EX-99.1 2 ma03312018-exx991xearnings.htm EXHIBIT 99.1 Exhibit




Earnings Release
 
manewlogoside.jpg


Mastercard Incorporated Reports
First-Quarter 2018 Financial Results

•
Record first-quarter net income of $1.5 billion, or $1.41 per diluted share
•
Record first-quarter adjusted net income of $1.6 billion, or $1.50 per adjusted diluted share
•
Record first-quarter net revenue of $3.6 billion, or an increase of 31%
•
First-quarter gross dollar volume up 14% and purchase volume up 15%


Purchase, NY - May 2, 2018 - Mastercard Incorporated (NYSE: MA) today announced financial results for the first quarter 2018.

“We’re off to a very strong start to the year, with record revenue and earnings this quarter, as we continue to execute against our strategy,” said Ajay Banga, Mastercard president and CEO. “We are investing in areas such as safety and security and our digital solutions to drive long-term growth, with a focus on delivering simple and secure transactions across all channels.”

Quarterly Results
Summary of First-Quarter Operating Results
Amounts in billions ($), except per share data
 
 
 
 
Increase / (Decrease)
Q1 2018
 
Q1 2017
 
Reported GAAP
 
Currency-neutral
Net revenue
$3.6
 
$2.7
 
31%
 
27%
Operating expenses
$1.8
 
$1.2
 
43%
 
39%
Operating income
$1.8
 
$1.5
 
21%
 
16%
Operating margin
51.0%
 
55.1%
 
(4.1) ppt
 
(4.4) ppt
Effective income tax rate
17.3%
 
26.9%
 
(9.6) ppt
 
(9.5) ppt
Net income
$1.5
 
$1.1
 
38%
 
32%
Diluted earnings per share
$1.41
 
$1.00
 
41%
 
36%
Summary of First-Quarter Non-GAAP Results1
Amounts in billions ($), except per share data
 
 
 
 
Increase / (Decrease)
Q1 2018
 
Q1 2017
 
As adjusted
 
Currency-neutral
Net revenue
$3.6
 
$2.7
 
31%
 
27%
Adjusted operating expenses
$1.6
 
$1.2
 
35%
 
32%
Adjusted operating margin
54.2%
 
55.6%
 
(1.4) ppt
 
(1.8) ppt
Adjusted effective income tax rate
17.7%
 
26.9%
 
(9.2) ppt
 
(9.2) ppt
Adjusted net income
$1.6
 
$1.1
 
45%
 
39%
Adjusted diluted earnings per share
$1.50
 
$1.01
 
49%
 
43%

1 The Summary of Non-GAAP Results excludes the impact of special items (“Special Items”) and/or foreign currency. See Non-GAAP reconciliations on page 10 for further information on the Special Items, the impact of foreign currency and the reconciliation to GAAP reported amounts.

-more-


Mastercard Incorporated - Page 2

The following additional details are provided to aid in understanding Mastercard’s first-quarter 2018 results, versus the year-ago period:
•
Net revenue increased 31% as reported, or 27% on a currency-neutral basis. The new revenue recognition rules and acquisitions contributed 4 and 2.5 percentage points to this growth, respectively. Excluding those items, underlying revenue growth was 20%, driven by the impact of the following factors:
◦
An increase in switched transactions of 17%, adjusted for the impact of the Venezuela deconsolidation, to 16.7 billion.
◦
An increase in cross-border volumes of 21% on a local currency basis.
◦
A 14% increase in gross dollar volume, on a local currency basis, to $1.4 trillion.
◦
These increases were partially offset by an increase in rebates and incentives, primarily due to increased volumes and new and renewed agreements.
•
Total operating expenses increased 43%. Excluding the impact of Special Items, adjusted operating expenses increased 35%, or 32% on a currency-neutral basis. This includes 8 percentage points of growth from acquisitions, 8 percentage points of growth from our $100 million contribution to the Mastercard Center for Inclusive Growth, a non-profit charitable organization, and 3 percentage points of growth from the adoption of the new revenue recognition rules. The remaining underlying expense growth of 12 percentage points is primarily related to our continued investments in strategic initiatives.
•
Other income (expense) was favorable versus the year ago period, primarily due to the lapping of impairment charges taken in the same period last year and higher investment income, partially offset by higher interest expense related to our debt issuance in February 2018.
•
The effective tax rate for the first quarter of 2018 was 17.3%, versus 26.9% for the comparable period in 2017, primarily due to a lower enacted statutory tax rate in the U.S. Excluding Special Items, the adjusted effective tax rate for the first quarter was 17.7%, versus 26.9% for the comparable period in 2017. On an adjusted basis, the U.S. tax reform contributed approximately 4.5 percentage points to the lower tax rate versus year-ago.
•
As of March 31, 2018, the company’s customers had issued 2.4 billion Mastercard and Maestro-branded cards, adjusted for the impact of the Venezuela deconsolidation.

