What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-02-12 compared with 2020-02-14 · 129 added, 101 removed, 112 unchanged (67% of the section changed)

6 unchanged sentences

Issuer Purchases of Equity Securities

On December 4, 2018, our Board of Directors approved a share repurchase program authorizing us to repurchase up to $6.5 billion of our Class A common stock (the “2018 Share Repurchase Program”).

This program became effective in January 2019.

On December 3, 2019, our Board of Directors approved a share repurchase program authorizing us to repurchase up to $8.0 billion of our Class A common stock (the “2019 Share Repurchase Program”).

This program became effective in January 2020.

During the fourth quarter of 2019 , we repurchased a total of approximately 3.6 million shares for $994 million at an average price of $275.00 per share of Class A common stock.

Our repurchase activity during the fourth quarter of 2019 consisted of open market share repurchases and is summarized in the following table:

Average Price

During the fourth quarter of 2020, we repurchased a total of approximately 3.1 million shares for $1.03 billion at an average price of $330.34 per share of Class A common stock.

See Note 16 (Stockholders' Equity) to the consolidated financial statements included in Part II, Item 8 for further discussion with respect to our share repurchase programs.

The following table presents our repurchase activity on a cash basis during the fourth quarter of 2020:

Period Total Number

Purchased Average Price

Paid per Share

commission cost)

Total Number of

commission cost) Total Number of

Shares Purchased as

1 unchanged sentence

Announced Plans or

Dollar Value of

Programs Dollar Value of

Shares that may yet

3 unchanged sentences

December 1 – 31 785,846 336.44 785,846 9,831,351,292

8,304,104,890

Dollar value of shares that may yet be purchased under the 2018 Share Repurchase Program and the 2019 Share Repurchase Program are as of the end of each period presented.

Total 3,118,011 330.34 3,118,011

1 Dollar value of shares that may yet be purchased under the share repurchase programs are as of the end of each period presented.

MASTERCARD 2020 FORM 10-K 39

1 unchanged sentence

Selected financial data

The statement of operations data and the cash dividends declared per share presented below for the years ended December 31, 2019, 2018 and 2017 , and the balance sheet data as of December 31, 2019 and 2018 , were derived from the audited consolidated financial statements of Mastercard Incorporated included in Part II, Item 8.

The statement of operations data and the cash dividends declared per share presented below for the years ended December 31, 2016 and 2015 , and the balance sheet data as of December 31, 2017 , 2016 and 2015 , were derived from audited consolidated financial statements not included in this Report.

The data set forth below should be read in conjunction with, and are qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 and our consolidated financial statements and notes thereto included in Part II, Item 8.

Years Ended December 31,

(in millions, except per share data)

Statement of Operations Data:

Operating expenses

Operating income

Basic earnings per share

Diluted earnings per share

Balance Sheet Data:

Long-term debt

Cash dividends declared per share

The statement of operations data and the cash dividends declared per share for the years ended December 31, 2020, 2019 and 2018, and the balance sheet data as of December 31, 2020 and 2019, are presented in the audited consolidated financial statements of Mastercard Incorporated included in Part II, Item 8.

The statement of operations data and the cash dividends declared per share for the years ended December 31, 2017 and 2016, and the balance sheet data as of December 31, 2018, 2017 and 2016, are not included in this Report, and are provided in Part II, Item 8 of our Annual Reports on Form 10-K for the years ended December 31, 2018, 2017 and 2016.

40 MASTERCARD 2020 FORM 10-K

7 unchanged sentences

We make payments easier and more efficient by providing a wide range of payment solutions and services using our family of well-known brands, including Mastercard®, Maestro® and Cirrus®.

We are a multi-rail network that offers customers one partner to turn to for their domestic and cross-border payment needs.

We operate a multi-rail network that offers customers one partner to turn to for their domestic and cross-border payment needs.

Through our unique and proprietary global payments network, which we refer to as our core network, we switch (authorize, clear and settle) payment transactions and deliver related products and services.

We have additional payment capabilities that include automated clearing house (“ACH”) transactions (both batch and real-time account-based payments).

We also provide integrated value-added offerings such as cyber and intelligence products, information and analytics services, consulting, loyalty and reward programs and processing.

We also provide integrated value-added offerings such as cyber and intelligence products, information and analytics services, consulting, loyalty and reward programs, processing and open banking.

Our payment solutions offer customers choice and flexibility and are designed to ensure safety and security for the global payments system.

