||||||
Discount rate
|
|
|
|
|
|
|
|
||||||||
Non-U.S. Plans
|
1.80
|
%
|
|
1.60
|
%
|
|
*
|
|
|
*
|
|
||||
Vocalink Plan
|
2.80
|
%
|
|
*
|
|
|
*
|
|
|
*
|
|
||||
Postretirement Plan
|
*
|
|
|
*
|
|
|
3.50
|
%
|
|
4.00
|
%
|
||||
|
|
|
|
|
|
|
|
||||||||
Rate of compensation increase
|
|
|
|
|
|
|
|
||||||||
Non-U.S. Plans
|
2.60
|
%
|
|
2.59
|
%
|
|
*
|
|
|
*
|
|
||||
Vocalink Plan
|
3.85
|
%
|
|
*
|
|
|
*
|
|
|
*
|
|
||||
Postretirement Plan
|
*
|
|
|
*
|
|
|
3.00
|
%
|
|
3.00
|
%
|
|
|
2017
|
|
2016
|
||||
|
|
(in millions)
|
||||||
Projected benefit obligation
|
|
$
|
468
|
|
|
$
|
46
|
|
Accumulated benefit obligation
|
|
428
|
|
|
46
|
|
||
Fair value of plan assets
|
|
427
|
|
|
33
|
|
|
|
Pension Plans
|
|
Postretirement Plan
|
||||||||||||||||||||
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
||||||||||||
|
|
(in millions)
|
||||||||||||||||||||||
Service cost
|
|
$
|
9
|
|
|
$
|
10
|
|
|
$
|
9
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
8
|
|
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
|
3
|
|
||||||
Expected return on plan assets
|
|
(13
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Curtailment gain
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Amortization of actuarial loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Amortization of prior service credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
|
—
|
|
||||||
Pension settlement charge
|
|
—
|
|
|
—
|
|
|
79
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Net periodic benefit cost
|
|
$
|
4
|
|
|
$
|
10
|
|
|
$
|
89
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
|
Pension Plans
|
|
Postretirement Plan
|
||||||||||||||||||||
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
||||||||||||
|
|
(in millions)
|
||||||||||||||||||||||
Curtailment gain
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Current year actuarial (gain) loss
|
|
(22
|
)
|
|
1
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
8
|
|
||||||
Current year prior service credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11
|
|
||||||
Amortization of prior service credit
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
1
|
|
|
—
|
|
||||||
Pension settlement charge
|
|
—
|
|
|
—
|
|
|
(79
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Total recognized in other comprehensive income (loss)
|
|
$
|
(22
|
)
|
|
$
|
1
|
|
|
$
|
(80
|
)
|
|
$
|
7
|
|
|
$
|
1
|
|
|
$
|
19
|
|
Total recognized in net periodic benefit cost and other comprehensive income (loss)
|
|
$
|
(18
|
)
|
|
$
|
11
|
|
|
$
|
9
|
|
|
$
|
8
|
|
|
$
|
3
|
|
|
$
|
23
|
|
|
|
Pension Plans
|
|
Postretirement Plan
|
||||
|
|
(in millions)
|
||||||
Prior service credit
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
|
Pension Plans
|
|
Postretirement Plan
|
||||||||||||||
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
||||||
Discount rate
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Non-U.S. Plans
|
|
1.60
|
%
|
|
1.85
|
%
|
|
2.00
|
%
|
|
*
|
|
|
*
|
|
|
*
|
|
Vocalink Plan
|
|
2.50
|
%
|
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
Postretirement Plan
|
|
*
|
|
|
*
|
|
|
*
|
|
|
4.00
|
%
|
|
4.25
|
%
|
|
4.00
|
%
|
Expected return on plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Non-U.S. Plans
|
|
3.25
|
%
|
|
3.25
|
%
|
|
3.25
|
%
|
|
*
|
|
|
*
|
|
|
*
|
|
Vocalink Plan
|
|
4.75
|
%
|
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
Postretirement Plan
|
