Item 5. Market for Registrant’s Common Equity
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUES PURCHASES OF
Dividend Declaration and Policy
On December 8, 2020, our Board of Directors declared a quarterly cash dividend of $0.44 per share paid on February 9, 2021 to holders of record on January 8, 2021 of our Class A common stock and Class B common stock. On February 8, 2021, our Board of Directors declared a quarterly cash dividend of $0.44 per share payable on May 7, 2021 to holders of record on April 9, 2021 of our Class A common stock and Class B common stock.
Subject to legally available funds, we intend to continue to pay a quarterly cash dividend on our outstanding Class A common stock and Class B common stock. However, the declaration and payment of future dividends is at the sole discretion of our Board of Directors after taking into account various factors, including our financial condition, operating results, available cash and current and anticipated cash needs.
Issuer Purchases of Equity Securities
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
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 1,552,273 $ 335.39 1,552,273 $ 4,340,730,451
November 1 – 30 779,892 314.13 779,892 4,095,745,017
December 1 – 31 785,846 336.44 785,846 9,831,351,292
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
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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected financial data
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
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 7. Management’s discussion and analysis of financial condition and results of operations
The following discussion should be read in conjunction with the consolidated financial statements and notes of Mastercard Incorporated and its consolidated subsidiaries, including Mastercard International Incorporated (“Mastercard International”) (together, “Mastercard” or the “Company”), included elsewhere in this Report. Percentage changes provided throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” were calculated on amounts rounded to the nearest thousand. For discussion related to the results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018, please see Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.
Business Overview
Mastercard is a technology company in the global payments industry that connects consumers, financial institutions, merchants, governments, digital partners, businesses and other organizations worldwide, enabling them to use electronic forms of payment instead of cash and checks. 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 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, 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.
A typical transaction on our core network involves four participants in addition to us: account holder (a person or entity who holds a card or uses another device enabled for payment), issuer (the account holder’s financial institution), merchant and acquirer (the merchant’s financial institution). 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 customers.
COVID-19
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
December 31
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.
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ITEM 7. 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
The following table provides a summary of our key GAAP operating results, as reported:
Year ended December 31, 2020
Increase/
(Decrease) 2019
Increase/
(Decrease)
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 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 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)%
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:
Year ended December 31, 2020
Increase/(Decrease) 2019
Increase/(Decrease)
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 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%
Adjusted diluted earnings per share $ 6.43 $ 7.77 $ 6.49 (17)% (16)% 20% 23%
Note: Tables may not sum due to rounding.
1 See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
42 MASTERCARD 2020 FORM 10-K
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Key highlights for 2020 as compared to 2019 were as follows:
Net revenue
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
Adjusted
operating expenses
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.
flat down 1%
Effective income tax rate
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.
17.4% 17.2%
Other 2020 financial highlights were as follows:
• We generated net cash flows from operations of $7.2 billion.
• We completed the acquisitions of businesses for total consideration of $1.1 billion.
• 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 $4.0 billion.
Non-GAAP Financial Information
Non-GAAP financial information is defined as a numerical measure of a company’s performance that excludes or includes amounts so as to be different than the most comparable measure calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”). 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”). 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 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.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Items
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,
◦ $237 million related to both the U.S. merchant class litigation and the filed and anticipated opt-out U.S. merchant cases, and
◦ $237 million related to litigation settlements with U.K. and Pan-European merchants.
Tax act
• 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.
We believe that the non-GAAP financial measures presented facilitate an understanding of our operating performance and provide a meaningful comparison of our results between periods. We use non-GAAP financial measures to, among other things, evaluate our ongoing operations in relation to historical results, for internal planning and forecasting purposes and in the calculation of performance-based compensation.
In addition, we present growth rates adjusted for the impact of currency, which is a non-GAAP financial measure. Currency-neutral growth rates are calculated by remeasuring the prior period’s results using the current period’s exchange rates for both the translational and transactional impacts on operating results. The impact of currency translation represents the effect of translating operating results where the functional currency is different than our U.S. dollar reporting currency. The impact of the transactional currency represents the effect of converting revenue and expenses occurring in a currency other than the functional currency. We believe the presentation of currency-neutral growth rates provides relevant information to facilitate an understanding of our operating results.
Net revenue, operating expenses, operating margin, other income (expense), effective income tax rate, net income and diluted earnings per share adjusted for the impact of gains and losses on our equity investments, Special Items and/or the impact of currency, are non-GAAP financial measures and should not be relied upon as substitutes for measures calculated in accordance with GAAP.
44 MASTERCARD 2020 FORM 10-K
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following tables reconcile our reported financial measures calculated in accordance with GAAP to the respective non-GAAP adjusted financial measures:
Year ended December 31, 2020
Operating
expenses
Operating
margin
Other
income
(expense)
Effective
income
tax rate
Net
income
Diluted
earnings
per share
($ in millions, except per share data)
Reported - GAAP $ 7,220 52.8 % $ (321) 17.4 % $ 6,411 $ 6.37
(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
Operating
expenses Operating
margin Other
income
(expense)
Effective
income
tax rate Net
income Diluted
earnings
per share
($ in millions, except per share data)
Reported - GAAP $ 7,219 57.2 % $ 67 16.6 % $ 8,118 $ 7.94
(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
Operating
expenses Operating
margin Other
income
(expense)
Effective
income
tax rate Net
income Diluted
earnings
per share
($ in millions, except per share data)
Reported - GAAP $ 7,668 48.7 % $ (78) 18.7 % $ 5,859 5.60
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
Note: Tables may not sum due to rounding.
** Not applicable
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following tables represent the reconciliation of our growth rates reported under GAAP to our non-GAAP growth rates:
Year Ended December 31, 2020 as compared to the Year Ended December 31, 2019
Increase/(Decrease)
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
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)
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
3 % 2 % 0.3 ppt 0.2 ppt 3 % 3 %
Non-GAAP - currency-neutral 16 % 12 % 1.3 ppt (1.3) ppt 20 % 23 %
Note: Tables may not sum due to rounding.
** Not applicable
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.
Key Metrics
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
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