2 unchanged sentences

We do not issue cards, extend credit, determine or receive revenue from interest rates or other fees charged to account holders by issuers, or establish the rates charged by acquirers in connection with merchants’ acceptance of our products.

In most cases, account holder relationships belong to, and are managed by, our financial institution customers.

In most cases, account holder relationships belong to, and are managed by, our customers.

The coronavirus (“COVID-19”) pandemic has spread rapidly across the globe and has had significant negative effects on the global economy.

This outbreak has affected business activity, adversely impacting consumers, our customers, suppliers and business partners, as well as our workforce.

We continue to monitor the effects of the pandemic and actions taken by governments as they relate to travel restrictions, social distancing measures and restrictions on business operations, as well as the continued impact of these actions on consumers and businesses.

While some of these measures have eased in certain jurisdictions, others have remained in place.

The extent to which current measures are removed or new measures are put in place will depend upon how the pandemic evolves, as well as the progress of the global roll-out of vaccines.

The COVID-19 outbreak affected our 2020 performance, during which we noted unfavorable trends compared to historical periods.

The following table provides a summary of trends in our key metrics for 2020 as compared to the respective periods in 2019:

Quarter ended Year ended

March 31 June 30 September 30 December 31

Increase/(Decrease)

Gross dollar volume (local currency basis) 8 % (10) % 1 % 1 % — %

Cross-border volume (local currency basis) (1) % (45) % (36) % (29) % (29) %

Switched transactions 13 % (10) % 5 % 4 % 3 %

The impact of this outbreak started in the first quarter of 2020 as we experienced declines in our key metrics compared to historical periods, primarily due to travel restrictions and stay-at-home orders implemented by governments in many regions and countries across the globe.

Our key metrics continued to be impacted throughout 2020 as follows:

• Gross dollar volumes were flat in 2020 as compared to 2019, recovering gradually in the second half of the year from a decline during the second quarter in part due to the global relaxation of both restrictions on business operations and social distancing measures.

MASTERCARD 2020 FORM 10-K 41

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Cross-border volumes were negatively impacted by the pandemic during 2020 due to a significant decrease in global travel as a result of compliance with travel restrictions and quarantine requirements.

While cross-border volumes are still lower compared to prior year periods, these volumes have improved throughout the second half of 2020.

• Switched transactions were negatively impacted by the pandemic primarily in the second quarter.

Subsequently, switched transactions improved during the third quarter in part due to the global relaxation of both restrictions on business operations and social distancing measures.

During the fourth quarter, switched transactions growth slowed slightly as compared to the third quarter.

The full extent to which the pandemic, and measures taken in response, affect our business, results of operations and financial condition will depend on future developments, including the duration of the pandemic and its impact on the global economy, which are uncertain, and cannot be predicted at this time.

Financial Results Overview

1 unchanged sentence

Year ended December 31, 2020

2019 Increase/

2018 Increase/

(Decrease) 2019

2020 2019 2018

($ in millions, except per share data)

Net revenue $ 15,301 $ 16,883 $ 14,950 (9)% 13%

Operating expenses $ 7,220 $ 7,219 $ 7,668 —% (6)%

Operating income $ 8,081 $ 9,664 $ 7,282 (16)% 33%

Operating margin

Operating margin 52.8 % 57.2 % 48.7 % (4.4) ppt 8.5 ppt

Income tax expense $ 1,349 $ 1,613 $ 1,345 (16)% 20%

Effective income tax rate

Effective income tax rate 17.4 % 16.6 % 18.7 % 0.8 ppt (2.1) ppt

Net income $ 6,411 $ 8,118 $ 5,859 (21)% 39%

Diluted earnings per share $ 6.37 $ 7.94 $ 5.60 (20)% 42%

Diluted weighted-average shares outstanding 1,006 1,022 1,047 (2)% (2)%

MASTERCARD 2019 FORM 10-K 39

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table provides a summary of key non-GAAP operating results 1, 2 , adjusted to exclude the impact of gains and losses on our equity investments, special items (which represent litigation judgments and settlements and certain one-time items) and the related tax impacts on our non-GAAP adjustments.

The following table provides a summary of our key non-GAAP operating results 1 , adjusted to exclude the impact of gains and losses on our equity investments, special items (which represent litigation judgments and settlements and certain one-time items) and the related tax impacts on our non-GAAP adjustments.