Return of Capital to Shareholders

During the first quarter of 2018, Mastercard repurchased approximately 7.9 million shares at a cost of $1.4 billion and paid $263 million in dividends. Quarter-to-date through April 27, the company repurchased an additional 3.5 million shares at a cost of $608 million, which leaves $3.3 billion remaining under current repurchase program authorizations.

First-Quarter Financial Results Conference Call Details

At 9:00 a.m. ET today, the company will host a conference call to discuss its first-quarter results.

The dial-in information for this call is 833-236-5755 (within the U.S.) and 647-689-4183 (outside the U.S.). A replay of the call will be available for 30 days and can be accessed by dialing 800-585-8367 (within the U.S.) and 416-621-4642 (outside the U.S.), using passcode 5073027.

This call can also be accessed through the Investor Relations section of the company’s website at  www.mastercard.com/investor. Presentation slides used on this call will also be available on the website.




Mastercard Incorporated - Page 3

Non-GAAP Financial Information

The company has presented certain financial data that are considered non-GAAP financial measures that are reconciled to their most directly comparable GAAP measures in the accompanying tables.

The presentation of growth rates on a currency-neutral basis represents a non-GAAP measure and are calculated by remeasuring the prior period’s results using the current period’s exchange rates for both the translational and transactional impacts in our operating results.


About Mastercard Incorporated

Mastercard (NYSE: MA), www.mastercard.com, is a technology company in the global payments industry.  Our global payments processing network connects consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories.  Mastercard products and solutions make everyday commerce activities - such as shopping, traveling, running a business and managing finances - easier, more secure and more efficient for everyone.  Follow us on Twitter @MastercardNews, join the discussion on the Beyond the Transaction Blog and subscribe for the latest news on the Engagement Bureau.


Forward-Looking Statements

This press release contains forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts may be forward-looking statements. When used in this press release, the words “believe”, “expect”, “could”, “may”, “would”, “will”, “trend” and similar words are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements that relate to Mastercard’s future prospects, developments and business strategies. We caution you to not place undue reliance on these forward-looking statements, as they speak only as of the date they are made. Except for the company’s ongoing obligations under the U.S. federal securities laws, the company does not intend to update or otherwise revise the forward-looking information to reflect actual results of operations, changes in financial condition, changes in estimates, expectations or assumptions, changes in general economic or industry conditions or other circumstances arising and/or existing since the preparation of this press release or to reflect the occurrence of any unanticipated events.

