Item 5. Market for Registrant’s Common Equity
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUES PURCHASES OF EQUITY SECURITIES
Dividend Declaration and Policy
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.
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 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. The following table presents our repurchase activity on a cash basis during the fourth quarter of 2021:
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 1,282,075 $ 351.18 1,282,075 $ 4,752,404,601
November 1 – 30 1,126,537 340.52 1,126,537 12,368,795,391
December 1 – 31 1,312,321 336.75 1,312,321 11,926,866,431
Total 3,720,933 342.86 3,720,933
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.
Item 6. [Reserved]
MASTERCARD 2021 FORM 10-K 43
PART II
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, 2020 compared to the year ended December 31, 2019, please see Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.
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 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). 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.
COVID-19
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
Increase/(Decrease)
Gross dollar volume (local currency basis) 8 % 33 % 20 % 23 % 21 %
Cross-border volume (local currency basis) (17) % 58 % 52 % 53 % 32 %
Switched transactions 9 % 41 % 25 % 27 % 25 %
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
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
The following table provides a summary of our key GAAP operating results, as reported:
Year ended December 31, 2021
Increase/
(Decrease) 2020
Increase/
(Decrease)
2021 2020 2019
($ in millions, except per share data)
Net revenue $ 18,884 $ 15,301 $ 16,883 23% (9)%
Operating expenses $ 8,802 $ 7,220 $ 7,219 22% —%
Operating income $ 10,082 $ 8,081 $ 9,664 25% (16)%
Operating margin 53.4 % 52.8 % 57.2 % 0.6 ppt (4.4) ppt
Income tax expense $ 1,620 $ 1,349 $ 1,613 20% (16)%
Effective income tax rate 15.7 % 17.4 % 16.6 % (1.7) ppt 0.8 ppt
Net income $ 8,687 $ 6,411 $ 8,118 35% (21)%
Diluted earnings per share $ 8.76 $ 6.37 $ 7.94 38% (20)%
Diluted weighted-average shares outstanding 992 1,006 1,022 (1)% (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, 2021
Increase/(Decrease) 2020
Increase/(Decrease)
2021 2020 2019 As adjusted Currency-neutral As adjusted Currency-neutral
($ in millions, except per share data)
Net revenue $ 18,884 $ 15,301 $ 16,883 23% 22% (9)% (8)%
Adjusted operating expenses $ 8,627 $ 7,147 $ 7,219 21% 19% (1)% (1)%
Adjusted operating margin 54.3 % 53.3 % 57.2 % 1.0 ppt 1.2 ppt (4.0) ppt (3.7) ppt
Adjusted effective income tax rate 15.4 % 17.2 % 17.0 % (1.8) ppt (1.8) ppt 0.2 ppt 0.3 ppt
Adjusted net income $ 8,333 $ 6,463 $ 7,937 29% 28% (19)% (17)%
Adjusted diluted earnings per share $ 8.40 $ 6.43 $ 7.77 31% 30% (17)% (16)%
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.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Key highlights for 2021 as compared to 2020 were as follows:
Net revenue
GAAP Non-GAAP
(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 increased 32%, or 31% on a currency-neutral basis, which
includes 8 percentage points of growth due to acquisitions. 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 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
Adjusted effective income tax rate
GAAP Non-GAAP
(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.
15.7% 15.4%
Other 2021 financial highlights were as follows:
• We generated net cash flows from operations of $9.5 billion.
• We completed the acquisitions of businesses for total consideration of $4.7 billion.
• We repurchased 16.5 million shares of our common stock for $5.9 billion and paid dividends of $1.7 billion.
• We completed debt offerings for an aggregate principal amount of $2.1 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 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 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.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Items
Litigation provisions
• 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:
◦ $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.
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.
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 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.
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. 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 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.
MASTERCARD 2021 FORM 10-K 47
PART II
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, 2021
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 $ 8,802 53.4 % $ 225 15.7 % $ 8,687 $ 8.76
(Gains) losses on equity investments ** ** (645) (0.5) % (497) (0.50)
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
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
Note: Tables may not sum due to rounding.
** Not applicable
48 MASTERCARD 2021 FORM 10-K
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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, 2021 as compared to the Year Ended December 31, 2020
Increase/(Decrease)
Net revenue Operating expenses Operating margin Effective income tax rate Net income Diluted earnings per share
Reported - GAAP 23 % 22 % 0.6 ppt (1.7) ppt 35 % 38 %
(Gains) losses on equity investments ** ** ** (0.4) ppt (7) % (8) %
Litigation provisions ** — % — ppt 0.1 ppt — % — %
Indirect tax matter ** (1) % 0.4 ppt 0.1 ppt 1 % 1 %
Non-GAAP 23 % 21 % 1.0 ppt (1.8) ppt 29 % 31 %
Currency impact 1
(1) % (2) % 0.2 ppt — ppt (1) % (1) %
Non-GAAP - currency-neutral 22 % 19 % 1.2 ppt (1.8) ppt 28 % 30 %
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 1
1 % — % 0.3 ppt 0.2 ppt 1 % 1 %
Non-GAAP - currency-neutral (8) % (1) % (3.7) ppt 0.3 ppt (17) % (16) %
Note: Tables may not sum due to rounding.
** Not applicable
1 See “Non-GAAP Financial Information” for further information on Currency impact.
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. 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 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 our volumes are reported. These exchange rates are calculated on a quarterly basis using the average exchange rate for each quarter. 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.
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.
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.
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