In addition, we have presented growth rates, adjusted for the impact of currency:

2 unchanged sentences

Increase/(Decrease)

Currency-neutral

2020 2019 2018 As adjusted Currency-neutral As adjusted Currency-neutral

($ in millions, except per share data)

Net revenue $ 15,301 $ 16,883 $ 14,950 (9)% (8)% 13% 16%

Adjusted operating expenses $ 7,147 $ 7,219 $ 6,540 (1)% (1)% 10% 12%

Adjusted operating margin

Adjusted effective income tax rate 2

Adjusted operating margin 53.3 % 57.2 % 56.2 % (4.0) ppt (3.7) ppt 1.0 ppt 1.3 ppt

Adjusted effective income tax rate 17.2 % 17.0 % 18.5 % 0.2 ppt 0.3 ppt (1.5) ppt (1.3) ppt

Adjusted net income $ 6,463 $ 7,937 $ 6,792 (19)% (17)% 17% 20%

2 unchanged sentences

1 See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.

For 2019 we updated our non-GAAP methodology to exclude the impact of gains and losses on our equity investments.

Prior year periods were not restated as the impact of the change was immaterial in relation to our non-GAAP results.

Key highlights for 2019 as compared to 2018 were as follows:

Non-GAAP (currency-neutral)

Net revenue increased 16% on a currency-neutral basis, which included growth of approximately 1 percentage point from acquisitions.

The primary drivers of our

net revenue growth were 1 :

- Gross dollar volume growth of 13% on a local currency basis

- Cross-border growth of 16% on a local currency basis

- Switched transaction growth of 19%

- Other revenues growth of 23%, or 24% on a currency-neutral basis.

includes 2 percentage points of growth due to acquisitions.

The remaining

growth was primarily driven by our Cyber & Intelligence and Data & Services

- These increases were partially offset by higher rebates and incentives, which

increased 18%, or 20% on a currency-neutral basis, primarily due to the

impact from new and renewed agreements and increased volumes.

The cross-border volume and switched transactions growth rates have been normalized to eliminate the effects of differing switching and carryover days between periods.

Carryover days are those where transactions and volumes from days where the company does not clear and settle are processed.

42 MASTERCARD 2020 FORM 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Key highlights for 2020 as compared to 2019 were as follows:

GAAP Non-GAAP

(currency-neutral) Net revenue decreased 8% on a currency-neutral basis due to COVID-19 impacts, and includes a 1 percentage point benefit from acquisitions.

Gross dollar volume was flat on a local currency basis.

The primary drivers of net revenue were:

down 9% down 8%

- Cross-border volume decline of 29% on a local currency basis

- Rebates and incentives growth of 3%, or 4% on a currency-neutral basis

These decreases to net revenue were partially offset by:

- Switched transactions growth of 3%

- Other revenues growth of 14%, or 15% on a currency-neutral basis, which

includes 3 percentage points of growth due to acquisitions

Operating expenses

operating expenses

Non-GAAP (currency-neutral)

Adjusted operating expenses on a currency-neutral basis included growth of approximately 2 percentage points from acquisitions and 1 percentage point related to the differential in hedging gains and losses versus the year-ago period.

The remaining 9 percentage points of growth was primarily related to our continued investment in strategic initiatives.

Effective income tax rate

GAAP Non-GAAP

(currency-neutral) Adjusted operating expense decreased 1% on a currency-neutral basis, which included a 4 percentage point increase due to acquisitions.

Excluding acquisitions, expenses declined 5 percentage points primarily due to reduced spending on advertising and marketing, travel and professional fees, partially offset by higher personnel and data processing costs to support continued investment in our strategic initiatives.

Effective income tax rate

Non-GAAP (currency-neutral)

Adjusted effective income tax rate of 17.0% primarily attributable to a more favorable geographic mix of earnings and discrete tax benefits including a favorable court ruling in the current period.

Adjusted effective income tax rate

GAAP Non-GAAP

(currency-neutral) Adjusted effective income tax rate of 17.2% was higher than prior year primarily due to a discrete tax benefit related to a favorable court ruling in 2019.

Other 2020 financial highlights were as follows:

2 unchanged sentences

• We repurchased 14.3 million shares of our common stock for $4.5 billion and paid dividends of $1.6 billion.

We completed debt offerings for an aggregate principal amount of $2.8 billion and separately repaid $500 million of principal that matured related to our 2014 USD Notes.

• We completed debt offerings for an aggregate principal amount of $4.0 billion.

Non-GAAP Financial Information

1 unchanged sentence

Our non-GAAP financial measures exclude the impact of special items, where applicable, which represent litigation judgments and settlements and certain one-time items, as well as the related tax impacts (“Special Items”).