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



Mastercard Incorporated - Page 4

real-time account-based payment systems, issuer practice regulation and regulation of internet and digital transactions)
•
the impact of changes in laws, including the recent U.S. tax legislation, regulations and interpretations thereof, or challenges to our tax positions
•
regulation of privacy, data protection and security
•
potential or incurred liability and limitations on business resulting from litigation
•
the impact of competition in the global payments industry (including disintermediation and pricing pressure)
•
the challenges relating to rapid technological developments and changes
•
the challenges relating to operating an account-based payment system in addition to our core network and to working with new customers and end users
•
the impact of information security incidents, account data breaches, fraudulent activity or service disruptions on our business
•
issues related to our relationships with our financial institution customers (including loss of substantial business from significant customers, competitor relationships with our customers and banking industry consolidation)
•
the impact of our relationships with other stakeholders, including merchants and governments
•
exposure to loss or illiquidity due to settlement guarantees and other significant third-party obligations
•
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.)
•
reputational impact, including impact related to brand perception
•
issues related to acquisition integration, strategic investments and entry into new businesses
For additional information on these and other factors that could cause Mastercard’s actual results to differ materially from expected results, please see the company’s filings with the Securities and Exchange Commission, including the company’s Annual Report on Form 10-K for the year ended December 31, 2017 and any subsequent reports on Forms 10-Q and 8-K.

###

Contacts:
Investor Relations: Warren Kneeshaw or Gina Accordino, investor.relations@mastercard.com, 914-249-4565.
Media Relations: Seth Eisen, Seth.Eisen@mastercard.com, 914-249-3153.



Mastercard Incorporated - Page 5


MASTERCARD INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)

 
 
Three Months Ended March 31,
 
2018
 
2017
 
(in millions, except per share data)
Net Revenue
$
3,580

 
$
2,734

Operating Expenses
 
 
 
General and administrative
1,294

 
951

Advertising and marketing
224

 
170

Depreciation and amortization
120

 
92

Provision for litigation settlements
117

 
15

Total operating expenses
1,755

 
1,228

Operating income
1,825

 
1,506

Other Income (Expense)
 
 
 
Investment income
17

 
15

Interest expense
(43
)
 
(39
)
Other income (expense), net
4

 
(4
)
Total other income (expense)
(22
)
 
(28
)
Income before income taxes
1,803

 
1,478

Income tax expense
311

 
397

Net Income
$
1,492

 
$
1,081

 
 
 
 
Basic Earnings per Share
$
1.42

 
$
1.00

Basic Weighted-Average Shares Outstanding
1,051

 
1,078

Diluted Earnings per Share
$
1.41

 
$
1.00

Diluted Weighted-Average Shares Outstanding
1,057

 
1,082




Mastercard Incorporated - Page 6

MASTERCARD INCORPORATED
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
 
 
March 31, 2018
 
December 31, 2017
 
(in millions, except per share data)
ASSETS
 
 
 
Cash and cash equivalents
$
6,890

 
$
5,933

Restricted cash for litigation settlement
548

 
546

Investments
1,378

 
1,849

Accounts receivable
2,122

 
1,969

Settlement due from customers
1,531

 
1,375

Restricted security deposits held for customers
965

 
1,085

Prepaid expenses and other current assets
1,273

 
1,040

Total Current Assets
14,707

 
13,797

Property, plant and equipment, net of accumulated depreciation of $748 and $714, respectively
839

 
829

Deferred income taxes
350

 
250

Goodwill
3,104

 
3,035

Other intangible assets, net of accumulated amortization of $1,173 and $1,157, respectively
1,118

 
1,120

Other assets
2,826

 
2,298

Total Assets
$
22,944

 
$
21,329

LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY
 
 
 
Accounts payable
$
370

 
$
933

Settlement due to customers
1,280

 
1,343

Restricted security deposits held for customers
965

 
1,085

Accrued litigation
828

 
709

Accrued expenses
4,501

 
3,931

Other current liabilities
1,004

 
792

Total Current Liabilities
8,948

 
8,793

Long-term debt
6,469

 
5,424

Deferred income taxes
64

 
106

Other liabilities
1,661

 
1,438

Total Liabilities
17,142

 
15,761

 
 
 
 
Commitments and Contingencies

 

 
 
 
 
Redeemable Non-controlling Interests
71

 
71

 
 
 
 
Stockholders’ Equity
 
 

Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,384 and 1,382 shares issued and 1,034 and 1,040 outstanding, respectively
—

 
—

Class B common stock, $0.0001 par value; authorized 1,200 shares, 14 and 14 issued and outstanding, respectively
—

 
—

Additional paid-in-capital
4,367

 
4,365

Class A treasury stock, at cost, 350 and 342 shares, respectively
(22,143
)
 
(20,764
)
Retained earnings
23,852

 
22,364

Accumulated other comprehensive income (loss)
(373
)
 
(497
)
Total Stockholders’ Equity
5,703

 
5,468

Non-controlling interests
28

 
29

Total Equity
5,731

 
5,497

Total Liabilities, Redeemable Non-controlling Interests and Equity
$
22,944

 
$
21,329






Mastercard Incorporated - Page 7

MASTERCARD INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
 
Three Months Ended March 31,
 
2018
 
2017
 
(in millions)
Operating Activities
 
 
 
Net income
$
1,492

 
$
1,081

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of customer and merchant incentives
287

 
266

Depreciation and amortization
120

 
92

Share-based compensation
43

 
39

Deferred income taxes
(46
)
 
8

Other
1

 
9

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(80
)
 
(120
)
Settlement due from customers
(156
)
 
8

Prepaid expenses
(375
)
 
(660
)
Accrued litigation and legal settlements
111

 
13

Restricted security deposits held for customers
(141
)
 
(19
)
Accounts payable
(62
)
 
57

Settlement due to customers
(63
)
 
(124
)
Accrued expenses
(140
)
 
10

Net change in other assets and liabilities
44

 
67

Net cash provided by operating activities
1,035

 
727

Investing Activities
 
 
 
Purchases of investment securities available-for-sale
(108
)
 
(205
)
Purchases of investments held-to-maturity
(123
)
 
(377
)
Proceeds from sales of investment securities available-for-sale
198

 
89

Proceeds from maturities of investment securities available-for-sale
108

 
151

Proceeds from maturities of investments held-to-maturity
430

 
320

Purchases of property, plant and equipment
(82
)
 
(64
)
Capitalized software
(44
)
 
(30
)
Other investing activities
(12
)
 
(7
)
Net cash provided by (used in) investing activities
367

 
(123
)
Financing Activities
 
 
 
Purchases of treasury stock
(1,352
)
 
(962
)
Dividends paid
(263
)
 
(238
)
Proceeds from debt
991

 
—

Tax withholdings related to share-based payments
(77
)
 
(46
)
Cash proceeds from exercise of stock options
40

 
19

Other financing activities
(4
)
 
(10
)
Net cash used in financing activities
(665
)
 
(1,237
)
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
95

 
35

Net increase (decrease) cash, cash equivalents, restricted cash and restricted cash equivalents
832

 
(598
)
Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period
7,592

 
8,273

Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period
$
8,424

 
$
7,675





Mastercard Incorporated - Page 8

MASTERCARD INCORPORATED OPERATING PERFORMANCE
 
For the 3 Months Ended March 31, 2018
 
GDV (Bil.)
 
Growth (USD)
 
Growth (Local)
 
Purchase Volume (Bil.)
 
Growth (Local)
 
Purchase Trans. (Mil.)
 
Purchase Trans. Growth
 
Cash Volume (Bil.)
 
Growth (Local)
 
Cash Trans. (Mil.)
 
Cards (Mil.)
All Mastercard Credit, Charge and Debit Programs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
APMEA
$
448

 
19.3
 %
 
13.5
 %
 
$
305

 
12.0
 %
 
4,866

 
17.0
 %
 
$
144

 
16.7
 %
 
1,478

 
726

Canada
39

 
14.6
 %
 
9.4
 %
 
37

 
9.7
 %
 
554

 
10.5
 %
 
2

 
4.3
 %
 
6

 
56

Europe
407

 
30.8
 %
 
18.6
 %
 
269

 
21.8
 %
 
6,468

 
29.5
 %
 
138

 
12.8
 %
 
936

 
484

Latin America
102

 
19.0
 %
 
17.2
 %
 
65

 
22.1
 %
 
2,061

 
19.0
 %
 
37

 
9.4
 %
 
264

 
170

Worldwide less United States
996

 
23.5
 %
 
15.7
 %
 
676

 
16.5
 %
 
13,949

 
22.5
 %
 
320

 
14.1
 %
 
2,684

 
1,436

United States
419

 
10.5
 %
 
10.5
 %
 
359

 
11.0
 %
 
6,354

 
9.9
 %
 
60

 
7.5
 %
 
327

 
416

Worldwide
1,415

 
19.3
 %
 
14.1
 %
 
1,035

 
14.5
 %
 
20,303

 
18.3
 %
 
380

 
13.0
 %
 
3,011

 
1,852

Mastercard Credit and Charge Programs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Worldwide less United States
530

 
19.5
 %
 
12.2
 %
 
490

 
13.3
 %
 
7,449

 
15.1
 %
 
40

 
0.7
 %
 
171

 
606

United States
194

 
8.9
 %
 
8.9
 %
 
185

 
8.8
 %
 
2,020

 
7.1
 %
 
9

 
12.4
 %
 
8

 
210

Worldwide
725

 
16.5
 %
 
11.3
 %
 
675

 
12.0
 %
 
9,468

 
13.3
 %
 
49

 
2.7
 %
 
179

 
816

Mastercard Debit Programs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Worldwide less United States
466

 
28.4
 %
 
20.0
 %
 
186

 
26.1
 %
 
6,500

 
32.3
 %
 
280

 
16.3
 %
 
2,514

 
830

United States
225

 
11.8
 %
 
11.8
 %
 
174

 
13.4
 %
 
4,334

 
11.2
 %
 
50

 
6.6
 %
 
319

 
205

Worldwide
691

 
22.5
 %
 
17.2
 %
 
360

 
19.6
 %
 
10,834

 
23.0
 %
 
331

 
14.7
 %
 
2,833

 
1,036

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the 3 months ended March 31, 2017
 
GDV (Bil.)
 
Growth (USD)
 
Growth (Local)
 
Purchase Volume (Bil.)
 
Growth (Local)
 
Purchase Trans. (Mil.)
 
Purchase Trans. Growth
 
Cash Volume (Bil.)
 
Growth (Local)
 
Cash Trans. (Mil.)
 
Cards (Mil.)
All Mastercard Credit, Charge and Debit Programs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
APMEA
$
376

 
6.3
 %
 
7.8
 %
 
$
256

 
8.9
 %
 
4,159

 
23.9
 %
 
$
119

 
5.5
 %
 
1,275

 
635

Canada
34

 
17.0
 %
 
12.3
 %
 
32

 
13.1
 %
 
502

 
12.4
 %
 
2

 
-2.6
 %
 
6

 
48

Europe
311

 
-2.4
 %
 
1.3
 %
 
199

 
-3.2
 %
 
4,994

 
2.8
 %
 
112

 
10.4
 %
 
861

 
441

Europe Adj. for Article 8
 
 
 
 
14
 %
 
 
 
17
 %
 
 
 
22
 %
 
 
 
 
 
 
 
 
Latin America
86

 
17.4
 %
 
15.5
 %
 
55

 
18.1
 %
 
1,731

 
16.7
 %
 
32

 
11.1
 %
 
254

 
167

Worldwide less United States
807

 
4.2
 %
 
6.1
 %
 
543

 
5.2
 %
 
11,387

 
12.2
 %
 
265

 
8.1
 %
 
2,396

 
1,291

WW Less US Adj. for Article 8
 
 
 
 
11
 %
 
 
 
13
 %
 
 
 
21
 %
 
 
 
 
 
 
 
 
United States
379

 
1.9
 %
 
1.9
 %
 
324

 
2.3
 %
 
5,782

 
0.1
 %
 
56

 
-0.4
 %
 
320

 
391

Worldwide
1,187

 
3.4
 %
 
4.7
 %
 
866

 
4.1
 %
 
17,168

 
7.8
 %
 
320

 
6.5
 %
 
2,716

 
1,683

Worldwide Adj. for Article 8
 
 
 
 
8
 %
 
 
 
9
 %
 
 
 
13
 %
 
 
 
 
 
 
 
 
Mastercard Credit and Charge Programs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Worldwide less United States
444

 
5.5
 %
 
7.2
 %
 
407

 
7.6
 %
 
6,472

 
12.0
 %
 
37

 
2.5
 %
 
175

 
569

United States
178

 
5.4
 %
 
5.4
 %
 
170

 
4.9
 %
 
1,885

 
2.3
 %
 
8

 
16.0
 %
 
8

 
202

Worldwide
623

 
5.4
 %
 
6.7
 %
 
577

 
6.8
 %
 
8,358

 
9.7
 %
 
46

 
4.7
 %
 
183

 
771

Mastercard Debit Programs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Worldwide less United States
363

 
2.7
 %
 
4.8
 %
 
136

 
-1.6
 %
 
4,914

 
12.6
 %
 
227

 
9.1
 %
 
2,221

 
723

United States
201

 
-1.0
 %
 
-1.0
 %
 
154

 
-0.3
 %
 
3,896

 
-0.9
 %
 
47

 
-2.9
 %
 
312

 
189

Worldwide
564

 
1.3
 %
 
2.7
 %
 
289

 
-1.0
 %
 
8,810

 
6.2
 %
 
275

 
6.8
 %
 
2,533

 
912

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 APMEA = Asia Pacific / Middle East / Africa
Note that the figures in the preceding tables may not sum due to rounding; growth represents change from the comparable year-ago period.
Effective Q1 2018, our operational metrics reflect the impact of the Venezuela deconsolidation. Prior to Q1 2018, all metrics include Venezuela.






Mastercard Incorporated - Page 9

Footnote

The tables set forth the gross dollar volume (“GDV”), purchase volume, cash volume and the number of purchase transactions, cash transactions and cards on a regional and global basis for Mastercard™-branded cards. Growth rates over prior periods are provided for volume-based data.

Debit transactions on Maestro® and Cirrus®-branded cards and transactions involving brands other than Mastercard are not included in the preceding tables.

For purposes of the table: GDV represents purchase volume plus cash volume and includes the impact of balance transfers and convenience checks; “purchase volume” means the aggregate dollar amount of purchases made with Mastercard-branded cards for the relevant period; and “cash volume” means the aggregate dollar amount of cash disbursements obtained with Mastercard-branded cards for the relevant period. The number of cards includes virtual cards, which are Mastercard-branded payment accounts that do not generally have physical cards associated with them.

The Mastercard payment product is comprised of credit, charge, debit and prepaid programs, and data relating to each type of program is included in the tables. Debit programs include Mastercard-branded debit programs where the primary means of cardholder validation at the point of sale is for cardholders either to sign a sales receipt or enter a PIN. The tables include information with respect to transactions involving Mastercard-branded cards that are not switched by Mastercard and transactions for which Mastercard does not earn significant revenues.

Information denominated in U.S. dollars is calculated by applying an established U.S. dollar/local currency exchange rate for each local currency in which Mastercard volumes are reported. These exchange rates are calculated on a quarterly basis using the average exchange rate for each quarter. Mastercard reports period-over-period rates of change in purchase volume and cash volume on the basis of local currency information, in order to eliminate the impact of changes in the value of foreign currencies against the U.S. dollar in calculating such rates of change.

The data set forth in the GDV, purchase volume, purchase transactions, cash volume and cash transactions columns is provided by Mastercard customers and is subject to verification by Mastercard and partial cross-checking against information provided by Mastercard’s transaction switching systems. The data set forth in the cards columns is provided by Mastercard customers and is subject to certain limited verification by Mastercard. A portion of the data set forth in the cards columns reflects the impact of routine portfolio changes among customers and other practices that may lead to over counting of the underlying data in certain circumstances. All data is subject to revision and amendment by Mastercard’s customers subsequent to the date of its release.

Article 8 of the EU Interchange Fee Regulation related to card payments that became effective June 9, 2016 states that a network can no longer charge fees on domestic EEA payment transactions that do not use its payment brand. Prior to that, Mastercard collected a de minimis assessment fee in a few countries, particularly France, on transactions with Mastercard co-badged cards if the brands of domestic networks (as opposed to Mastercard) were used. As a result, the non-Mastercard co-badged volume is no longer being included.

To aid in understanding the underlying trends in the business, the table above reflects adjusted growth rates for the impact of Article 8, by eliminating the related co-badged volumes where relevant.

Performance information for prior periods can be found in the “Investor Relations” section of the Mastercard website at www.mastercard.com/investor.





Mastercard Incorporated - Page 10

Non-GAAP Reconciliations

 
Three Months Ended March 31, 2018
 
 Operating expenses
 
Operating margin
 
Effective income tax rate
 
 Net income
 
 Diluted earnings per share
 
($ in millions, except per share data)

Reported - GAAP
$
1,755

 
51.0
%
 
17.3
%
 
$
1,492

 
$
1.41

Special Items1
(117
)
 
3.2
%
 
0.4
%
 
89

 
0.08

Non-GAAP
$
1,638

 
54.2
%
 
17.7
%
 
$
1,581

 
$
1.50

 
Three Months Ended March 31, 2017
 
 Operating expenses
 
Operating margin
 
Effective income tax rate
 
 Net income
 
 Diluted earnings per share
 
($ in millions, except per share data)

Reported - GAAP
$
1,228

 
55.1
%
 
26.9
%
 
$
1,081

 
$
1.00

Special Item2
(15
)
 
0.5
%
 
—
%
 
10

 
0.01

Non-GAAP
$
1,213

 
55.6
%
 
26.9
%
 
$
1,091

 
$
1.01

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2018 as compared to the Three Months Ended March 31, 2017
 
Increase/(Decrease)
 
Net revenue
 
 Operating expenses
 
Operating margin
 
Effective income tax rate
 
 Net income
 
 Diluted earnings per share
Reported - GAAP
31
 %
 
43
 %
 
(4.1) ppt
 
(9.6) ppt
 
38
 %
 
41
 %
Special Items 1,2
—
 %
 
(8
)%
 
2.7 ppt
 
0.4 ppt
 
7
 %
 
8
 %
Non-GAAP
31
 %
 
35
 %
 
(1.4) ppt
 
(9.2) ppt
 
45
 %
 
49
 %
Foreign currency 3
(4
)%
 
(3
)%
 
(0.4) ppt
 
– ppt
 
(6
)%
 
(6
)%
Non-GAAP - currency-neutral
27
 %
 
32
 %
 
(1.8) ppt
 
(9.2) ppt
 
39
 %
 
43
 %
Note: Tables may not sum due to rounding.
1 Impact of the following provisions for litigation in Q1'18: $70 million ($53 million after tax, or $0.05 per diluted share) related to litigation settlements with Pan-European merchants, $27 million ($21 million after tax, or $0.02 per diluted share) related to an increased reserve for our U.S. merchant opt-out cases and $19 million ($15 million after tax, or $0.01 per diluted share) related to litigation settlements with U.K. merchants.
2 Impact of a provision for litigation in Q1’17 of $15 million ($10 million after tax, or $0.01 per diluted share) related to a litigation settlement with Canadian merchants.
3 Represents the foreign currency translational and transactional impact.