What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-02-11 compared with 2021-02-12 · 78 added, 74 removed, 167 unchanged (48% of the section changed)

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUES PURCHASES OF

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUES PURCHASES OF EQUITY SECURITIES

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 November 30, 2021, our Board of Directors declared a quarterly cash dividend of $0.49 per share paid on February 9, 2022 to holders of record on January 7, 2022 of our Class A common stock and Class B common stock.

On February 8, 2022, our Board of Directors declared a quarterly cash dividend of $0.49 per share payable on May 9, 2022 to holders of record on April 8, 2022 of our Class A common stock and Class B common stock.

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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.

During the fourth quarter of 2021, we repurchased a total of 3.7 million shares for $1.3 billion at an average price of $342.86 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.

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Total 3,720,933 342.86 3,720,933

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

SELECTED FINANCIAL DATA

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.

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

2 In November 2021 and December 2020, our Board of Directors approved share repurchase programs authorizing us to repurchase up to $8.0 billion and $6.0 billion respectively, of our Class A common stock under each plan.

MASTERCARD 2021 FORM 10-K 43

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

We operate a multi-rail payments network that provides choice and flexibility for consumers and merchants.

Through our unique and proprietary core global payments network, we switch (authorize, clear and settle) payment transactions.

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).

Using these capabilities, we offer integrated payment products and services and capture new payment flows.

Our value-added services include, among others, cyber and intelligence solutions to allow all parties to transact easily and with confidence, as well as other services that provide proprietary insights, drawing on our principled use of consumer and merchant data.

Our franchise model sets the standards and ground-rules that balance value and risk across all stakeholders and allows for interoperability among them.

Our payment solutions are designed to ensure safety and security for the global payments ecosystem.

Mastercard is not a 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.

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

In 2021, our growth rates, which are at various stages of recovery, increased as compared to the respective year ago period as consumer and business spend recovers and we lap the initial effects of the COVID-19 pandemic.

The following tables provide a summary of trends in our key metrics for 2021 and 2020 as compared to the respective year ago periods:

2021 Quarter ended Year ended December 31, 2021

March 31 June 30 September 30 December 31

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Switched transactions 9 % 41 % 25 % 27 % 25 %

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.

2020 Quarter ended Year ended December 31, 2020

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 the COVID-19 pandemic, which began in the first quarter of 2020, continues to have negative effects on the global economy.

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

Variants of the virus have emerged, resulting in a resurgence of infections that have affected regions at different times.

New variants may emerge with similar results.

The extent to which the resurgence and severity of infections has affected regions is impacted by the ongoing global administration of vaccines and the availability of therapeutic

44 MASTERCARD 2021 FORM 10-K

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.

treatments in those locations.

Governments, businesses and consumers continue to react to the changing conditions, tightening or loosening safety measures or voluntarily making personal safety decisions, as applicable, based on the current environment of their location.

We continue to monitor the effects of the pandemic and the related impact on our business.

The full extent to which the pandemic, and measures and actions taken by stakeholders 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

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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:

(currency-neutral) Net revenue increased 22% on a currency-neutral basis, which includes 2 percentage points of growth from acquisitions.

The remaining increase was primarily due to:

up 23% up 22%

- Gross dollar volume growth of 21% on a local currency basis

- Cross-border volume growth of 32% on a local currency basis

- Switched transactions growth of 25%

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

- Other revenues increased 32%, or 31% on a currency-neutral basis, which

includes 8 percentage points of growth due to acquisitions.

Operating expenses

The remaining growth

was driven primarily by our Cyber & Intelligence and Data & Services solutions.

These increases to net revenue were partially offset by:

- Rebates and incentives growth of 32%, or 31% on a currency-neutral basis,

primarily due to increased volumes and transactions and new and renewed deals.

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.

(currency-neutral) Adjusted operating expenses increased 19% on a currency-neutral basis, which includes 7 percentage points of growth due to acquisitions.

The remaining increase was primarily due to higher personnel costs, increased spending on advertising and marketing and increased data processing costs.

up 22% up 19%

Effective income tax rate

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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.

(currency-neutral) The adjusted effective income tax rate of 15.4% was lower than prior year, primarily due to the recognition of U.S.

tax benefits, the majority of which were discrete, resulting from a higher foreign derived intangible income deduction and greater utilization of foreign tax credits in the U.S.

In addition, a more favorable geographic mix of earnings in 2021 contributed to our lower effective tax rate.

These benefits were partially offset by a lower discrete tax benefit related to share-based payments in 2021.

Other 2021 financial highlights were as follows:

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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 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.

Our non-GAAP financial measures also 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”).

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.

• During 2021, 2020 and 2019, we recorded net gains of $645 million ($497 million after tax, or $0.50 per diluted share), $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.

These net gains were primarily related to unrealized fair market value adjustments on marketable and nonmarketable equity securities.

In addition, in 2021, net gains also included realized gains on sales of marketable equity securities.

46 MASTERCARD 2021 FORM 10-K

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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.

• During 2021, we recorded pre-tax charges of $94 million ($74 million after tax, or $0.07 per diluted share) related to litigation settlements and estimated attorneys’ fees with U.K.

and Pan-European merchants.

• 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:

◦ $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.

◦ $45 million related to a 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.

Indirect tax matter

• During 2021, we recorded a pre-tax charge of $88 million ($69 million after tax, or $0.07 per diluted share) to resolve a foreign indirect tax matter for 2015 through the current period and the related interest.

• 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 excluded these items because management evaluates the underlying operations and performance of the Company separately from these recurring and non-recurring 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

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.

1 unchanged sentence

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.

The impact of the transactional currency represents the effect of converting revenue and expenses occurring in a currency other than the functional currency of the entity.

The impact of the related realized gains and losses resulting from our foreign exchange derivative contracts designated as cash flow hedging instruments is recognized in the respective financial statement line item on the statement of operations when the underlying forecasted transactions impact earnings.

We believe the presentation of currency-neutral growth rates provides relevant information to facilitate an understanding of our operating results.

The translational and transactional impact of currency and the related impact of our foreign exchange derivative contracts designated as cash flow hedging instruments (“Currency impact”) has been excluded from our currency-neutral growth rates and has been identified in our drivers of change impact tables.

See “Foreign Currency - Currency Impact” for further information on our currency impacts and “Financial Results - Revenue and Operating Expenses” for our drivers of change impact tables.

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.

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Litigation provisions (94) 0.5 % ** 0.1 % 74 0.07

Indirect tax matter (82) 0.4 % 6 0.1 % 69 0.07

Non-GAAP $ 8,627 54.3 % $ (413) 15.4 % $ 8,333 $ 8.40

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

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

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

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

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

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

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

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

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Litigation provisions ** — % — ppt 0.1 ppt — % — %

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

Indirect tax matter ** (1) % 0.4 ppt 0.1 ppt 1 % 1 %

Non-GAAP 23 % 21 % 1.0 ppt (1.8) ppt 29 % 31 %

6 unchanged sentences

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

(Gains) losses on equity investments 1

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

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

(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) %

4 unchanged sentences

** 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.

1 See “Non-GAAP Financial Information” for further information on Currency impact.

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.

2 unchanged sentences

dollar-converted basis.

Dollar volume represents purchase volume plus cash volume and includes the impact of balance transfers and convenience checks;

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;

2 unchanged sentences

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.

dollar/local currency exchange rate for each local currency in which our 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.

We report 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.

1 unchanged sentence

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

Switched Transactions 2 measures the number of transactions switched by Mastercard, which is defined as the number of transactions initiated and switched through our network during the period.

MASTERCARD 2021 FORM 10-K 49

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