For 2019, our non-GAAP financial measures also exclude the impact of gains and losses on our equity investments which includes mark-to-market fair value adjustments, impairments and gains and losses upon disposition and the related tax impacts.

Prior year periods were not restated as the impact of the change was immaterial in relation to our non-GAAP results.

Starting in 2019, our non-GAAP financial measures also exclude the impact of gains and losses on our equity investments which primarily includes mark-to-market fair value adjustments, impairments and gains and losses upon disposition and the related tax impacts.

The 2018 amounts were not restated, as the impact of the change was immaterial in relation to our non-GAAP results.

Our non-GAAP financial measures for the comparable periods exclude the impact of the following:

Gains and Losses on Equity Investments

During 2019 , we recorded net gains of $167 million ( $124 million after tax, or $0.12 per diluted share), primarily related to unrealized fair market value adjustments on marketable and non-marketable equity securities.

• During 2020 and 2019, we recorded net gains of $30 million ($15 million after tax, or $0.01 per diluted share) and $167 million ($124 million after tax, or $0.12 per diluted share), respectively.

The net gains were primarily related to unrealized fair market value adjustments on marketable and non-marketable equity securities.

MASTERCARD 2020 FORM 10-K 43

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Items

During 2019, we recorded a $57 million net tax benefit ( $0.06 per diluted share) which included a $30 million benefit related to a reduction to the 2017 one-time deemed repatriation tax on accumulated foreign earnings (the “Transition Tax”) resulting from final tax regulations issued in 2019 and a $27 million benefit related to additional foreign tax credits which can be carried back under transition rules.

During 2018, we recorded a $75 million net tax benefit ( $0.07 per diluted share) which included a $90 million benefit related to the carryback of foreign tax credits due to transition rules, offset by a net $15 million expense primarily related to an increase to our Transition Tax.

During 2017, we recorded additional tax expense of $873 million ( $0.81 per diluted share) which included $825 million of provisional charges attributable to the Transition Tax, the remeasurement of our net deferred tax asset 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 additional tax expense related to a foregone foreign tax credit benefit on 2017 repatriations.

Litigation provisions

• During 2020, we recorded pre-tax charges of $73 million ($67 million after tax, or $0.07 per diluted share) related to litigation provisions which included pre-tax charges of:

◦ $45 million related to an ongoing confidential legal matter associated with our prepaid cards in the U.K., and

◦ $28 million related to estimated attorneys’ fees and litigation settlements with U.K.

and Pan-European merchants.

• During 2018, we recorded pre-tax charges of $1,128 million ($1,008 million after tax, or $0.96 per diluted share) related to litigation provisions which included pre-tax charges of:

◦ $654 million related to a fine issued by the European Commission,

MASTERCARD 2019 FORM 10-K 41

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

◦ $237 million related to both the U.S.

merchant class litigation and the filed and anticipated opt-out U.S.

merchant cases

merchant cases, and

◦ $237 million related to litigation settlements with U.K.

and Pan-European merchants.

During 2017, we recorded pre-tax charges of $15 million ( $10 million after tax, or $0.01 per diluted share) related to a litigation settlement with Canadian merchants.

Venezuela charge

During 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.

See Note 1 (Summary of Significant Accounting Policies) , Note 7 (Investments) , Note 20 (Income Taxes) and Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for further discussion.

• During 2019, we recorded a $57 million net tax benefit ($0.06 per diluted share), which included a $30 million benefit related to a reduction to the 2017 one-time deemed repatriation tax on accumulated foreign earnings (the “Transition Tax”) resulting from final tax regulations issued in 2019 and a $27 million benefit related to additional foreign tax credits which can be carried back under transition rules.

• During 2018, we recorded a $75 million net tax benefit ($0.07 per diluted share), which included a $90 million benefit related to the carryback of foreign tax credits due to transition rules, offset by a net $15 million expense primarily related to an increase to our Transition Tax.

See Note 7 (Investments), Note 20 (Income Taxes) and Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for further discussion.

We excluded these items because management evaluates the underlying operations and performance of the Company separately from these recurring and nonrecurring items.