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
Rate of compensation increase
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Non-U.S. Plans
|
|
2.59
|
%
|
|
2.64
|
%
|
|
2.92
|
%
|
|
*
|
|
|
*
|
|
|
*
|
|
Vocalink Plan
|
|
3.95
|
%
|
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
Postretirement Plan
|
|
*
|
|
|
*
|
|
|
*
|
|
|
3.00
|
%
|
|
3.00
|
%
|
|
3.00
|
%
|
|
|
2017
|
|
2016
|
||
Health care cost trend rate assumed for next year
|
|
6.50
|
%
|
|
7.00
|
%
|
Ultimate trend rate
|
|
5.00
|
%
|
|
5.00
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
3
|
|
|
4
|
|
|
December 31, 2017
|
||||||||||||||
|
Quoted Prices in Active Markets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
Fair Value
|
||||||||
|
(in millions)
|
||||||||||||||
Cash and cash equivalents
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21
|
|
Government and agency securities
|
21
|
|
|
95
|
|
|
—
|
|
|
116
|
|
||||
Mutual funds
|
146
|
|
|
28
|
|
|
—
|
|
|
174
|
|
||||
Insurance contracts
|
—
|
|
|
45
|
|
|
—
|
|
|
45
|
|
||||
Asset-backed securities
|
—
|
|
|
—
|
|
|
31
|
|
|
31
|
|
||||
Other
|
2
|
|
|
16
|
|
|
22
|
|
|
40
|
|
||||
Total
|
$
|
190
|
|
|
$
|
184
|
|
|
$
|
53
|
|
|
$
|
427
|
|
|
|
|
|
|
|
|
|
||||||||
|
December 31, 2016
|
||||||||||||||
|
Quoted Prices in Active Markets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
Fair Value
|
||||||||
|
(in millions)
|
||||||||||||||
Insurance contracts
|
$
|
—
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
33
|
|
Total
|
$
|
—
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
33
|
|
|
|
Pension Plans
|
|
Postretirement Plan
|
||||
|
|
(in millions)
|
||||||
2018
|
|
$
|
11
|
|
|
$
|
3
|
|
2019
|
|
15
|
|
|
3
|
|
||
2020
|
|
10
|
|
|
3
|
|
||
2021
|
|
10
|
|
|
4
|
|
||
2022
|
|
11
|
|
|
4
|
|
||
2023- 2026
|
|
45
|
|
|
14
|
|
Notes
|
|
Issuance
Date
|
|
Interest Payment Terms
|
|
Maturity
Date
|
|
Aggregate Principal Amount
|
|
Stated
Interest Rate
|
|
Effective
Interest Rate
|
|
2017
|
|
2016
|
||||||||
|
|
|
|
|
|
|
|
(in millions, except percentages)
|
||||||||||||||||
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
|
%
|
|
839
|
|
|
738
|
|
||
|
|
|
|
|
|
2027
|
|
800
|
|
|
2.100
|
%
|
|
2.189
|
%
|
|
958
|
|
|
843
|
|
|||
|
|
|
|
|
|
2030
|
|
150
|
|
|
2.500
|
%
|
|
2.562
|
%
|
|
180
|
|
|
158
|
|
|||
|
|
|
|
|
|
|
|
€
|
1,650
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
2014 USD Notes
|
|
March 2014
|
|
Semi-annually
|
|
2019
|
|
$
|
500
|
|
|
2.000
|
%
|
|
2.178
|
%
|
|
500
|
|
|
500
|
|
||
|
|
|
|
|
|
2024
|
|
1,000
|
|
|
3.375
|
%
|
|
3.484
|
%
|
|
1,000
|
|
|
1,000
|
|
|||
|
|
|
|
|
|
|
|
$
|
1,500
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,477
|
|
|
5,239
|
|
||||||
Less: Unamortized discount and debt issuance costs
|
|
(53
|
)
|
|
(59
|
)
|
||||||||||||||||||
Long-term debt
|
|
$
|
5,424
|
|
|
$
|
5,180
|
|
|
(in millions)
|
||
2018
|
$
|
—
|
|
2019
|
500
|
|
|
2020
|
—
|
|
|
2021
|
650
|
|
|
2022
|
839
|
|
|
Thereafter
|
3,488
|
|
|
Total
|
$
|
5,477
|
|
Class
|
|
Par Value Per Share
|
|
Authorized Shares
(in millions)
|
|
Dividend and Voting Rights
|
|
A
|
|
$0.0001
|
|
3,000
|
|
|
One vote per share
Dividend rights |
B
|
|
$0.0001
|
|
1,200
|
|
|
Non-voting
Dividend rights |
Preferred
|
|
$0.0001
|
|
300
|
|
|
No shares issued or outstanding at December 31, 2017 and 2016, respectively. Dividend and voting rights are to be determined by the Board of Directors of the Company upon issuance.
|
|
2017
|
|
2016
|
||||||||
|
Equity Ownership
|
|
General Voting Power
|
|
Equity Ownership
|
|
General Voting Power
|
||||
Public Investors (Class A stockholders)
|
88.0
|
%
|
|
89.2
|
%
|
|
87.7
|
%
|
|
89.3
|
%
|
Principal or Affiliate Customers (Class B stockholders)
|
1.4
|
%
|
|
—
|
%
|
|
1.8
|
%
|
|
—
|
%
|
Mastercard Foundation (Class A stockholders)
|
10.6
|
%
|
|
10.8
|
%
|
|
10.5
|
%
|
|
10.7
|
%
|
|
|
||||||||||||||||||||||
Board authorization dates
|
December
2017 |
|
December
2016 |
|
December
2015
|
|
December
2014
|
|
December
2013
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Date program became effective
|
N/A
1
|
|
April 2017
|
|
February 2016
|
|
January 2015
|
|
January 2014
|
|
Total
|
||||||||||||
|
(in millions, except average price data)
|
||||||||||||||||||||||
Board authorization
|
$
|
4,000
|
|
|
$
|
4,000
|
|
|
$
|
4,000
|
|
|
$
|
3,750
|
|
|
$
|
3,500
|
|
|
$
|
19,250
|
|
Dollar-value of shares repurchased in 2015
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,243
|
|
|
$
|
275
|
|
|
$
|
3,518
|
|
Remaining authorization at December 31, 2015
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,000
|
|
|
$
|
507
|
|
|
$
|
—
|
|
|
$
|
4,507
|
|
Dollar-value of shares repurchased in 2016
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,004
|
|
|
$
|
507
|
|
|
$
|
—
|
|
|
$
|
3,511
|
|
Remaining authorization at December 31, 2016
|
$
|
—
|
|
|
$
|
4,000
|
|
|
$
|
996
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,996
|
|
Dollar-value of shares repurchased in 2017
|
$
|
—
|
|
|
$
|
2,766
|
|
|
$
|
996
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,762
|
|
Remaining authorization at December 31, 2017
|
$
|
4,000
|
|
|
$
|
1,234
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Shares repurchased in 2015
|
—
|
|
|
—
|
|
|
—
|
|
|
35.1
|
|
|
3.2
|
|
|
38.3
|
|
||||||
Average price paid per share in 2015
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
92.39
|
|
|
$
|
84.31
|
|
|
$
|
91.70
|
|
Shares repurchased in 2016
|
—
|
|
|
—
|
|
|
31.2
|
|
|
5.7
|
|
|
—
|
|
|
36.9
|
|
||||||
Average price paid per share in 2016
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
96.15
|
|
|
$
|
89.76
|
|
|
$
|
—
|
|
|
$
|
95.18
|
|
Shares repurchased in 2017
|
—
|
|
|
21.0
|
|
|
9.1
|
|
|
—
|
|
|
—
|
|
|
30.1
|
|
||||||
Average price paid per share in 2017
|
$
|
—
|
|
|
$
|
131.97
|
|
|
$
|
109.16
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
125.05
|
|
Cumulative shares repurchased through December 31, 2017
|
—
|
|
|
21.0
|
|
|
40.4
|
|
|
40.8
|
|
|
45.8
|
|
|
148.0
|
|
||||||
Cumulative average price paid per share
|
$
|
—
|
|
|
$
|
131.97
|
|
|
$
|
99.10
|
|
|
$
|
92.03
|
|
|
$
|
76.42
|
|
|
$
|
94.78
|
|
|
Outstanding Shares
|
||||
|
Class A
|
|
Class B
|
||
|
(in millions)
|
||||
Balance at December 31, 2014
|
1,115.4
|
|
|
37.2
|
|
Purchases of treasury stock
|
(38.3
|
)
|
|
—
|
|
Share-based payments
|
2.0
|
|
|
—
|
|
Conversion of Class B to Class A common stock
|
15.9
|
|
|
(15.9
|
)
|
Balance at December 31, 2015
|
1,095.0
|
|
|
21.3
|
|
Purchases of treasury stock
|
(36.9
|
)
|
|
—
|
|
Share-based payments
|
2.3
|
|
|
—
|
|
Conversion of Class B to Class A common stock
|
2.0
|
|
|
(2.0
|
)
|
Balance at December 31, 2016
|
1,062.4
|
|
|
19.3
|
|
Purchases of treasury stock
|
(30.1
|
)
|
|
—
|
|
Share-based payments
|
2.2
|
|
|
—
|
|
Conversion of Class B to Class A common stock
|
5.2
|
|
|
(5.2
|
)
|
Balance at December 31, 2017
|
1,039.7
|
|
|
14.1
|
|
|
Foreign Currency Translation Adjustments
1
|
|
Translation Adjustments on Net Investment Hedge
|
|
Defined Benefit Pension and Other Postretirement Plans
2
|
|
Investment Securities Available-for-Sale
3
|
|
Accumulated Other Comprehensive Income (Loss)
|
||||||||||
|
(in millions)
|
||||||||||||||||||
Balance at December 31, 2015
|
$
|
(663
|
)
|
|
$
|
(26
|
)
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
(676
|
)
|
Other comprehensive income (loss)
|
(286
|
)
|
|
38
|
|
|
(2
|
)
|
|
2
|
|
|
(248
|
)
|
|||||
Balance at December 31, 2016
|
(949
|
)
|
|
12
|
|
|
11
|
|
|
2
|
|
|
(924
|
)
|
|||||
Other comprehensive income (loss)
|
567
|
|
|
(153
|
)
|
|
14
|
|
|
(1
|
)
|
|
427
|
|
|||||
Balance at December 31, 2017
|
$
|
(382
|
)
|
|
$
|
(141
|
)
|
|
$
|
25
|
|
|
$
|
1
|
|
|
$
|
(497
|
)
|
|
2017
|
|
2016
|
|
2015
|
||||||
Risk-free rate of return
|
2.0
|
%
|
|
1.3
|
%
|
|
1.5
|
%
|
|||
Expected term (in years)
|
5.00
|
|
|
5.00
|
|
|
5.00
|
|
|||
Expected volatility
|
19.3
|
%
|
|
23.3
|
%
|
|
20.6
|
%
|
|||
Expected dividend yield
|
0.8
|
%
|
|
0.8
|
%
|
|
0.7
|
%
|
|||
Weighted-average fair value per Option granted
|
$
|
21.23
|
|
|
$
|
18.58
|
|
|
$
|
17.29
|
|
|
Options
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value
|
|||||
|
(in millions)
|
|
|
|
(in years)
|
|
(in millions)
|
|||||
Outstanding at January 1, 2017
|
8.3
|
|
|
$
|
65
|
|
|
|
|
|
||
Granted
|
1.7
|
|
|
$
|
112
|
|
|
|
|
|
||
Exercised
|
(1.3
|
)
|
|
$
|
43
|
|
|
|
|
|
||
Forfeited/expired
|
(0.1
|
)
|
|
$
|
98
|
|
|
|
|
|
||
Outstanding at December 31, 2017
|
8.6
|
|
|
$
|
77
|
|
|
6.6
|
|
$
|
639
|
|
Exercisable at December 31, 2017
|
4.6
|
|
|
$
|
59
|
|
|
5.2
|
|
$
|
424
|
|
Options vested and expected to vest at December 31, 2017
|
8.5
|
|
|
$
|
77
|
|
|
6.6
|
|
$
|
634
|
|
|
Units
|
|
Weighted-Average Grant-Date Fair Value
|
|
Aggregate Intrinsic Value
|
|||||
|
(in millions)
|
|
|
|
(in millions)
|
|||||
Outstanding at January 1, 2017
|
4.1
|
|
|
$
|
86
|
|
|
|
||
Granted
|
1.4
|
|
|
$
|
112
|
|
|
|
||
Converted
|
(1.2
|
)
|
|
$
|
76
|
|
|
|
||
Forfeited
|
(0.2
|
)
|
|
$
|
95
|
|
|
|
||
Outstanding at December 31, 2017
|
4.1
|
|
|
$
|
97
|
|
|
$
|
623
|
|
RSUs vested and expected to vest at December 31, 2017
|
4.0
|
|
|
$
|
97
|
|
|
$
|
599
|
|
|
Units
|
|
Weighted-Average
Grant-Date Fair Value
|
|
Aggregate Intrinsic Value
|
|||||
|
(in millions)
|
|
|
|
(in millions)
|
|||||
Outstanding at January 1, 2017
|
0.4
|
|
|
$
|
90
|
|
|
|
||
Granted
|
0.2
|
|
|
$
|
126
|
|
|
|
||
Converted
|
(0.1
|
)
|
|
$
|
78
|
|
|
|
||
Outstanding at December 31, 2017
|
0.5
|
|
|
$
|
105
|
|
|
$
|
74
|
|
PSUs vested and expected to vest at December 31, 2017
|
0.5
|
|
|
$
|
105
|
|
|
$
|
72
|
|
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in millions, except weighted-average fair value)
|
||||||||||
Share-based compensation expense: Options, RSUs and PSUs
|
$
|
176
|
|
|
$
|
148
|
|
|
$
|
122
|
|
Income tax benefit recognized for equity awards
|
57
|
|
|
49
|
|
|
41
|
|
|||
Income tax benefit realized related to Options exercised
|
36
|
|
|
31
|
|
|
19
|
|
|||
|
|
|
|
|
|
||||||
Options:
|
|
|
|
|
|
||||||
Total intrinsic value of Options exercised
|
106
|
|
|
86
|
|
|
57
|
|
|||
RSUs:
|
|
|
|
|
|
||||||
Weighted-average grant-date fair value of awards granted
|
112
|
|
|
91
|
|
|
88
|
|
|||
Total intrinsic value of RSUs converted into shares of Class A common stock
|
131
|
|
|
122
|
|
|
135
|
|
|||
PSUs:
|
|
|
|
|
|
||||||
Weighted-average grant-date fair value of awards granted
|
126
|
|
|
92
|
|
|
99
|
|
|||
Total intrinsic value of PSUs converted into shares of Class A common stock
|
13
|
|
|
25
|
|
|
24
|
|
|
Total
|
|
Capital
Leases |
|
Operating
Leases
|
|
Sponsorship,
Licensing &
Other
|
||||||||
|
(in millions)
|
||||||||||||||
2018
|
$
|
456
|
|
|
$
|
4
|
|
|
$
|
64
|
|
|
$
|
388
|
|
2019
|
265
|
|
|
4
|
|
|
36
|
|
|
225
|
|
||||
2020
|
196
|
|
|
4
|
|
|
41
|
|
|
151
|
|
||||
2021
|
98
|
|
|
—
|
|
|
20
|
|
|
78
|
|
||||
2022
|
38
|
|
|
—
|
|
|
6
|
|
|
32
|
|
||||
Thereafter
|
35
|
|
|
—
|
|
|
34
|
|
|
1
|
|
||||
Total
|
$
|
1,088
|
|
|
$
|
12
|
|
|
$
|
201
|
|
|
$
|
875
|
|
•
|
lowers the corporate income tax rate from 35% to 21%
|
•
|
imposes a one-time deemed repatriation tax on accumulated foreign earnings (the “Transition Tax”)
|
•
|
provides for a 100% dividends received deduction on dividends from foreign affiliates
|
•
|
requires a current inclusion in U.S. federal taxable income of earnings of foreign affiliates that are determined to be global intangible low taxed income or “GILTI”
|
•
|
creates the base erosion anti-abuse tax, or “BEAT”
|
•
|
provides for an effective tax rate of 13.125% for certain income derived from outside of the U.S. (referred to as foreign derived intangible income or “FDII”)
|
•
|
introduces further limitations on the deductibility of executive compensation
|
•
|
permits 100% expensing of qualifying fixed assets acquired after September 27, 2017
|
•
|
limits the deductibility of interest expense in certain situations
|
•
|
eliminates the domestic production activities deduction
|
|
2017
|
|
2016
|
|
2015
|
||||||
|
|
|
(in millions)
|
|
|
||||||
United States
|
$
|
3,482
|
|
|
$
|
3,736
|
|
|
$
|
3,399
|
|
Foreign
|
3,040
|
|
|
1,910
|
|
|
1,559
|
|
|||
Income before income taxes
|
$
|
6,522
|
|
|
$
|
5,646
|
|
|
$
|
4,958
|
|
|
2017
|
|
2016
|
|
2015
|
||||||
|
|
|
(in millions)
|
|
|
||||||
Current
|
|
|
|
|
|
||||||
Federal
|
$
|
1,704
|
|
|
$
|
1,074
|
|
|
$
|
677
|
|
State and local
|
65
|
|
|
36
|
|
|
45
|
|
|||
Foreign
|
752
|
|
|
497
|
|
|
444
|
|
|||
|
2,521
|
|
|
1,607
|
|
|
1,166
|
|
|||
Deferred
|
|
|
|
|
|
||||||
Federal
|
134
|
|
|
(6
|
)
|
|
4
|
|
|||
State and local
|
1
|
|
|
(2
|
)
|
|
(3
|
)
|
|||
Foreign
|
(49
|
)
|
|
(12
|
)
|
|
(17
|
)
|
|||
|
86
|
|
|
(20
|
)
|
|
(16
|
)
|
|||
Income tax expense
|
$
|
2,607
|
|
|
$
|
1,587
|
|
|
$
|
1,150
|
|
|
2017
|
|
2016
|
|
2015
|
|||||||||||||||
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|||||||||
|
(in millions, except percentages)
|
|||||||||||||||||||
Income before income taxes
|
$
|
6,522
|
|
|
|
|
$
|
5,646
|
|
|
|
|
$
|
4,958
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Federal statutory tax
|
2,283
|
|
|
35.0
|
%
|
|
1,976
|
|
|
35.0
|
%
|
|
1,735
|
|
|
35.0
|
%
|
|||
State tax effect, net of federal benefit
|
43
|
|
|
0.7
|
%
|
|
22
|
|
|
0.4
|
%
|
|
27
|
|
|
0.5
|
%
|
|||
Foreign earnings
|
(380
|
)
|
|
(5.8
|
)%
|
|
(188
|
)
|
|
(3.3
|
)%
|
|
(144
|
)
|
|
(2.9
|
)%
|
|||
Impact of foreign tax credits
1
|
(27
|
)
|
|
(0.4
|
)%
|
|
(141
|
)
|
|
(2.5
|
)%
|
|
(281
|
)
|
|
(5.7
|
)%
|
|||
Impact of settlements with tax authorities
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
(147
|
)
|
|
(2.9
|
)%
|
|||
Transition Tax
|
629
|
|
|
9.6
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|||
Remeasurement of U.S. deferred taxes
|
157
|
|
|
2.4
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|||
Other, net
|
(98
|
)
|
|
(1.5
|
)%
|
|
(82
|
)
|
|
(1.5
|
)%
|
|
(40
|
)
|
|
(0.8
|
)%
|
|||
Income tax expense
|
$
|
2,607
|
|
|
40.0
|
%
|
|
$
|
1,587
|
|
|
28.1
|
%
|
|
$
|
1,150
|
|
|
23.2
|
%
|
|
2017
|
|
2016
|
||||
|
(in millions)
|
||||||
Deferred Tax Assets
|
|
|
|
||||
Accrued liabilities
|
$
|
158
|
|
|
$
|
174
|
|
Compensation and benefits
|
127
|
|
|
273
|
|
||
State taxes and other credits
|
28
|
|
|
41
|
|
||
Net operating and capital losses
|
105
|
|
|
81
|
|
||
Unrealized gain/loss - 2015 Euro Notes
|
48
|
|
|
—
|
|
||
Recoverable basis of deconsolidated entities
|
35
|
|
|
—
|
|
||
Other items
|
83
|
|
|
79
|
|
||
Less: Valuation allowance
|
(91
|
)
|
|
(91
|
)
|
||
Total Deferred Tax Assets
|
493
|
|
|
557
|
|
||
|
|
|
|
||||
Deferred Tax Liabilities
|
|
|
|
||||
Prepaid expenses and other accruals
|
48
|
|
|
46
|
|
||
Intangible assets
|
151
|
|
|
105
|
|
||
Property, plant and equipment
|
83
|
|
|
155
|
|
||
Unrealized gain/loss - 2015 Euro Notes
|
—
|
|
|
7
|
|
||
Previously taxed earnings and profits
|
36
|
|
|
—
|
|
||
Other items
|
31
|
|
|
18
|
|
||
Total Deferred Tax Liabilities
|
349
|
|
|
331
|
|
||
|
|
|
|
||||
Net Deferred Tax Assets
|
$
|
144
|
|
|
$
|
226
|
|
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in millions)
|
||||||||||
Beginning balance
|
$
|
169
|
|
|
$
|
181
|
|
|
$
|
364
|
|
Additions:
|
|
|
|
|
|
||||||
Current year tax positions
|
21
|
|
|
20
|
|
|
20
|
|
|||
Prior year tax positions
|
9
|
|
|
13
|
|
|
10
|
|
|||
Reductions:
|
|
|
|
|
|
||||||
Prior year tax positions
|
(1
|
)
|
|
(28
|
)
|
|
(151
|
)
|
|||
Settlements with tax authorities
|
(4
|
)
|
|
(2
|
)
|
|
(53
|
)
|
|||
Expired statute of limitations
|
(11
|
)
|
|
(15
|
)
|
|
(9
|
)
|
|||
Ending balance
|
$
|
183
|
|
|
$
|
169
|
|
|
$
|
181
|
|
|
December 31,
2017 |
|
December 31, 2016
|
||||
|
(in millions)
|
||||||
Gross settlement exposure
1
|
$
|
47,002
|
|
|
$
|
39,523
|
|
Collateral held for settlement exposure
|
(4,360
|
)
|
|
(3,734
|
)
|
||
Net uncollateralized settlement exposure
|
$
|
42,642
|
|
|
$
|
35,789
|
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||||||||
|
Notional
|
|
Estimated Fair
Value
|
|
Notional
|
|
Estimated Fair
Value
|
||||||||
|
(in millions)
|
||||||||||||||
Commitments to purchase foreign currency
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
37
|
|
|
$
|
(2
|
)
|
Commitments to sell foreign currency
|
968
|
|
|
(26
|
)
|
|
777
|
|
|
18
|
|
||||
Options to sell foreign currency
|
27
|
|
|
2
|
|
|
—
|
|
|
—
|
|
||||
Balance sheet location
|
|
|
|
|
|
|
|
||||||||
Accounts receivable
1
|
|
|
$
|
6
|
|
|
|
|
$
|
29
|
|
||||
Other current liabilities
1
|
|
|
(30
|
)
|
|
|
|
(13
|
)
|
|
Year Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in millions)
|
||||||||||
Foreign currency derivative contracts
|
|
|
|
|
|
||||||
General and administrative
|
$
|
(75
|
)
|
|
$
|
(6
|
)
|
|
$
|
51
|
|
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in millions)
|
||||||||||
United States
|
$
|
572
|
|
|
$
|
504
|
|
|
$
|
471
|
|
Other countries
|
257
|
|
|
229
|
|
|
204
|
|
|||
Total
|
$
|
829
|
|
|
$
|
733
|
|
|
$
|
675
|
|
|
2017 Quarter Ended
|
|
|
||||||||||||||||
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
2017 Total
|
||||||||||
|
(in millions, except per share data)
|
||||||||||||||||||
Net revenue
|
$
|
2,734
|
|
|
$
|
3,053
|
|
|
$
|
3,398
|
|
|
$
|
3,312
|
|
|
$
|
12,497
|
|
Operating income
|
1,506
|
|
|
1,653
|
|
|
1,941
|
|
|
1,522
|
|
|
6,622
|
|
|||||
Net income
|
1,081
|
|
|
1,177
|
|
|
1,430
|
|
|
227
|
|
|
3,915
|
|
|||||
Basic earnings per share
|
$
|
1.00
|
|
|
$
|
1.10
|
|
|
$
|
1.34
|
|
|
$
|
0.21
|
|
|
$
|
3.67
|
|
Basic weighted-average shares outstanding
|
1,078
|
|
|
1,070
|
|
|
1,063
|
|
|
1,057
|
|
|
1,067
|
|
|||||
Diluted earnings per share
|
$
|
1.00
|
|
|
$
|
1.10
|
|
|
$
|
1.34
|
|
|
$
|
0.21
|
|
|
$
|
3.65
|
|
Diluted weighted-average shares outstanding
|
1,082
|
|
|
1,075
|
|
|
1,068
|
|
|
1,063
|
|
|
1,072
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
|
2016 Quarter Ended
|
|
|
||||||||||||||||
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
2016 Total
|
||||||||||
|
(in millions, except per share data)
|
||||||||||||||||||
Net revenue
|
$
|
2,446
|
|
|
$
|
2,694
|
|
|
$
|
2,880
|
|
|
$
|
2,756
|
|
|
$
|
10,776
|
|
Operating income
|
1,348
|
|
|
1,380
|
|
|
1,670
|
|
|
1,363
|
|
|
5,761
|
|
|||||
Net income
|
959
|
|
|
983
|
|
|
1,184
|
|
|
933
|
|
|
4,059
|
|
|||||
Basic earnings per share
|
$
|
0.86
|
|
|
$
|
0.89
|
|
|
$
|
1.08
|
|
|
$
|
0.86
|
|
|
$
|
3.70
|
|
Basic weighted-average shares outstanding
|
1,109
|
|
|
1,098
|
|
|
1,096
|
|
|
1,087
|
|
|
1,098
|
|
|||||
Diluted earnings per share
|
$
|
0.86
|
|
|
$
|
0.89
|
|
|
$
|
1.08
|
|
|
$
|
0.86
|
|
|
$
|
3.69
|
|
Diluted weighted-average shares outstanding
|
1,112
|
|
|
1,101
|
|
|
1,099
|
|
|
1,090
|
|
|
1,101
|
|
1
|
Consolidated Financial Statements
|
2
|
Consolidated Financial Statement Schedules
|
3
|
The following exhibits are filed as part of this Report or, where indicated, were previously filed and are hereby incorporated by reference:
|
|
|
|
Exhibit
Number
|
|
Exhibit Description
|
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
101.INS*
|
|
XBRL Instance Document
|
|
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
+
|
Management contracts or compensatory plans or arrangements.
|
*
|
Filed or furnished herewith.
|
**
|
Exhibit omits certain information that has been filed separately with the U.S. Securities and Exchange Commission and has been granted confidential treatment.
|
|
|
|
|
MASTERCARD INCORPORATED
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
Date:
|
February 14, 2018
|
By:
|
|
/s/ AJAY BANGA
|
|
|
|
|
Ajay Banga
|
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
Date:
|
February 14, 2018
|
By:
|
|
/s/ AJAY BANGA
|
|
|
|
|
Ajay Banga
|
|
|
|
|
President and Chief Executive Officer; Director
|
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
Date:
|
February 14, 2018
|
By:
|
|
/s/ MARTINA HUND-MEJEAN
|
|
|
|
|
Martina Hund-Mejean
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
(Principal Financial Officer)
|
|
|
|
|
|
Date:
|
February 14, 2018
|
By:
|
|
/s/ SANDRA ARKELL
|
|
|
|
|
Sandra Arkell
|
|
|
|
|
Corporate Controller
|
|
|
|
|
(Principal Accounting Officer)
|
|
|
|
|
|
Date:
|
February 14, 2018
|
By:
|
|
/s/ SILVIO BARZI
|
|
|
|
|
Silvio Barzi
|
|
|
|
|
Director
|
|
|
|
|
|
Date:
|
February 14, 2018
|
By:
|
|
/s/ DAVID R. CARLUCCI
|
|
|
|
|
David R. Carlucci
|
|
|
|
|
Director
|
|
|
|
|
|
Date:
|
February 14, 2018
|
By:
|
|
/s/ STEVEN J. FREIBERG
|
|
|
|
|
Steven J. Freiberg
|
|
|
|
|
Director
|
|
|
|
|
|
Date:
|
February 14, 2018
|
By:
|
|
/s/ JULIUS GENACHOWSKI
|
|
|
|
|
Julius Genachowski
|
|
|
|
|
Director
|
|
|
|
|
|
Date:
|
February 14, 2018
|
By:
|
|
/s/ RICHARD HAYTHORNTHWAITE
|
|
|
|
|
Richard Haythornthwaite
|
|
|
|
|
Chairman of the Board; Director
|
|
|
|
|
|
|
|
|
|
|
Date:
|
February 14, 2018
|
By:
|
|
/s/ MERIT E. JANOW
|
|
|
|
|
Merit E. Janow
|
|
|
|
|
Director
|
|
|
|
|
|
Date:
|
February 14, 2018
|
By:
|
|
/s/ NANCY J. KARCH
|
|
|
|
|
Nancy J. Karch
|
|
|
|
|
Director
|
|
|
|
|
|
Date:
|
February 14, 2018
|
By:
|
|
/s/ OKI MATSUMOTO
|
|
|
|
|
Oki Matsumoto
|
|
|
|
|
Director
|
|
|
|
|
|
Date:
|
February 14, 2018
|
By:
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/s/ RIMA QURESHI
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Rima Qureshi
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Director
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Date:
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February 14, 2018
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By:
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/s/ JOSÉ OCTAVIO REYES LAGUNES
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José Octavio Reyes Lagunes
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Director
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Date:
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February 14, 2018
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By:
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/s/ JACKSON TAI
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Jackson Tai
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Director
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1.
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Elimination of Gross-Up Payments
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MASTERCARD INTERNATIONAL INCORPORATED
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/s/ MARTINA HUND-MEJEAN
Martina Hund-Mejean
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By:
/s/ AJAY BANGA
Ajaypal Banga
President and Chief Executive
Officer
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Years Ended December 31,
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||||||||||||||||||
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2017
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2016
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2015
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2014
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2013
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||||||||||
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(in millions, except ratios)
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||||||||||||||||||
Pre-tax income before adjustment for non-controlling interests
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$
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6,516
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$
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5,640
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$
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4,952
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$
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5,082
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$
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4,502
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Loss attributable to non-controlling interests and equity investments
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17
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20
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89
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27
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37
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Add: Fixed charges
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157
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97
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63
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50
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20
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Earnings
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$
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6,690
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$
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5,757
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$
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5,104
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$
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5,159
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$
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4,559
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Fixed charges:
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Interest expense
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$
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154
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$
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95
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$
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61
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$
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48
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$
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14
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Portion of rental expense under operating leases deemed to be the equivalent of interest
1
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3
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2
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2
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2
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6
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|||||
Total fixed charges
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$
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157
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$
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97
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$
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63
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$
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50
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$
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20
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Ratio of earnings to fixed charges
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42.6
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59.4
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81.0
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103.2
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228.0
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Name
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Jurisdiction
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Global Mastercard Holdings LP
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United Kingdom
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Mastercard A&M Investment Holdings, LLC
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Delaware
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Mastercard Asia/Pacific Pte. Ltd.
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Singapore
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MasterCard Brasil Soluções de Pagamento Ltda.
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Brazil
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Mastercard/Europay U.K. Limited
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United Kingdom
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Mastercard Europe SA
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Belgium
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Mastercard Europe Services Limited
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United Kingdom
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Mastercard European Holding LLC
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Delaware
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Mastercard European Maatschap
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Belgium
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Mastercard European Share Holding B.V.
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Netherlands
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Mastercard Financing Pte. Ltd.
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Singapore
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Mastercard Financing Solutions LLC
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Delaware
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Mastercard Financing UK LP
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United Kingdom
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Mastercard Global Partners LP
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Singapore
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Mastercard Holdings LP
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United Kingdom
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Mastercard International Global Maatschap
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Belgium
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Mastercard International Incorporated
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Delaware
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Mastercard Netherlands B.V.
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Netherlands
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Mastercard Partners II LLC
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Delaware
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Mastercard Payment Gateway Services Group Limited
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United Kingdom
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Mastercard Technologies, LLC
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Delaware
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Mastercard UK Holdco Limited
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United Kingdom
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Mastercard US Holdings LLC
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Delaware
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Purchase Street Research, LLC
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Delaware
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a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date:
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February 14, 2018
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By:
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/s/ Ajay Banga
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Ajay Banga
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President and Chief Executive Officer
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a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date:
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February 14, 2018
|
|
|
|
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By:
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/s/ Martina Hund-Mejean
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|
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Martina Hund-Mejean
|
|
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Chief Financial Officer
|
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February 14, 2018
|
|
/s/ Ajay Banga
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Ajay Banga
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President and Chief Executive Officer
|
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February 14, 2018
|
|
/s/ Martina Hund-Mejean
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Martina Hund-Mejean
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Chief Financial Officer
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•
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certain European acquirers having acquired transactions for consular services with Iranian embassies located in Austria, France and Spain that accepted Mastercard cards
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•
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certain European and Middle Eastern acquirers having acquired transactions for Iran Air, which accepted Mastercard cards in Austria, France and Qatar
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