15 unchanged sentences

(Gains) losses on equity investments ** ** (30) (0.1) % (15) (0.01)

Litigation provisions (73) 0.5 % ** (0.1) % 67 0.07

Non-GAAP $ 7,147 53.3 % $ (351) 17.2 % $ 6,463 $ 6.43

Year ended December 31, 2019

expenses Operating

income Diluted

($ in millions, except per share data)

Reported - GAAP $ 7,219 57.2 % $ 67 16.6 % $ 8,118 $ 7.94

Litigation provisions

(Gains) losses on equity investments ** ** (167) (0.2) % (124) (0.12)

Tax act ** ** ** 0.6 % (57) (0.06)

Non-GAAP $ 7,219 57.2 % $ (100) 17.0 % $ 7,937 $ 7.77

Year ended December 31, 2018

expenses Operating

income Diluted

($ in millions, except per share data)

Reported - GAAP $ 7,668 48.7 % $ (78) 18.7 % $ 5,859 5.60

Venezuela charge

Litigation provisions

Ligitation provisions (1,128) 7.5 % ** (1.1) % 1,008 0.96

Tax act ** ** ** 0.9 % (75) (0.07)

Non-GAAP $ 6,540 56.2 % $ (78) 18.5 % $ 6,792 $ 6.49

Tables may not sum due to rounding.

5 unchanged sentences

Increase/(Decrease)

Operating expenses

Operating margin

Effective income tax rate

Diluted earnings per share

Reported - GAAP

(Gains) losses on equity investments 1

Litigation provisions

Net revenue Operating expenses Operating margin Effective income tax rate Net income Diluted earnings per share

Reported - GAAP (9) % — % (4.4) ppt 0.8 ppt (21) % (20) %

(Gains) losses on equity investments ** ** ** — ppt 1 % 1 %

Litigation provisions ** (1) % 0.5 ppt (0.1) ppt 1 % 1 %

Tax act ** ** ** (0.6) ppt 1 % 1 %

Non-GAAP (9) % (1) % (4.0) ppt 0.2 ppt (19) % (17) %

Currency impact 2

Non-GAAP - currency-neutral

1 % — % 0.3 ppt 0.2 ppt 1 % 1 %

Non-GAAP - currency-neutral (8) % (1) % (3.7) ppt 0.3 ppt (17) % (16) %

Year Ended December 31, 2019 as compared to the Year Ended December 31, 2018

Increase/(Decrease)

Operating expenses

Operating margin

Effective income tax rate

Diluted earnings per share

Reported - GAAP

Litigation provisions

Venezuela charge

Net revenue Operating expenses Operating margin Effective income tax rate Net income Diluted earnings per share

Reported - GAAP 13 % (6) % 8.5 ppt (2.1) ppt 39 % 42 %

(Gains) losses on equity investments 1

** ** ** (0.2) ppt (2) % (2) %

Tax act ** ** ** (0.3) ppt 1 % 1 %

Litigation provisions ** 16 % (7.5) ppt 1.1 ppt (20) % (21) %

Non-GAAP 13 % 10 % 1.0 ppt (1.5) ppt 17 % 20 %

Currency impact 2

Non-GAAP - currency-neutral

3 % 2 % 0.3 ppt 0.2 ppt 3 % 3 %

Non-GAAP - currency-neutral 16 % 12 % 1.3 ppt (1.3) ppt 20 % 23 %

Tables may not sum due to rounding.

** Not applicable

For 2019 we updated our non-GAAP methodology to exclude the impact of gains and losses on our equity investments.

Prior year periods were not restated as the impact of the change was immaterial in relation to our non-GAAP results.

Represents the currency translational and transactional impact.

1 In 2019 we updated our non-GAAP methodology to prospectively exclude the impact of gains and losses on our equity investments.

The 2018 period was not restated as the impact of the change was immaterial in relation to our non-GAAP results.

2 Represents the translational and transactional impact of currency.

In addition to the financial measures described above in “Financial Results Overview”, we review the following metrics to evaluate and identify trends in our business, measure our performance, prepare financial projections and make strategic decisions.

We believe that the key metrics presented facilitate an understanding of our operating and financial performance and provide a meaningful comparison of our results between periods.

Gross Dollar Volume (“GDV”) 1 measures dollar volume of activity on cards carrying our brands during the period, on a local currency basis and U.S.

dollar-converted basis.

Dollar volume 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 and includes the impact of balance transfers and convenience checks obtained with Mastercard-branded cards for the relevant period.

Information denominated in U.S.

dollars relating to GDV is calculated by applying an established U.S.

dollar/local currency exchange rate for each local currency in which Mastercard volumes are reported.

These exchange rates are calculated on 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 currencies against the U.S.

dollar in calculating such rates of change.

Cross-border Volume 2 measures cross-border dollar volume initiated and switched through our network during the period, on a local currency basis and U.S.

dollar-converted basis, for all Mastercard-branded programs.

46 MASTERCARD 2020 FORM 10-K

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity