Balance Sheet Data (at period end)
These are only a few examples of how we're
growing our core business and increasing the
number of transactions we process.
DIVERSIFYING CUSTOMERS
AND GEOGRAPHIES
Half a century ago, our business was formed as
an association for banks. Today, while our focus
remains strong with our bank partners, we're
adding to our customer
base and expanding
markets by working
with governments,
merchants, digital
giants, other technology
companies and more.
We're driving
acceptance with small
business merchants,
and we're creating
new opportunities for
to the national digital ID. It's a model we're
replicating in other countries.
• Our MasterCard Aid Network solution helps
refugees in time of need, transforming the way
non-governmental and other aid agencies can
deliver support.
Recently MasterCard and UN Women formed a
partnership to drive financial inclusion of women,
WE'RE ADDING TO OUR
CUSTOMER BASE AND
EXPANDING MARKETS BY
1
In the expanding commercial payments space, we
continue to gain share. Our travel & entertainment
and fuel card programs produce reporting and
insights that help companies manage their programs
more efficiently. Businesses also are connecting
through our network to make higher-value
transactions traditionally associated with cashier's
checks and wire transfers.
In markets as diverse as Italy,
Russia and Qatar, debit issuers are migrating
their portfolios to MasterCard, driving cash to
cards. In prepaid, our growth establishes us as
the global leader, with nearly half of prepaid
volume transacted on MasterCard-branded
products around the world. In South Africa alone,
our prepaid cards are powering transit for more
than 15 million citizens.
We're charting the course for what comes
next-because more than any other point
in our 50-year history—the time to shape
the future of payments is now.
Cross-border Volume
16%
16%
18%
Processed Transactions²
12%
12%
beginning with a Nigerian
pilot program, which
aims to provide 500,000
13%
2 Data represents all transactions processed by MasterCard, including PIN-based debit transactions, regardless of brand.
OUR LETTER TO SHAREHOLDERS
Our strategy is rooted in innovation and
execution—it's our path to the future. It's
about growing our core business, diversifying
our customers and markets and
building new businesses. It cuts
across products and geographies,
and it takes a broad view of
commerce. Under the stewardship
of our board of directors, we seek
to win new consumers and
merchants by accelerating the
trend of electronic payments,
fostering financial inclusion and
creating a world beyond cash.
GROWING THE BUSINESS
By creating solutions that meet the needs of our
stakeholders, our core business remains strong as
we gain market share across credit,
debit, prepaid and commercial
products. To us, the focus is not
only on building acceptance but
also on driving product and service
differentiation, allowing us to
deepen our relationships with
customers around the globe.
OUR STRATEGY
IS ROOTED IN
INNOVATION AND
EXECUTION-IT'S
OUR PATH TO
THE FUTURE.
The payments industry is certainly changing.
Countries are going cashless and electronic
payments are becoming a vital way for governments
to achieve economic goals. Cities are using the
power of our technology and data to create more
efficient transit systems. Businesses value greater
insights to grow sales and increase customer
loyalty. And more people are using our products
―some for the first time-enjoying the essential
benefits of digital identification.
1 Gross Dollar Volume (GDV) generated by Maestro and Cirrus cards not included. The data for GDV is provided by MasterCard customers
and includes information with respect to MasterCard-branded transactions that are not processed by MasterCard and for which MasterCard
does not earn significant revenues. All data is subject to revision and amendment by MasterCard's customers subsequent to the date of its
release, of which revisions and amendments may be material.
14%
women with ID cards
WORKING WITH GOVERNMENTS, payments functionality.
MERCHANTS, DIGITAL GIANTS,
OTHER TECHNOLOGY
COMPANIES AND MORE.
A STRONG FOUNDATION AND FUTURE
Whether it's 50 years of history or ten years of
being a public company, it's never about looking
WHILE NO ONE CAN PREDICT
We're making a difference. When we became
a public company ten years ago, the MasterCard
Foundation was established as an independent
entity to promote financial
inclusion and advance
youth learning, mostly in
Africa. The Foundation's
programs are serving more
than nine million people in
29 African countries and
provide a combination of
skills-building, education
WHAT THE NEXT 50 YEARS
WILL BRING, WE KNOW THIS
TO BE TRUE: WHEN YOU
THINK OF MASTERCARD
-THINK OPPORTUNITY.
and access to financial services. And our MasterCard
Center for Inclusive Growth directs philanthropic
investments and builds connections between the
development community, governments, business
and academia. Together, we're creating innovative
solutions to foster inclusive growth.
PILL
Richard Haythornthwaite
Chairman of the Board of Directors
back for us. Together with
our board, we think about
what's ahead and how
we're advancing our role
in digital payments; how
we're driving safety and
security; how we're
fostering financial inclusion;
how we're making
MasterCard one of the best places to work; and
how we're sustaining profitable growth for our
company and for our shareholders. While no one
can predict what the next 50 years will bring,
we know this to be true: when you think of
MasterCard-think opportunity.
Девару
Ajay Banga
President and Chief Executive Officer
☑
3
We're giving back. From local projects to
global initiatives, we aim to have an enduring
impact on the communities where we live and
do business. Our global employee volunteer
initiative, Girls4Tech™, has reached more than
4,000 young girls and engaged more than
1,000 of our employees so far.
reviewing our long-term strategic plans, ensuring
the resilience of our vision and keeping a watchful
eye on our financial stability. Throughout the years,
the guiding principles for our capital structure have
not changed. We aim to preserve a strong balance
sheet, liquidity and credit rating-making sure we
remain a strong counterparty for our acquirers
and issuers in the settlement of transactions on
our state-of-the-art network. We also returned
excess capital to our shareholders. In fact, since
2007, we've returned more than $15 billion to
shareholders through dividends or share repurchases.
We continue our disciplined capital allocation
strategy, preserving our credit rating while
investing in critical areas to drive long-term
growth for our shareholders.
We're building a
world-class company.
Our board works
collaboratively to shape
our business and tal-
ent as we prepare for
the next challenges
and opportunities—by
electronic payments with person-to-person transfers
and transit partners. With 70 percent of the world's
population expected to live in cities by 2050, we're
bringing our technology to the world's megacities
-making commuters' lives simpler and easier and
government transit systems more efficient in cities
like London, Chicago and St. Petersburg.
With two billion people around the world without
a bank account, our work with governments,
telcos and other partners brings more people into
the financial fold. A year ago, we stood with the
World Bank to do well and do good, making a
commitment to bring an additional 500 million
people access to financial tools and services. Our
progress is significant, with more than 200 million
already connected through 1,000-plus government
and NGO programs in 60 countries. Here are
three of our latest examples:
•Through a country-wide program in Egypt,
more than 54 million citizens can receive
government benefits and salaries as well as
make payments with a mobile wallet linked
With more than half
of our revenue coming
from outside the U.S.,
we continue to expand
into new markets. While
waiting for China's final domestic market regulations,
we're working closely with our customers to launch
single-branded card programs and expand into
the digital space, using our token and cloud-based
technologies and fraud prevention solutions. In
Russia, working alongside the government, we
became the first network to transition domestic
processing to their platform. We continue to
expand value-added services through this partnership,
winning new business. It's this type of innovative
thinking that sets us up for a strong tomorrow.
BUILDING FOR THE FUTURE
The new digital world we live in has driven
more payments innovation in the past five years
than the previous 50. This rate of change,
combined with consumer demand for a seamless,
omni-channel experience, presents the ideal
opportunity to reimagine payments. And 2015
was a busy year for us in this space. We're
pleased with our progress on MasterPass™, now
in 29 markets, and we also launched 64 new
enabled with electronic
2
CULTURE OF PRICELESS POSSIBILITIES
We're achieving our vision. This couldn't be
possible without our 11,000-plus employees
bringing their hearts and minds to work every
day. Our new Priceless Possibilities campaign puts
the magic of our consumer brand-our iconic,
award-winning Priceless campaign that runs in
53 languages and 112 countries—into the employee
life cycle, from recruiting to career development.
THE NEW DIGITAL WORLD
We're leading the industry with new ways to
make payments safe and secure. Our work with
the EMV migration in the U.S. has helped bring
advanced technology
and global consistency to
the payments industry.
We're pioneering the use
of tokenization and
biometric authentication,
such as "selfies" and
fingerprints in online
WE LIVE IN HAS DRIVEN
MORE PAYMENTS INNOVATION
IN THE PAST FIVE YEARS
THAN THE PREVIOUS 50.
payments. With MasterCard Identity Check™ a
cardholder's identity can be verified in as fast as the
blink of an eye. Meanwhile, MasterCard Safety Net™
our real-time fraud monitoring service, backs up the
security programs of our issuers and partners in
every part of the world, while our global Zero
Liability policy protects consumers from responsibility
for unauthorized charges.
We know that game-changing ideas can come
from anywhere, and we welcome them through
platforms like our MasterCard Developer Zone,
Commerce.Innovated TM and Start PathⓇ All of
these showcase the breadth of opportunity
and our commitment to building for the future.
It's a never-ending focus for us.
MasterPass-enabled wallets. The MasterCard
Commerce for Every Device program enables
any device-whether it's a gadget, refrigerator,
washing machine, car, smart band and even a
luxury watch or haute couture dress—to become
a payment device.
13%
13%
Gross Dollar Volume¹
821
862
841
Depreciation and Amortization
366
321
258
Provision for Litigation Settlement
61
95
Total Operating Expenses
4,589
4,335
3,809
Operating Income
Advertising and Marketing
2,615
3,152
3,341
бо
YEARS OF SHAPING THE FUTURE
MASTERCARD ANNUAL REPORT 2015
MasterCard
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(in $ millions, except per share and operating data)
2015
5,078
For the Years Ended December 31
2014
Statement of Operations
Net Revenue
Operating Expenses:
$9,667
$9,441
$8,312
General and Administrative
2013
5,106
4,503
Total Other Expense
$3.35
$3.10
$2.56
Cash, Cash Equivalents and Current Investment Securities
$6,738
$6,375
$6,295
Diluted Earnings per Share
Total Assets
15,329
14,242
Equity
6,062
6,824
7,495
Operating Data Growth (local currency)
16,269
UNITED STATES
$2.57
$3.36
120
27
3
Income before Income Taxes
4,958
5,079
4,500
$3.11
Income Tax Expense
1,462
1,384
Net Income
$3,808
$3,617
$3,116
Basic Earnings per Share
1,150
SECURITIES AND EXCHANGE COMMISSION
In addition to safety and security, we're
hyper-focused on creating value-added services
from the power of our data and analytics, our
loyalty solutions, our payments consulting and
processing. Yes, we're all about the transaction,
but we also recognize that there are attractive
growth opportunities across many consumer and
commercial payment types—even beyond cards.
Form 10-K
85
89 89
85
8889
85
85
In this Report on Form 10-K ("Report"), references to the "Company," "MasterCard," "we," "us" or "our" refer to the MasterCard
brand generally, and to the business conducted by MasterCard Incorporated and its consolidated subsidiaries, including our
operating subsidiary, MasterCard International Incorporated.
Forward-Looking Statements
This Report contains forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. All statements other than statements of historical facts may be forward-looking statements. When used in this
Report, the words "believe", "expect", "could", "may", "would", "will", "trend" and similar words are intended to identify forward-
looking statements. Examples of forward-looking statements include, but are not limited to, statements that relate to the
Company's future prospects, developments and business strategies.
Many factors and uncertainties relating to our operations and business environment, all of which are difficult to predict and
many of which are outside of our control, influence whether any forward-looking statements can or will be achieved. Any one
of those factors could cause our actual results to differ materially from those expressed or implied in writing in any forward-
looking statements made by MasterCard or on its behalf, including, but not limited to, the following factors:
•
payments system-related legal and regulatory challenges (including interchange fees, surcharging and the
extension of current regulatory activity to additional jurisdictions or products);
the impact of preferential or protective government actions;
regulation of privacy, data protection and security;
regulation to which we are subject based on our participation in the payments industry;
Washington, D.C. 20549
58
85
2
84
ITEM 9B.
OTHER INFORMATION
20 20 20
84
PART III
ITEM 10.
the impact of competition in the global payments industry (including disintermediation and pricing pressure);
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
ITEM 13.
ITEM 14.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 11.
ITEM 12.
the challenges relating to rapid technological developments and changes;
the impact of information security failures, breaches or service disruptions on our business;
issues related to our relationships with our customers (including loss of substantial business from significant
customers, competitor relationships with our customers and banking industry consolidation);
•
•
diversifying our customer base in new and existing markets by working with partners such as governments, merchants,
large digital companies and other technology companies, mobile providers and other businesses;
encouraging use of our products and solutions in areas that provide new opportunities for electronic payments, such
as transit and person-to-person transfers;
driving acceptance at small business merchants, including those who have not historically accepted electronic payments;
and
•
broadening financial inclusion for the unbanked and underbanked.
•
Build. We build our business by:
taking advantage of the opportunities presented by the evolving ways consumers interact and transact as physical
and digital payments converge; and
using our safety and security products and solutions, data analytics and loyalty solutions to add value.
We grow, diversify and build our business through a combination of organic growth and strategic investments, including
acquisitions.
Strategic Partners. We work with a variety of stakeholders. We provide financial institutions with solutions to help them increase
revenue and increase preference for their MasterCard-branded products. We help merchants by delivering data-driven insights
and other services to help them grow and create better and secure purchase experiences for consumers across physical and
digital channels. We partner with large digital companies and other technology companies, mobile providers and
telecommunication companies to support their digital payment solutions with our technology, expertise and security protocols.
We help national and local governments drive increased financial inclusion and efficiency, reduce costs, increase transparency
to reduce crime and corruption and advance social programs. For consumers, we provide better, safer and more convenient
ways to pay.
Recent Business and Legal/Regulatory Developments
Product Innovation. We have launched and extended products and platforms that take advantage of the growing digital economy
(including the Internet of Things), where consumers are increasingly using technology to interact with merchants. Among our
recent developments:
4
•
CONTROLS AND PROCEDURES
Diversify. We look to diversify our business by focusing on:
Our ability to grow our business is influenced by personal consumption expenditure growth, driving cash and check transactions
toward electronic forms of payment, increasing our share in electronic payments and providing value-added products and
services. We achieve our strategy by growing, diversifying and building our business.
the impact of our relationships with stakeholders, including issuers and acquirers, merchants and governments;
exposure to loss or illiquidity due to settlement guarantees and other significant third-party obligations;
the impact of global economic and political events and conditions, including global financial market activity,
declines in cross-border activity; negative trends in consumer spending and the effect of adverse currency
fluctuation;
reputational impact, including impact related to brand perception, account data breaches and fraudulent
activity;
issues related to acquisition integration, strategic investments and entry into new businesses;
potential or incurred liability and limitations on business resulting from litigation; and
issues related to our Class A common stock and corporate governance structure.
Please see a complete discussion of these risk factors in Part I, Item 1A - Risk Factors. We caution you that the important factors
referenced above may not contain all of the factors that are important to you. Our forward-looking statements speak only as of
the date of this Report or as of the date they are made, and we undertake no obligation to update our forward-looking statements.
Grow. We focus on growing our core businesses globally, including growing our credit, debit, prepaid and commercial products
and solutions and increasing the number of payment transactions we process.
PART I
Overview
MasterCard is a technology company in the global payments industry that connects consumers, financial institutions, merchants,
governments and businesses worldwide, enabling them to use electronic forms of payment instead of cash and checks. As the
operator of what we believe is the world's fastest payments network, we facilitate the processing of payment transactions,
3
including authorization, clearing and settlement, and deliver related products and services. We make payments easier and more
efficient by creating a wide range of payment solutions and services using our family of well-known brands, including MasterCard®,
MaestroⓇ and CirrusⓇ. We also provide value-added offerings such as loyalty and reward programs, information services and
consulting. Our network is designed to ensure safety and security for the global payments system.
A typical transaction on our network involves four participants in addition to us: cardholder (an individual who holds a card or
uses another device enabled for payment), merchant, issuer (the cardholder's financial institution) 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 cardholders by issuers, or establish the rates charged by acquirers in connection with merchants' acceptance of our branded
cards. In most cases, cardholder relationships belong to, and are managed by, our financial institution customers.
We generate revenue by charging fees to issuers and acquirers for providing transaction processing and other payment-related
products and services, as well as by assessing these customers based primarily on the dollar volume of activity, or gross dollar
volume ("GDV"), on the cards and other devices that carry our brands.
Our Strategy
ITEM 1. BUSINESS
ITEM 9A.
85
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Name of each exchange on which registered
New York Stock Exchange
Yes ☑
No ☐
Yes
No ☑
Securities registered pursuant to Section 12(g): Class B common stock, par value $0.0001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files) Yes ☑ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. ☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
(Check One):
Large accelerated filer
☑
Non-accelerated filer ☐ (do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the registrant's Class A common stock, par value $0.0001 per share, held by non-affiliates (using the New York
Stock Exchange closing price as of June 30, 2015, the last business day of the registrant's most recently completed second fiscal quarter) was
approximately $103.7 billion. There is currently no established public trading market for the registrant's Class B common stock, par value $0.0001
per share. As of February 4, 2016, there were 1,089,482,218 shares outstanding of the registrant's Class A common stock, par value $0.0001 per
share and 21,256,530 shares outstanding of the registrant's Class B common stock, par value $0.0001 per share.
10577
(Zip Code)
(IRS Employer
Identification Number)
13-4172551
Class A common stock, par value $0.0001 per share
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission file number: 001-32877
to
Portions of the registrant's definitive proxy statement for the 2016 Annual Meeting of Stockholders are incorporated by reference into Part III
hereof.
MasterCard Incorporated
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
2000 Purchase Street
Purchase, NY
(Address of principal executive offices)
Title of each Class
(914) 249-2000
84
Delaware
MASTERCARD INCORPORATED
(Registrant's telephone number, including area code)
TABLE OF CONTENTS
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
29
ITEM 6.
ITEM 7.
SELECTED FINANCIAL DATA
30
28
30
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
45
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
48
ITEM 9.
FISCAL YEAR 2015 FORM 10-K ANNUAL REPORT
ITEM 7A.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
28
ITEM 1.
31 ∞ ∞ ∞ ∞
BUSINESS
ITEM 1A.
RISK FACTORS
ITEM 1B.
ITEM 2.
PROPERTIES
ITEM 3.
UNRESOLVED STAFF COMMENTS.
LEGAL PROCEEDINGS
ITEM 4.
MINE SAFETY DISCLOSURES.
PART I
Page
28
28
(Includes reinvestment of dividends)
INDEXED RETURNS
Years Ended
Company/Index
12/31/13
12/31/12
12/31/11
TOTAL RETURN TO STOCKHOLDERS
Base Period
12/31/10
STOCK PERFORMANCE
The graph to the right and the table
below compare the cumulative total
stockholder return of MasterCard
Incorporated Class A common stock,
the S&P 500 Index and the S&P 500
Financials for the five-year period shown
on the graph. The graph assumes a
$100 investment in our Class A common
stock and each of the indices, and the
reinvestment of dividends. MasterCard
Incorporated's Class B common stock
is not publicly traded or listed on any
exchange or dealer quotation system.
12/31/11
S&P 500 Index
MasterCard Incorporated
12/31/15
12/31/14
12/31/13
12/31/12
12/31/10
12/31/14
$0
S&P 500 Financials
12/31/15
144.91
100
$100
Source: S&P Capital IQ
164.39
166.94
106.84
82.94
100
S&P 500 Financials
180.75
MasterCard Incorporated
178.29
118.45
102.11
100
S&P 500 Index
443.53
389.78
375.79
220.21
166.71
156.82
$200
10.16+
$400
Amended and Restated Certificate of Incorporation of MasterCard Incorporated (incorporated by
reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed September 23, 2010 (File
No. 001-32877)).
Amended and Restated Bylaws of MasterCard Incorporated (incorporated by reference to Exhibit 3.1
to the Company's Current Report on Form 8-K filed September 23, 2010 (File No. 001-32877)).
Amended and Restated Certificate of Incorporation of MasterCard International Incorporated
(incorporated by reference to Exhibit 3.2 (a) to the Company's Quarterly Report on Form 10-Q filed
August 2, 2006 (File No. 001-32877)).
Amended and Restated Bylaws of MasterCard International Incorporated (incorporated by reference
to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed November 3, 2009 (File No.
001-32877)).
Indenture, dated as of March 31, 2014, between the Company and Deutsche Bank Trust Company
Americas, as trustee (incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed on March 31, 2014 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of March 31, 2014 (incorporated by reference to Exhibit
4.2 of the Company's Current Report on Form 8-K filed on March 31, 2014 (File No. 001-32877)).
Form of Global Note representing the Company's 2.000% Notes due 2019 (included in Exhibit 4.2)
(incorporated by reference to Exhibit 4.3 of the Company's Current Report on Form 8-K filed on March
31, 2014 (File No. 001-32877)).
Form of Global Note representing the Company's 3.375% Notes due 2024 (included in Exhibit 4.2)
(incorporated by reference to Exhibit 4.4 of the Company's Current Report on Form 8-K filed on March
31, 2014 (File No. 001-32877)).
Exhibit Description
Officer's Certificate of the Company, dated as of December 1, 2015 (incorporated by reference to
Exhibit 4.1 of the Company's Current Report on Form 8-K filed on December 1, 2015 (File No.
001-32877)).
Form of Global Note representing the Company's 2.100% Notes due 2027 (included in Exhibit 4.5)
(incorporated by reference to Exhibit 4.3 of the Company's Current Report on Form 8-K filed on
December 1, 2015 (File No. 001-32877)).
Form of Global Note representing the Company's 2.500% Notes due 2030 (included in Exhibit 4.5)
(incorporated by reference to Exhibit 4.4 of the Company's Current Report on Form 8-K filed on
December 1, 2015 (File No. 001-32877)).
$3,750,000,000 Amended and Restated Credit Agreement, dated as of October 21, 2015, among
MasterCard Incorporated, the several lenders and agents from time to time party thereto, Citibank,
N.A., as managing administrative agent and JPMorgan Chase Bank, N.A. as administrative agent
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed October
23, 2015 (File No. 001-32877)).
Employment Agreement between MasterCard International Incorporated and Ajay Banga, dated as
of July 1, 2010 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form
8-K filed July 8, 2010 (File No. 001-32877)).
88
10.3+
10.4+
10.5+
Form of Global Note representing the Company's 1.100% Notes due 2022 (included in Exhibit 4.5)
(incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K filed on
December 1, 2015 (File No. 001-32877)).
10.2+
10.1
4.8
Rima Qureshi
Director
/s/ JOSÉ OCTAVIO REYES LAGUNES
José Octavio Reyes Lagunes
Director
/s/ JACKSON P. TAI
Jackson P. Tai
Director
EXHIBIT INDEX
Exhibit
Number
3.1(a)
3.1(b)
3.2(a)
3.2(b)
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.6+
/s/ RIMA QURESHI
10.6.1+
10.7+
Amended and Restated MasterCard International Incorporated Executive Severance Plan, amended
and restated as of June 5, 2012 (incorporated by reference to Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q filed August 1, 2012 (File No. 001-32877)).
89
10.17+
10.18
10.19
10.20
10.21
10.22
Form of MasterCard Incorporated Long-Term Incentive Plan Non-Competition and Non-Solicitation
Agreement for named executive officers (incorporated by reference to Exhibit 10.17 to the Company's
Annual Report on Form 10-K filed February 16, 2012 (File No. 001-32877)).
10.23
10.25
10.26
10.27
10.27.1
10.27.2
Amended and Restated MasterCard International Incorporated Change in Control Severance Plan,
amended and restated as of June 5, 2012 (incorporated by reference to Exhibit 10.6 to the Company's
Quarterly Report on Form 10-Q filed August 1, 2012 (File No. 001-32877)).
Schedule of Non-Employee Directors' Annual Compensation effective as of June 9, 2015 (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed July 29, 2015 (File
No. 001-32877)).
2006 Non-Employee Director Equity Compensation Plan, amended and restated effective as of June
5, 2012 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
filed August 1, 2012 (File No. 001-32877)).
10.24
Form of Performance Unit Agreement for awards under 2006 Long Term Incentive Plan (effective for
awards granted on and subsequent to March 1, 2014) (incorporated by reference to Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q filed May 1, 2014 (File No. 001-32877)).
Form of Stock Option Agreement for awards under 2006 Long Term Incentive Plan (effective for awards
granted on and subsequent to March 1, 2014) (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q filed May 1, 2014 (File No. 001-32877)).
Form of Restricted Stock Unit Agreement for awards under 2006 Long Term Incentive Plan (effective
for awards granted on and subsequent to March 1, 2014) (incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q filed May 1, 2014 (File No. 001-32877)).
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
Employment Agreement between Chris A. McWilton and MasterCard International, amended and
restated as of December 24, 2012 (incorporated by reference to Exhibit 10.4 to the Company's Annual
Report on Form 10-K filed February 14, 2013 (File No. 001-32877)).
Employment Agreement between Martina Hund-Mejean and MasterCard International, amended
and restated as of December 24, 2012 (incorporated by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K filed February 14, 2013 (File No. 001-32877)).
Description of Employment Arrangement with Gary Flood (incorporated by reference to Exhibit 10.11
to the Company's Annual Report on Form 10-K filed February 18, 2010 (File No. 001-32877)).
Offer Letter between Ann Cairns and MasterCard International Incorporated, dated June 15, 2011
(incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K filed February
16, 2012 (File No. 001-32877)).
Contract of Employment between MasterCard UK Management Services Limited and Ann Cairns,
dated July 6, 2011 (incorporated by reference to Exhibit 10.8.1 to the Company's Annual Report on
Form 10-K filed February 16, 2012 (File No. 001-32877)).
Deed of Employment between MasterCard UK Management Services Limited and Ann Cairns, dated
July 6, 2011 (incorporated by reference to Exhibit 10.8.2 to the Company's Annual Report on Form
10-K filed February 16, 2012 (File No. 001-32877)).
MasterCard International Incorporated Supplemental Executive Retirement Plan, as amended and
restated effective January 1, 2008 (incorporated by reference to Exhibit 10.18 to the Company's Annual
Report on Form 10-K filed February 19, 2009 (File No. 001-32877)).
MasterCard International Senior Executive Annual Incentive Compensation Plan, as amended and
restated effective June 9, 2015 (incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed June 10, 2015 (File No. 001-32877)).
MasterCard International Incorporated Restoration Program, as amended and restated January 1,
2007 unless otherwise provided (incorporated by reference to Exhibit 10.22 to the Company's Annual
Report on Form 10-K filed February 19, 2009 (File No. 001-32877)).
MasterCard Incorporated Deferral Plan, as amended and restated effective December 1, 2008 for
account balances established after December 31, 2004 (incorporated by reference to Exhibit 10.25
to the Company's Annual Report on Form 10-K filed February 19, 2009 (File No. 001-32877)).
MasterCard Incorporated 2006 Long Term Incentive Plan, amended and restated effective June 5,
2012 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
filed August 1, 2012 (File No. 001-32877)).
10.6.2+
Form of Restricted Stock Agreement for awards under 2006 Non-Employee Director Equity
Compensation Plan, amended and restated effective June 5, 2012 (effective for awards granted on
and subsequent to June 3, 2014) (incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q filed July 31, 2014 (File No. 001-32877)).
87
By:
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 12, 2016
By:
MASTERCARD INCORPORATED
(Registrant)
/s/ AJAY BANGA
Ajay Banga
President and Chief Executive Officer
(Principal Executive Officer)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated:
By:
By:
Date: February 12, 2016
By:
Date: February 12, 2016
By:
Date: February 12, 2016
By:
Date: February 12, 2016
85
Refer to the Exhibit Index included herein.
3 The following exhibits are filed as part of this Report or, where indicated, were previously filed and are hereby
incorporated by reference:
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item with respect to our directors and executive officers, code of ethics, procedures for
recommending nominees, audit committee, audit committee financial experts and compliance with Section 16(a) of the Exchange
Act will appear in our definitive proxy statement to be filed with the SEC and delivered to stockholders in connection with the
Annual Meeting of Stockholders to be held on June 28, 2016 (the "Proxy Statement").
The aforementioned information in the Proxy Statement is incorporated by reference into this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item with respect to executive officer and director compensation will appear in the Proxy
Statement and is incorporated by reference into this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item with respect to security ownership of certain beneficial owners and management equity
and compensation plans will appear in the Proxy Statement and is incorporated by reference into this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
The information required by this Item with respect to transactions with related persons, the review, approval or ratification of
such transactions and director independence will appear in the Proxy Statement and is incorporated by reference into this Report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item with respect to auditors' services and fees will appear in the Proxy Statement and is
incorporated by reference into this Report.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Report:
1 Consolidated Financial Statements
See Index to Consolidated Financial Statements in Part II, Item 8.
2 Consolidated Financial Statement Schedules
None.
Date: February 12, 2016
Date: February 12, 2016
By:
By:
Date: February 12, 2016
$300
Date: February 12, 2016
By:
/s/ MERIT E. JANOW
Merit E. Janow
Director
〇〇
Richard Haythornthwaite
Chairman of the Board; Director
By:
Nancy J. Karch
Director
By:
/s/ MARC OLIVIÉ
Marc Olivié
Director
By:
Date: February 12, 2016
By:
Date: February 12, 2016
/s/ NANCY J. KARCH
/s/ RICHARD HAYTHORNTHWAITE
Director
Julius Genachowski
Date: February 12, 2016
By:
Date: February 12, 2016
86
/s/ AJAY BANGA
Ajay Banga
President and Chief Executive Officer; Director
(Principal Executive Officer)
/s/ MARTINA HUND-MEJEAN
Martina Hund-Mejean
Chief Financial Officer
(Principal Financial Officer)
/s/ ANDREA FORSTER
Andrea Forster
Corporate Controller
(Principal Accounting Officer)
/s/ SILVIO BARZI
Silvio Barzi
Director
/s/ DAVID R. CARLUCCI
David R. Carlucci
Director
/s/ STEVEN J. FREIBERG
Steven J. Freiberg
Director
/s/ JULIUS GENACHOWSKI
Date: February 12, 2016
Form of Deferred Stock Unit Agreement for awards under 2006 Non-Employee Director Equity
Compensation Plan, amended and restated effective June 5, 2012 (effective for awards granted on
and subsequent to June 3, 2014) (incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q filed July 31, 2014 (File No. 001-32877)).
Date: February 12, 2016
Form of Indemnification Agreement between MasterCard Incorporated and certain of its director
nominees (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-
Q filed May 2, 2006 (File No. 000-50250)).
Robert Reeg
President, Operations
& Technology
Craig Vosburg
President, North America
COMMITTEE MEMBERS
President of Enterprise Security
Solutions
Gilberto Caldart
President, Latin America and
Caribbean Region
Hai Ling
Co-President, Asia/Pacific
Timothy Murphy
General Counsel and
Chief Franchise Officer
Garry Lyons
Walt Macnee
Vice Chairman and President,
Center for Inclusive Growth
Raghu Malhotra
President, Middle East and Africa
Cathy McCaul
President of Processing
Edward McLaughlin
Chief Information Officer
Chief Innovation Officer
Martina Hund-Mejean
Chief Financial Officer
Chief Human Resources Officer
Ronald E. Garrow
The Coca-Cola Export Corporation,
The Coca-Cola Company
Jackson Tai 2, 3
Former Vice Chairman and
Chief Executive Officer
DBS Group and DBS Bank Ltd.
Edward Suning Tian 2
Chairman
China Broadband
Capital Partners, L.P.
MASTERCARD
MANAGEMENT COMMITTEE
EXECUTIVE OFFICERS
Ajay Banga
ADDITIONAL MANAGEMENT
President and Chief Executive Officer Ajay Bhalla
Ann Cairns
President, International Markets
Gary J. Flood
President, Global Products
and Solutions
Michael Miebach
Chief Product Officer
Former Vice Chairman,
Javier Perez
Raja Rajamannar
Chief Marketing Officer
Contact the MasterCard
Board of Directors
RESOURCES
Latin America and
Caribbean Regional
Headquarters
Miami, Florida, U.S.A.
Middle East and
Africa Regional
Headquarters
Dubai, U.A.E.
To communicate with the Board of Directors,
any individual directors or any group or
committee of directors, correspondence
should be addressed to the Board of Directors
or any such individual directors or group or
committee of directors by either name or
title. All such correspondence can be sent
by e-mail to our Corporate Secretary at
corporate.secretary@mastercard.com or
by mail to MasterCard Incorporated, Board
of Directors, 2000 Purchase Street, Purchase,
New York 10577, attention Janet McGinness.
Annual Meeting of Stockholders
The 2016 Annual Meeting of Stockholders
of MasterCard Incorporated will be held on
Tuesday, June 28, 8:30 a.m., at MasterCard
Corporate Headquarters, 2000 Purchase
Street, Purchase, New York.
Stock Listing and Symbol
New York Stock Exchange Symbol: MA
Transfer Agent
North America
Regional
Headquarters
Purchase,
Europe Regional
Headquarters
Waterloo, Belgium
New York, U.S.A.
P.O. Box 30170
College Station, TX 77845-3170
Overnight correspondence:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77842
For holders of Class A common stock:
U.S. Telephone: 1.800.837.7579
Non-U.S. Telephone: 1.201.680.6578
For holders of Class B common stock:
U.S. Telephone: 1.866.337.6318
Non-U.S. Telephone: 1.201.680.6656
Facsimile: 1.201.680.4671
Independent Registered Public
Accounting Firm
PricewaterhouseCoopers LLP
New York, New York
COMPARISON OF CUMULATIVE FIVE-YEAR TOTAL RETURN
$500
Form of Indemnification Agreement between MasterCard Incorporated and certain of its directors
(incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed May
2, 2006 (File No. 000-50250)).
Stockholder correspondence:
Computershare
Canada Regional
Headquarters
Toronto, Ontario,
Canada
Copies of the company's Annual
Report on Form 10-K as well as
other periodic filings by the company
with the U.S. Securities and Exchange
Commission (SEC) are available on
the Investor Relations section of our
website at www.mastercard.com.
Visit our website, www.mastercard.com,
for updated news releases, stock
performance, financial reports, recent
investments, investment community
presentations, corporate governance
and other investor information.
investor.relations@mastercard.com
Stockholder Information
Ari Sarker
Co-President, Asia/Pacific
Raj Seshadri
President, U.S. Issuers
Kevin Stanton
President, Advisors
(1) Human Resources and Compensation Committee
(2) Nominating and Corporate Governance Committee
(3) Audit Committee
MASTERCARD INFORMATION AND
MAJOR OFFICES
Corporate
Headquarters
10577 U.S.A.
1.914.249.2000
MasterCard
Technologies
Headquarters
St. Louis, Missouri,
U.S.A.
Asia/Pacific Regional
Headquarters
Singapore
STOCKHOLDER INFORMATION
Investor Relations
1.914.249.4565
President, Europe Region
José Octavio Reyes Lagunes 1 (Chair)
2000 Purchase Street
Purchase, New York
Chief Strategy Officer and
Computation of Ratio of Earnings to Fixed Charges.
List of Subsidiaries of MasterCard Incorporated.
Consent of PricewaterhouseCoopers LLP.
Certification of Ajay Banga, President and Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14
(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Martina Hund-Mejean, Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Ajay Banga, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Martina Hund-Mejean, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*
Class Settlement Agreement, dated October 19, 2012, by and among MasterCard Incorporated and
MasterCard International Incorporated; Visa, Inc., Visa U.S.A. Inc. and Visa International Service
Association; the Class Plaintiffs defined therein; and the Customer Banks defined therein (incorporated
by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed October 31, 2012
(File No. 001-32877)).
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
101.LAB*
+
101.PRE*
XBRL Taxonomy Extension Definition Linkbase Document
101.SCH*
Second Amendment to MasterCard Settlement and Judgment Sharing Agreement, dated as of October
22, 2015, by and among MasterCard Incorporated, MasterCard International Incorporated and
MasterCard's customer banks that are parties thereto (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q filed October 29, 2015 (File No. 001-32877)).
Amendment to MasterCard Settlement and Judgment Sharing Agreement, dated as of August 26,
2014, by and among MasterCard Incorporated, MasterCard International Incorporated and
MasterCard's customer banks that are parties thereto (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q filed October 30, 2014 (File No. 001-32877)).
MasterCard Settlement and Judgment Sharing Agreement, dated as of February 7, 2011, by and among
MasterCard Incorporated, MasterCard International Incorporated and MasterCard's customer banks
that are parties thereto (incorporated by reference to Exhibit 10.34 to Amendment No.1 to the
Company's Annual Report on Form 10-K/A filed on November 23, 2011).
Deed of Gift between MasterCard Incorporated and The MasterCard Foundation (incorporated by
reference to Exhibit 10.28 to Pre-Effective Amendment No. 5 to the Company's Registration Statement
on Form S-1 filed May 3, 2006 (File No. 333-128337)).
Head of M&A, Ericsson
Settlement Agreement, dated as of June 4, 2003, between MasterCard International Incorporated
and Plaintiffs in the class action litigation entitled In Re Visa Check/MasterMoney Antitrust Litigation
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed
August 8, 2003 (File No. 000-50250)).
Stipulation and Agreement of Settlement, dated July 20, 2006, between MasterCard Incorporated,
the several defendants and the plaintiffs in the consolidated federal class action lawsuit titled In re
Foreign Currency Conversion Fee Antitrust Litigation (MDL 1409), and the California state court action
titled Schwartz v. Visa Int'l Corp., et al. (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q filed November 1, 2006 (File No. 001-32877)).
Omnibus Agreement Regarding Interchange Litigation Judgment Sharing and Settlement Sharing,
dated as of February 7, 2011, by and among MasterCard Incorporated, MasterCard International
Incorporated, Visa Inc., Visa U.S.A. Inc., Visa International Service Association and MasterCard's
customer banks that are parties thereto (incorporated by reference to Exhibit 10.33 to Amendment
No.1 to the Company's Annual Report on Form 10-K/A filed on November 23, 2011).
Amendment to Omnibus Agreement Regarding Interchange Litigation Judgment Sharing and
Settlement Sharing, dated as of August 25, 2014, by and among MasterCard Incorporated, MasterCard
International Incorporated, Visa Inc., Visa U.S.A Inc., Visa International Service Association and
MasterCard's customer banks that are parties thereto (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q filed October 30, 2014 (File No. 001-32877)).
Second Amendment to Omnibus Agreement Regarding Interchange Litigation Judgment Sharing and
Settlement Sharing, dated as of October 22, 2015, by and among MasterCard Incorporated,
MasterCard International Incorporated, Visa Inc., Visa U.S.A Inc., Visa International Service Association
and MasterCard's customer banks that are parties thereto (incorporated by reference to Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q filed October 29, 2015 (File No. 001-32877)).
90
90
10.28**
10.28.1
10.28.2
10.29
12.1*
23.1*
31.1*
31.2*
32.1*
32.2*
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
21*
*
Former Chairman and Chief
Executive Officer
IMS Health Incorporated
Steven J. Freiberg 1,3 (Chair)
Rima Qureshi ³
Senior Advisor
The Boston Consulting Group
Julius Genachowski 1
Managing Director and Partner
The Carlyle Group
Merit E. Janow 2
and Executive Officer
UniCredit Group
Dean, School of International
Columbia University
Nancy J. Karch 2 (Chair)
Director Emeritus
McKinsey & Company
Marc Olivié 1, 3
President and Chief Executive Officer
W. C. Bradley Co.
Management contracts or compensatory plans or arrangements.
and Public Affairs
Former Senior Advisor
David R. Carlucci 2
MasterCard Incorporated
Filed or furnished herewith.
**
Exhibit omits certain information that has been filed separately with the U.S. Securities and Exchange Commission and
has been granted confidential treatment.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other
disclosure other than with respect to the terms of the agreements or other documents themselves, and should not be relied
upon for that purpose. In particular, any representations and warranties made by the Company in these agreements or other
91
documents were made solely within the specific context of the relevant agreement or document and may not describe the actual
state of affairs as of the date they were made or at any other time.
92
MASTERCARD
Silvio Barzi 1,3
Senior Vice President,
BOARD OF
Richard Haythornthwaite 2
Chairman of the Board
MasterCard Incorporated;
Non-Executive Chairman
of Centrica PLC
Ajay Banga
President and Chief Executive Officer
DIRECTORS
©2016 MASTERCARD
MASTERCARD.COM
Cirrus
FSC® C101537
MasterCard
www.fsc.org
Maestro
Paper from
MIX
FSC
We are proud to print our annual report entirely on Forest Stewardship CouncilⓇ
(FSC®)-certified paper. FSC certification ensures that the paper in our annual
report contains fiber from well-managed and responsibly harvested forests
that meet strict environmental and socioeconomic standards.
responsible sources
MasterCard Advisors. MasterCard Advisors is our global professional services group that provides proprietary analysis, data-
driven consulting and marketing services solutions to help clients optimize, streamline and grow their businesses, as well as
deliver value to consumers. With analyses based on billions of transactions processed globally, we leverage anonymized and
aggregated information and a consultative approach to help financial institutions, merchants, media companies, governments
and other organizations grow their businesses or otherwise achieve efficiencies.
Our information services group provides a suite of data analytics and products (including reports, benchmarks, models and
insights) that enable our customers to make better business decisions. Our consulting services group combines professional
problem-solving skills with payments expertise to provide solutions that address the challenges and opportunities of clients with
respect to payments. The managed services group provides solutions to enable data-driven acquisition of accounts, activation
of portfolios, conversion of cards, marketing promotions activities and other customer management services.
Loyalty and Rewards Solutions. We provide a scalable rewards platform that enables issuers to provide consumers with a variety
of benefits and services, such as personalized offers and rewards, access to a global airline lounge network, global and local
concierge services, individual insurance coverages, emergency card replacement, emergency cash advance services and a 24-
hour cardholder service center. For merchants, we provide targeted offers and rewards campaigns and management services
for publishing offers, as well as opportunities for holders of co-brand or loyalty cards and rewards program members to obtain
reward points faster. We support these services with program management capabilities.
Marketing
We manage and promote our brands through advertising, promotions and sponsorships, as well as digital, mobile and social
media initiatives, in order to increase consumer preference for our brands and usage of our products. We sponsor a variety of
sporting, entertainment and charity-related marketing properties to align with consumer segments important to us and our
10
customers. Our advertising plays an important role in building brand visibility, usage and overall preference among cardholders
globally. Our "Priceless®" advertising campaign, which has run in 53 languages in 112 countries worldwide, promotes MasterCard
usage benefits and acceptance, markets MasterCard payment products and solutions and provides MasterCard with a consistent,
recognizable message that supports our brand around the globe. We have extended Priceless to create experiences through
three platforms to drive brand preference - Priceless Cities® provides cardholders across all of our regions with access to special
experiences and offers in various cities, Priceless Causes® provides cardholders with opportunities to support philanthropic
causes, and Priceless SurprisesⓇ provides cardholders with unexpected and unique surprises.
Our Revenue Sources
We generate revenues by assessing our customers primarily based on GDV on the cards and other devices that carry our brands
and from the fees we charge to our customers for providing transaction processing and other payment-related products and
services. Our net revenues are classified into five categories: domestic assessment fees, cross-border volume fees, transaction
processing fees, other revenues and rebates and incentives (contra-revenue).
See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Revenues" in Part II, Item 7 for
more detail about our revenue, GDV and processed transactions.
Intellectual Property
Competition
We compete in the global payments industry against all forms of payment including:
•
cash and checks;
•
card-based payments, including credit, charge, debit, ATM and prepaid products, as well as limited-use products such
as private label;
•
contactless, mobile and e-commerce payments, as well as cryptocurrency; and
•
other electronic payments, including wire transfers, electronic benefits transfers, bill payments and automated clearing
house payments (ACH).
We face a number of competitors both within and outside the global payments industry:
We own a number of valuable trademarks that are essential to our business, including MasterCard, Maestro and Cirrus, through
one or more affiliates. We also own numerous other trademarks covering various brands, programs and services offered by
MasterCard to support our payment programs. Trademark and service mark registrations are generally valid indefinitely as long
as they are used and/or properly maintained. Through license agreements with our customers, we authorize the use of our
trademarks in connection with our customers' issuing and merchant acquiring businesses. In addition, we own a number of
patents and patent applications relating to payments solutions, transaction processing, smart cards, contactless, mobile,
electronic commerce, security systems and other matters, many of which are important to our business operations. Patents are
of varying duration depending on the jurisdiction and filing date.
Value-Added Solutions
fraud detection and management products and services.
services assisting customers, merchants and third-party service providers in protecting against attacks and subsequent
account data compromises; and
1 Excludes Maestro and Cirrus cards and volume generated by those cards.
•
783
Consumer Credit and Charge. We offer a number of programs that enable issuers to provide consumers with cards that allow
them to defer payment. These programs are designed to meet the needs of our customers around the world and address standard,
premium and affluent consumer segments.
Debit. We support a range of payment products and solutions that allow our customers to provide consumers with convenient
access to funds in deposit and other accounts. Our debit and deposit access programs can be used to make purchases and to
obtain cash in bank branches, at ATMs and, in some cases, at the point of sale. Our branded debit programs consist of MasterCard
(including standard, premium and affluent offerings), Maestro (the only PIN-based solution that operates globally) and Cirrus
(our primary global cash access solution).
Prepaid. Prepaid programs involve a balance that is funded prior to use and can be accessed via a card or other payment device.
We offer prepaid payment programs using any of our brands, which we support with processing products and services. Segments
on which we focus include government programs such as Social Security payments, unemployment benefits and others;
commercial programs such as payroll, health savings accounts, employee benefits and others; and consumer reloadable programs
for individuals without formal banking relationships and non-traditional users of electronic payments.
We also provide prepaid program management services, primarily outside of the United States, that manage and enable switching
and issuer processing for consumer and commercial prepaid travel cards for business partners such as financial institutions,
retailers, telecommunications companies, travel agents, foreign exchange bureaus, colleges and universities, airlines and
governments.
Commercial. We offer commercial payment products and solutions that help large corporations, mid-sized companies, small
businesses and government entities streamline their procurement and payment processes, manage information and expenses
(such as travel and entertainment) and reduce administrative costs. Our offerings and platforms include premium, travel,
purchasing and fleet cards and programs; our SmartData tool that provides information reporting and expense management
capabilities; and credit and debit programs targeted for small businesses.
Payment Innovations. The continued adoption of mobile devices has resulted in the ongoing convergence of the physical and
digital worlds, where consumers are increasingly seeking to use their payment accounts to pay when, where and how they want.
Leveraging our global innovations capability, we are developing platforms, products and solutions that take advantage of this
convergence and give us the opportunity to lead the transition to digital payments. We do this in a number of ways, including:
19%
We have been leading the development of industry standards, working with many payments industry associations to ensure that
payment security standards are put in place as part of our multi-layered approach to protect the global payments system. These
efforts include evolving a roadmap for the migration to EMV and developing an industry-open standard for tokenization, which
helps protect sensitive cardholder information for digital transactions by generating unique credentials to an identified and
verified individual that may be used for a specific transaction. As of December 31, 2015, nearly 50% of all U.S.-issued MasterCard
consumer credit and debit cards featured EMV technology and many merchants are turning on the chip capabilities in their
terminals.
•
Creating Better Shopping and Selling Experiences. We are focused on offering digital solutions, such as our MasterPass
digital payments ecosystem and MasterCard Digital Enablement Service (MDES) suite, and other products to make
shopping and selling experiences simpler, faster and safer for both consumers and merchants. We also offer products
that make it easier for merchants to accept payments and expand their customer base and are developing products and
practices to facilitate acceptance via mobile devices.
Engaging with New Partners. We enable consumers to securely use their smartphones to make digital payments
through numerous active partnerships with mobile leaders and large digital companies around the world. Through our
Open API Services, developers can innovate and create applications using financial and data services offered through
the MasterCard Developer Zone.
9
Facilitating Money Transfers and Personal Payments. We provide money transfer and global remittance solutions to
enable our customers to facilitate consumers sending and receiving money quickly and securely domestically and around
the world. We continue to enhance our personal payments platforms, providing financial institutions connected to our
network with additional opportunities for their customers to send funds domestically and globally.
We also focus on developing the future of payments and delivering additional consumer shopping safety and convenience through
MasterCard Labs, our global innovation and development arm. Our efforts include incubating various ideas and hosting thought-
leadership events to spur the next generation of innovative payment products.
Safety and Security
We offer products and services to prevent, detect and respond to fraud and to ensure the safety of transactions made on
MasterCard products. We work with issuers, merchants and governments to help develop standards for safe and secure
transactions for the global payments system. We have worked with our financial institution customers to provide products to
consumers globally with increased confidence through the benefit of "zero liability”, or no responsibility for counterfeit or lost
card losses in the event of fraud.
Our products and solutions include:
• internet authentication/verification solutions that leverage biometrics;
•
.
•
Additional Information
General Purpose Payment Networks. We compete worldwide with payment networks such as Visa, American Express
and Discover, among others. Among global networks, Visa has significantly greater volume than we do. Outside of the
United States, networks such as JCB in Japan and UnionPay in China have leading positions in their domestic markets.
In the case of UnionPay, it operates the sole domestic payment switch in China. In addition, several governments are
promoting, or considering promoting, local networks for domestic processing. See our risk factors related to payments
system regulation and government actions that may prevent us from competing effectively for a more detailed
discussion.
12
Government Regulation
General. Government regulation impacts key aspects of our business. We are subject to regulations that affect the payments
industry in the many countries in which our cards and payment devices are used. See "Risk Factors" in Part I, Item 1A for more
detail and examples.
Interchange Fees. Interchange fees associated with four-party payments systems like ours are being reviewed or challenged in
various jurisdictions around the world via legislation to regulate interchange fees, competition-related regulatory proceedings,
central bank regulation and litigation. For more detail, see our risk factors in “Risk Factors-Payments System Legal and Regulatory
Challenges" in Part I, Item 1A. Also see Note 18 (Legal and Regulatory Proceedings) to the consolidated financial statements
included in Part II, Item 8.
Payments System Regulation. Regulators in several countries around the world either have, or are seeking to establish, authority
to regulate certain aspects of the payments systems in their countries. Such authority could result in regulation of various aspects
of our business. Additionally, we are or may be subject to regulations related to our role in the financial industry and our
relationship with our financial institution customers. For example, certain of our operations are periodically reviewed by the
U.S. Federal Financial Institutions Examination Council under its authority to examine financial institutions' technology service
providers.
Preferential or Protective Government Actions. Some governments have taken actions to provide resources, preferential
treatment or other protection to selected domestic payments and processing providers, as well as create their own national
providers.
No-Surcharge Rules. We have historically implemented policies in certain regions that prohibit merchants from charging higher
prices to consumers who pay using MasterCard products instead of other means. Authorities in several jurisdictions have acted
to end or limit the application of these no-surcharge rules (or indicated interest in doing so), including in Australia and Canada.
Additionally, pursuant to the terms of settlement of the U.S. merchant class litigation, we have modified our no-surcharge rules
to permit U.S. merchants to surcharge credit cards, subject to certain limitations.
Data Protection and Information Security. Aspects of our operations or business are subject to privacy and data protection laws
in the United States, the European Union and elsewhere. For example, in the United States, we and our customers are respectively
subject to Federal Trade Commission and federal banking agency information safeguarding requirements under the Gramm-
Leach-Bliley Act that require the maintenance of a written, comprehensive information security program. Due to constant changes
to the nature of data, regulatory authorities around the world are considering numerous legislative and regulatory proposals
concerning privacy and data protection. In addition, the interpretation and application of these privacy and data protection laws
in the United States, Europe and elsewhere are often uncertain and in a state of flux. This includes the recent ruling by the
European Court of Justice that invalidated the EU-U.S. Safe Harbor treaty and the newly announced EU-U.S. Privacy Shield.
Anti-Money Laundering. MasterCard is subject to anti-money laundering ("AML") laws and regulations, including the USA
PATRIOT Act. We have implemented a comprehensive AML program designed to prevent our payment network from being used
to facilitate money laundering and other illicit activity. Our AML compliance program is comprised of policies, procedures and
internal controls, including the designation of a compliance officer, and is designed to address these legal and regulatory
requirements and assist in managing money laundering and terrorist financing risks.
Economic Sanctions. We are subject to regulations imposed by the U.S. Office of Foreign Assets Control ("OFAC") restricting
financial transactions and other dealings with Crimea, Cuba, Iran, North Korea, Syria and Sudan and with persons and entities
included in OFAC's list of Specially Designated Nationals and Blocked Persons (the “SDN List”). Iran, Syria and Sudan have been
identified by the U.S. State Department as terrorist-sponsoring states. We have no offices, subsidiaries or affiliated entities
located in these countries or in the Crimea region and do not license financial institutions domiciled there. We have established
a risk-based compliance program that includes policies, procedures and controls that are designed to prevent us from having
business dealings with prohibited countries, regions, individuals or entities. This includes obligating issuers and acquirers to
screen cardholders and merchants, respectively, against the SDN list.
Consumer Financial Protection Bureau. The Consumer Financial Protection Bureau has significant authority to regulate consumer
financial products in the United States, including consumer credit, deposit, payment and similar products.
our ability to serve a broad array of participants in global payments due to our expanded on-soil presence in individual
markets and a heightened focus on working with governments.
13
Issuer Practice Regulation. Our customers are subject to numerous regulations and investigations applicable to banks and other
financial institutions in their capacity as issuers and otherwise, impacting MasterCard as a consequence. Such regulations and
investigations have been related to campus cards, bank overdraft practices, fees issuers charge to cardholders and transparency
of terms and conditions.
Regulation of Internet and Digital Transactions. Various jurisdictions have enacted or have proposed regulation related to
internet transactions. For example, under the Unlawful Internet Gambling Enforcement Act in the United States, payment
transactions must be coded and blocked for certain types of Internet gambling transactions. The legislation applies to payments
system participants, including MasterCard and our U.S. customers, and is implemented through a federal regulation. We may
also be impacted by evolving laws surrounding gambling, including fantasy sports. Jurisdictions are also considering regulatory
initiatives in digital-related areas that could impact us, such as cyber-security, copyright and trademark infringement and privacy.
Additional Regulatory Developments. Various regulatory agencies also continue to examine a wide variety of issues that could
impact us, including evolving laws surrounding marijuana, prepaid payroll cards, virtual currencies, payment card add-on products,
identity theft, account management guidelines, privacy, disclosure rules, security and marketing that would impact our customers
directly.
Seasonality
See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Seasonality" in Part II, Item 7.
Financial Information About Geographic Areas
See Note 21 (Segment Reporting) to the consolidated financial statements included in Part II, Item 8 for certain geographic
financial information.
Employees
As of December 31, 2015, we employed approximately 11,300 persons, of which approximately 6,200 were employed outside
of the United States.
MasterCard Incorporated was incorporated as a Delaware corporation in May 2001. We conduct our business principally through
MasterCard Incorporated's principal operating subsidiary, MasterCard International Incorporated ("MasterCard International"),
a Delaware non-stock (or membership) corporation that was formed in November 1966. For more information about our capital
structure, including our Class A common stock (our voting stock) and Class B common stock (our non-voting stock), see Note 13
(Stockholders' Equity) to the consolidated financial statements included in Part II, Item 8.
46%
Website and SEC Reports
Central Bank Oversight. Several central banks or similar regulatory bodies around the world that have increased, or are seeking
to increase, their formal oversight of the electronic payments industry are in some cases considering designating them as
"systemically important payment systems” or “critical infrastructure." This includes the Financial Stability Oversight Council
("FSOC") in the United States. Such systems will be subject to new regulation, supervision and examination requirements. To
date, MasterCard has not been designated "systemically important."
Cash and Check. Cash and check continue to represent the most widely used forms of payment, constituting
approximately 85% of the world's retail payment transactions.
•
•
11
•
•
•
•
•
Debit. We compete with ATM and point-of-sale debit networks in various countries, such as Interlink®, Plus® and Visa
ElectronⓇ (owned by Visa Inc.), Star® (owned by First Data Corporation), NYCE® (owned by FIS) and Pulse® (owned by
Discover) in the United States; Interac in Canada; EFTPOS in Australia; and Bankserv in South Africa. In addition, in
many countries outside of the United States, local debit brands serve as the main domestic brands, while our brands
are used mostly to enable cross-border transactions, which typically represent a small portion of overall transaction
volume. Jurisdictions have also created domestic card schemes that are focused mostly on debit and driven by
nationalism (including RuPay in India and MIR in Russia).
Three-Party Payments Networks. Our competitors include operators of proprietary three-party payments networks,
such as American Express and Discover, which have direct acquiring relationships with merchants and direct issuing
relationships with account holders. These competitors have certain competitive advantages over four-party payments
systems such as ours. Among other things, these networks do not require formal interchange fees to balance payment
system costs between the issuing and acquiring sides of their business, even though they have the ability to internally
transfer costs in a manner similar to interchange fees. As a result, to date, operators of three-party payments networks
have avoided some of the regulatory and litigation challenges we face.
Competition for Customer Business. We compete intensely with other payments networks for customer business.
Globally, financial institutions typically issue both MasterCard and Visa-branded payment products, and we compete
with Visa for business on the basis of individual portfolios or programs. In addition, a number of our customers issue
American Express and/or Discover-branded payment cards in a manner consistent with a four-party system. We
continue to face intense competitive pressure on the prices we charge our issuers and acquirers, and we seek to enter
into business agreements with them through which we offer incentives and other support to issue and promote our
payment products. We also compete for non-financial institution partners, such as merchants, governments and
telecommunication companies.
Third-Party Processors. We face competition and potential displacement from transaction processors throughout the
world, such as First Data Corporation and Total System Services, Inc., which are seeking to enhance their networks that
link issuers directly with point-of-sale devices for payment transaction authorization and processing services.
our MasterCard Advisors group dedicated solely to the payments industry; and
Alternative Payments Systems and New Entrants. As the global payments industry becomes more complex, we may
face increasing competition from emerging payment providers. Many of these providers have developed payments
systems focused on online activity in e-commerce and mobile channels; however, they either have or may expand to
other channels. These competitors include digital wallet providers (such as PayPal, Alipay and Amazon), mobile operator
services, mobile phone-based money transfer and microfinancing services (such as mPesa), handset manufacturers
and cryptocurrencies. We compete with these providers in some circumstances, but in some cases they may also be
our customers or partner with us.
Our competitive advantages include:
• our globally recognized brands;
•
our highly adaptable network that we believe is the world's fastest;
•
our adoption of innovative products and digital solutions;
•
our MasterPass global digital payments ecosystem;
•
the safety and security solutions embedded in our network;
Value-Added Solutions. We face competition from companies that provide alternatives to our value-added solutions,
including information services and consulting firms that provide consulting services and insights to financial institutions,
as well as companies that compete against us as providers of loyalty and program management solutions.
2,112
•
8%
Capital Structure. In 2015, we completed several key capital structure efforts as part of our capital planning, including entering
into a $3.75 billion credit facility (replacing our previous facility), launching a commercial paper program and completing a euro-
denominated bond issuance of 1.65 billion euros.
See Part I, Item 1A for a more detailed discussion of our legal and regulatory developments and risks.
Our Business
Our Operations and Network
We operate the MasterCard Network, our unique and proprietary global payments network that links issuers and acquirers
around the globe to facilitate the processing of transactions, permitting MasterCard cardholders to use their cards and other
payment devices at millions of merchants worldwide. Our network facilitates an efficient and secure means for merchants to
receive payments, as well as convenient, quick and secure payment method for consumers and businesses that is accepted
worldwide. We process transactions through our network for our issuer customers in more than 150 currencies in more than
210 countries and territories.
6
Typical Transaction. With a typical transaction involving four participants in addition to us, our network supports what is often
referred to as a "four-party" payments network. The following diagram depicts a typical transaction on our network, and our
role in that transaction:
MasterCard
IIII
Acquirer
Network Processor
Switching
Authorization
Clearing
Settlement
Safety & Security
Fraud Detection Risk Management Customer Monitoring
Value-Added Products and Services
Loyalty and Rewards
Cardholder Benefits
灿
MasterCard Advisors
• Data Privacy - In 2015, the European Court of Justice invalidated the EU-U.S. Safe Harbor treaty that had permitted
the transfer of personal data between the European Union and the United States. We have adopted an alternative
method of data transfer compliance as a result of this ruling. The situation has not yet been fully resolved and we
continue to monitor any other potential requirements that may result, up to and including the need to establish a data
processing center in Europe.
China - In 2015, People's Bank of China shared preliminary regulations related to international networks' ability to
process domestic payments in China. The regulations, which could require a capital commitment and on-soil provisions
for switching, data processing and acceptance, are expected to be finalized in 2016. While we await the final regulations,
we continue to execute against our plans to have the infrastructure and technology ready in China to switch domestic
Chinese transactions by the end of 2016. In the meantime, we are working to expand issuance and acceptance in the
market.
Russia - Effective in 2015, the Russian government amended its National Payments Systems laws to require all payment
systems to process domestic transactions through a government-owned payment switch. As a result, all MasterCard
domestic transactions in Russia are now processed by that system instead of MasterCard.
5
The Company's internet address is www.mastercard.com. From time to time, we may use our website as a channel of distribution
of material company information. Financial and other material information is routinely posted and accessible on the investor
relations section of our corporate website. In addition, you may automatically receive e-mail alerts and other information about
MasterCard by enrolling your e-mail address by visiting "E-Mail Alerts" in the investor relations section of our corporate website.
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports
are available, without charge, for review on the investor relations section of our corporate website as soon as reasonably
practicable after they are filed with, or furnished to, the U.S. Securities and Exchange Commission. The information contained
on our website is not incorporated by reference into this Report.
•
•
In 2015, we expanded the availability of MasterPass™, our global digital payments ecosystem. It provides an easy and
secure way to shop by storing payment information in one convenient and secure place and enabling consumers to
access that information to make a payment with a simple click or touch.
We are using our digital technologies and security protocols to develop solutions to make shopping and selling
experiences on mobile devices (such as smartphones) simpler, faster and safer for both consumers and merchants. In
2015, we continued to enhance the suite of digital token services we offer through our MasterCard Digital Enablement
Service (MDES). We also launched the MDES Express program, a commercial framework that provides financial
institutions and digital participants (including large digital companies, merchants and other companies) the ability to
quickly scale digital payment offerings to consumers, allowing connected devices to be used as a safe and secure way
to pay for everyday shopping.
In 2015, we launched MasterCard Send™, a service that facilitates the delivery of funds via financial
institutions from business to consumer and from consumers to consumers quickly and securely.
Safety and Security. Our focus on security is embedded in our products, our systems and our network, as well as our analytics
to prevent fraud:
•
•
We continue to lead the migration to EMVⓇ, the global standard for chip technology, to bring its fraud prevention
benefits to our U.S. customers, consumers and merchants. In October 2015, we implemented a new liability hierarchy,
making the issuer or merchant with the lowest level of security responsible for the financial impact of any fraudulent
transactions they are involved with processing.
Digital Payments
In 2015, we worked with customers to extend to consumers globally the benefit of "zero liability”, or no responsibility
for counterfeit or lost card losses, in the event of fraud.
Financial Inclusion. We are focused on addressing financial inclusion, reaching people without access to an electronic account
that allows them to store and use money. In 2015, we worked with governments across several geographies to develop and roll
out electronic payments solutions and social payment distribution mechanisms.
Acquisitions and Investments. In 2015, we acquired two new businesses focused on expanding our footprint and enhancing
critical capabilities, including in the area of data analytics with the acquisition of Applied Predictive Technologies.
Legal and Regulatory. We operate in a dynamic and rapidly evolving legal and regulatory environment, with heightened regulatory
and legislative scrutiny and other legal challenges, particularly with respect to interchange fees (as discussed below under "Our
Operations and Network"). Recent developments include:
•
European Union - In 2015, the European Commission issued a statement of objections related to our interchange fees
and central acquiring rules within the European Economic Area. The statement of objections preliminarily concludes
that these practices have anticompetitive effects, and the European Commission has indicated it intends to seek fines
if it confirms these conclusions. We would not expect the EC to impose fines if we agree to business practice changes
that address the EC's concerns. Also in 2015, the European Union adopted legislation regulating electronic payments
issued and acquired within the European Economic Area, including:
a cap on consumer credit and debit interchange fees of 30 basis points and 20 basis points, respectively (a
significant reduction in fees to financial institutions), with the ability of EU member states to impose more
restrictive domestic debit interchange levels;
restrictions on our "honor all cards" rule with respect to products with different levels of interchange;
a prohibition of surcharging by merchants for products that are subject to regulated interchange rates;
the prohibition of rules that prevent a consumer from requesting a "co-badged" card (that is, a credit or debit
card on which an issuer has put a competing brand); and
the separation of brand and processing in terms of accounting, organization and decision making.
In 2015, we launched MasterCard Identity Check™, a suite of technology solutions that leverage biometrics to help
authenticate a consumer's identity.
Debit and Prepaid.
Commercial Product Reporting
Merchant
Payment gateways that offer a single interface to provide e-commerce merchants with the ability to process secure
payments and offer value-added solutions, including outsourced electronic payments, fraud prevention and alternative
payment options.
Mobile gateways that facilitate transaction routing and prepaid processing for mobile-initiated transactions for our
customers.
8
00
Programs and Solutions
We provide a wide variety of products and solutions that support payment products that customers can offer to their cardholders.
These services facilitate transactions on the MasterCard Network among cardholders, merchants, financial institutions and
governments in markets globally. The following chart provides GDV and number of cards featuring our brands in 2015 for select
programs and solutions:
Year Ended December 31, 2015
GDV in billions
% of Total GDV
Cards in
millions
Issuer and acquirer solutions designed to provide medium to large customers with a complete processing solution to
help them create differentiated products and services and allow quick deployment of payments portfolios across
banking channels.
As of December 31, 2015
Percentage Increase
from December 31,
2014
Consumer Credit.
$
2,077
46%
739
4%
Commercial Credit.
374
8%
41
MasterCard Branded Programs
Acquirer and Issuer Processing
•
•
III
Issuer
Cardholder
In a typical transaction, a cardholder purchases goods or services from a merchant using a card or other payment device. After
the transaction is authorized by the issuer, the issuer pays the acquirer an amount equal to the value of the transaction, minus
the interchange fee (described below), and then posts the transaction to the cardholder's account. The acquirer pays the amount
of the purchase, net of a discount (referred to as the "merchant discount" rate, as further described below), to the merchant.
Interchange Fees. Interchange fees reflect the value merchants receive from accepting our products and play a key role in
balancing the costs consumers and merchants pay. We do not earn revenues from interchange fees. Generally, interchange fees
are collected from acquirers and paid to issuers to reimburse the issuers for a portion of the costs incurred by them in providing
services that benefit all participants in the system, including acquirers and merchants. We or financial institutions establish
"default interchange fees" that apply when there are no other established settlement terms in place between an issuer and an
acquirer. We administer the collection and remittance of interchange fees through the settlement process.
Additional Four-Party System Fees. The “merchant discount rate" is established by the acquirer to cover its costs of both
participating in the four-party system and providing services to merchants. The rate takes into consideration the amount of the
interchange fee which the acquirer generally pays to the issuer. Additionally, acquirers may charge merchants processing and
related fees in addition to the merchant discount rate, and issuers may also charge cardholders fees for the transaction, including,
for example, fees for extending revolving credit.
Our Network Architecture and Information Security. The MasterCard Network features a globally integrated structure that
provides scale for our issuers, enabling them to expand into regional and global markets. It features an intelligent architecture
that enables the network to adapt to the needs of each transaction by blending two distinct processing structures:
•
•
a distributed (peer-to-peer) processing structure for transactions that require fast, reliable processing to ensure they
are processed close to where the transaction occurred; and
a centralized (hub-and-spoke) processing structure for transactions that require value-added processing, such as real-
time access to transaction data for fraud scoring or rewards at the point-of-sale, to ensure advanced processing products
and services are applied to the transaction.
•
Our network's architecture enables us to connect all parties regardless of where or how the transaction is occurring. It has 24-
hour a day availability and world-class response time. The network incorporates multiple layers of protection, both for continuity
purposes and to address information security challenges. We engage in multiple efforts to mitigate such challenges, including
regularly testing our systems to address potential vulnerabilities.
Participation Standards. We establish, apply and enforce standards surrounding participation in the MasterCard payments
system. We grant licenses that provide issuers, acquirers and other customers that meet specified criteria with certain rights,
including access to the network and usage of cards and payment devices carrying our brands. As a condition of our licenses,
issuers, acquirers and other customers agree to comply with our standards surrounding participation and brand usage and
acceptance. We monitor areas of risk exposure and enforce our standards to combat fraudulent, illegal and brand-damaging
activity. Issuers, acquirers and other customers are also required to report instances of fraud to us in a timely manner so that
we can monitor trends and initiate action when appropriate.
Customer Risk Management. We guarantee the settlement of many of the transactions between our issuers and acquirers to
ensure the integrity of our network. We refer to this as our settlement exposure. We do not, however, guarantee payments to
merchants by their acquirer, or the availability of unspent prepaid cardholder account balances. As a guarantor of certain
obligations of principal customers, we are exposed to customer credit risk arising from the potential financial failure of any
principal customers of MasterCard, Maestro and Cirrus, and affiliate debit licensees. Principal customers participate directly in
MasterCard programs and are responsible for the settlement and other activities of their sponsored affiliate customers. To
minimize the contingent risk to MasterCard of a failure of a customer to meet its settlement obligations, we monitor the financial
health of, economic and political operating environments of, and compliance with our standards by our customers. We employ
various strategies to mitigate these risks.
Transaction Processing
Switching
•
•
Authorization, Clearing and Settlement. Through the MasterCard Network, we enable the routing of a transaction to
the issuer for its approval, facilitate the exchange of financial transaction information between issuers and acquirers
after a successfully conducted transaction, and help to settle the transaction by facilitating the exchange of funds
between parties via settlement banks chosen by us and our customers.
Cross-Border and Domestic. The MasterCard Network switches transactions throughout the world when the merchant
country and issuer country are different (cross-border transactions), providing cardholders with the ability to use, and
merchants to accept, MasterCard cards and other payment devices across country borders. We also provide domestic
(or intra-country) transaction switching services to customers in every region of the world, which allow issuers to
facilitate payment transactions between cardholders and merchants within a particular country. We switch
approximately half of all transactions using MasterCard and Maestro-branded cards, including most cross-border
transactions. We switch the majority of MasterCard and Maestro-branded domestic transactions in the United States,
United Kingdom, Canada, Brazil and a select number of other countries. Outside of these countries, most domestic
transactions on our products are switched without our involvement.
Other Processing. We extend our processing capabilities in the payments value chain in various regions and across the globe
with an expanded suite of offerings, including:
7
14
restrict credit lines to cardholders or limit the issuance of new cards to mitigate increasing cardholder defaults,
24
To date, we have not experienced any material impact relating to cyber-attacks or other information security breaches. However,
if one or more of these events occurs, it could lead to security breaches of the networks, systems or devices that our customers
use to access our products and services which could result in the unauthorized disclosure, release, gathering, monitoring, misuse,
loss or destruction of confidential, proprietary and other information (including account data information) or data security
compromises. Such events could also cause service interruptions, malfunctions or other failures in the physical infrastructure
or operations systems that support our businesses and customers (such as the lack of availability of our value-added systems),
as well as the operations of our customers or other third parties. Any actual attacks could lead to damage to our reputation with
our customers and other parties and the market, additional costs to MasterCard (such as repairing systems, adding new personnel
or protection technologies or compliance costs), regulatory penalties, financial losses to both us and our customers and partners
and the loss of customers and business opportunities. If such attacks are not detected immediately, their effect could be
compounded.
If we are not able to differentiate ourselves from our competitors, drive value for our customers and/or effectively align our
resources with our goals and objectives, we may not be able to compete effectively against these threats. Our competitors may
also more effectively introduce their own innovative programs and services that adversely impact our growth. We also compete
against new entrants that have developed alternative payments systems, e-commerce payments systems and payments systems
for mobile devices, as well as physical store locations. A number of these new entrants rely principally on the Internet to support
their services and may enjoy lower costs than we do, which could put us at a competitive disadvantage. Our failure to compete
effectively against any of the foregoing competitive threats could materially and adversely affect our overall business and results
of operations.
Disintermediation from stakeholders both within and outside of the payments value chain could harm our business.
As the payments industry continues to develop and change, we face disintermediation and related risks, including:
•
Parties that process our transactions in certain countries may try to eliminate our position as an intermediary in the
payment process. For example, merchants could process (and in some cases are processing) transactions directly with
issuers. Additionally, processors could process transactions directly between issuers and acquirers. Large scale
consolidation within processors could result in these processors developing bilateral agreements or in some cases
processing the entire transaction on their own network, thereby disintermediating us.
19
•
Large digital companies and other technology companies that leverage our technology, platforms and network to deliver
their products could develop platforms or networks that disintermediate us from digital payments and impact our ability
to compete as physical and digital payments converge.
Competitors, customers, large digital and other technology companies, governments and other industry participants
may develop products that compete with or replace value-added products and services we currently provide to support
our transaction switching and payment offerings. These products could replace our own processing and payments
offerings or could force us to change our pricing or practices for these offerings.
Participants in the payments industry may merge, create joint ventures or form other business combinations that may
strengthen their existing business services or create new payment services that compete with our services.
Our failure to compete effectively against any of the foregoing competitive threats could materially and adversely affect our
overall business and results of operations.
If we continue to attract more regulatory scrutiny than these competitors because we operate a four-party system, or we are
regulated because of the system we operate in a way in which our competitors are not, we could lose business to these competitors.
See "Business-Competition" in Part I, Item 1.
Continued intense pricing pressure may materially and adversely affect our business and results of operations.
In the future, we may not be able to enter into agreements with our customers on terms that we consider favorable, and we
may be required to modify existing agreements in order to maintain relationships and to compete with others in the industry.
Some of our competitors are larger and have greater financial resources than we do and accordingly may be able to charge lower
prices to our customers. In addition, to the extent that we offer discounts or incentives under such agreements, we will need
to further increase transaction volumes or the amount of services provided thereunder in order to benefit incrementally from
such agreements and to increase revenue and profit, and we may not be successful in doing so, particularly in the current
regulatory environment. Our customers also may implement cost reduction initiatives that reduce or eliminate payment product
marketing or increase requests for greater incentives or greater cost stability. These factors could have a material adverse impact
on our overall business and results of operations.
Technology
Rapid and significant technological developments and changes could negatively impact our results of operations or limit our
future growth.
The payments industry is subject to rapid and significant technological changes, which can impact our business in several ways:
•
•
•
Technological changes, including continuing developments of technologies in the areas of smart cards and devices,
contactless and mobile payments, e-commerce and cryptocurrency and block chain technology, could result in new
technologies that may be superior to, or render obsolete, the technologies we currently use in our programs and services.
Moreover, these changes could result in new and innovative payment methods and programs that could place us at a
competitive disadvantage and that could reduce the use of MasterCard products.
We rely in part on third parties, including some of our competitors and potential competitors, for the development of
and access to new technologies. The inability of these companies to keep pace with technological developments, or
the acquisition of these companies by competitors, could negatively impact MasterCard offerings.
Our ability to develop and adopt new services and technologies may be inhibited by industry-wide solutions and
standards (such as those related to EMV, tokenization or other safety and security technologies), and by resistance from
customers or merchants to such changes.
20
In order to increase transaction volumes, enter new markets and expand our MasterCard-branded cards and enabled payment
devices, we seek to enter into business agreements with customers through which we offer incentives, pricing discounts and
other support that promote our products. In order to stay competitive, we may have to increase the amount of these incentives
and pricing discounts. Over the past several years, we have experienced continued pricing pressure. The demand from our
customers for better pricing arrangements and greater rebates and incentives moderates our growth. We may not be able to
continue our expansion strategy to process additional transaction volumes or to provide additional services to our customers at
levels sufficient to compensate for such lower fees or increased costs in the future, which could materially and adversely affect
our overall business and results of operations. In addition, increased pressure on prices increases the importance of cost
containment and productivity initiatives in areas other than those relating to customer incentives. We may not succeed in these
efforts.
Even when competitors operate programs that utilize a four-party system, these competitors have generally not attracted
the same level of regulatory or legislative scrutiny of their pricing and business practices as have operators of four-party
payments systems such as ours.
Operators of three-party payments systems tend to have greater control over consumer and merchant customer service
than operators of four-party payments systems such as ours, in which we must typically rely on our issuing and acquiring
financial institution customers. Our inability to control end-to-end processing may put us at a competitive disadvantage
by limiting our ability to introduce value-added programs and services that are dependent upon us processing the
underlying transactions.
Certain of our competitors, including American Express, Discover, private-label card networks and certain alternative payments
systems, operate three-party payments systems with direct connections to both merchants and consumers. These competitors
may derive competitive advantages from their business models:
Regulation Related to Our Participation in the Payments Industry
Regulations affecting the global payments industry may materially and adversely affect our overall business and results of
operations.
We are subject to regulations that affect the payments industry in the many jurisdictions in which our cards and other devices
are used. In particular, many of our customers are subject to regulations applicable to banks and other financial institutions,
and, consequently, we are at times affected by such regulations. Regulation of the payments industry, including regulations
applicable to us and our customers, has increased significantly in the last several years. See "Business-Government Regulation"
in Part I, Item 1 for a detailed description of such regulation and related legislation. Examples include:
•
•
•
•
•
Anti-Money Laundering and Economic Sanctions - We are subject to AML laws and regulations, including the USA Patriot
Act in the United States, as well as the various economic sanctions programs administered by OFAC, including restrictions
on financial transactions with certain countries and with persons and entities included on OFAC sanctions lists (including
the SDN List). We have policies, procedures and controls designed to comply with applicable AML and OFAC sanctions
requirements. We take measures to prevent transactions that do not comply with OFAC sanctions, including obligating
our customers to screen cardholders and merchants against OFAC sanctions lists. However, despite these measures, it
is possible that such transactions may be processed through our payments system. Activity such as money laundering
or terrorist financing involving our cards could result in an enforcement action, and our reputation may suffer due to
our customer's association with those countries, persons or entities or the existence of any such transaction. Any
enforcement action or reputational damage could reduce the use and acceptance of our products and/or increase our
costs, and thereby have a material adverse impact on our business. In addition, geopolitical events and resulting OFAC
sanctions could lead jurisdictions affected by those sanctions to take actions in response that could adversely affect our
business. For example, in response to the global sanctions imposed as a result of the Ukraine conflict, the Russian
government amended its National Payments Systems laws requiring all payment systems to process domestic
transactions through a government-owned payment switch. There is a risk that in the future other jurisdictions (or their
sympathizers) may take similar or other actions in response to sanctions that could negatively impact us.
Consumer Financial Protection Bureau (“CFPB") - In the United States, the CFPB could regulate consumer financial
products, including amending existing requirements or imposing new ones. The CFPB also has supervisory and
independent examination authority as well as enforcement authority over certain financial institutions, their service
providers, and other entities, which could include us due to our processing of credit, debit and prepaid transactions. It
is not clear whether and/or to what extent the CFPB will regulate broader aspects of payment card networks.
Increased Central Bank Oversight - Several central banks or similar regulatory bodies around the world that have
increased, or are seeking to increase, their formal oversight of the electronic payments industry are in some cases
considering designating them as "systemically important payment systems” or “critical infrastructure." If MasterCard
were designated "systemically important" in a particular jurisdiction, it would be subject to new regulations relating to
its payment, clearing and settlement activities, which could address areas such as risk management policies and
procedures; collateral requirements; participant default policies and procedures; the ability to complete timely clearing
and settlement of financial transactions; and capital and financial resource requirements. Also, MasterCard could be
required to obtain prior approval for changes to its system rules, procedures or operations that could materially affect
the level of risk presented by that payments system.
Issuer Practice Legislation and Regulation - Our financial institution customers are subject to numerous regulations,
which impact us as a consequence. Existing or new regulations in these or other areas may diminish the attractiveness
of our products to our customers.
Increased regulatory focus on us, such as in connection with the matters discussed above, may result in costly compliance burdens
and/or may otherwise increase our costs. Similarly, increased regulatory focus on our customers may cause such customers to
reduce the volume of transactions processed through our systems. Finally, failure to comply with the laws and regulations
discussed above to which we are subject could result in fines, sanctions or other penalties. Each may individually or collectively
materially and adversely affect our financial performance and/or our overall business and results of operations, as well as have
an impact on our reputation.
18
Competition
Substantial and increasingly intense competition worldwide in the global payments industry may materially and adversely
affect our overall business and results of operations.
The global payments industry is highly competitive. Our payment programs compete against all forms of payment, including
cash and checks; electronic, mobile and e-commerce payment platforms; cryptocurrencies; ACH payment services; and other
payments networks, which can have several competitive impacts on our business:
•
•
•
•
Within the global general purpose payments industry, we face substantial and increasingly intense competition
worldwide from systems such as Visa, American Express, Discover, UnionPay, JCB and PayPal among others.
In certain jurisdictions, including the United States, Visa has greater volume, scale and market share than we do, which
may provide significant competitive advantages. Visa has also announced its purchase of Visa Europe, which will create
a global company that may provide Visa with additional competitive advantages.
Some of our traditional competitors, as well as alternative payment service providers, may have substantially greater
financial and other resources than we have, may offer a wider range of programs and services than we offer or may use
more effective advertising and marketing strategies to achieve broader brand recognition or merchant acceptance than
we have.
Our ability to compete may also be affected by the outcomes of litigation, competition-related regulatory proceedings,
central bank activity and legislative activity.
20
17
•
Our ability to develop evolving systems and products may be inhibited by any difficulty we may experience in attracting
and retaining technology experts.
•
Governmental entities typically fund projects through appropriated monies. Changes in governmental priorities or other
political developments, including disruptions in governmental operations, could impact approved funding and result in
changes in the scope, or lead to the termination of, the arrangements or contracts we or financial institutions enter into
with respect to our payment products and services.
23
Our work with governments subjects us to U.S. and international anti-corruption laws, including the U.S. Foreign Corrupt
Practices Act and the U.K. Bribery Act. A violation and subsequent judgment or settlement under these laws could
subject us to substantial monetary penalties and damages and have a significant reputational impact.
Working or contracting with governments, either directly or via our financial institution customers, can subject us to
heightened reputational risks, including extensive scrutiny and publicity, as well as a potential association with the
policies of a government as a result of a business arrangement with that government. Any negative publicity or negative
association with a government entity, regardless of its accuracy, may adversely affect our reputation.
Settlement and Third-Party Obligation Risk
Our role as guarantor exposes us to risk of loss or illiquidity.
As a guarantor of certain third-party obligations, including those of principal customers and affiliate debit licensees, we are
exposed to risk of loss or illiquidity:
•
We may incur obligations in connection with transaction settlements if an issuer or acquirer fails to fund its daily
settlement obligations due to technical problems, liquidity shortfalls, insolvency or other reasons.
If a principal customer or affiliate debit licensee of MasterCard is unable to fulfill its settlement obligations to other
customers, we may bear the loss.
As we increase our work with national, state and local governments, both indirectly through financial institutions and with them
directly as our customers, we may face various risks inherent in associating or contracting directly with governments. These risks
include, but are not limited to, the following:
Although we are not obligated to do so, we may elect to keep merchants whole if an acquirer defaults on its merchant
payment obligations, or to keep prepaid cardholders whole if an issuer defaults on its obligation to safeguard unspent
prepaid funds.
While we believe that we have sufficient liquidity to cover a settlement failure by our largest customer on its peak day (including
the availability of our revolving credit facility), are able to seek assignment of underlying receivables from a failed customer and
may charge customers for settlement incurred during MasterCard's ordinary course activities, the term and amount of our
guarantee of obligations to principal customers is unlimited. As a result:
•
•
Concurrent settlement failures of more than one of our larger customers or of several of our smaller customers either
on a given day or over a condensed period of time may exceed our available resources and could materially and adversely
affect our overall business and liquidity.
Even if we have sufficient liquidity to cover a settlement failure, we may not be able to recover the cost of such a payment
and may therefore be exposed to significant losses, which could materially and adversely affect our results of operations.
These conditions subject us to increased risk that we may have to perform under our settlement guarantees. For more information
on our settlement exposure and risk assessment and mitigation practices, see Note 19 (Settlement and Other Risk Management)
to the consolidated financial statements included in Part II, Item 8.
Separately, MasterCard also provides guarantees to certain customers and other companies indemnifying them from losses
stemming from our failure to perform with respect to our products and services or the failure of third parties to perform. Any
significant indemnification obligation which we owe to any such customers or other companies could materially and adversely
affect our overall business and results of operations.
Global Economic and Political Environment
Global financial market activity could result in a material and adverse impact on our overall business and results of operations.
Adverse economic trends (including distress in financial markets, turmoil in specific economies around the world and additional
government intervention) have impacted the environment in which we operate. The condition of the economic environment
may accelerate the timing of or increase the impact of risks to our financial performance. Such impact may include, but is not
limited to, the following:
•
Our customers may
Our gross settlement exposure for our brands was approximately $40 billion as of December 31, 2015.
Our work with governments exposes us to unique risks that could have a material impact on our business and results of
operations.
Merchants are also able to negotiate incentives from us and pricing concessions from our issuer and acquirer customers as a
condition to accepting our payment cards and devices. As merchants consolidate and become even larger, we may have to
increase the amount of incentives that we provide to certain merchants, which could materially and adversely affect our results
of operations. Competitive and regulatory pressures on pricing could make it difficult to offset the costs of these incentives.
Additionally, if the rate of merchant acceptance growth slows our business could suffer.
Merchants are an important constituency in our payments system. We rely on both our relationships with them, as well as their
relationships with our issuer and acquirer customers, to continue to expand the acceptance of our cards and payment devices.
We also work with merchants to help them enable new sales channels, create better purchase experiences, improve efficiencies,
increase revenues and fight fraud. In the retail industry, there is a set of larger merchants with increasingly global scope and
influence. We believe that these merchants are having a significant impact on all participants in the global payments industry,
including MasterCard. Some large merchants have supported the legal, regulatory and legislative challenges to interchange fees
that MasterCard has been defending, including the U.S. merchant litigations. See our risk factor in this Part I, Item 1A with respect
to payments industry regulation, including interchange fees. The continued focus of merchants on the costs of accepting various
forms of payment, including in connection with the growth of digital payments, may lead to additional litigation and regulatory
proceedings.
Our ability to adopt these technologies can also be inhibited by intellectual property rights of third parties. We have
received, and we may in the future receive, notices or inquiries from patent holders (for example, other operating
companies or non-practicing entities) suggesting that we may be infringing certain patents or that we need to license
the use of their patents to avoid infringement. Such notices may, among other things, threaten litigation against us or
our customers or demand significant license fees.
We work with large digital companies and other technology companies that use our technology to enhance payment
safety and security and to deliver their payment-related products and services quickly and efficiently to consumers. Our
inability to keep pace technologically could negatively impact the willingness of these customers to work with us, and
could encourage them to use their own technology and compete against us.
We cannot predict the effect of technological changes on our business, and our future success will depend, in part, on our ability
to anticipate, develop or adapt to technological changes and evolving industry standards. Failure to keep pace with these
technological developments or otherwise bring to market products that reflect these technologies could lead to a decline in the
use of our products, which could have a material adverse impact on our results of operations.
Information Security and Service Disruptions
Information security failures or breaches could disrupt our business, damage our reputation, increase our costs and cause
losses.
Information security risks for payments and technology companies such as MasterCard have significantly increased in recent
years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to
conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other
external parties. These threats may derive from fraud or malice on the part of our employees or third parties, or may result from
human error or accidental technological failure. These threats include cyber-attacks such as computer viruses, malicious code,
phishing attacks or information security breaches.
Our operations rely on the secure processing, transmission and storage of confidential, proprietary and other information in our
computer systems and networks. Our customers and other parties in the payments value chain, as well as our cardholders, rely
on our digital technologies, computer and email systems, software and networks to conduct their operations. In addition, to
access our products and services, our customers and cardholders increasingly use personal smartphones, tablet PCs and other
mobile devices that may be beyond our control. We routinely are subject to cyber-threats and our technologies, systems and
networks have been subject to cyber-attacks. Because of our position in the payments value chain, we believe that we are likely
to continue to be a target of such threats and attacks. Additionally, geopolitical events and resulting government activity could
also lead to information security threats and attacks by affected jurisdictions and their sympathizers.
We maintain an information security program, a business continuity program and insurance coverage (each reviewed by our
Board of Directors and its Audit Committee), and our processing systems incorporate multiple levels of protection, in order to
address or otherwise mitigate these risks. We also periodically test our systems to discover and address any potential
vulnerabilities. Despite these mitigation efforts, there can be no assurance that we will be immune to these risks and not suffer
losses in the future. Our risk and exposure to these matters remain heightened because of, among other things, the evolving
nature of these threats, the prominent size and scale of MasterCard and our role in the global payments and technology industries,
our plans to continue to implement our digital and mobile channel strategies and develop additional remote connectivity solutions
to serve our customers and cardholders when and how they want to be served, our global presence, our extensive use of third-
21
party vendors and future joint venture and merger and acquisition opportunities. As a result, information security and the
continued development and enhancement of our controls, processes and practices designed to protect our systems, computers,
software, data and networks from attack, damage or unauthorized access remain a priority for us. As cyber-threats continue to
evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures
or to investigate and remediate any information security vulnerabilities. Any of the risks described above could materially
adversely affect our overall business and results of operations.
Service disruptions that cause us to be unable to process transactions or service our customers could materially affect our
results of operations.
Our transaction processing systems and other offerings may experience interruptions as a result of a disaster, including, but not
limited to, technology malfunctions, fire, weather events, power outages, telecommunications disruptions, terrorism, workplace
violence, accidents or other catastrophic events. Our visibility in the global payments industry may also put us at greater risk of
attack by terrorists, activists, or hackers who intend to disrupt our facilities and/or systems. A disaster that occurs at, or in the
vicinity of, our primary and/or back-up facilities in any global location could interrupt our services. Although we maintain a
business continuity program to analyze risk, assess potential impacts, and develop effective response strategies, we cannot ensure
that our business would be immune to these risks.
Additionally, we rely on third-party service providers for the timely transmission of information across our global data network.
Inadequate infrastructure in lesser-developed markets could also result in service disruptions, which could impact our ability to
do business in those markets. If one of our service providers fails to provide the communications capacity or services we require,
as a result of natural disaster, operational disruptions, terrorism, hacking or any other reason, the failure could interrupt our
services. Because of the intrinsic importance of our processing systems to our business, any interruption or degradation could
adversely affect the perception of the reliability of products carrying our brands and materially reduce our results of operations.
Customers
Losing a significant portion of business from one or more of our largest customers could lead to significant revenue decreases
in the longer term, which could have a material adverse impact on our business and our results of operations.
Most of our customer relationships are not exclusive and may be terminated by our customers. Our customers can reassess
their commitments to us at any time in the future and/or develop their own competitive services. Accordingly, our business
agreements with these customers may not reduce the risk inherent in our business that customers may terminate their
relationships with us in favor of relationships with our competitors, or for other reasons, or might not meet their contractual
obligations to us.
In addition, a significant portion of our revenue is concentrated among our five largest customers. Loss of business from any of
our large customers could have a material adverse impact on our overall business and results of operations.
Exclusive/near exclusive relationships certain customers have with our competitors may have a material adverse impact on
our business.
Certain customers have exclusive, or nearly-exclusive, relationships with our competitors to issue payment products, and these
relationships may make it difficult or cost-prohibitive for us to do significant amounts of business with them to increase our
revenues. In addition, these customers may be more successful and may grow faster than the customers that primarily issue
our cards, which could put us at a competitive disadvantage. Furthermore, we earn substantial revenue from customers with
nearly-exclusive relationships with our competitors. Such relationships could provide advantages to the customers to shift
business from us to the competitors with which they are principally aligned. A significant loss of our existing revenue or transaction
volumes from these customers could have a material adverse impact on our business.
Consolidation in the banking industry could materially and adversely affect our overall business and results of operations.
The banking industry has undergone substantial, accelerated consolidation in the past. Consolidations have included customers
with a substantial MasterCard portfolio being acquired by institutions with a strong relationship with a competitor. If significant
consolidation among customers were to continue, it could result in the substantial loss of business for us, which could have a
material adverse impact on our business and prospects. In addition, one or more of our customers could seek to merge with,
or acquire, one of our competitors, and any such transaction could also have a material adverse impact on our overall business.
Consolidation could also produce a smaller number of large customers, which could increase their bargaining power and lead to
lower prices and/or more favorable terms for our customers. These developments could materially and adversely affect our
results of operations.
22
Stakeholders
Our failure to maintain our relationships with issuers and acquirers may materially and adversely affect our business.
While we work directly with many stakeholders in the payments system, including merchants, governments and large digital
companies and other technology companies, we are, and will continue to be, significantly dependent on our relationships with
our issuers and acquirers and their further relationships with cardholders and merchants to support our programs and services.
We do not issue cards or other payment devices, extend credit to cardholders or determine the interest rates or other fees
charged to cardholders using our products. Each issuer determines these and most other competitive payment program features.
In addition, we do not establish the discount rate that merchants are charged for acceptance, which is the responsibility of our
acquiring customers. As a result, our business significantly depends on the continued success and competitiveness of our issuing
and acquiring customers and the strength of our relationships with them. In turn, our customers' success depends on a variety
of factors over which we have little or no influence. If our customers become financially unstable, we may lose revenue or we
may be exposed to settlement risk. See our risk factor in "Risk Factors - Settlement Risk” in this Part I, Item 1A with respect to
how we guarantee certain third-party obligations for further discussion.
With the exception of the United States and a select number of other jurisdictions, most in-country (as opposed to cross-border)
transactions conducted using MasterCard, Maestro and Cirrus cards are authorized, cleared and settled by our customers or
other processors. Because we do not provide domestic processing services in these countries and do not, as described above,
have direct relationships with cardholders, we depend on our close working relationships with our customers to effectively
manage our brands, and the perception of our payments system, among consumers in these countries. We also rely on these
customers to help manage our brands and perception among regulators and merchants in these countries, alongside our own
relationships with them. From time to time, our customers may take actions that we do not believe to be in the best interests
of our payments system overall, which may materially and adversely impact our business. If our customers' actions cause
significant negative perception of the global payments industry or our brands, cardholders may reduce the usage of our programs,
which could reduce our revenues and negatively impact our results of operations.
Merchants' continued focus on acceptance costs may lead to additional litigation and regulatory proceedings and increase
our incentive program costs, which could materially and adversely affect our profitability.
•
New requirements in these areas, either from new regulations or laws or any additions or changes (as well as the manner in
which they could be interpreted or applied) may also increase our costs and could impact aspects of our business such as fraud
monitoring, the development of information-based products and solutions and technology operations. In addition, these
requirements may increase the costs to our customers of issuing payment products, which may, in turn, decrease the number
of our cards and other payment devices that they issue. Moreover, due to recent account data compromise events at large, U.S.-
based retailers, as well as the disclosure of the monitoring activities by certain governmental agencies, there has been heightened
legislative and regulatory scrutiny around the world that could lead to further regulation and requirements. Any of these
developments could materially and adversely affect our overall business and results of operations.
Regulation of Internet and Digital Transactions - Proposed legislation in various jurisdictions relating to Internet
gambling and other digital areas such as cyber-security, copyright, trademark infringement and privacy could impose
additional compliance burdens on us and/or our customers, including requiring us or our customers to monitor, filter,
restrict, or otherwise oversee various categories of payment card transactions.
Privacy, Data Protection and Security
Examples of activity related to interchange fees and payments systems include:
More broadly, regulators in several jurisdictions increasingly have been leveraging, or seeking to establish, the authority to
regulate certain aspects of payments systems such as ours. These regulations have, and could further result in, obligations or
restrictions with respect to not only interchange fees but also the types of products that we may offer to consumers, the countries
in which our cards and other payment devices may be used, the way we structure and operate our business and the types of
cardholders and merchants who can obtain or accept our cards. These obligations and restrictions could be further increased
as more jurisdictions impose oversight of payment systems.
Interchange fees are generally the largest component of the costs that acquirers charge merchants in connection with the
acceptance of payment cards. Although we do not earn revenues from interchange fees, they are a factor on which we compete
with other payment providers and therefore an important determinant of the volume of transactions we see on our cards. We
have historically set default interchange fees in the United States and certain other countries. In some jurisdictions, however,
interchange fees and related practices are subject to regulatory activity and litigation that have limited our ability to establish
default rates. Regulators and legislative bodies in a number of countries, as well as merchants, are seeking to reduce these fees
through legislation, competition-related regulatory proceedings, central bank regulation and/or litigation.
Global legal, regulatory and legislative focus on the payments industry may have a material adverse impact on our overall
business and results of operations
Payments Systems Legal and Regulatory Challenges
Settlement and Third-Party Obligation
Risk
Customer and Stakeholder
Relationships
Regulation Related to our Participation
in the Payments Industry
Information Security and Service
Disruptions
Preferential or Protective Government
Actions
Competition and Technology
Payments Systems Challenges
Business
Legal and
Regulatory
Risk Highlights
ITEM 1A. RISK FACTORS
Regulation of privacy, data protection and security could increase our costs, as well as negatively impact our growth.
We are subject to regulations related to privacy, data protection and information security in the jurisdictions in which we do
business. These regulations could result in negative impacts to our business. As we continue to develop products and services
to meet the needs of a changing marketplace, we may expand our information profile through the collection of additional data
across multiple channels. This expansion could amplify the impact of these regulations on our business. Regulation of privacy
and data protection and information security may require changes to our data practices in regard to the collection, use, disclosure
or security of personal and sensitive information. In addition, due to the European Court of Justice's recent invalidation of the
Safe Harbor treaty, we may be subject to enhanced compliance and operational requirements in the European Union. Failure
to comply with these laws, regulations and requirements could result in fines, sanctions or other penalties, which could materially
and adversely affect our results of operations and overall business, as well as have an impact on our reputation.
•
The European Union adopted legislation in 2015 regulating electronic payments issued and acquired within the European
Economic Area, including caps on consumer credit and debit interchange fees and the separation of brand and processing.
See "Business-Recent Business and Legal/Regulatory Developments” in Part I, Item 1 for more details.
Privacy, Data Protection and Security
The European Commission issued a Statement of Objections in July 2015 related to our interregional interchange fees
and central acquiring rules within the European Economic Area.
Such developments would prevent, and in Russia have prevented, us from utilizing our global processing capabilities for domestic
or regional customers. Our efforts to effect change in, or work with, these countries may not succeed. This could adversely
affect our ability to maintain or increase our revenues and extend our global brand.
15
Regional groups of countries, such as the Gulf Cooperation Countries in the Middle East and a number of countries in
South East Asia, are considering, or may consider, efforts to restrict our participation in the processing of regional
transactions.
Governments in some countries are considering, or may consider, regulatory requirements that mandate processing of
domestic payments either entirely in that country or by only domestic companies. In particular, Russia has amended
its National Payments Systems laws to require all payment systems to process domestic transactions through a
government-owned payment switch. As a result, all MasterCard domestic transactions in Russia are now processed by
that system instead of by MasterCard.
Governments in some countries, such as China, Russia and India, have acted, or in the future may act, to provide resources,
preferential treatment or other protection to selected national payment and processing providers, or have created, or may in
the future create, their own national provider. This action may displace us from, prevent us from entering into, or substantially
restrict us from participating in, particular geographies, and may prevent us from competing effectively against those providers.
For example:
Preferential and protective government actions related to domestic payment services could adversely affect our ability to
maintain or increase our revenues.
As a result, the risks created by any one new law or regulation are magnified by the potential they have to be replicated in other
jurisdictions or involving other products, affecting our business. These include matters like interchange rates, network standards
and network exclusivity and routing agreements. Conversely, if widely varying regulations come into existence worldwide, we
may have difficulty adjusting our products, services, fees and other important aspects of our business, with the same effect.
Either of these outcomes could materially and adversely affect our overall business and results of operations.
16
Regulators around the world increasingly look at each other's approaches to the regulation of the payments and other industries.
In some areas, such as interchange fees, we believe that regulators are increasingly cooperating on their approaches.
Consequently, a development in any one country, state or region may influence regulatory approaches in other countries, states
or regions. For example, a decision in Europe related to interchange fees could increase the possibility of additional competition
authorities in European member states opening interchange fee proceedings. Similarly, new laws and regulations in a country,
state or region involving one product may cause lawmakers there to extend the regulations to another product. For example,
regulations affecting debit transactions could lead to regulation of other products (such as credit).
Preferential or Protective Government Actions
Current regulatory activity could be extended to additional jurisdictions or products, which could materially and adversely
affect our overall business and results of operations.
Limitations on our ability to restrict merchant surcharging could materially and adversely impact our results of operations.
We have historically implemented policies, referred to as no-surcharge rules, in certain regions, including the United States, that
prohibit merchants from charging higher prices to consumers who pay using MasterCard products instead of other means.
Authorities in several jurisdictions have acted to end or limit the application of these no-surcharge rules (or indicated interest in
doing so). Additionally, pursuant to the terms of settlement of the U.S. merchant class litigation, we have modified our no-
surcharge rules to permit U.S. merchants to surcharge credit cards, subject to certain limitations. It is possible that over time
merchants in some or all merchant categories in these jurisdictions may choose to surcharge as permitted by the rule change.
This could result in consumers viewing our products less favorably and/or using alternative means of payment instead of electronic
products, which could result in a decrease in our overall transaction volumes, and which in turn could materially and adversely
impact our results of operations.
Additionally, increased focus by jurisdictions on regulating payment systems may result in costly compliance burdens and/or may
otherwise increase our costs, which could materially and adversely impact our financial performance. Moreover, failure to comply
with the laws and regulations discussed above to which we are subject could result in fines, sanctions or other penalties, which
could materially and adversely affect our overall business and results of operations, as well as have an impact on our reputation.
In order to successfully compete in such an environment, we and our customers would each need to adjust our strategies
accordingly.
If issuers cannot collect, or we are forced to reduce, interchange fees, issuers will be unable to use interchange fees to recoup a
portion of the costs incurred for their services. This could reduce the number of financial institutions willing to participate in
our four-party payments system, lower overall transaction volumes, and/or make proprietary three-party networks or other
forms of payment more attractive. Issuers could also choose to charge higher fees to consumers to attempt to recoup a portion
of the costs incurred for their services, thereby making our card programs less desirable to consumers and reducing our transaction
volumes and profitability. In addition, issuers could attempt to decrease the expense of their card and other payment programs
by seeking a reduction in the fees that we charge to them. This could also result in less innovation and fewer product offerings.
We are devoting substantial management and financial resources to the defense of interchange fees in regulatory proceedings,
litigation and legislative activity. The potential outcome of any legislative, regulatory or litigation action could have a more
positive or negative impact on MasterCard relative to its competitors. If we are ultimately unsuccessful in our defense of
interchange fees, any such legislation, regulation and/or litigation may have a material adverse impact on our overall business
and results of operations. In addition, regulatory proceedings and litigation could result in MasterCard being fined and/or having
to pay civil damages.
Additionally, merchants are seeking to reduce interchange fees and impact acceptance rules through litigation. Such litigation
includes individual and/or class action suits filed by merchants against MasterCard, Visa and our customers in the United States
and Canada, as well as claims filed by retailers against MasterCard in the United Kingdom and other European jusrisdictions. See
Note 18 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for more details
regarding litigation, proceedings and inquiries related to interchange fees.
Several jurisdictions have created or granted authority to create new regulatory bodies that either have or would have
the authority to regulate payment systems, including the United Kingdom and India (which have designated us as a
payments system subject to regulation), as well as Brazil, Mexico and Russia.
. Legislation regulating the level of domestic interchange fees has been enacted, or is being considered, in many
jurisdictions. These jurisdictions include Australia, where the Reserve Bank of Australia has proposed further reductions
to debit interchange, as well as interchange fee caps on commercial and cross-border transactions.
•
Operating expenses.
Net revenue..
(in millions, except per share data and percentages)
Actual
Percent Increase (Decrease)
Special
Items
(in millions, except per share data and percentages)
Actual¹
$ 9,667
Non-GAAP
$
$ 4,335
$ 9,441
2%
-%
$ 4,589
$
(140)
$ 4,449
6%
3%
Net revenue.
3%
$ 9,667
$ 9,441
17%
$
54.1%
Operating margin
11%
2%
13%
$ 4,598
Operating income
(3)%
14%
$3,714
(95)
$ 95
$
es es
$ 4,503
$ 5,106
Operating income
$ 3,809
$ 4,335
Operating expenses.
14%
-%
14%
$ 8,312
$ 8,312
Operating margin
(3)%
$ 5,078 $
8%
$ 3.35
1,137
$ 0.08 $ 3.43
1,137
$ 3.10
8%
(3)%
11%
1,169
(3)%
(3)%
(3)%
2014
Actual¹
Actual
2013
Special
Items
Non-GAAP
Percent Increase (Decrease)
Actual
Special
Items
54.2%
For the Years Ended December 31,
5%
$ 3,617
$ 3,903
140
$ 5,218
$ 5,106
(1)%
(3)%
2%
52.5%
54.0%
54.1%
Effective income tax rate
Net income
Diluted earnings per share..
Diluted weighted-average shares outstanding.
$ 1,150 $ 45
23.2%
$ 1,195
$ 1,462
(21)%
(18)%
23.4%
28.8%
Non-GAAP
$ 3,808 $
95
Income tax expense
55.3%
Acquisitions
Effective income tax rate
Fraudulent activity could damage our reputation and encourage regulatory intervention, which could reduce the use and
acceptance of our cards and other payment devices.
Criminals are using increasingly sophisticated methods to capture cardholder account information to engage in illegal activities
such as counterfeiting or other fraud. Cards that use magnetic-stripe technology, the most widely-used payment technology in
the United States, continue to raise heightened vulnerabilities to fraud relative to other technologies due to the static nature of
the information on the magnetic stripe. Fraud is also more likely to occur in transactions where the card is not present, such as
online commerce, which constitutes an increasing percentage of transactions. In addition, as outsourcing and specialization
become commonplace in the payments industry, there are more third parties involved in processing transactions using our cards.
Increased fraud levels involving our cards, or misconduct or negligence by third parties processing or otherwise servicing our
cards, could lead to regulatory intervention, such as enhanced security requirements, as well as damage to our reputation, which
could reduce the use and acceptance of our cards or increase our compliance costs, and thereby have a material adverse impact
on our business.
34
Cross-border volume fees: Cross-border volume fees are charged to issuers and acquirers based on the dollar
volume of activity on cards and other devices that carry our brands where the merchant country and the issuer
country are different. In general, a cross-border transaction generates higher revenue than a domestic transaction
since cross-border fees are higher than domestic fees, and in most cases also include fees for currency conversion.
Domestic assessments fees: Domestic assessments are fees charged to issuers and acquirers based primarily on
the dollar volume of activity on cards and other devices that carry our brands where the merchant country and the
issuer country are the same. Domestic assessments include items such as card assessments, which are fees charged
on the number of cards issued or assessments for specific purposes, such as acceptance development or market
development programs.
2.
1.
The Company classifies its net revenue into the following five categories:
amount of rebates and incentives provided to customers.
•
In addition to reputational concerns, while most of the lawsuits resulting from account data breaches do not involve direct claims
against us, we could face damage claims in various circumstances, which, if upheld, could materially and adversely affect our
results of operations.
amount of usage of our other products or services; and
• processed or not processed by MasterCard;
volumes/transactions subject to tiered rates;
•
• geographic region or country in which the transaction occurs;
• signature-based or PIN-based transactions;
• domestic or cross-border transactions;
The price structure for our products and services is complex and is dependent on the nature of volumes, types of transactions
and type of products and services we offer to our customers. Our net revenue can be significantly impacted by the following:
MasterCard's business model involves four participants in addition to us: cardholders, merchants, issuers (the cardholders'
financial institutions) and acquirers (the merchants' financial institutions). Our gross revenue is generated by assessing our
customers based primarily on the dollar volume of activity on the cards and other devices that carry our brands and from the
fees that we charge our customers for providing transaction processing and other payment-related products and services. Our
revenue is based upon transactional information accumulated by our systems or reported by our customers. Our primary revenue
billing currencies are the U.S. dollar, euro and Brazilian real.
Revenue Description
Revenue
•
We, our issuers and acquirers, merchants and other third parties process, transmit or store cardholder account and other
information in connection with payment cards and devices. In addition, our customers may sponsor (or we may certify as PCI-
compliant) third-party processors to process transactions generated by cards carrying our brands and merchants may use third
parties to provide services related to card use. A breach of the systems on which sensitive cardholder data and account information
are processed, transmitted or stored could lead to fraudulent activity involving cards carrying our brands, damage our reputation
and lead to claims against us, as well as subject us to regulatory actions. We routinely encounter account data compromise
events, some of which have been high profile, involving merchants and third-party payment processors that process, store or
transmit payment card data, which affect millions of MasterCard, Visa, Discover, American Express and other types of cardholders.
These events typically involve external agents hacking the merchants' or third-party processors' systems and installing malware
to compromise the confidentiality and integrity of those systems. Further data security breaches may subject us to reputational
damage and/or lawsuits involving payment cards carrying our brands. Damage to our reputation or that of our brands resulting
from an account data breach of either our systems or the systems of our customers, merchants and other third parties could
decrease the use and acceptance of our cards and other payment devices, as well as the trend toward electronic payments,
which in turn could have a material adverse impact on our transaction volumes, results of operations and prospects for future
growth, or increase our costs by leading to additional regulatory burdens being imposed upon us.
Account data breaches could adversely affect our reputation and results of operations.
Our brands and their attributes are key assets of our business. The ability to attract consumers to our branded products and
retain them depends upon the external perception of us and our industry. Our business may be affected by actions taken by our
customers that impact the perception of our brands. From time to time, our customers may take actions that we do not believe
to be in the best interests of our brands, such as creditor practices that may be viewed as “predatory". Additionally, large digital
companies and other technology companies who are our customers use our network to build their own acceptance brands,
which could cause consumer confusion and decrease the value of our brand. Moreover, adverse developments with respect to
our industry or the industries of our customers may also, by association, impair our reputation, or result in greater regulatory or
legislative scrutiny. We have also been pursuing the use of social media channels at an increasingly rapid pace. Under some
circumstances, our use of social media, or the use of social media by others as a channel for criticism or other purposes, could
also cause rapid, widespread reputational harm to our brands. Such perception and damage to our reputation could have a
material and adverse effect to our overall business.
Acquisitions, strategic investments or entry into new businesses could disrupt our business and harm our results of operations
or reputation.
•
•
implement cost reduction initiatives that reduce or eliminate payment card marketing or increase requests for
greater incentives or greater cost stability, and
default on their settlement obligations, including as a result of sovereign defaults, causing a liquidity crisis for
our other customers.
Consumer spending can be negatively impacted by
declining economies, foreign currency fluctuations and the pace of economic recovery, which can change cross-
border travel patterns, on which a significant portion of our revenues is dependent, and
low levels of consumer and business confidence typically associated with recessionary environments and those
markets experiencing relatively high unemployment.
Government intervention, including the effect of laws, regulations and/or government investments in our customers,
may have potential negative effects on our business and our relationships with customers or otherwise alter their
strategic direction away from our products.
Tightening of credit availability could impact the ability of participating financial institutions to lend to us under the
terms of our credit facility.
Any of these developments could have a material adverse impact on our overall business and results of operations.
A decline in cross-border activity could adversely affect our results of operations.
We process substantially all cross-border transactions using MasterCard, Maestro and Cirrus-branded cards and generate a
significant amount of revenue from cross-border volume fees and transaction switching fees. Revenue from processing cross-
border and currency conversion transactions for our customers fluctuates with cross-border travel and our customers' need for
transactions to be converted into their base currency. Cross-border activity may be adversely affected by world geopolitical,
economic, weather and other conditions. These include the threat of terrorism and outbreaks of flu, viruses and other diseases.
Any such decline in cross-border activity could adversely affect our results of operations.
Negative trends in consumer spending could negatively impact our results of operations.
The global payments industry depends heavily upon the overall level of consumer, business and government spending. General
economic conditions (such as unemployment, housing and changes in interest rates) and other political conditions (such as
devaluation of currencies and government restrictions on consumer spending) in key countries in which we operate may adversely
affect our financial performance by reducing the number or average purchase amount of transactions involving our payment
cards and devices. Also, as we are headquartered in the United States, a negative perception of the United States could impact
the perception of our company, which could adversely affect our business.
Adverse currency fluctuations and foreign exchange controls could negatively impact our results of operations.
During 2015, approximately 61% of our revenue was generated from activities outside the United States. This revenue (and the
related expense) could be transacted in a non-functional currency or valued based on a currency other than the functional
currency of the entity generating the revenues. Resulting exchange gains and losses are included in our net income. Our risk
management activities provide protection with respect to adverse changes in the value of only a limited number of currencies
and are based on estimates of exposures to these currencies.
In addition, some of the revenue we generate outside the United States is subject to unpredictable currency fluctuations (including
devaluations of currencies) where the values of other currencies change relative to the U.S. dollar. If the U.S. dollar strengthens
compared to currencies in which we generate revenue, this revenue may be translated at a materially lower amount than expected.
Furthermore, we may become subject to exchange control regulations that might restrict or prohibit the conversion of our other
revenue currencies into U.S. dollars.
The occurrence of currency fluctuations or exchange controls could have a material adverse impact on our results of operations.
25
25
Reputational Impact
Brand perception may materially and adversely affect our overall business.
Financial Results
Income tax expense
The Company generates revenue and has financial assets in countries at risk for currency devaluation. While these revenues
and financial assets are not material to MasterCard on a consolidated basis, they could be negatively impacted if a devaluation
of local currencies occurs relative to the U.S. dollar.
33
21%
$ 2.61
1,215
$ 2.56 $ 0.05
1,215
1,169
Diluted weighted-average shares outstanding.
$ 3.10
Diluted earnings per share....
14%
2%
16%
2%
$ 3,177
$ 3,617
30.9%
30.8%
28.8%
3%
3%
6%
$ 1,418
$ 1,462 $ 1,384 $ 34
Net income
$ 3,116 $ 61
19%
(4)%
(4)%
In addition, changes in foreign currency exchange rates directly impact the calculation of gross dollar volume ("GDV") and gross
euro volume ("GEV"), which are used in the calculation of our domestic assessments fees, cross-border volume fees and volume
related rebates and incentives. These foreign currency impacts are incremental to the translation impacts discussed above. In
(1)%
1%
Less than (1)%
(7)%
(6)%
4%
Net Income
Operating Expenses
Net Revenue
2014
Percent
2015
Positive (Negative) Impact from Foreign
Currency Translation
The following table provides a summary of the foreign currency translational impact of changes in the U.S. dollar average exchange
rates against the euro and Brazilian real to our operating results for the years ended December 31, 2015, and 2014:
Our overall operating results can be impacted by changes in foreign currency exchange rates, especially the strengthening or
weakening of the U.S. dollar versus the euro and Brazilian real. The functional currency of MasterCard Europe, our principal
European operating subsidiary, is the euro, and the functional currency of our Brazilian subsidiary is the Brazilian real. Accordingly,
the strengthening or weakening of the U.S. dollar versus the euro and Brazilian real impacts the translation of our European and
Brazilian subsidiaries' operating results into the U.S. dollar. During 2015, the euro and the Brazilian real devalued against the
U.S. dollar by 16% and 28%, respectively, versus the comparable period in 2014.
Impact of Foreign Currency Rates
In addition, our business and our customers' businesses are subject to regulation in many countries. Regulatory bodies may seek
to impose rules and price controls on certain aspects of our business and the payments industry. For further discussion, see
Note 18 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 and our risk factor
in "Risk Factors - Legal and Regulatory Risks" in Part I, Item 1A. Further, information security risks for global payments and
technology companies such as MasterCard have significantly increased in recent years. Although to date we have not experienced
any material impacts relating to cyber-attacks or other information security breaches, there can be no assurance that we will be
immune to these risks and not suffer such losses in the future. See our risk factor in "Risk Factors - Business Risks" in Part I, Item
1A related to a failure or breach of our security systems or infrastructure as a result of cyber-attacks.
MasterCard's financial results may be negatively impacted by actions taken by individual financial institutions or by governmental
or regulatory bodies. In addition, political instability or a decline in economic conditions in the countries in which the Company
operates may accelerate the timing of or increase the impact of risks to our financial performance. As a result, our revenue or
results of operations may be negatively impacted. MasterCard continues to monitor political and economic conditions around
the world to identify opportunities for the continued growth of our business and to evaluate the evolution of the global payments
industry. Notwithstanding recent encouraging trends, the extent and pace of economic recovery in various regions remains
uncertain and the overall business environment may present challenges for MasterCard to grow its business. For a full discussion
see "Risk Factors - Business Risk” in Part I, Item 1A.
The competitive and evolving nature of the global payments industry provides both challenges to and opportunities for the
continued growth of our business. Adverse economic trends (including distress in financial markets, turmoil in specific economies
around the world and additional government intervention) have impacted the environment in which we operate. Certain of our
customers, merchants that accept our brands and cardholders who use our brands, have been directly impacted by these adverse
economic conditions.
We process transactions from more than 210 countries and territories and in more than 150 currencies. Net revenue generated
in the United States was 39% of total revenue in each of 2015, 2014 and 2013. No individual country, other than the United
States, generated more than 10% of total revenue in any such period, but differences in market growth, economic health and
foreign exchange fluctuations in certain countries can have an impact on the proportion of revenue generated outside the United
States over time. While the global nature of our business helps protect our operating results from adverse economic conditions
in a single or a few countries, the significant concentration of our revenue generated in the United States makes our business
particularly susceptible to adverse economic conditions in the United States.
Business Environment
32
Non-GAAP
See Non-GAAP Financial Information for the respective impacts relating to the Special Items. There were no Special Items recorded in 2014.
*Tables may not sum due to rounding.
1
most non-European regions, GDV is calculated based on local currency spending volume converted to U.S. dollars using average
exchange rates for the period. In Europe, GEV is calculated based on local currency spending volume converted to euros using
average exchange rates for the period. As a result, our domestic assessments, cross-border volume fees and volume related
rebates and incentives are impacted by the strengthening or weakening of the U.S. dollar versus primarily non-European local
currencies and the strengthening or weakening of the euro versus primarily European local currencies. For example, our billing
in Australia is in U.S. dollar, however, consumer spend in Australia is in Australian dollar. The foreign currency transactional
impact of converting Australian dollars to our billing currency in U.S. dollars will have an impact on the revenue generated. The
strengthening or weakening of the U.S. dollar is evident when GDV growth on a U.S. dollar converted basis is compared to GDV
growth on a local currency basis. In 2015, GDV on a U.S. dollar converted basis increased 1% versus GDV growth on a local
currency basis of 13%. In 2014, GDV on a U.S. dollar converted basis increased 10% versus GDV growth on a local currency basis
of 13%. The Company attempts to manage these foreign currency exposures through its foreign exchange risk management
activities, which are discussed further in Note 20 (Foreign Exchange Risk Management) to the consolidated financial statements
included in Part II, Item 8.
2014
2%
Actual
0.11
0.16 $
0.16
$
2014
2015
Dividend per Share
Fourth Quarter
Third Quarter
Second Quarter..
First Quarter
0.11
During the years ended December 31, 2015 and 2014, we paid the following quarterly cash dividends per share on our Class A
common stock and Class B Common stock:
There is currently no established public trading market for our Class B common stock. There were approximately 344 holders of
record of our Class B common stock as of February 4, 2016.
69.64
89.87
88.92
101.76
73.64
68.68
71.75
84.75 $
77.89
79.22
74.61
Dividend Declaration and Policy
0.16
0.11
0.16
8,138,845 $
97.67
3,388,704 $
99.42
2,837,992 $
94.07
1,912,149 $
Average Price
Paid per Share
(including
commission cost)
of Shares
Purchased
Total Number
Total.
December 1-31
November 1 - 30
October 1-31
Period
During the fourth quarter of 2015, MasterCard repurchased a total of approximately 8.1 million shares for $793 million at an
average price of $97.43 per share of Class A common stock. The Company's repurchase activity during the fourth quarter of
2015 consisted of open market share repurchases and is summarized in the following table:
29
29
On December 2, 2014, the Company's Board of Directors approved a new share repurchase program authorizing the Company
to repurchase up to $3.75 billion of its Class A common stock (the “December 2014 Share Repurchase Program"). This program
became effective in January 2015. On December 8, 2015, the Company's Board of Directors approved a new share repurchase
program authorizing the Company to repurchase up to $4 billion of its Class A common stock (the "December 2015 Share
Repurchase Program"). This program became effective in February 2016. We typically complete a share repurchase program
before a new program becomes effective.
Issuer Purchases of Equity Securities
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.
On December 8, 2015, our Board of Directors declared a quarterly cash dividend of $0.19 per share paid on February 9, 2016 to
holders of record on January 8, 2016 of our Class A common stock and Class B common stock. On February 2, 2016, our Board
of Directors declared a quarterly cash dividend of $0.19 per share payable on May 9, 2016 to holders of record on April 8, 2016
of our Class A common stock and Class B common stock.
0.11
99.18
97.43
79.82 $
85.37
93.00 $
As of February 4, 2016, the Foundation owned 115,446,594 shares of Class A common stock, representing approximately 10.6%
of our general voting power. The Foundation may not sell or otherwise transfer its shares of Class A common stock prior to April
The Foundation's substantial stock ownership, and restrictions on its sales, may impact corporate actions or acquisition
proposals favorable to, or favored by, the other public stockholders.
any representative of a competitor of MasterCard or of the Foundation is disqualified from service on our board of
directors.
a vote of 80% or more of all of the outstanding shares of our stock then entitled to vote is required for stockholders to
amend any provision of our bylaws; and
•
•
our stockholders are not entitled to act by written consent;
•
our stockholders are not entitled to the right to cumulate votes in the election of directors;
2015
Special
Items
27
Provisions contained in our amended and restated certificate of incorporation and bylaws and Delaware law could be considered
anti-takeover provisions, including provisions that could delay or prevent entirely a merger or acquisition that our stockholders
consider favorable. These provisions may also discourage acquisition proposals or have the effect of delaying or preventing
entirely a change in control, which could harm our stock price. For example, subject to limited exceptions, our amended and
restated certificate of incorporation prohibits any person from beneficially owning more than 15% of any of the Class A common
stock or any other class or series of our stock with general voting power, or more than 15% of our total voting power. In addition:
Class A Common Stock and Governance Structure
Certain limitations have been placed on our business in recent years because of litigation and litigation settlements, such as
changes to our no-surcharge rule in the United States. Any future limitations on our business resulting from litigation or litigation
settlements could reduce the volume of business that we do with our customers, which may materially and adversely affect our
overall business and results of operations.
Limitations on our business resulting from litigation or litigation settlements may materially and adversely affect our overall
business and results of operations.
We are a defendant on a number of civil litigations and regulatory proceedings and investigations, including among others, those
alleging violations of competition and antitrust law and those involving intellectual property clams. See Note 18 (Legal and
Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for more details regarding the
allegations contained in these complaints and the status of these proceedings. In the event we are found liable in any material
litigations or proceedings, particularly in the event we may be found liable in a large class-action lawsuit or on the basis of an
antitrust claim entitling the plaintiff to treble damages or under which we were jointly and severally liable, we could be subject
to significant damages, which could have a material adverse impact on our overall business and results of operations.
Liabilities we may incur for any litigation that has been or may be brought against us could materially and adversely affect
our results of operations.
Litigation
Any acquisition or entry into a new business could subject us to new regulations with which we would need to comply, and we
could be subject to liability or reputational harm to the extent we cannot meet any such compliance requirements. Our expansion
into new businesses could also result in unanticipated issues which may be difficult to manage. Although we periodically evaluate
potential acquisitions of businesses, products and technologies and anticipate continuing to make these evaluations, we cannot
guarantee that we will be able to execute and integrate any such acquisitions.
Moreover, we may spend time and money on acquisitions or projects that do not meet our expectations or increase our revenue.
To the extent we pay the purchase price of any acquisition in cash, it would reduce our cash reserves available to us for other
uses, and to the extent the purchase price is paid with our stock, it could be dilutive to our stockholders. Furthermore, we may
not be able to successfully finance the business following the acquisition as a result of costs of operations, including any litigation
risk which may be inherited from the acquisition.
26
Although we may continue to make strategic acquisitions of, or acquire interests in joint ventures or other entities related to,
complementary businesses, products or technologies, we may not be able to successfully partner with or integrate them. In
addition, such an integration may divert management's time and resources from our core business and disrupt our operations.
Provisions in our organizational documents and Delaware law could be considered anti-takeover provisions and have an impact
on change-in-control.
26, 2026, except to the extent necessary to satisfy its charitable disbursement requirements, for which purpose earlier sales are
permitted. The directors of the Foundation are required to be independent of us and our customers. The ownership of Class A
common stock by the Foundation, together with the restrictions on transfer, could discourage or make more difficult acquisition
proposals favored by the other holders of the Class A common stock. In addition, because the Foundation is restricted from
selling its shares for an extended period of time, it may not have the same interest in short or medium-term movements in our
stock price as, or incentive to approve a corporate action that may be favorable to, our other stockholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
$
Low
High
Low
High
2014
2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter.
Our Class A common stock trades on the New York Stock Exchange under the symbol "MA". The following table sets forth the
intra-day high and low sale prices for our Class A common stock for the four quarterly periods in each of 2015 and 2014. At
February 4, 2016, the Company had 77 stockholders of record for its Class A common stock. We believe that the number of
beneficial owners is substantially greater than the number of record holders because a large portion of our Class A common
stock is held in "street name" by brokers.
Price Range of Common Stock
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
PART II
28
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Refer to Notes 10 (Accrued Expenses and Accrued Litigation) and 18 (Legal and Regulatory Proceedings) to the consolidated
financial statements included in Part II, Item 8.
ITEM 3. LEGAL PROCEEDINGS
We believe that our facilities are suitable and adequate for the business that we currently conduct. However, we periodically
review our space requirements and may acquire or lease new space to meet the needs of our business, or consolidate and dispose
of facilities that are no longer required.
As of December 31, 2015, MasterCard and its subsidiaries owned or leased 154 commercial properties. We own our corporate
headquarters, a 472,600 square foot building located in Purchase, New York. There is no outstanding debt on this building. Our
principal technology and operations center is a 528,000 square foot leased facility located in O'Fallon, Missouri. The term of the
lease on this facility is 10 years, which commenced on March 1, 2009. Our leased properties in the United States are located in
9 states and in the District of Columbia. We also lease and own properties in 60 other countries. These facilities primarily consist
of corporate and regional offices, as well as our operations centers.
ITEM 2. PROPERTIES
96.31
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
•
Dollar Value of
Shares that may yet
.
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"). This report on Form 10-K contains non-GAAP financial measures that exclude
the impact of the following special items ("Special Items"):
Non-GAAP Financial Information
30
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. Certain prior period amounts have been reclassified
to conform to the 2015 presentation. For 2014 and 2013, net revenue and general and administrative expenses were revised to
correctly classify $32 million and $34 million, respectively, of customer incentive expenses as contra revenue instead of general
and administrative expenses. This revision had no impact on net income. 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.
CONDITION AND RESULTS OF OPERATIONS
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
0.06
0.12
0.29
•
0.49
5,877
6,929
7,495
-
1,494
6,824
6,062
3,287
$ 16,269 $ 15,329 $ 14,242 $ 12,462 $ 10,693
1.48
2.19
0.67
U.S. Employee Pension Plan Settlement Charge - in 2015, the Company recorded a settlement charge of $79 million ($50
million after tax or $0.04 per diluted share) relating to the termination of its qualified U.S. defined benefit pension plan
in general and administrative expenses. See Note 11 (Pension, Postretirement and Savings Plans) to the consolidated
financial statements included in Part II, Item 8 for further discussion.
U.K. Merchant Litigation Settlement Provision - in 2015, the Company recorded a provision for a litigation settlement
of $61 million ($44 million after tax or $0.04 per diluted share) relating to a merchant litigation in the U.K. See Note 18
(Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for further
discussion.
Provision for settlements relating to U.S. Merchant Litigations - in 2013, the Company recorded an incremental net
charge of $95 million ($61 million after tax or $0.05 per diluted share) related to the opt-out merchants, representing
a change in its estimate of probable losses relating to these matters. See Note 18 (Legal and Regulatory Proceedings)
for further discussion to the consolidated financial statements included in Part II, Item 8.
For the Years Ended December 31,
1,912,149 $
The following tables provide a summary of our operating results:
We repurchased 38 million shares of our Class A common stock for $3.5 billion in 2015.
.
We completed a debt offering of €1.65 billion ($1.7 billion) and established a commercial paper program with
authorization to issue up to $3.75 billion in outstanding notes.
We acquired two businesses for $609 million, which focus on expanding our footprint and enhancing critical capabilities,
including in the area of data analytics with the acquisition of Applied Predictive Technologies.
•
•
•
Other financial highlights for 2015 were as follows:
The net impact of foreign currency translation, from the devaluation of the euro and the Brazilian real, decreased 2015
net income growth by $230 million or 7 percentage points.
31
An improved effective tax rate of 23.2% in 2015 versus an effective tax rate of 28.8% in the comparable period in 2014,
due to the recognition of discrete tax benefits in 2015 resulting from the favorable impact of settlements with tax
authorities and the recognition of U.S. foreign tax credit benefits.
Total other expense increased to $120 million in 2015 versus $27 million for the comparable period in 2014, resulting
from impairment charges taken on certain investments in 2015 and higher interest expense resulting from incremental
debt issued in 2014 and 2015.
Excluding the impact of Special Items, adjusted operating expenses in 2015 increased 3%, primarily due to higher general
and administrative expenses as a result of acquisitions and higher data processing costs, partially offset by improved
cost control initiatives and the favorable impact of foreign currency translation and transaction gains. Including the
impact of Special Items, operating expenses increased 6% in 2015 versus the comparable period in 2014.
Net revenue growth of 2%, primarily driven by increases across our revenue categories and the impact from acquisitions,
which contributed 2 percentage points of growth, partially offset by higher rebates and incentives and the impact from
foreign currency translation, which decreased growth by 6 percentage points. In 2015, our processed transactions
increased 12% versus the comparable period in the prior year. In 2015, our gross dollar volumes increased 13% and
our cross-border volume increased 16%, both on a local currency basis, versus the comparable period in the prior year,
respectively.
•
•
Excluding the impact of the Special Items, we had adjusted net income of $3.9 billion, or $3.43 per adjusted diluted share in
2015. Adjusted net income increased 8% in 2015 versus the comparable period in 2014. The increase in adjusted net income
was driven by:
We recorded net income of $3.8 billion, or $3.35 per diluted share in 2015 versus net income of $3.6 billion, or $3.10 per diluted
share in 2014. Reported net income grew 5% in 2015 versus the comparable period in 2014.
Overview
MasterCard excludes these Special Items because its management monitors significant one-time items separately from ongoing
operations and evaluates ongoing performance without these amounts. MasterCard presents non-GAAP financial measures to
enhance an investor's understanding of MasterCard's ongoing operating results and to facilitate meaningful comparison of its
results between periods. MasterCard's management uses these non-GAAP financial measures to, among other things, evaluate
its ongoing operations in relation to historical results, for internal planning and forecasting purposes and in the calculation of
performance-based compensation. See "Overview" and "Financial Results" sections for the tables that provide a reconciliation
of the operating results and growth to the most directly comparable GAAP measure. The presentation of non-GAAP financial
measures should not be considered in isolation or as a substitute for the Company's related financial results prepared in
accordance with GAAP.
2.56
3.10
We generated net cash flows from operations of $4.0 billion in 2015, compared to $3.4 billion in 2014.
1.49
2014
2015
Years Ended December 31,
Cash dividends declared per share.
Equity.....
Long-term debt.
Total assets.
Balance Sheet Data:
Diluted earnings per share..
Basic earnings per share
2013
Net income
Total operating expenses.
Net revenue
Statement of Operations Data:
The statement of operations data presented below for the years ended December 31, 2015, 2014 and 2013, and the balance
sheet data as of December 31, 2015 and 2014, were derived from the audited consolidated financial statements of MasterCard
Incorporated included in Part II, Item 8. The statement of operations data presented below for the years ended December 31,
2012 and 2011, and the balance sheet data as of December 31, 2013, 2012 and 2011, 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.
ITEM 6. SELECTED FINANCIAL DATA
3,388,704 $ 4,506,532,273
8,138,845
2,837,992 $ 837,513,192
be Purchased under
the Plans
or
Programs
3.35
1,119,663,418
Operating income.
2012
1 Dollar value of shares that may yet be purchased under the December 2014 Share Repurchase Program and the December 2015 Share Repurchase
Program is as of the end of the period.
(in millions, except per share data)
3.11
2011
3.36
2,759
3,116
2.20
3,617
3,808
2,713
3,937
4,503
1,906
5,078
9,667 $
9,441 $
5,106
8,312 $ 7,391 $
6,714
2.57
4,335
3,809
3,454
4,001
4,589
Borrowings under the Commercial Paper Program and the Credit Facility are to provide liquidity for general corporate purposes,
including providing liquidity in the event of one or more settlement failures by the Company's customers. The Company may
borrow and repay amounts under the Commercial Paper Program and Credit Facility from time to time for business continuity
and planning purposes. MasterCard had no borrowings under the Credit Facility at December 31, 2015 and 2014, as well as had
no borrowings under the Commercial Paper Program at December 31, 2015.
The following table summarizes the Company's share repurchase authorizations of its Class A common stock through
December 31, 2015, as well as historical purchases:
42
Shares in the Company's common stock that are repurchased are considered treasury stock. The timing and actual number of
additional shares repurchased will depend on a variety of factors, including the operating needs of the business, legal
requirements, price and economic and market conditions. In December 2015, the Company's Board of Directors approved a
new share repurchase program authorizing the Company to repurchase up to $4 billion of its Class A common stock. This program
became effective in February 2016. We typically complete a share repurchase program before a new program becomes effective.
On February 2, 2016, our Board of Directors declared a quarterly cash dividend of $0.19 per share payable on May 9, 2016 to
holders of record on April 8, 2016 of our Class A common stock and Class B common stock. The aggregate amount of this dividend
is estimated to be $211 million.
On December 8, 2015, our Board of Directors declared a quarterly cash dividend of $0.19 per share paid on February 9, 2016 to
holders of record on January 8, 2016 of our Class A common stock and Class B common stock. The aggregate amount of this
dividend was $212 million.
(in millions, except per share data)
0.64 $ 0.44 $ 0.21
727 $ 515 $ 255
$
2013
2014
2015
Years Ended December 31,
Cash dividend, per share.
MasterCard has historically paid quarterly dividends on its outstanding Class A common stock and Class B common stock. Subject
to legally available funds, we intend to continue to pay a quarterly cash dividend. 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. The following table summarizes the annual,
per share dividends paid in the years reflected:
Dividends and Share Repurchases
In June 2015, the Company filed a universal shelf registration statement to provide additional access to capital, if needed. Pursuant
to the shelf registration statement, the Company may from time to time offer to sell debt securities, preferred stock, Class A
common stock, depository shares, purchase contracts, units or warrants in one or more offerings.
Authorization Dates
See Note 12 (Debt) to the consolidated financial statements included in Part II, Item 8 for further discussion on the Notes, the
Commercial Paper Program and the Credit Facility.
$
Cash dividends paid...
3,500 $
December 2014
275 $
3,243 $
In November 2015, the Company established a commercial paper program (the "Commercial Paper Program"). Under the
Commercial Paper Program, the Company is authorized to issue up to $3.75 billion in outstanding notes, with maturities up to
397 days from the date of issuance. In conjunction with the Commercial Paper Program, the Company entered into a committed
unsecured $3.75 billion revolving credit facility (the "Credit Facility") in October 2015, which expires in 2020. The Credit Facility
amended and restated the Company's prior credit facility.
$
-
$
Dollar-value of shares repurchased in 2015.
4,025
275 $
December 2015
3,750 $
Remaining authorization at December 31, 2014.
11,250
3,750 $
4,000 $
$
Board authorization.
(in millions, except average price data)
Total
December 2013
$
In December 2015, the Company issued €1.65 billion aggregate principal amount of notes. This offering consisted of €700 million
aggregate principal amount of notes due 2022, €800 million aggregate principal amount of notes due 2027 and €150 million
aggregate principal amount of notes due 2030 (collectively the "Euro Notes"). In March 2014, the Company issued $500 million
aggregate principal amount of notes due 2019 and $1 billion aggregate principal amount of notes due 2024 (collectively the "USD
Notes"). The Company is not subject to any financial covenants under the Euro Notes and the USD Notes (collectively the "Notes").
The Notes are senior unsecured obligations and would rank equally with any future unsecured and unsubordinated indebtedness.
The proceeds of the Notes are to be used for general corporate purposes.
Net cash used in financing activities for 2015 as compared to 2014 increased by $119 million, primarily due to higher dividends
paid and an increase in purchases of treasury stock in 2015, partially offset by increased proceeds from debt in 2015. Net cash
used in financing activities in 2014 as compared to 2013 decreased by $290 million, primarily due to proceeds from debt issued
in 2014, partially offset by higher purchases of treasury stock and dividends in 2014.
41
(2,629)
(4)
4,135
3,407 $
690
(715)
(2,458)
4,043 $
$
(in millions)
2013
2014
2015
Net cash (used in) provided by investing activities.
Net cash used in financing activities
Net cash provided by operating activities.
Cash Flow Data:
The table below shows a summary of the cash flows from operating, investing and financing activities for the years ended
December 31:
Cash Flow
Our liquidity and access to capital could also be negatively impacted by the outcome of any of the legal or regulatory proceedings
to which we are a party. See our risk factor in "Risk Factors - Legal and Regulatory Risks" in Part I, Item 1A and Note 18 (Legal
and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8; and Part II, Item 7 (Business
Environment) for additional discussion of these and other risks facing our business.
3,518
Our liquidity and access to capital could be negatively impacted by global credit market conditions. The Company guarantees
the settlement of many MasterCard, Cirrus and Maestro-branded transactions between our issuers and acquirers. See Note 19
(Settlement and Other Risk Management) to the consolidated financial statements in Part II, Item 8 for a description of these
guarantees. Historically, payments under these guarantees have not been significant; however, historical trends may not be an
indication of the future. The risk of loss on these guarantees is specific to individual customers, but may also be driven significantly
by regional or global economic conditions, including, but not limited to the health of the financial institutions in a country or
region.
(2,339)
Net cash provided by operating activities for 2015 increased $636 million as compared to 2014, primarily due to lower prepaid
taxes and higher net income, partially offset by timing of customer settlements. Net cash provided by operating activities for
2014 as compared to 2013, decreased by $728 million, primarily due to higher prepaid income taxes associated with our legal
entity and tax reorganization.
The $1.4 billion decrease in investing activities in 2015 as compared to 2014 was primarily due to the higher proceeds from the
sales and maturities of investment securities in the prior year. The $694 million increase in investing activity in 2014 as compared
to 2013 was primarily due to increased sales of investment securities in 2014.
The table below shows a summary of the balance sheet data at December 31:
The Company believes that its existing cash, cash equivalents and investment securities balances, its cash flow generating
capabilities, its borrowing capacity and its access to capital resources are sufficient to satisfy its future operating cash needs,
capital asset purchases, outstanding commitments and other liquidity requirements associated with its existing operations and
potential obligations.
7,495
6,824
6,062
715
2,283
3,938
10,950
6,032
10,997 $
6,222
Debt and Credit Availability
10,985 $
6,269
Equity ....
Long-term liabilities.
Current assets
Balance Sheet Data:
Current liabilities.
(in millions)
2013
2014
2015
$
Remaining authorization at December 31, 2015..
1
4,000
759 $
419 $
455 $
4,883 $
$
Total 4
78
27
27
82
214
Employee benefits 3
11
44
164
242
461
Sponsorship, licensing and other 2
Other long-term obligations
3,250
1
2
3
reinvest the undistributed earnings associated with our foreign subsidiaries as of December 31, 2015 outside of the United States
(as disclosed in Note 17 (Income Taxes) to the consolidated financial statements included in Part II, Item 8), and our current plans
do not require repatriation of these earnings. If these earnings are needed for U.S operations or can no longer be permanently
reinvested outside of the United States, the Company would be subject to U.S. tax upon repatriation.
44
We record tax liabilities for uncertain tax positions taken, or expected to be taken, which may not be sustained or may only be
partially sustained, upon examination by the relevant taxing authorities. We consider all relevant facts and current authorities
in the tax law in assessing whether any benefit resulting from an uncertain tax position is more likely than not to be sustained
and, if so, how current law impacts the amount reflected within these financial statements. If upon examination, we realize a
tax benefit which is not fully sustained or is more favorably sustained, this would decrease or increase earnings in the period. In
certain situations, the Company will have offsetting tax credits or taxes in other jurisdictions.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.
Significant judgment is required in determining the valuation allowance. We consider projected future taxable income and
ongoing tax planning strategies in assessing the need for the valuation allowance. If it is determined that we are able to realize
deferred tax assets in excess of the net carrying value or to the extent we are unable to realize a deferred tax asset, we would
adjust the valuation allowance in the period in which such a determination is made, with a corresponding increase or decrease
to earnings.
In calculating our effective tax rate, we need to make estimates regarding the timing and amount of taxable and deductible items
which will adjust the pretax income earned in various tax jurisdictions. Through our interpretation of local tax regulations,
adjustments to pretax income for income earned in various tax jurisdictions are reflected within various tax filings. Although we
believe that our estimates and judgments discussed herein are reasonable, actual results may be materially different than the
estimated amounts.
Income Taxes
The Company is currently involved in various claims and legal proceedings. The Company regularly reviews the status of each
significant matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is
considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.
Significant judgment is required in both the determination of probability and whether an exposure is reasonably estimable. Our
judgments are subjective based on the status of the legal or regulatory proceedings, the merits of our defenses and consultation
with in-house and outside legal counsel. Because of uncertainties related to these matters, accruals are based only on the best
information available at the time. As additional information becomes available, the Company reassesses the potential liability
related to its pending claims and litigation and may revise its estimates. Due to the inherent uncertainties of the legal and
regulatory process in the multiple jurisdictions in which we operate, our judgments may be materially different than the actual
outcomes. See Note 18 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8
for further discussion.
Application of the various accounting principles in U.S. GAAP related to the measurement and recognition of revenue requires
the Company to make judgments and estimates. Specifically, complex arrangements with nonstandard terms and conditions
may require significant contract interpretation to determine the appropriate accounting. Domestic assessment revenue requires
an estimate of our customers' performance in order to recognize this revenue. Rebates and incentives are recorded as a reduction
to gross revenue based on these estimates. We consider various factors in estimating customer performance, including a review
of specific transactions, historical experience with that customer and market and economic conditions. Differences between
actual results and the Company's estimates are adjusted in the period the customer reports actual performance. If our customers'
actual performance is not consistent with our estimates of their performance, net revenue may be materially different.
Loss Contingencies
Revenue Recognition
58
8.
Critical Accounting Estimates
43
The Company does not experience meaningful seasonality. No individual quarter in 2015, 2014 or 2013 accounted for more
than 30% of net revenue.
Seasonality
The Company has recorded a liability for unrecognized tax benefits of $181 million at December 31, 2015. Within the next twelve months, the Company
believes that the resolution of certain federal, foreign and state and local examinations are reasonably possible and that a change in estimate, reducing
unrecognized tax benefits, may occur. It is not possible to provide a range of the potential change until the examinations progress further or the related
statute of limitations expire. These amounts have been excluded from the table since the settlement period of this liability cannot be reasonably
estimated. The timing of these payments will ultimately depend on the progress of tax examinations with the various authorities.
Amounts relate to severance and expected funding requirements for defined benefit pension and postretirement plans.
Amounts primarily relate to sponsorships to promote the MasterCard brand. Future cash payments that will become due to our customers under
agreements which provide pricing rebates on our standard fees and other incentives in exchange for transaction volumes are not included in the table
because the amounts due are contingent on future performance. We have accrued $2.1 billion as of December 31, 2015 related to customer and
merchant agreements.
The table does not include the $709 million provision as of December 31, 2015 related to the merchant opt outs and the U.S. merchant class litigation
since the opt outs are not fixed and determinable and the Company has made a payment into escrow to fund the U.S. merchant class litigation. See
Note 18 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for further discussion.
4
The application of U.S. GAAP requires the Company to make estimates and assumptions about certain items and future events
that directly affect the Company's reported financial condition. We have established detailed policies and control procedures
to provide reasonable assurance that the methods used to make estimates and assumptions are well controlled and are applied
consistently from period to period. The accounting estimates and assumptions discussed in this section are those that the
Company considers to be the most critical to its financial statements. An accounting estimate is considered critical if both (a)
the nature of the estimate or assumption is material due to the levels of subjectivity and judgment involved, and (b) the impact
within a reasonable range of outcomes of the estimate and assumption is material to the Company's financial condition. Senior
management has discussed the development, selection and disclosure of these estimates with the Audit Committee of the
Company's Board of Directors. The Company's significant accounting policies, including recent accounting pronouncements, are
described in Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements included in Part II, Item
54
74
38
Interest on debt
Debt.
The following table summarizes our obligations as of December 31, 2015 that are expected to impact liquidity and cash flow in
future periods. We believe we will be able to fund these obligations through cash generated from operations and our cash
balances.
Future Obligations
MasterCard has no off-balance sheet debt, other than lease arrangements and other commitments as presented in the Future
Obligations table that follows.
See Note 13 (Stockholders' Equity) to the consolidated financial statements included in Part II, Item 8 for further discussion.
Off-Balance Sheet Arrangements
91.70
84.31 $
92.39 $
Capital leases
$
Average price paid per share in 2015.
38.3
3.2
35.1
Shares repurchased in 2015
4,507
$
-
507 $
$
$
Operating leases..
2016
224
5
6
11
2,799
304
500 $
134
149
77
664
Total
$
10
3,309 $
$
(in millions)
thereafter
2019-2020
2021 and
Payments Due by Period
2017 - 2018
$
40
Cash, cash equivalents and investments
Unused line of credit
Other than for business continuity planning, we did not use any funds from the line of credit during the periods presented.
4 %
8%
14%
Other revenues
**
**
(6)%
(1)%
8%
7%
16 %4
21 %4
18%
27%
3%
Rebates and incentives....
9%
(6)%
(1)%
-%
―%
20%5
3 %5
20%
11%
12%
12%
(6)%
(1)%
2%
6%
2%
1%
- %
2015
2014
2015
2014
Domestic assessments
12%
13%
(6)%
(1)%
-%
-%
(3)%3
(4)%
3%
-%
8%
14%
15%
(5)%
- %
-%
-%
(3)%
(3)%
6%
12%
Transaction processing fees.
11%
9%
(6)%
Cross-border volume fees...
2014
(6)%
2%
(5)%
366
366
321
14 %
―%
14 %
61
(61
**
**
6%
3%
3 %
―%
For the Years Ended December 31,
Actual
Actual
2013
Special
Items
1
Non-GAAP
Percent Increase (Decrease)
Actual
Special
Items
Non-GAAP
(in millions, except percentages)
General and administrative
Advertising and marketing.
Depreciation and amortization
Provision for litigation settlement.
2014
1 %
(5)%
821
14%
Net revenue.
**Not applicable
1 Reflects translation from the euro and Brazilian real to the U.S. dollar.
Includes impact from pricing, local foreign currency impact from billing and other fees.
4
5
Includes impact of the allocation of revenue to service deliverables, which are recorded in other revenue when services are performed.
Includes impacts from Advisor fees, safety and security fees, loyalty and reward solution fees and other payment-related products and services.
Includes the impact from timing of new, renewed and expired agreements.
Operating Expenses
Our operating expenses are comprised of general and administrative, advertising and marketing, depreciation and amortization
expenses and provisions for litigation settlements. Operating expenses increased 6% in 2015 compared to 2014, and increased
14% in 2014 compared to 2013. Excluding the impact of the Special Items, adjusted operating expenses increased 3% and 17%
in 2015 and 2014, respectively, primarily due to higher general and administrative expenses.
For the Years Ended December 31,
Actual
2015
Special
Items
2014
862
Percent Increase (Decrease)
Actual
Actual
Special
Items
Non-GAAP
General and administrative
Advertising and marketing.
Depreciation and amortization
Provision for litigation settlement.
Total operating expenses.
$ 4,589 $ (140) $ 4,449 $ 4,335
$ 3,341 $
(in millions, except percentages)
(79) $ 3,262 $ 3,152
6%
3%
3%
Cash, cash equivalents and investments held by our foreign subsidiaries (i.e., any entities where earnings would be subject to
U.S. tax upon repatriation) was $3.3 billion and $2.6 billion at December 31, 2015 and 2014, respectively, or 48% and 42% as of
such dates. The decrease in cash, cash equivalents and investments held by our domestic subsidiaries during 2015 was primarily
driven by our use of cash in the U.S. to fund our share repurchases and dividend activity. It is our present intention to permanently
Non-GAAP
Total operating expenses.
2015
2015
Growth
Growth
Growth
(Local)
(USD)
(Local)
1 %
13%
10 %
13%
6%
14%
14 %
17%
Growth
(USD)
-
16%
- %
7%
(6)%
16%
9%
14%
(11)%
15%
5 %
15%
7%
7%
8%
- %
8%
2014
1 Excludes volume generated by Maestro and Cirrus cards.
3.
4.
5.
Transaction processing fees: Transaction processing fees are charged for both domestic and cross-border
transactions and are primarily based on the number of transactions. Transaction processing fees include charges
for the following:
Switching fees for the following products and services:
Authorization is the process by which a transaction is routed to the issuer for approval. In certain
circumstances such as when the issuer's systems are unavailable or cannot be contacted,
MasterCard or others, on behalf of the issuer approve in accordance with either the issuer's
instructions or applicable rules (also known as "stand-in").
Clearing is the exchange of financial transaction information between issuers and acquirers after
a transaction has been successfully conducted at the point of interaction. MasterCard clears
transactions among customers through our central and regional processing systems.
Settlement is facilitating the exchange of funds between parties.
Connectivity fees are charged to issuers and acquirers for network access, equipment and the transmission
of authorization and settlement messages. These fees are based on the size of the data being transmitted
through and the number of connections to the Company's network.
Other Processing fees: We extend our processing capabilities in the payment value chain for issuer and
acquirer solutions; payment gateways for e-commerce merchants; and mobile gateways for mobile
initiated transactions.
Other revenues: Other revenues consist of other payment-related products and services and are primarily
associated with the following:
Consulting, data analytic and research fees are primarily generated by MasterCard Advisors, the Company's
professional advisory services group.
Safety and security services fees are for products and services we offer to prevent, detect and respond to
fraud and to ensure the safety of transactions made on MasterCard products. We work with issuers,
merchants and governments to help deploy standards for safe and secure transactions for the global
payments system.
Loyalty and rewards solutions fees are charged to issuers for benefits provided directly to consumers with
MasterCard-branded cards, such as access to a global airline lounge network, global and local concierge
services, individual insurance coverages, emergency card replacement, emergency cash advance services
and a 24-hour cardholder service center. For merchants, we provide targeted offers and rewards campaigns
and management services for publishing offers, as well as opportunities for holders of co-brand or loyalty
cards and rewards program members to obtain rewards points faster.
2015
Program management services provided to prepaid card issuers consist of foreign exchange margin,
commissions, load fees, and ATM withdrawal fees paid by cardholders on the sale and encashment of
prepaid cards.
Rebates and incentives (contra-revenue): Rebates and incentives are provided to certain MasterCard customers
and are recorded as contra-revenue.
Revenue Analysis
Gross revenue in 2015 and 2014 increased $903 million and $1.5 billion, or 7% and 13%, versus 2014 and 2013, respectively,
primarily driven by an increase in dollar volume of activity and number of transactions on cards carrying our brands, as well as
growth in our Advisors business, which includes the impact of our newly acquired data analytics business. This was partially
offset by the negative impact from foreign currency translation and the local foreign currency from billing. Rebates and incentives
in 2015 and 2014 increased $677 million and $327 million, or 20% and 11%, versus 2014 and 2013, respectively, due to the impact
from new and renewed agreements and increased volumes, partially offset by the positive impact of foreign currency translation.
Our net revenue in 2015 and 2014 increased 2% and 14% versus 2014 and 2013, respectively. Acquisitions contributed 2
percentage points to net revenue growth in both 2015 and 2014, while foreign currency translation decreased net revenue growth
by 6 percentage points and 1 percentage point in 2015 and 2014, respectively.
35
The following table provides a summary of the trend in volume and transaction growth:
Years Ended December 31,
MasterCard-branded GDV 1
Asia Pacific/Middle East/Africa
Canada..
Europe..
Latin America
United States.
Cross-border Volume 1
Processed Transactions Growth.
The Company also charges for a variety of other payment-related products and services, including account
and transaction enhancement services, rules compliance and publications.
2014
16%
12%
13,647
12,744
11,288
7%
13%
Rebates and incentives (contra-revenue).
(3,980)
(3,303)
(2,976)
20%
11%
Net revenue..
$
9,667 $
Gross revenue.
9,441 $
2%
14%
36
The following table summarizes the primary drivers of net revenue growth:
For the Years Ended December 31,
Acquisitions
1
Volume
2
Foreign Currency
Other
Total
2015
2014
8,312
16%
27%
1,331
12%
A significant portion of our revenue is concentrated among our five largest customers. In 2015, the net revenue from these
customers was approximately $2.3 billion, or 24%, of total net revenue. The loss of any of these customers or their significant
card programs could adversely impact our revenue. In addition, as part of our business strategy, MasterCard, among other efforts,
enters into business agreements with customers. These agreements can be terminated in a variety of circumstances. See our
risk factor in "Risk Factor - Business Risks" in Part I, Item 1A for further discussion.
The significant components of our net revenue were as follows:
2015
For the Years Ended December 31,
2014
2013
Percent Increase (Decrease)
2015
2014
Domestic assessments. .
$
4,086 $
(in millions, except percentages)
3,967 $
3,688
3%
18%
8%
3,225
3,054
2,715
6%
12%
Transaction processing fees.
4,345
4,035
3,554
8%
14%
Other revenues.
1,991
1,688
Cross-border volume fees
$ 3,152 $ 2,615
821
$ 2,615
Other income (expense) is comprised primarily of investment income, interest expense, our share of income (losses) from equity
method investments and other gains and losses. Total other expense increased to $120 million in 2015 versus $27 million for
the comparable period in 2014 resulting from impairment charges taken on certain investments in 2015 and higher interest
expense resulting from incremental debt issued in 2014 and 2015. Total other expense increased in 2014 compared to 2013
primarily due to higher interest expense related to our debt issuance in March 2014.
$
The effective tax rate for 2015 was lower than the effective tax rate for 2014 primarily due to settlements with tax authorities in
multiple jurisdictions. Further, the information gained related to the these matters was considered in measuring uncertain tax
benefits recognized for the periods subsequent to the periods settled. In addition, the recognition of other U.S. foreign tax credits
and a more favorable geographic mix of taxable earnings also contributed to the lower effective tax rate in 2015.
The effective tax rate for 2014 was lower than the effective tax rate for 2013 primarily due to the recognition of a larger repatriation
benefit and an increase in the Company's domestic production activity deduction in the U.S. related to the Company's
authorization revenue, partially offset by an unfavorable mix of earnings in 2014.
During the fourth quarter of 2014, we implemented an initiative to better align our legal entity and tax structure with our
operational footprint outside of the U.S. This initiative resulted in a one-time taxable gain in Belgium relating to the transfer of
intellectual property to a related foreign entity in the United Kingdom. We believe this improved alignment will result in greater
39
flexibility and efficiency with regard to the global deployment of cash, as well as ongoing benefits in our effective income tax
rate. See Note 17 (Income Taxes) to the consolidated financial statements included in Part II, Item 8 for further discussion.
The provision for income taxes differs from the amount of income tax determined by applying the U.S. federal statutory income
tax rate of 35% to pretax income for the years ended December 31, as a result of the following:
2015
For the Years Ended December 31,
2014
Amount
Percent
Amount
Percent
Other Income (Expense)
2013
Percent
(in millions, except percentages)
Income before income taxes
$
4,958
$
5,079
$
4,500
Federal statutory tax. .
1,735
35.0 %
1,778
1,575
Amount
35.0 %
During 2015, the Company recorded a pre-tax charge of $61 million for a litigation settlement relating to a merchant litigation
in the U.K. In the fourth quarter of 2013, MasterCard recorded an incremental net pre-tax charge of $95 million related to the
opt-out merchants in the U.S. Merchant Litigation. See Note 18 (Legal and Regulatory Proceedings) to the consolidated financial
statements included in Part II, Item 8 for further discussion.
Depreciation and amortization expenses increased 14% in 2015 and 24% in 2014. The increase in depreciation and amortization
expense in both 2015 and 2014 was primarily due to higher amortization of capitalized software costs and other intangibles
associated with our acquisitions.
20%
36%
Special Items
General and administrative expenses
1
3,341
3,152
2,615
6%
21%
(79)
Non-GAAP general and administrative
expenses (excluding Special Items)
$
3,262 $
Provision for Litigation Settlement
3,152 $
3%
21%
Includes the impact of the U.S. Employee Pension Plan Settlement Charge, which was recognized in personnel expenses. See Non-GAAP Financial
Information.
* Tables may not sum due to rounding.
** Not meaningful.
The primary drivers of changes in general and administrative expenses in 2015 and 2014 were:
The increase in personnel expense in 2015 is due to an increase in the number of employees resulting
from our acquisitions as well as the U.S. Employee Pension Plan Settlement Charge of $79 million recognized
in 2015, partially offset by the lapping of the restructuring charge of $87 million recorded in 2014 and
improved cost controls. The increase in personnel expenses in 2014 compared to 2013 was due to an
increase in the number of employees from acquisitions and employees required to support our strategic
initiatives and a restructuring charge of $87 million recorded in 2014.
Professional fees consist primarily of third-party services, legal costs to defend our outstanding litigation
and the evaluation of regulatory developments that impact our industry and brand. Professional fees
remained consistent in 2015 and increased in 2014, primarily due to higher third-party service expenses.
Data processing and telecommunication expense consists of expenses to support our global payments
network infrastructure, expenses to operate and maintain our computer systems and other
38
telecommunication system. These expenses increased in both 2015 and 2014 due to capacity growth of
our business and higher third party processing costs.
Foreign exchange activity includes gains and losses on foreign exchange derivative contracts and the impact
of remeasurement of assets and liabilities denominated in foreign currencies. See Note 20 (Foreign
Exchange Risk Management) to the consolidated financial statements included in Part II, Item 8 for further
discussion. Since the Company does not designate foreign currency derivatives as hedging instruments
pursuant to the accounting standards for derivative instruments and hedging activities, it records gains
and losses on foreign exchange derivatives on a current basis, with the associated offset being recognized
as the exposures materialize. During 2015, we recorded higher gains on derivative contracts, as well as
balance sheet remeasurement gains related primarily to the devaluation of the Venezuelan bolivar versus
2014. During 2014, we recorded higher derivative gains versus the similar period in 2013.
Other expenses include loyalty and rewards solutions, travel and meeting expenses and rental expense
for our facilities. The increase in other expenses in both 2015 and 2014 was primarily due to the impact
of acquisitions and expenses incurred to support strategic development efforts including costs associated
with loyalty and rewards programs.
Advertising and Marketing
In 2015, advertising and marketing expenses decreased 5%, mainly due to the favorable impact from foreign currency translation
and lower media spend, partially offset by higher sponsorship promotions to support our strategic initiatives. Advertising and
marketing expenses increased 3% in 2014, mainly due to new and renewed sponsorships and increased media spend to support
our strategic initiatives. See Value-Added Solutions and Marketing sections included in Part I, Item 1 for further discussion of
our marketing strategy.
Depreciation and Amortization
2,615
397
State tax effect, net of federal benefit.
0.5 %
(40)
(0.8)%
(54)
(1.1)%
15
0.3 %
Income tax expense
1,150
23.2 % $
1,462
28.8 % $
1,384
30.8 %
The Company's GAAP effective tax rates for 2015 and 2013 were affected by the tax benefits related to the Special Items as
previously discussed.
Other, net. . . . .
During 2015, the Company's unrecognized tax benefits related to tax positions taken during the current and prior periods
decreased by $183 million. The decrease in the Company's unrecognized tax benefits for 2015 was primarily due to settlements
with tax authorities in multiple jurisdictions. Further, the information gained related to these matters was considered in measuring
uncertain tax benefits recognized for the periods subsequent to the periods settled. As of December 31, 2015, the Company's
unrecognized tax benefits related to positions taken during the current and prior period were $181 million, all of which would
reduce the Company's effective tax rate if recognized. Within the next twelve months, we believe that the resolution of certain
federal, foreign and state and local tax examinations is reasonably possible and that a change in estimate, reducing unrecognized
tax benefits, may occur. It is not possible to provide a range of the potential change until the examinations progress further or
the related statute of limitations expire.
Liquidity and Capital Resources
We need liquidity and access to capital to fund our global operations, credit and settlement exposure, capital expenditures,
investments in our business and current and potential obligations. The Company generates the cash required to meet these
needs through operations. The following table summarizes the cash, cash equivalents, investments and credit available to the
Company at December 31:
1
2
2015
$
6.7 $
3.8
2014
(in billions)
6.4 $
3.0
2013
6.3
3.0
1
2
Investments include available-for-sale securities and held-to-maturity securities. At December 31, 2015, 2014 and 2013, this amount excludes restricted
cash related to the U.S. merchant class litigation settlement of $541 million, $540 million and $723 million, respectively.
In 2010, in connection with the expansion of the Company's operations in the Asia Pacific, Middle East and Africa region, the
Company's subsidiary in Singapore, MasterCard Asia Pacific Pte. Ltd. ("MAPPL”), received an incentive grant from the Singapore
Ministry of Finance. See Note 17 (Income Taxes) to the consolidated financial statements included in Part II, Item 8 for further
discussion.
27
%
(3)
29
0.6 %
19
0.4 %
Foreign tax effect.
(144)
(2.9)%
(108)
(2.1)%
(208)
(4.6)%
Foreign repatriation
(172)
(3.5)%
-
(177)
(14)
(0.3)%
Impact of settlements with tax authorities.
(147)
(2.9)%
-
%
-
%
Other foreign tax credits..
(109)
(2.2)%
(6)
(0.1)%
(3.5)%
538
Income Taxes
Other...
Total - Non-GAAP
2015
2014
2015
2014
General and administrative. .
7%
7%
(3)%
-
- %
(1)%
14%
3 %
Other
21%
-%
-%
(7)%
(1)%
2 %
4%
(5)%
3%
Depreciation and amortization.
11%
13%
(1)%
%
4 %
Advertising and marketing .
11%
1
Foreign Currency
21%
-%
21%
862
321
841
841
3% -%
3%
258
95
258
24% -%
24%
(95)
**
2014
**
(95) $ 3,714
14%
(3)%
17%
See Non-GAAP Financial Information for the respective impacts relating to the Special Items.
* Tables may not sum due to rounding.
** Not meaningful.
37
The following table summarizes the primary drivers of changes in adjusted operating expenses, excluding Special Items, in 2015
and 2014:
Acquisitions
2015
2014
646
For the Years Ended December 31,
$ 4,335 $ 3,809 $
14 %
2015
Provision for litigation settlement
2014
2013
2015
2014
(in millions, except percentages)
Personnel
$
2,105 $
2,064 $
1,739
2%
19%
Professional fees
310
2015
307
1%
22%
Data processing and telecommunications.
Foreign exchange activity.
362
273
226
33%
21%
(82)
(30)
2
**
**
24%
251
Percent Increase (Decrease)
35.0 %
The significant components of our general and administrative expenses were as follows:
For the Years Ended December 31,
**
**
**
**
**
**
**
Total operating expenses.
6%
**
(4)%
(1)%
1 %
12%
6%
General and Administrative
General and administrative expenses increased 6% in 2015 compared to 2014, and increased 21% in 2014 compared to 2013.
Excluding the impact of the Special Items, adjusted general and administrative expenses increased 3% in 2015 compared to 2014,
primarily due to acquisitions and higher data processing costs, partially offset by improved cost controls, the favorable impact
of foreign currency translation, lapping of the impact of the restructuring charge taken in 2014 and foreign exchange activity
gains. General and administrative expenses increased 21% in 2014 compared to 2013, due to the impact of investments in our
strategic initiatives, acquisitions and the restructuring charge of $87 million taken in 2014.
1 Reflects translation from the euro and Brazilian real to the U.S. dollar.
17%
3 %
3,808 $
3,617 $
3,116
Other comprehensive income (loss):
Foreign currency translation adjustments..
Income tax effect
(436)
Net Income
27
-
Foreign currency translation adjustments, net of income tax effect..
(433)
(436)
113
Translation adjustments on net investment hedge
(40)
Income tax effect
(460)
(in millions)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2014
3,116
3.36
3.11 $
2.57
1,134
1,165
1,211
3.35 $
3.10
2.56
1,137
1,169
14
1,215
52
62
MASTERCARD INCORPORATED
For the Years Ended December 31,
2015
2013
Translation adjustments on net investment hedge, net of income tax effect..
(12)
Defined benefit pension and other postretirement plans.
Investment securities available-for-sale
(11)
5-
(5)
(3)
1
Reclassification adjustment for investment securities available-for-sale, net of
income tax effect
2
4
Income tax effect
(1)
15
Reclassification adjustment for investment securities available-for-sale...
(1)
2
(4)
(11)
Investment securities available-for-sale, net of income tax effect
(5)
(26)
4
(2)
(19)
(3)
Income tax effect
7
2
7 3
(3)
Defined benefit pension and other postretirement plans, net of income tax
effect
51
(1)
Reclassification adjustment for defined benefit pension and other
postretirement plans
Income tax effect
Reclassification adjustment for defined benefit pension and other
postretirement plans, net of income tax effect
80
7
6
(29)
(3)
4
Income tax effect
Class B common stock, $0.0001 par value; authorized 1,200 shares, 21 and 37 issued and outstanding,
respectively
(1)
Net income..
6,824
Balance at December 31, 2014.
Conversion of Class B to Class
A common stock
6
114
120
Share-based payments
- - - - - (3,424) -
(3,424)
4)
(569)
(569)
stock, $0.49 per share..
Purchases of treasury stock
Class A and Class B common
Cash dividends declared on
(438)
(438)
(loss), net of tax....
Other comprehensive income
23
3
23
controlling interests..
Activity related to non-
11
3,808
(6,577)
13,169
3,808
3,876 (9,995)
54
The accompanying notes are an integral part of these consolidated financial statements.
$ 6,062 $ 16,222 $ (676) $ - $ - $ 4,004 $(13,522) $ 34
Balance at December 31, 2015
Conversion of Class B to Class
A common stock
Purchases of treasury stock
Share-based payments
| | |
5
(3,532)
133
(3,532)
(755)
(755)
stock, $0.67 per share..
Class A and Class B common
Cash dividends declared on
T
(416)
(416)
(loss), net of tax..
Other comprehensive income
--------
controlling interests..
Activity related to non-
34
(260)
15
3,762
10,121
3,617
Retained
Earnings
Total
Cash dividends declared on
Class A and Class B common
stock, $0.29 per share..
Purchases of treasury stock
Share-based payments
(loss), net of tax....
117
Other comprehensive income
(1)
3,116
Activity related to non-
controlling interests..
Net income...
Balance at December 31, 2012... $ 6,929 $
Accumulated
Other
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
MASTERCARD INCORPORATED
53
The accompanying notes are an integral part of these consolidated financial statements.
3,233
3,179 $
3,392 $
Comprehensive Income ...
117
(438)
(416)
Other comprehensive income (loss), net of tax
(3)
Comprehensive
Income (Loss)
178
7,354 $
Common Stock
3,617
Net income. ...
7,495
Balance at December 31, 2013
Conversion of Class B to Class
A common stock
3)==121 (2,443)
126
(2,443)
|
(349)
(349)
2| € །
(1)
117
|
Additional paid-in-capital
3,617 $
61 $ - $ - $ 3,641 $ (4,139) $12
(in millions, except per share data)
Interests
Non-
Controlling
Class A
Treasury
Stock
Capital
Class A Class B
Additional
Paid-In
3,116
3,808
113
1,462
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of MasterCard Incorporated:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the
financial position of MasterCard Incorporated and its subsidiaries at December 31, 2015 and December 31, 2014, and the results
of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on
these financial statements, and on the Company's internal control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement and whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for deferred income taxes
as of December 31, 2015.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 12, 2016
50
Cash and cash equivalents
Restricted cash for litigation settlement.
Investments
Accounts receivable
Settlement due from customers
Restricted security deposits held for customers
Prepaid expenses and other current assets
Deferred income taxes
Total Current Assets
Property, plant and equipment, net
Deferred income taxes
Goodwill
Other intangible assets, net
Other assets
MASTERCARD INCORPORATED
Fair Market
CONSOLIDATED BALANCE SHEET
The management of MasterCard Incorporated ("MasterCard") is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in
accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. As required by Section 404 of the Sarbanes-
Oxley Act of 2002, management has assessed the effectiveness of MasterCard's internal control over financial reporting as of
December 31, 2015. In making its assessment, management has utilized the criteria set forth in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management
has concluded that, based on its assessment, MasterCard's internal control over financial reporting was effective as of
December 31, 2015. The effectiveness of MasterCard's internal control over financial reporting as of December 31, 2015 has
been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which
appears on the next page.
ASSETS
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
55
1,155
1 - - 4
$ 558 $ 375 $ 162 $ 28 $ 7 $ 25
At December 31, 2015, we have U.S. dollar-denominated and euro-denominated debt, which is subject to interest rate risk. The
principal amounts of this debt as well as the effective interest rates and scheduled annual maturities of the principal is included
46
in Note 12 (Debt) to the consolidated financial statements included in Part II, Item 8. See "Future Obligations" for estimated
interest payments due by period relating to the U.S. dollar-denominated and euro-denominated debt.
At December 31, 2015, we have a credit facility which provides liquidity for general corporate purposes, including providing
liquidity in the event of one or more settlement failures by the Company's customers. This credit facility has variable rates, which
are applied to the borrowing based on terms and conditions set forth in the agreement. In conjunction with the credit facility,
we have established a Commercial Paper Program. See Note 12 (Debt) to the consolidated financial statements in Part II, Item
8 for additional information on the Company's current and prior credit facilities and Commercial Paper Program. With the
exception for business continuity planning, we did not borrow under the prior or current credit facilities as of December 31, 2015
and 2014 and there were no outstanding borrowings under the Commercial Paper Program as of December 31, 2015.
Equity Price Risk
The Company did not have significant equity price risk as of December 31, 2015 and 2014.
47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MASTERCARD INCORPORATED
MasterCard Incorporated
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013
Management's Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm. .
Consolidated Balance Sheet.
Consolidated Statement of Operations.
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows...
Notes to Consolidated Financial Statements
48
Page
49
50
51
52
53
54
56
$
2015
2014
866
1,142
895
950
709
771
2,763
2,439
564
501
6,269
6,222
3,287
1,494
79
115
572
674
10,207
8,505
Total Assets
Accounts payable
Settlement due to customers
Restricted security deposits held for customers
Accrued litigation
Accrued expenses
Other current liabilities
Total Current Liabilities
Long-term debt
419
December 31,
472 $
15,329
(in millions, except per share data)
5,747 $
5,137
541
540
991
1,238
1,079
1,109
1,068
1,052
895
950
664
671
300
10,985
10,997
675
615
317
96
1,891
1,522
803
714
1,598
1,385
16,269
LIABILITIES AND EQUITY
Deferred income taxes
Total
7
Financial Instrument
Summary Terms
2015
2016
2017
2018
2019
2020
and
there-
after
Municipal securities
Fixed/Variable Interest
62 $
48 $
(in millions)
14 $
$
U.S. government and agency
securities .
Fixed/Variable Interest
72
47
17
2 --6
Corporate securities
Fixed/Variable Interest
630
1,384
204
299
123
Value at
December 31,
w
We do not record U.S. income tax expense for foreign earnings which we intend to reinvest indefinitely to expand our international
operations. We consider business plans, planning opportunities, and expected future outcomes in assessing the needs for future
expansion and support of our international operations. If our business plans change or our future outcomes differ from our
expectations, U.S. income tax expense and our effective tax rate could increase or decrease in that period.
The valuation of assets acquired in a business combination and asset impairment reviews require the use of significant estimates
and assumptions. The acquisition method of accounting for business combinations requires the Company to estimate the fair
value of assets acquired, liabilities assumed, and any non-controlling interest in the acquiree to properly allocate purchase price
consideration between assets that are depreciated and amortized from goodwill. Impairment testing for assets, other than
goodwill and indefinite-lived intangible assets, requires the allocation of cash flows to those assets or group of assets and if
required, an estimate of fair value for the assets or group of assets. The Company's estimates are based upon assumptions
believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of
management's assumptions, which would not reflect unanticipated events and circumstances that may occur.
Maturity
Our interest rate sensitive assets are our investments in debt securities, which we generally hold as available-for-sale investments.
Our general policy is to invest in high quality securities, while providing adequate liquidity and maintaining diversification to
avoid significant exposure. The fair value and maturity distribution of the Company's available for sale investments for debt
securities as of December 31 was as follows:
Interest Rate Risk
Our settlement activities are subject to foreign exchange risk resulting from foreign exchange rate fluctuations. This risk is typically
limited to the one business day between setting the foreign exchange rates and clearing the financial transactions.
We use foreign currency denominated debt to hedge a portion of our net investment in foreign operations against adverse
movements in exchange rates, with changes in the value of the debt recorded within currency translation adjustment in
accumulated other comprehensive income (loss). During the fourth quarter of 2015, we designated our euro-denominated debt
as a net investment hedge for a portion of our net investment in European foreign operations. Our euro-denominated debt is
vulnerable to changes in the euro to U.S. dollar exchange rates. The principal amounts of our euro-denominated debt as well
as the effective interest rates and scheduled annual maturities of the principal is included in Note 12 (Debt) to the consolidated
financial statements included in Part II, Item 8.
1
27
614
12
4
47 $
1 $
232 $
1,430
44
$
Commitments to purchase foreign currency.
Commitments to sell foreign currency.
Options to sell foreign currency
(in millions)
Estimated Fair
Value
Notional
Estimated Fair
Value
Notional
December 31, 2014
December 31, 2015
As of December 31, 2015, the majority of derivative contracts to hedge foreign currency fluctuations had been entered into with
customers of MasterCard. MasterCard's derivative contracts are summarized below:
45
We enter into derivative contracts to manage risk associated with anticipated receipts and disbursements which are either
transacted in a non-functional currency or valued based on a currency other than our functional currency. We may also enter
into foreign currency derivative contracts to offset possible changes in value due to foreign exchange fluctuations of earnings,
assets and liabilities denominated in currencies other than the functional currency of the entity. The objective of these activities
is to reduce our exposure to transaction gains and losses resulting from fluctuations of foreign currencies against our functional
and reporting currencies, principally the U.S. dollar and euro. Foreign currency exposures are managed together through our
foreign exchange risk management activities, which are discussed further in Note 20 (Foreign Exchange Risk Management) to
the consolidated financial statements included in Part II, Item 8. The terms of the forward contracts are generally less than 18
months.
Foreign Exchange Risk
Market risk is the potential for economic losses to be incurred on market risk sensitive instruments arising from adverse changes
in market factors such as interest rates, foreign currency exchange rates and equity price risk. Our exposure to market risk from
changes in interest rates, foreign exchange rates and equity price risk is limited. Management establishes and oversees the
implementation of policies governing our funding, investments and use of derivative financial instruments. We monitor risk
exposures on an ongoing basis. The effect of a hypothetical 10% adverse change in foreign currency rates could result in a fair
value loss of approximately $128 million on our foreign currency derivative contracts outstanding at December 31, 2015 related
to the hedging program. A 100 basis point adverse change in interest rates would not have a material impact on the Company's
investments at December 31, 2015 and 2014. In addition, there was no material equity price risk at December 31, 2015 or 2014.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis or sooner if indicators of impairment
exist. Goodwill is tested for impairment at the reporting unit level. The impairment evaluation utilizes a quantitative assessment
using a two-step impairment test. The first step is to compare the reporting unit's carrying value, including goodwill, to the fair
value. The Company uses a market approach for estimating the fair value of its reporting unit. If the fair value exceeds the carrying
value, then no potential impairment is considered to exist. If the carrying value exceeds the fair value, the second step is performed
to determine if the implied fair value of the reporting unit's goodwill exceeds the carrying value of the reporting unit. An
impairment charge would be recorded if the carrying value exceeds the implied fair value. The impairment test for indefinite-
lived intangible assets consists of a qualitative assessment to evaluate all relevant events and circumstances that could affect
the significant inputs used to determine the fair value of indefinite-lived intangible assets. In performing the qualitative
assessment, we consider relevant events and conditions, including but not limited to, macroeconomic trends, industry and market
conditions, overall financial performance, cost factors, company-specific events, and legal and regulatory factors. If the qualitative
assessment indicates that it is more likely than not that the fair value of the indefinite-lived intangible asset is less than their
carrying amounts, the Company must perform a quantitative impairment test.
Valuation of Assets
5
3
Asset-backed securities..
2 $
-
$
3
U.S. government and agency
securities
Fixed/Variable Interest
199
132
52
2--13
Corporate securities
Fixed/Variable Interest
618
325
211
82 - - -
31
Asset-backed securities.
Other
Fixed/Variable Interest
Fixed/Variable Interest
178
4
59
25
15
5
75
1
28
and
there-
after
1
2019
2017
(in millions)
48 $
Other
Fixed/Variable Interest
Fixed/Variable Interest
57
1
38
9
220
22
13
L
|
----
Total..
859 $ 309 $ 379 $ 147 $ 16 $ 1
$
7
Maturity
Fair Market
2020
Value at
December 31,
Financial Instrument
Summary Terms
2014
2015
2016
Municipal securities
Fixed/Variable Interest
135 $ 82 $
2018
Other liabilities
2021
Commitments and Contingencies
MASTERCARD INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
2013
For the Years Ended December 31,
2014
(in millions, except per share data)
2015
Net Revenue
Operating Expenses
General and administrative
9,667 $
9,441 $
8,312
3,341
3,152
2,615
Advertising and marketing.
821
862
841
51
The accompanying notes are an integral part of these consolidated financial statements.
Total Liabilities and Equity
15,329
Class A treasury stock, at cost, 275 and 237 shares, respectively.
Retained earnings
Accumulated other comprehensive income (loss).
Total Stockholders' Equity
Non-controlling interests
Total Equity
4,004
(13,522)
3,876
(9,995)
16,222
Depreciation and amortization
13,169
(260)
6,028
6,790
34
34
6,062
6,824
16,269
$
(676)
366
Total Liabilities
258
The accompanying notes are an integral part of these consolidated financial statements.
25
28
38
(61)
(48)
(14)
(7)
(27)
(120)
(27)
(3)
4,958
5,079
4,500
1,150
Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,370 and 1,352 shares issued and
1,095 and 1,115 outstanding, respectively
Stockholders' Equity
321
Diluted Weighted-Average Shares Outstanding..
Diluted Earnings per Share
(84)
Basic Earnings per Share
Provision for litigation settlement.
Basic Weighted-Average Shares Outstanding..
61
95
Total operating expenses..
4,589
4,335
3,809
Investment income.
5,078
Operating income..
Income before income taxes
4,503
Other Income (Expense)
Interest expense ...
Other income (expense), net.
Total other income (expense)
5,106
Income tax expense
Net Income
Municipal securities
$
135 $
199
135
(in millions)
U.S. government and agency securities
$ - $ - $
Fair
Value
$
Gross
Unrealized
Gain
Cost
Amortized
December 31, 2014
861
(1) $
1 $
861 $
40
Corporate securities.
Gross
Unrealized
Loss
619
(35)
Asset-backed securities
4,043
51
1
64
The municipal securities are primarily comprised of tax-exempt bonds and are diversified across states and sectors. The U.S.
government and agency securities are primarily invested in U.S. government bonds and U.S. government sponsored agency
1,168
(5) $
1 $
1,172 $
$
Total.
38
(4)
178
618
199
| |Ê།←
1
41
Other
178
- (1)
39
Value
Other
December 31, 2015
The major classes of the Company's available-for-sale investment securities, for which unrealized gains and losses are recorded
as a separate component of other comprehensive income on the consolidated statement of comprehensive income, and their
respective amortized cost basis and fair values as of December 31, 2015 and 2014 were as follows:
Amortized Costs and Fair Values - Available-for-Sale Investment Securities
Certain assets are measured at fair value on a nonrecurring basis for purposes of initial recognition and impairment testing. The
Company's non-financial assets measured at fair value on a nonrecurring basis include property, plant and equipment, goodwill
and other intangible assets. These assets are subject to fair value adjustments in certain circumstances, such as when there is
evidence of impairment.
Non-Financial Instruments
The Company estimates the fair value of its settlement and other guarantees using the market pricing approach which applies
market assumptions for relevant though not directly comparable undertakings, as the latter are not observable in the market
given the proprietary nature of such guarantees. At December 31, 2015 and 2014, the carrying value and fair value of settlement
and other guarantee liabilities were not material. Settlement and other guarantee liabilities are classified as Level 3 of the
Valuation hierarchy as their valuation requires substantial judgment and estimation of factors that are not currently observable
in the market. For additional information regarding the Company's settlement and other guarantee liabilities, see Note 19
(Settlement and Other Risk Management).
Settlement and Other Guarantee Liabilities
The Company estimates the fair value of its long-term debt using the market pricing approach which applies market assumptions
for relevant though not directly comparable undertakings. Long-term debt is classified as Level 2 of the Valuation Hierarchy. At
December 31, 2015 the carrying value and fair value of long-term debt was $3.3 billion. At December 31, 2014, the carrying
value and fair value of long-term debt was $1.5 billion.
Debt
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
63
Investments on the Consolidated Balance Sheet include both available-for-sale and held-to-maturity securities. Available-for-
sale securities are measured at fair value on a recurring basis and are included in the Valuation Hierarchy table above. Held-to-
maturity securities are made up of time deposits with maturities of greater than three months and less than one year and are
classified as Level 2 of the Valuation Hierarchy, but are not included in the table above due to their fair values not being measured
on a recurring basis. At December 31, 2015 and December 31, 2014, the cost, which approximates fair value, of the Company's
held-to-maturity securities was $130 million and $70 million, respectively.
Certain financial instruments are carried on the consolidated balance sheet at cost, which approximates fair value due to their
short-term, highly liquid nature. These instruments include cash and cash equivalents, restricted cash, time deposits, accounts
receivable, settlement due from customers, restricted security deposits held for customers, accounts payable, settlement due
to customers and accrued expenses. In addition, nonmarketable equity investments are measured at fair value on a nonrecurring
basis for purposes of initial recognition and impairment testing.
Financial Instruments - Non-Recurring Measurements
The fair value of the Company's available-for-sale municipal securities, U.S. government agency securities, corporate securities,
asset-backed securities and other fixed income securities included in the Other category are based on quoted prices for similar
assets in active markets and are therefore included in Level 2 of the Valuation Hierarchy. The Company's foreign currency derivative
contracts have also been classified within Level 2 in the Other category of the Valuation Hierarchy, as the fair value is based on
broker quotes for the same or similar derivative instruments. See Note 20 (Foreign Exchange Risk Management) for further
details. The Company's U.S. government securities and marketable equity securities are classified within Level 1 of the Valuation
Hierarchy as the fair values are based on unadjusted quoted prices for identical assets in active markets.
2 Excludes amounts held in escrow related to the U.S. merchant class litigation settlement of $541 million and $540 million at December 31, 2015 and
December 31, 2014, which would be included in Level 1 of the Valuation Hierarchy. See Note 10 (Accrued Expenses and Accrued Litigation) and Note
18 (Legal and Regulatory Proceedings) for further details.
¹ During 2015, U.S. government securities were reclassified from Level 2 to Level 1 due to a reassessment of the availability of quoted prices. Prior
period amounts have been revised to conform to the 2015 presentation.
1,199
$
69
Amortized
Cost
Gross
Unrealized
Gross
Unrealized
Fair
57
630
72
62
│ │ཊུ| │
e
222
57
Asset-backed securities
(1)
Total..
631
72
U.S. government and agency securities
62 $
$
Municipal securities
$
(in millions)
3,407
Loss
Gain
Corporate securities.
4,135
Acquisition of businesses, net of cash acquired..
(974)
5,137
Cash and cash equivalents - beginning of period
1,547
1,538
610
Net increase in cash and cash equivalents
45
(220)
(260)
Effect of exchange rate changes on cash and cash equivalents.
(2,629)
(2,339)
(2,458)
Net cash used in financing activities
(11)
(50)
(17)
26
28
27
Cash proceeds from exercise of stock options
3,599
19
2,052
$
Impairment of assets - Long-lived assets, other than goodwill and indefinite-lived intangible assets, are tested for impairment
whenever events or circumstances indicate that their carrying amount may not be recoverable. If the carrying value of the asset
cannot be recovered from estimated future cash flows, undiscounted and without interest, the fair value of the asset is calculated
using the present value of estimated net future cash flows. If the carrying amount of the asset exceeds its fair value, an impairment
is recorded.
Intangible assets - Intangible assets consist of capitalized software costs, trademarks, tradenames, customer relationships and
other intangible assets, which have finite lives, and customer relationships which have indefinite lives. Intangible assets with
finite useful lives are amortized over their estimated useful lives, on a straight-line basis, which range from one to ten years.
Capitalized software includes internal and external costs incurred directly related to the design, development and testing phases
of each capitalized software project.
Volume-based revenue (domestic assessments and cross-border volume fees) is recorded as revenue in the period it is earned,
which is when the related volume is generated on the cards. Certain volume-based revenue is based upon information reported
to us by our customers. Transaction-based revenue (transaction processing fees) is primarily based on the number and type of
transactions and is recognized as revenue in the same period as the related transactions occur. Other payment-related products
and services are recognized as revenue in the same period as the related transactions occur or services are rendered.
MasterCard has business agreements with certain customers that provide for rebates or other support when the customers meet
certain volume hurdles as well as other support incentives such as marketing, which are tied to performance. Rebates and
incentives are recorded as a reduction of revenue either when the revenue is recognized by the Company or at the time the
rebate or incentive is earned by the customer. Rebates and incentives are calculated based upon estimated performance and
the terms of the related business agreements. In addition, MasterCard may make payments to a customer directly related to
entering into an agreement, which are generally deferred and amortized over the life of the agreement on a straight-line basis.
Business combinations - The Company accounts for business combinations under the acquisition method of accounting. The
Company measures the tangible and intangible identifiable assets acquired, liabilities assumed, and any non-controlling interest
in the acquiree, at their fair values at the acquisition date. Acquisition-related costs are expensed as incurred and are included
in general and administrative expenses. Any excess of purchase price over the fair value of net assets acquired, including
identifiable intangible assets, is recorded as goodwill.
Revenue recognition - Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services
have been rendered, the price is fixed or determinable, and collectibility is reasonably assured. Revenue is generally derived
from transactional information accumulated by our systems or reported by our customers. The Company's revenue is based on
the volume of activity on cards that carry the Company's brands, the number of transactions processed or the nature of other
payment-related products and services.
Use of estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Future
events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment.
The accounting estimates used in the preparation of the Company's consolidated financial statements may change as new events
occur, as more experience is acquired, as additional information is obtained and as the Company's operating environment changes.
Actual results may differ from these estimates.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
-
MASTERCARD INCORPORATED
56
The Company accounts for investments in common stock or in-substance common stock under the equity method of accounting
when it has the ability to exercise significant influence over the investee, generally when it holds between 20% and 50% ownership
in the entity. In addition, investments in flow-through entities such as limited partnerships and limited liability companies are
also accounted for under the equity method when the Company has the ability to exercise significant influence over the investee,
generally when the investment ownership percentage is equal to or greater than 5% of the outstanding ownership interest. The
excess of the cost over the underlying net equity of investments accounted for under the equity method is allocated to identifiable
tangible and intangible assets and liabilities based on fair values at the date of acquisition. The amortization of the excess of the
cost over the underlying net equity of investments and MasterCard's share of net earnings or losses of entities accounted for
under the equity method of accounting is included in other income (expense) on the consolidated statement of operations.
The Company accounts for investments in common stock or in-substance common stock under the cost method of accounting
when it does not exercise significant influence, generally when it holds less than 20% ownership in the entity or when the interest
in a limited partnership or limited liability company is less than 5% and the Company has no significant influence over the operation
of the investee. Investments in companies that MasterCard does not control, but that are not in the form of common stock or
in-substance common stock, are also accounted for under the cost method of accounting. Investments for which the equity
method or cost method of accounting is used are recorded in other assets on the consolidated balance sheet.
Consolidation and basis of presentation - The consolidated financial statements include the accounts of MasterCard and its
majority-owned and controlled entities, including any variable interest entities ("VIES") for which the Company is the primary
beneficiary. Investments in VIES for which the Company is not considered the primary beneficiary are not consolidated and are
accounted for as equity method or cost method investments and recorded in other assets on the consolidated balance sheet.
At December 31, 2015 and 2014, there were no significant VIES which required consolidation and the investments were not
considered material to the consolidated financial statements. Intercompany transactions and balances have been eliminated in
consolidation. Certain prior period amounts have been reclassified to conform to the 2015 presentation. In 2014 and 2013, net
revenue and general and administrative expenses were revised to correctly classify $32 million and $34 million, respectively, of
customer incentive expenses as contra revenue instead of general and administrative expenses. This revision had no impact on
net income. The Company follows accounting principles generally accepted in the United States of America ("GAAP").
Non-controlling interests represent the equity interest not owned by the Company and are recorded for consolidated entities in
which the Company owns less than 100% of the interests. Changes in a parent's ownership interest while the parent retains its
controlling interest are accounted for as equity transactions, and upon loss of control, retained ownership interests are
remeasured at fair value, with any gain or loss recognized in earnings. For 2015, 2014 and 2013, income from non-controlling
interests was de minimis and, as a result, amounts are included in the consolidated statement of operations within other income
(expense).
Significant Accounting Policies
MasterCard Incorporated and its consolidated subsidiaries, including MasterCard International Incorporated ("MasterCard
International" and together with MasterCard Incorporated, "MasterCard" or the "Company"), is a technology company in the
global payments industry that connects consumers, financial institutions, merchants, governments and businesses worldwide,
enabling them to use electronic forms of payment instead of cash and checks. The Company facilitates the processing of payment
transactions including authorization, clearing and settlement, and delivers related products and services. The Company makes
payments easier and more efficient by creating a wide range of payment solutions and services through a family of well-known
brands, including MasterCard, Maestro and Cirrus. The Company also provides value-added offerings such as loyalty and reward
programs, information services and consulting. The Company's network is designed to ensure safety and security for the global
payments system. A typical transaction on the Company's network involves four participants in addition to the Company:
cardholder, merchant, issuer (the cardholder's financial institution) and acquirer (the merchant's financial institution). The
Company's customers encompass a vast array of entities, including financial institutions and other entities that act as “issuers”
and "acquirers", as well as merchants, governments, telecommunication companies and other businesses. The Company does
not issue cards, extend credit, determine or receive revenue from interest rates or other fees charged to cardholders by issuers,
or establish the rates charged by acquirers in connection with merchants' acceptance of the Company's branded cards.
Organization
Note 1. Summary of Significant Accounting Policies
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
55
The accompanying notes are an integral part of these consolidated financial statements.
3,599
5,137 $
5,747 $
Cash and cash equivalents - end of period
54
42
(255)
(525)
(584)
(144)
(159)
(165)
Capitalized software
(155)
(175)
(177)
36
857
1,321
1,358
542
Proceeds from maturities of investment securities available-for-sale
Proceeds from maturities of investment securities held-to-maturity.
Purchases of property, plant and equipment.
1,488
2,477
703
(918)
(2,526)
(2,385)
(Increase) decrease in restricted cash for litigation settlement
(1)
183
3
(515)
(727)
35
1,530
178
Other financing activities
Tax benefit for share-based payments
Dividends paid
Proceeds from debt
(2,443)
Purchases of investment securities available-for-sale..
Purchases of other short-term investments held-to-maturity
Proceeds from sales of investment securities available-for-sale.
(3,386)
Purchases of treasury stock
Financing Activities
(4)
690
(715)
Net cash (used in) provided by investing activities.
(27)
(84)
2
Other investing activities
(3,518)
1,735
199
135
Certain assets are measured at fair value on a nonrecurring basis. The Company's assets measured at fair value on a nonrecurring
basis include property, plant and equipment, nonmarketable equity investments, goodwill and other intangible assets. These
assets are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.
The valuation methods for goodwill and other intangible assets involve assumptions concerning comparable company multiples,
discount rates, growth projections and other assumptions of future business conditions. The Company uses an income approach
for estimating the fair value of its intangible assets and a market approach for estimating the fair value of its reporting unit, when
necessary. As the assumptions employed to measure these assets and liabilities on a nonrecurring basis are based on
management's judgment using internal and external data, these fair value determinations are classified in Level 3 of the Valuation
Hierarchy.
Investment securities - The Company classifies investments in debt and equity securities as available-for-sale. Available-for-sale
securities that are available to meet the Company's current operational needs are classified as current assets. Available-for-sale
securities that are not available to meet the Company's current operational needs are classified as non-current assets.
The investments in debt and equity securities are carried at fair value, with unrealized gains and losses, net of applicable taxes,
recorded as a separate component of accumulated other comprehensive income (loss) on the consolidated statement of
comprehensive income. Net realized gains and losses on debt and equity securities are recognized in investment income on the
consolidated statement of operations. The specific identification method is used to determine realized gains and losses.
The Company classifies time deposits with maturities greater than 3 months as held-to-maturity. Held-to-maturity securities
that mature within one year are classified as current assets while held-to-maturity securities with maturities of greater than one
year are classified as non-current assets. Time deposits are carried at amortized cost on the consolidated balance sheet and are
intended to be held until maturity.
Derivative financial instruments - The Company records all derivatives at fair value. The Company's foreign exchange forward
and option contracts are included in Level 2 of the Valuation Hierarchy as the fair value of these contracts are based on inputs,
which are observable based on broker quotes for the same or similar instruments. Changes in the fair value of derivative
instruments are reported in current-period earnings. These derivative contracts hedge foreign exchange risk and were not entered
into for trading or speculative purposes. The Company did not have any derivative contracts accounted for under hedge accounting
as of December 31, 2015 and 2014.
The Company has numerous investments in its foreign subsidiaries. The net assets of these subsidiaries are exposed to volatility
in foreign currency exchange rates. The Company uses foreign currency denominated debt to hedge a portion of its net investment
in foreign operations against adverse movements in exchange rates. The effective portion of the foreign currency gains and
losses related to the foreign currency denominated debt are reported in accumulated other comprehensive income (loss) as part
of the cumulative translation adjustment component of equity. The ineffective portion, if any, is recognized in earnings in the
current period. The Company evaluates the effectiveness of the net investment hedge each quarter.
Level 3 inputs to the valuation methodology are unobservable and cannot be directly corroborated by observable
market data.
Settlement due from/due to customers - The Company operates systems for clearing and settling payment transactions among
MasterCard customers. Net settlements are generally cleared daily among customers through settlement cash accounts by wire
transfer or other bank clearing means. However, some transactions may not settle until subsequent business days, resulting in
amounts due from and due to MasterCard customers.
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
which are not recorded on the balance sheet. Additionally, MasterCard holds cash deposits and certificates of deposit from
certain customers of MasterCard as collateral for settlement of their transactions. These assets are fully offset by corresponding
liabilities included on the consolidated balance sheet.
Property, plant and equipment - Property, plant and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets.
Depreciation of leasehold improvements and amortization of capital leases is included in depreciation and amortization expense.
The useful lives of the Company's assets are as follows:
Asset Category
Restricted security deposits held for MasterCard customers - MasterCard requires collateral from certain customers for settlement
of their transactions. The majority of collateral for settlement is in the form of standby letters of credit and bank guarantees
59
Buildings.
-
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active
markets.
The Company also enters into agreements in the ordinary course of business under which the Company agrees to indemnify
third parties against damages, losses and expenses incurred in connection with legal and other proceedings arising from
relationships or transactions with the Company. As the extent of the Company's obligations under these agreements depends
entirely upon the occurrence of future events, the Company's potential future liability under these agreements is not
determinable. The Company accounts for each of its guarantees by recording the guarantee at its fair value at the inception or
modification date through earnings.
Income taxes - The Company follows an asset and liability based approach in accounting for income taxes as required under GAAP.
Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences
between the financial statement carrying amounts and income tax bases of assets and liabilities. Deferred income taxes are
displayed as separate line items on the consolidated balance sheet. In 2015, the Company early adopted accounting guidance
issued by the Financial Accounting Standards Board ("FASB") in the fourth quarter of 2015, which requires all deferred income
taxes to be recorded as non-current. The standard was applied prospectively, and as such, the prior period balance sheet was
not reclassified. Valuation allowances are provided against assets which are not more likely than not to be realized. The Company
recognizes all material tax positions, including uncertain tax positions in which it is more likely than not that the position will be
sustained based on its technical merits and if challenged by the relevant taxing authorities. At each balance sheet date, unresolved
uncertain tax positions are reassessed to determine whether subsequent developments require a change in the amount of
recognized tax benefit. The allowance for uncertain tax positions is recorded in other current and noncurrent liabilities on the
consolidated balance sheet.
The Company records interest expense related to income tax matters as interest expense in its statement of operations. The
Company includes penalties related to income tax matters in the income tax provision. The Company does not provide for U.S.
federal income tax and foreign withholding taxes on undistributed earnings from non-U.S. subsidiaries when such earnings are
intended to be reinvested indefinitely outside of the U.S.
Cash and cash equivalents - Cash and cash equivalents include certain investments with daily liquidity and with a maturity of
three months or less from the date of purchase. Cash equivalents are recorded at cost, which approximates fair value.
Restricted cash - The Company classifies cash as restricted when the cash is unavailable for withdrawal or usage for general
operations. Restrictions may include legally restricted deposits, contracts entered into with others, or the Company's statements
of intention with regard to particular deposits. In December 2012, the Company made a payment into a qualified cash settlement
fund related to its U.S. merchant class litigation. The Company has presented these funds as restricted cash for litigation settlement
since the use of the funds under the qualified cash settlement fund is restricted for payment under the settlement agreement.
Fair value - The Company measures certain financial assets and liabilities at fair value on a recurring basis by estimating the price
that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants.
The Company classifies these recurring fair value measurements into a three-level hierarchy ("Valuation Hierarchy").
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets and liabilities in inactive markets and inputs that are observable for the asset
or liability.
58
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Valuation Hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement
date. A financial instrument's categorization within the Valuation Hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The three levels of the Valuation Hierarchy are as follows:
•
•
•
5
Settlement and other risk management - MasterCard's rules guarantee the settlement of many of the MasterCard, Cirrus and
Maestro-branded transactions between its issuers and acquirers. Settlement exposure is the outstanding settlement risk to
customers under MasterCard's rules due to the difference in timing between the payment transaction date and subsequent
settlement. While the term and amount of the guarantee are unlimited, the duration of settlement exposure is short term and
typically limited to a few days. In the event that MasterCard effects a payment on behalf of a failed customer, MasterCard may
seek an assignment of the underlying receivables of the failed customer. Customers may be charged for the amount of any
settlement loss incurred during the ordinary course activities of the Company.
Building equipment. .
Leasehold improvements.
the requisite employee service period. The Company estimates the fair value of its non-qualified stock option awards ("Options")
using a Black-Scholes valuation model. The fair value of restricted stock units ("RSUS”) is determined and fixed on the grant date
based on the Company's stock price, adjusted for the exclusion of dividend equivalents. The Monte Carlo simulation valuation
model is used to determine the grant date fair value of performance stock units ("PSUs”) granted. All share-based compensation
expenses are recorded in general and administrative expenses.
Earnings per share - The Company calculates basic earnings per share ("EPS") by dividing net income by the weighted-average
number of common shares outstanding during the year. Diluted EPS is calculated by dividing net income by the weighted-average
number of common shares outstanding during the year, adjusted for the potentially dilutive effect of stock options and unvested
stock units using the treasury stock method.
Recent accounting pronouncements
Income taxes - In November 2015, the FASB issued accounting guidance that removes the reporting requirement to split deferred
income taxes between current and non-current. Instead, the new accounting guidance requires all deferred income taxes to be
reported as non-current. This standard is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted.
The Company early adopted the accounting guidance effective December 31, 2015. The Company applied the new guidance
prospectively and, as such, prior periods were not reclassified.
Debt issuance costs - In April 2015, the FASB issued accounting guidance that will change the current presentation of debt
issuance costs on the balance sheet. This new guidance will move debt issuance costs from the assets section of the balance
sheet to the liabilities section as a direct deduction from the carrying amount of the debt issued. The Company will adopt the
accounting guidance effective January 1, 2016 and does not anticipate that it will have a material impact on its consolidated
financial statements.
Revenue recognition In May 2014, the FASB issued accounting guidance that provides a single, comprehensive revenue
recognition model for all contracts with customers and supersedes most of the existing revenue recognition requirements. Under
this guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015,
the FASB issued accounting guidance that delayed the effective date of this standard by one year, making the guidance effective
for fiscal years beginning after December 15, 2017. Early application is permitted as of the original effective date, December 15,
2016. The Company will adopt the new accounting guidance effective January 1, 2018. The accounting guidance permits either
a full retrospective or a modified retrospective transition method. The Company is in the process of evaluating which transition
method it will apply and the potential effects this guidance will have on its consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income taxes - In July 2013, the FASB issued accounting guidance that requires entities to present an unrecognized tax benefit
net with certain deferred tax assets when specific requirements are met. The Company adopted the revised accounting guidance
effective January 1, 2014. This new accounting guidance did not have a material impact on the Company's consolidated financial
statements.
Foreign currency In March 2013, the FASB issued clarifying accounting guidance on the release of cumulative translation
adjustment into net income when an entity ceases to have a controlling financial interest in a subsidiary or a group of assets that
is a business within a foreign entity. The revised accounting guidance became effective January 1, 2014 and did not have an
impact on the Company's consolidated financial statements.
Note 2. Acquisitions
In 2015, the Company acquired two businesses for $609 million in cash. For these businesses acquired, the Company recorded
$474 million as goodwill representing the preliminary estimates of the aggregate excess of the purchase consideration over the
fair value of net assets acquired.
The Company acquired eight businesses in 2014. In 2014, two of the business combinations were achieved in stages, with non-
controlling interests acquired in previous years. One of the business combinations was a transaction for less than 100 percent
of the equity interest. The total consideration transferred was $575 million, of which $509 million was recorded as goodwill.
A portion of the goodwill related to the 2015 and 2014 acquisitions is expected to be deductible for local tax purposes. The
Company made no acquisitions in 2013. The consolidated financial statements include the operating results of the acquired
businesses from the dates of their respective acquisition. Pro forma information related to the acquisitions was not included
because the impact on the Company's consolidated results of operations was not considered to be material.
61
MASTERCARD INCORPORATED
-
Furniture and fixtures and equipment
MASTERCARD INCORPORATED
Share-based payments - The Company measures share-based compensation expense at the grant date, based on the estimated
fair value of the award and uses the straight-line method of attribution, net of estimated forfeitures, for expensing awards over
Capital leases.
Estimated Useful Life
30 years
10-15 years
2-5 years
Shorter of life of improvement or lease term
Lease term
Leases - The Company enters into operating and capital leases for the use of premises, software and equipment. Rent expense
related to lease agreements that contain lease incentives is recorded on a straight-line basis over the term of the lease.
60
Pension and other postretirement plans - The Company recognizes the funded status of its single-employer defined benefit
pension plans or postretirement plans as assets or liabilities on its balance sheet and recognizes changes in the funded status in
the year in which the changes occur through accumulated other comprehensive income (loss). The funded status is measured
as the difference between the fair value of plan assets and the benefit obligation at December 31, the measurement date. The
fair value of plan assets represents the current market value of the pension assets. Overfunded plans are aggregated and recorded
in long-term other assets, while underfunded plans are aggregated and recorded as accrued expenses and long-term other
liabilities.
Defined contribution plans - The Company's contributions to defined contribution plans are recorded when employees render
service to the Company. The charge is recorded in general and administrative expenses.
Advertising and marketing - The cost of media advertising
expensed when the advertising takes place. Advertising production
costs are expensed as incurred. Promotional items are expensed at the time the promotional event occurs. Sponsorship costs
are recognized over the period of benefit.
Foreign currency remeasurement and translation - Monetary assets and liabilities are remeasured to functional currencies using
current exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are recorded at historical exchange
rates. Revenue and expense accounts are remeasured at the weighted-average exchange rate for the period. Resulting exchange
gains and losses related to remeasurement are included in general and administrative expenses on the consolidated statement
of operations.
Where a non-U.S. currency is the functional currency, translation from that functional currency to U.S. dollars is performed for
balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts
using a weighted-average exchange rate for the period. Resulting translation adjustments are reported as a component of
accumulated other comprehensive income (loss).
Treasury stock - The Company records the repurchase of shares of its common stock at cost on the trade date of the transaction.
These shares are considered treasury stock, which is a reduction to stockholders' equity. Treasury stock is included in authorized
and issued shares but excluded from outstanding shares.
Net periodic pension and postretirement benefit cost/(income) is recognized in general and administrative expenses in the
consolidated statement of operations. These costs include service costs, interest cost, expected return on plan assets,
amortization of prior service costs or credits and gains or losses previously recognized as a component of accumulated other
comprehensive income (loss).
Note 3. Earnings Per Share
Litigation - The Company is a party to certain legal and regulatory proceedings with respect to a variety of matters. The Company
evaluates the likelihood of an unfavorable outcome of all legal or regulatory proceedings to which it is a party and accrues a loss
contingency when the loss is probable and reasonably estimable. These judgments are subjective based on the status of the
legal or regulatory proceedings, the merits of its defenses and consultation with in-house and external legal counsel. Legal costs
are expensed as incurred and recorded in general and administrative expenses.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
258
22
(15)
63
Deferred income taxes
Other
321
Changes in operating assets and liabilities:
Income taxes receivable.
(16)
(91)
(119)
(81)
52
Accounts receivable
67
366
Depreciation and amortization
MASTERCARD INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of customer and merchant incentives .
For the Years Ended December 31,
2015
Share-based payments
2013
3,808 $
3,617 $
3,116
764
691
603
2014
(in millions)
quantitative assessment is required. Based on the qualitative assessment performed in 2015, it was determined that the
Company's indefinite-lived intangible assets were not impaired.
(35)
(42)
(20)
Settlement due to customers
(186)
(165)
322
Accrued expenses . .
61
325
315
Net change in other assets and liabilities
Net cash provided by operating activities..
Investing Activities
57
MASTERCARD INCORPORATED
389
(164)
49
160
(14)
(8)
153
Settlement due from customers
(98)
185
Accounts payable
(194)
(802)
(1,316)
(598)
Accrued litigation and legal settlements
(63)
(115)
Prepaid expenses
-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The components of basic and diluted EPS for common shares for each of the years ended December 31 were as follows:
72
630
57
2
52
$
62
33 $
$
630
57
54
875
Municipal securities.
842
U.S. government and agency securities 2
732
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The distribution of the Company's financial instruments which are measured at fair value on a recurring basis within the Valuation
Hierarchy was as follows:
Significant
Quoted Prices
in Active
Markets
(Level 1) 1
Other
Observable
Inputs
(Level 2)
December 31, 2015
41
Significant
Unobservable
(Level 3)
Fair
Value
(in millions)
62 $
$
Inputs
-
Corporate securities..
Asset-backed securities
85
114
618
178
Other
13
135 $
56
$
98 $
1,101 $
Fair
Value
$
Total.
$ - $
| | |
Corporate securities.
Other
Total..
Quoted Prices
in Active
Markets
(Level 1)
December 31, 2014
Asset-backed securities.
Significant
Other
Observable
Inputs
(Level 2)
Inputs
(Level 3)
(in millions)
Municipal securities.
$ - $
U.S. government and agency securities
Significant
Unobservable
MASTERCARD INCORPORATED
62
62
1,165
1,211
3
4
4
1,137
1,134
1,169
$
3.36 $
3.11 $
2.57
$
3.35
1,215
$
3,116
3,808 $
2014
Numerator:
Net income
Denominator:
Basic weighted-average shares outstanding.
Dilutive stock options and stock units.
3,617 $
Diluted weighted-average shares outstanding
Basic ..
Diluted
4
2015
(in millions, except per share data)
2013
$
Earnings per Share
3.10 $
2.56
For the years presented, the calculation of diluted EPS excluded a minimal amount of anti-dilutive share-based payment awards.
Fair value of assets acquired, net of cash acquired..
Fair value of liabilities assumed related to acquisitions. .
Note 5. Fair Value and Investment Securities
212
184
131
Assets recorded pursuant to capital lease.
10
7
626
768
42
141
The Company classifies its fair value measurements of financial instruments into a three-level hierarchy (the "Valuation
Hierarchy"). Except for the reclassification of U.S. government securities from Level 2 to Level 1, there were no transfers made
among the three levels in the Valuation Hierarchy for 2015 and 2014.
8
Dividends declared but not yet paid
Non-cash investing and financing activities:
Cash paid for legal settlements ..
Note 4. Supplemental Cash Flows
The following table includes supplemental cash flow disclosures for each of the years ended December 31:
2014
Cash paid for income taxes, net of refunds
Cash paid for interest . . .
2015
2013
(in millions)
$
1,097 $ 2,036 $ 1,215
44
24
2
124
28
618
* Table may not sum due to rounding.
The impairment test for indefinite-lived intangible assets consists of a qualitative assessment to evaluate all relevant events and
circumstances that could affect the significant inputs used to determine the fair value of indefinite-lived intangible assets. If the
qualitative assessment indicates that it is more likely than not that indefinite-lived intangible assets are impaired, then a
Goodwill and indefinite-lived intangible assets are not amortized and are tested annually for impairment in the fourth quarter,
or sooner when circumstances indicate an impairment may exist. Goodwill is tested for impairment at the reporting unit level.
The impairment evaluation utilizes a quantitative assessment using a two-step impairment test. The first step is to compare the
reporting unit's carrying value, including goodwill, to the fair value. If the fair value exceeds the carrying value, then no potential
impairment is considered to exist. If the carrying value exceeds the fair value, the second step is performed to determine if the
implied fair value of the reporting unit's goodwill exceeds the carrying value of the reporting unit. An impairment charge would
be recorded if the carrying value exceeds the implied fair value. Impairment charges, if any, are recorded in general and
administrative expenses.
74
Long-term debt consisted of the following at December 31:
The Company is not subject to any financial covenants under the Euro Notes and the USD Notes (collectively the "Notes"). The
Notes may be redeemed in whole, or in part, at our option at any time for a specified make-whole amount. The Notes are senior
unsecured obligations and would rank equally with any future unsecured and unsubordinated indebtedness. The proceeds of
the Notes are to be used for general corporate purposes.
In March 2014, the Company issued $500 million aggregate principal amount of notes due April 1, 2019 and $1 billion aggregate
principal amount of notes due April 1, 2024 (collectively the "USD Notes"). The net proceeds from the issuance of the USD Notes,
after deducting the underwriting discount and offering expenses, were $1.484 billion. Interest on the USD Notes is payable semi-
annually on April 1 and October 1.
In December 2015, the Company issued €1.65 billion ($1.8 billion as translated at the December 31, 2015 exchange rate) aggregate
principal amount of notes. This offering consisted of €700 million aggregate principal amount of notes due 2022, €800 million
aggregate principal amount of notes due 2027 and €150 million aggregate principal amount of notes due 2030 (collectively the
"Euro Notes"). The net proceeds from the issuance of the Euro Notes, after deducting the underwriting discount and offering
expenses, were $1.723 billion. Interest on the Euro Notes is payable annually on December 1, commencing on December 1,
2016.
Note 12. Debt
The Company sponsors pension and postretirement plans for non-U.S. employees ("non-U.S. plans”) that cover various benefits
specific to their country of employment. The Company recognizes the funded status of its defined benefit pension plans and
other postretirement benefit plans, measured as the difference between the fair value of the plan assets and the projected
benefit obligation, in the Consolidated Balance Sheet. The non-U.S. plans do not have a material impact on the Company's
consolidated financial statements, individually or in the aggregate.
The Company maintains a postretirement plan providing health coverage and life insurance benefits for substantially all of its
U.S. employees hired before July 1, 2007 ("U.S. Postretirement Plan"). As of December 31, 2015 and 2014, the U.S. postretirement
plan was unfunded and the Company's obligation was $59 million and $78 million, respectively, and was recorded in Other
Liabilities. The Company's total expense for its U.S. postretirement plan was not material to the Company's consolidated financial
statements.
obligation for $287 million, which resulted in a pension settlement charge of $79 million recorded in general and administrative
expense during 2015.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
67
During the third quarter of 2015, the Company terminated its non-contributory, qualified, U.S. defined benefit pension plan (the
"U.S. Employee Pension Plan"). The U.S. Employee Pension Plan participants had the option to receive a lump sum distribution
or to participate in an annuity with a third-party insurance company. As a result of this termination, the Company settled its
The Company sponsors defined contribution retirement plans. The primary plan is the MasterCard Savings Plan, a 401(k) plan
for substantially all of the U.S. employees, which is subject to the provisions of the Employee Retirement Income Security Act of
1974 ("ERISA"), as amended. In addition, the Company has several defined contribution plans outside of the U.S. The Company's
total expense for its defined contribution plans was $61 million, $57 million and $51 million in 2015, 2014 and 2013, respectively.
Defined Benefit and Other Postretirement Plans
Defined Contribution
Note 11. Pension, Postretirement and Savings Plans
As of December 31, 2015 and 2014, the Company's provision related to U.S. merchant litigations was $709 million and $771
million, respectively. These amounts are not included in the accrued expenses table above and are separately reported as accrued
litigation on the consolidated balance sheet. During 2015 and 2014, MasterCard executed settlement agreements with a number
of opt-out merchants and no adjustment to the amount previously recorded was deemed necessary. See Note 18 (Legal and
Regulatory Proceedings) for further discussion of the U.S. merchant class litigation.
As of December 31, 2015 and 2014, personnel costs included a restructuring accrual with a remaining balance of $25 million and
$84 million, respectively. This accrual relates to a restructuring charge of $87 million recorded in general and administrative
expenses in 2014. The Company restructured its organization to align with its strategic priorities and to best meet the Company's
continued growth. The Company is substantially complete with these restructuring activities. The decrease in the balance was
primarily due to payments and lower than expected severance actions.
2,439
USD Notes
Due 2019
Due 2024
Euro Notes
1,000
1,000
3.484%
3.375%
500
500 $
2.178% $
2.000%
(in millions, except percentages)
2014
2015
Effective
Interest Rate
68
Stated
Interest Rate
Long-term debt
Less: Unamortized discount
Due 2030
Due 2027
Due 2022
2,763 $
216
285
105
Advertising
Personnel costs
Customer and merchant incentives
Accrued expenses consisted of the following at December 31:
Note 10. Accrued Expenses and Accrued Litigation
2020 and thereafter.
2019.
2018
Income and other taxes.
2017
Amortization on the assets above amounted to $235 million, $214 million and $166 million in 2015, 2014 and 2013, respectively.
The following table sets forth the estimated future amortization expense on amortizable intangible assets on the balance sheet
at December 31, 2015 for the years ending December 31:
The increase in the net carrying amount of amortized intangible assets in 2015 was primarily related to our acquired businesses.
Certain intangible assets, including amortizable and unamortizable customer relationships and trademarks and tradenames, are
denominated in foreign currencies. As such, the change in intangible assets includes a component attributable to foreign currency
translation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
-
MASTERCARD INCORPORATED
66
714
(663) $
2016
Other.....
Total accrued expenses.
(in millions)
143
154
114
531
473
1,433
1,748 $
$
(in millions)
2014
2015
643
$
92
47
105
168
231
$
1.100%
1.265%
763
2.100%
87.7%
Public Investors (Class A stockholders)
General Voting
Power
Equity Ownership
General Voting
Power
Equity Ownership
2014
2015
89.4%
Equity ownership and voting power of the Company's shares were allocated as follows as of December 31:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
69
No shares issued or outstanding at December 31, 2015 and
2014, respectively. Dividend and voting rights are to be
determined by the Board of Directors of the Company upon
issuance.
Dividend rights
Non-voting
300
$0.0001
Ownership and Governance Structure
86.6%
89.4%
Principal or Affiliate Customers (Class B stockholders) .
The MasterCard Foundation (Class A stockholders)....
We typically complete a share repurchase program before a new program becomes effective.
On December 8, 2015, the Company's Board of Directors approved a new share repurchase program authorizing the Company
to repurchase up to $4 billion of its Class A common stock (the “December 2015 Share Repurchase Program"), which became
effective in February 2016.
On December 2, 2014, the Company's Board of Directors approved a new share repurchase program authorizing the Company
to repurchase up to $3.75 billion of its Class A common stock (the "December 2014 Share Repurchase Program"), which became
effective in January 2015.
On December 10, 2013, the Company's Board of Directors approved a new share repurchase program authorizing the Company
to repurchase up to $3.5 billion of its Class A common stock (the "December 2013 Share Repurchase Program"), which became
effective in January 2014.
On February 5, 2013, the Company's Board of Directors approved a share repurchase program authorizing the Company to
repurchase up to $2 billion of its Class A common stock (the "February 2013 Share Repurchase Program"), which became effective
in March 2013.
In June 2012, the Company's Board of Directors approved a share repurchase program authorizing the Company to repurchase
up to $1.5 billion of its Class A common stock (the "June 2012 Share Repurchase Program"), which became effective in June 2012.
Stock Repurchase Programs
In connection and simultaneously with its 2006 initial public offering (the "IPO"), the Company issued and donated 135 million
newly authorized shares of Class A common stock to The MasterCard Foundation (the "Foundation"). The Foundation is a private
charitable foundation incorporated in Canada that is controlled by directors who are independent of the Company and its principal
customers. Under the terms of the donation, the Foundation became able to resell the donated shares in May 2010 and to the
extent necessary to meet charitable disbursement requirements dictated by Canadian tax law. Under Canadian tax law, the
Foundation is generally required to disburse at least 3.5% of its assets not used in administration each year for qualified charitable
disbursements. However, the Foundation obtained permission from the Canadian tax authorities to defer the giving requirements
for up to ten years, which was extended in 2011 to fifteen years. The Foundation, at its discretion, may decide to meet its
disbursement obligations on an annual basis or to settle previously accumulated obligations during any given year. The Foundation
will be permitted to sell all of its remaining shares beginning twenty years and eleven months after the consummation of the
IPO.
The MasterCard Foundation
Shares of Class B common stock are convertible on a one-for-one basis into shares of Class A common stock. Entities eligible to
hold MasterCard's Class B common stock are defined in the Company's amended and restated certificate of incorporation
(generally the Company's principal or affiliate customers), and they are restricted from retaining ownership of shares of Class A
common stock. Class B stockholders are required to subsequently sell or otherwise transfer any shares of Class A common stock
received pursuant to such a conversion.
Class B Common Stock Conversions
10.6%
10.2%
10.6%
10.4%
-%
3.2%
-%
1.9%
Preferred
1,377 $
1,200
B
2020
2019
2016 - 2018
Scheduled annual maturities of the principal portion of long-term debt outstanding at December 31, 2015 are summarized below.
Amounts exclude capital lease obligations disclosed in Note 16 (Commitments).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
MASTERCARD INCORPORATED
1,494
3,287 $
Thereafter
$
(12)
1,500
3,299
164
2.562%
2.500%
872
2.189%
(6)
Total.
(in millions)
$
Dividend rights
One vote per share
3,000
$0.0001
Dividend and Voting Rights
Authorized Shares
(in millions)
Par Value Per
Share
A
Class
MasterCard's amended and restated certificate of incorporation authorizes the following classes of capital stock:
Classes of Capital Stock
Note 13. Stockholders' Equity
The Company also has $10 million and $41 million in debt outside the United States that is included in other current liabilities
on the consolidated balance sheet at December 31, 2015 and 2014, respectively.
On June 15, 2015, the Company filed a universal shelf registration statement to provide additional access to capital, if needed.
Pursuant to the shelf registration statement, the Company may from time to time offer to sell debt securities, preferred stock,
Class A common stock, depository shares, purchase contracts, units or warrants in one or more offerings.
In conjunction with the Commercial Paper Program, the Company entered into a committed unsecured $3.75 billion revolving
credit facility (the "Credit Facility") on October 21, 2015, which expires on October 21, 2020. The Credit Facility amended and
restated the Company's prior credit facility. Borrowings under the Credit Facility are available in U.S. dollars and/or euros. The
facility fee and borrowing cost under the Credit Facility are contingent upon the Company's credit rating. At December 31, 2015,
the applicable facility fee was 8 basis points on the average daily commitment (whether or not utilized). In addition to the facility
fee, interest on borrowings under the Credit Facility would be charged at the London Interbank Offered Rate (LIBOR) plus an
applicable margin of 79.5 basis points, or an alternative base rate. The Credit Facility contains customary representations,
warranties, events of default and affirmative and negative covenants, including a financial covenant limiting the maximum level
of consolidated debt to earnings before interest, taxes, depreciation and amortization (EBITDA), which are substantially similar
to the prior credit facility. MasterCard was in compliance in all material respects with the covenants of the Credit Facility at
December 31, 2015 and 2014. The majority of Credit Facility lenders are customers or affiliates of customers of MasterCard.
Borrowings under the Commercial Paper Program and the Credit Facility are used to provide liquidity for general corporate
purposes, including providing liquidity in the event of one or more settlement failures by the Company's customers. The Company
may borrow and repay amounts under the Commercial Paper Program and Credit Facility from time to time for business continuity
and planning purposes. MasterCard had no borrowings under the Credit Facility at December 31, 2015 and 2014, as well as had
no borrowings under the Commercial Paper Program at December 31, 2015.
In November 2015, the Company established a commercial paper program (the "Commercial Paper Program"). Under the
Commercial Paper Program, the Company is authorized to issue up to $3.75 billion in outstanding notes, with maturities up to
397 days from the date of issuance. The Commercial Paper Program is available in U.S. dollars.
3,299
2,799
500
$0.0001
803 $
(816) $
1,619 $
160
407
352
245
166
556
810 $
$
89
(in millions)
2015
671
664 $
174
247
237
260
(in millions)
345 $
72
2014
110
88
$
$
(in millions)
2014
2015
Less: accumulated depreciation and amortization.
Property, plant and equipment. .
Leasehold improvements
Furniture and fixtures
Equipment
Building, building equipment and land
Property, plant and equipment consisted of the following at December 31:
Note 7. Property, Plant and Equipment
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
MASTERCARD INCORPORATED
65
Non-current prepaid income taxes, included in the other asset table above, primarily consists of taxes paid in the fourth quarter
of 2014 relating to the deferred charge resulting from the reorganization of our legal entity and tax structure to better align with
our business footprint of our non-U.S. operations.
Customer and merchant incentives represent payments made or amounts to be paid to customers and merchants under business
agreements. Costs directly related to entering into such an agreement are generally deferred and amortized over the life of the
agreement. Amounts to be paid for these incentives and the related liability were included in accrued expenses and other
liabilities.
1,385
1,598 $
2014
503 $
2015
Other
544
309
309 $
Total
No contractual maturity 1
Due after 10 years . . . .
Due after 5 years through 10 years
Due after 1 year through 5 years
543
Due within 1 year..
Fair Value
Amortized
Cost
Available-For-Sale
The maturity distribution based on the contractual terms of the Company's investment securities at December 31, 2015 was as
follows:
Investment Maturities:
bonds. Corporate securities are comprised of commercial paper and corporate bonds. The asset-backed securities are
investments in bonds which are collateralized primarily by automobile loan receivables.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
MASTERCARD INCORPORATED
(in millions)
1
1
6
Income taxes receivable
Prepaid income taxes
Nonmarketable equity investments.
Customer and merchant incentives.
Other assets consisted of the following at December 31:
Total prepaid expenses and other current assets. .
Other
Prepaid income taxes
Customer and merchant incentives
Prepaid expenses and other current assets consisted of the following at December 31:
Note 6. Prepaid Expenses and Other Assets
Interest income primarily consists of interest income generated from cash, cash equivalents and investments. Gross realized
gains and losses are recorded within investment income on the Company's consolidated statement of operations. The gross
realized gains and losses from the sales of available-for-sale securities for 2015, 2014 and 2013 were not significant.
Investment Income
Equity securities have been included in the No contractual maturity category, as these securities do not have stated maturity dates.
861
861
2
1
6
Total other assets.
70
510
398
(115)
292
169
(149)
318
Customer relationships...
10
343
177
(496) $
(38)
839 $
461 $
(625) $
(23)
1,086 $
30
Trademarks and tradenames. .
$
Capitalized software
Amortized intangible assets:
48
Other.
25
(19)
$
Total..
178
178
160
160
Customer relationships.
Unamortized intangible assets:
536
(663)
1,199
643
(816)
1,459
Total..
6
(14)
20
6
(in millions)
497
Amount
Accumulated
Amortization
Other..
Foreign currency translation..
Goodwill acquired during the year.
Beginning balance
The changes in the carrying amount of goodwill for the years ended December 31, 2015 and 2014 were as follows:
Note 8. Goodwill
As of December 31, 2015 and 2014, capital leases of $20 million and $29 million, respectively, were included in equipment.
Accumulated amortization of these capital leases was $9 million and $17 million as of December 31, 2015 and 2014, respectively.
Depreciation and amortization expense for the above property, plant and equipment was $131 million, $107 million and $92
million for 2015, 2014 and 2013, respectively.
Property, plant and equipment, net. . .
Ending balance.
615
(437)
(491)
1,052
1,166
91
112
53
54
675 $
2015
2014
$
Gross Carrying
Amount
Net Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
2014
2015
The following table sets forth net intangible assets, other than goodwill, at December 31:
Note 9. Other Intangible Assets
The Company had no accumulated impairment losses for goodwill at December 31, 2015 or 2014. Based on annual impairment
testing, the Company's goodwill is not impaired.
1,522
1,891 $
$
(19)
(106)
(89)
525
458
1,122
(in millions)
1,522 $
Net Carrying
14
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
$
0.6
Outstanding at January 1, 2015.
(in millions)
(in years)
(in millions)
Value
Aggregate Intrinsic
74
Weighted-Average
Remaining
Contractual Term
Units
The following table summarizes the Company's PSU activity for the year ended December 31, 2015:
Performance Stock Units
The fair value of each RSU is the closing stock price on the New York Stock Exchange of the Company's Class A common stock on
the date of grant, adjusted for the exclusion of dividend equivalents. Upon vesting, a portion of the RSU award may be withheld
to satisfy the minimum statutory withholding taxes. The remaining RSUs will be settled in shares of the Company's Class A
common stock after the vesting period. As of December 31, 2015, there was $99 million of total unrecognized compensation
cost related to non-vested RSUs. The cost is expected to be recognized over a weighted-average period of 1.8 years.
353
$
1.1
71
Weighted-Average
Grant-Date Fair
Value
Granted
0.1
ՄՌ
0.5
53
$
0.9
72
0.5
PSUs vested and expected to vest at December
31, 2015.
Outstanding at December 31, 2015.
$
Forfeited/expired
83
(0.3) $
Converted
56
$
0.1
Performance
99
$
$
71
3.6
366
Weighted-Average
Remaining
Contractual Term
Weighted-Average
Grant-Date Fair
Value
Units
The following table summarizes the Company's RSU activity for the year ended December 31, 2015:
Restricted Stock Units
As of December 31, 2015, there was $28 million of total unrecognized compensation cost related to non-vested Options. The
cost is expected to be recognized over a weighted-average period of 2.3 years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
MASTERCARD INCORPORATED
Aggregate Intrinsic
72
$
6.7
54
$
7.9
256
$
5.3
346
Value
(in millions)
(in years)
$
1.2
71
3.8 $
68
(0.1) $
42
(1.5) $
Outstanding at December 31, 2015.
Forfeited/expired
Converted
88
1.2 $
Granted
56
$
4.2
Outstanding at January 1, 2015.
(in millions)
RSUs vested and expected to vest at December
31, 2015..
35
0.9 $
Since 2013, PSUs containing performance and market conditions have been issued. Performance measures used to determine
the actual number of shares that vest after three years include net revenue growth, EPS growth, and relative total shareholder
return (“TSR”). Relative TSR is considered a market condition, while net revenue and EPS growth are considered performance
conditions. The Monte Carlo simulation valuation model is used to determine the grant-date fair value.
Sponsorship,
69
38
60
89
286 $
154
$
Total
Capital
Leases
Total...
2020.
2019.
2018.
2017.
2016.
Note 16. Commitments
At December 31, 2015, the Company had the following future minimum payments due under non-cancelable agreements:
PSUS:
Thereafter
Operating
Leases
Licensing &
Other
(in millions)
Included in the table above are capital leases with a net present value of minimum lease payments of $11 million. In addition,
at December 31, 2015, $23 million of the future minimum payments in the table above for sponsorship, licensing and other
agreements was accrued. Consolidated rental expense for the Company's leased office space was $52 million, $48 million and
$38 million for 2015, 2014 and 2013, respectively. Consolidated lease expense for automobiles, computer equipment and office
equipment was $17 million, $17 million and $14 million for 2015, 2014 and 2013, respectively.
461
224 $
11
11
58
13
25
31
29
54
34
1
110
40
4
242
38 $
6 $
29
52
28
56
37
41
Income tax benefit recognized for equity awards.
121
(in millions, except weighted-average fair value)
111 $
$
122
$
42
Share-based compensation expense: Options, RSUs and PSUs..
2014
2015
The following table includes additional share-based payment information for each of the years ended December 31:
Additional Information
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
73
Compensation expenses for PSUs are recognized over the requisite service period if it is probable that the performance target
will be achieved and subsequently adjusted if the probability assessment changes. As of December 31, 2015, there was $9 million
of total unrecognized compensation cost related to non-vested PSUs. The cost is expected to be recognized over a weighted-
average period of 1.7 years.
2013
19
20
16
78
99
99
Weighted-average grant-date fair value of awards granted
Total intrinsic value of PSUs converted into shares of Class A
common stock
78
173
135
52
76
88
Weighted-average grant-date fair value of awards granted . .
Total intrinsic value of RSUS converted into shares of Class A
common stock.
48
60
60
57
557
Total intrinsic value of Options exercised
RSUS:
Options:
Income tax benefit related to Options exercised
24
4.1 $
348
$
$
84.31 $
$ 92.39 $
38.3
76.14
$
$ 75.81 $ 83.22 $
3.2
35.1
$ 91.70
44.5
42.6
59.78
$ 63.01 $ 51.72 $
-
40.9
11.7
29.2
Note 14. Accumulated Other Comprehensive Income (Loss)
1.9
35.1
45.8
31.1
1 $
(29) $
(29
- $
$
206 $
Balance at December 31, 2013.
(in millions)
Other
Comprehensive
Income (Loss)
Accumulated
Investment
Securities
Available-for-
Sale
Defined Benefit
Pension and
Other
Postretirement
Plans
Net Investment
Hedge
Translation
Adjustments on
Foreign Currency
Translation
Adjustments
The changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, for the years
ended December 31, 2015 and 2014 were as follows:
$ 92.39 $ 76.42 $ 64.26 $ 48.16 $ 71.55
143.1
31.1
Cumulative average price paid per share
178
Cumulative shares repurchased through December
31, 2015
Shares repurchased in 2015.
$ 3,661
$
3,500 $ 161
3,225 $ 161 $
- $ - $
$
$
(in millions, except average price data)
$ 4,000 $ 3,750 $ 3,500 $2,000 $1,500 $14,750
$ - $ - $ - $ 1,839 $ 604
604 
$ 2,443
Dollar-value of shares repurchased in 2013
Remaining authorization at December 31, 2013
Dollar-value of shares repurchased in 2014....
Remaining authorization at December 31, 2014
Dollar-value of shares repurchased in 2015.
Remaining authorization at December 31, 2015
- $
Board authorization
June
2012
2013
2013
2014
2015
December December December February
Authorization Dates
The following table summarizes the Company's share repurchase authorizations of its Class A common stock through
December 31, 2015, as well as historical purchases:
Total
$ 3,386
$
$
Average price paid per share in 2014
Shares repurchased in 2014....
Average price paid per share in 2013
Shares repurchased in 2013.
$ 4,507
- $ - $ - $
$
507 $
$ 4,000 $
3,518
$
275 $
3,243 $
$
$
4,025
$
275 $
3,750 $
Average price paid per share in 2015
Other comprehensive income (loss) 1.
(436)
-
Weighted-Average
Exercise Price
Options
The following table summarizes the Company's option activity for the year ended December 31, 2015:
The risk-free rate of return was based on the U.S. Treasury yield curve in effect on the date of grant. The expected term and the
expected volatility were based on historical MasterCard information. The expected dividend yields were based on the Company's
expected annual dividend rate on the date of grant.
12.33
$
14.29
17.29
Weighted-Average
Remaining
Contractual Term
$
0.6%
0.7%
27.1%
19.1%
20.6%
5.00
5.00
5.00
0.5%
Aggregate Intrinsic
Value
(in millions)
(in years)
6.7
54
8.1 $
70
(0.1) $
30
(0.9) $
Outstanding at December 31, 2015.
Exercisable at December 31, 2015..
Options vested and expected to vest at
December 31, 2015. .
Forfeited/expired
Exercised
90
$
1.6
Granted
44
$
7.5
Outstanding at January 1, 2015.
(in millions)
0.8%
1.5%
1.5%
2013
13 $
(26) $
(663) $
$
Balance at December 31, 2015
(416)
4
39
(26)
(433)
Other comprehensive income (loss) 1,2,3
(260)
(4)
(26)
(230)
Balance at December 31, 2014.
(438)
(5)
3
$
-
(676)
3
2014
2015
Weighted-average fair value per Option granted.
Expected dividend yield...
Expected volatility
Expected term (in years) .
Risk-free rate of return
The fair value of each Option is estimated on the date of grant using a Black-Scholes option pricing model. The following table
presents the weighted-average assumptions used in the valuation and the resulting weighted-average fair value per option granted
for the years ended December 31:
Stock Options
There are approximately 116 million shares of Class A common stock authorized for equity awards under the LTIP. Although the
LTIP permits the issuance of shares of Class B common stock, no such shares have been authorized for issuance. Shares issued
as a result of Option exercises and the conversions of RSUs and PSUs were funded primarily with the issuance of new shares of
Class A common stock.
Upon termination of employment, a participant's unvested awards are forfeited. However, when a participant terminates
employment due to disability or retirement more than six months after receiving the award, the participant retains all of their
awards without providing additional service to the Company. Retirement eligibility is dependent upon age and years of service.
Compensation expense is recognized over the shorter of the vesting periods stated in the LTIP or the date the individual becomes
eligible to retire but not less than six months.
The Company has granted Options, RSUs and PSUs under the LTIP. The Options, which expire ten years from the date of grant,
generally vest ratably over four years from the date of grant. The RSUs and PSUs generally vest after three years. The Company
uses the straight-line method of attribution for expensing equity awards. Compensation expense is recorded net of estimated
forfeitures. Estimates are adjusted as appropriate.
In May 2006, the Company implemented the MasterCard Incorporated 2006 Long-Term Incentive Plan, which was amended and
restated as of June 5, 2012 (the “LTIP”). The LTIP is a shareholder-approved plan that permits the grant of various types of equity
awards to employees.
Note 15. Share-Based Payments
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
71
During 2015, $15 million of an unrealized loss (no tax impact) on a foreign denominated available-for-sale security was reclassified to other income
(expense) due to an other-than-temporary impairment.
2 During 2015, $80 million of deferred costs ($51 million after-tax) related to the Company's defined benefit pension plan and other post retirement
plans were reclassified to general and administrative expenses. The deferred costs were driven primarily by the termination of the Company's U.S.
defined benefit plan (See Note 11, Pension, Postretirement and Savings Plans).
1 During 2015 and 2014, the increase in other comprehensive loss related to foreign currency translation adjustments was driven primarily by the
devaluation of the euro and Brazilian real.
696
(1.1)%
Note 17. Income Taxes
Net revenue
General and administrative..
Foreign currency derivative contracts
(in millions)
2013
2014
2015
Year Ended December 31,
The amount of gain (loss) recognized in income for foreign currency derivative contracts is summarized below:
The fair values of derivative contracts are presented on a gross basis on the balance sheet and are subject to enforceable master netting arrangements,
which contain various netting and setoff provisions.
ཤྰཙ
(4)
35
$
23
(9)
Other current liabilities 1
1
Accounts receivable
Balance sheet location:
1
27
614
12
4
47 $
Total....
$
51 $
(78) $
615 $
675 $
$
116
410
450 $
165
471 $
204
2013
2014
(in millions)
2015
82
Total.
1 $
Other countries
Revenue by geographic market is based on the location of the Company's customer that issued the card, as well as the location
of the merchant acquirer where the card is being used. Revenue generated in the U.S. was approximately 39% of net revenue
in 2015, 2014 and 2013. No individual country, other than the U.S., generated more than 10% of total revenue in those periods.
MasterCard did not have any one customer that generated greater than 10% of net revenue in 2015, 2014 or 2013. The following
table reflects the geographical location of the Company's property, plant and equipment, net, as of December 31:
MasterCard has concluded it has one operating and reportable segment, "Payment Solutions." MasterCard's President and Chief
Executive Officer has been identified as the chief operating decision-maker. All of the Company's activities are interrelated, and
each activity is dependent upon and supportive of the other. Accordingly, all significant operating decisions are based upon
analysis of MasterCard at the consolidated level.
Note 21. Segment Reporting
The Company uses foreign currency denominated debt to hedge a portion of its net investment in foreign operations against
adverse movements in exchange rates, with changes in the value of the debt recorded within currency translation adjustment
in accumulated other comprehensive income (loss). The Company monitors and manages those exposures as part of its overall
risk management program which focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse
effects that the volatility of these markets may have on our operating results. A principal objective of the Company's risk
management strategies is to reduce significant, unanticipated earnings fluctuations that may arise from volatility in foreign
currency exchange rates principally through the use of derivative instruments. During the fourth quarter of 2015, the Company
designated its €1.65 billion euro-denominated debt as a net investment hedge for a portion of its net investment in European
foreign operations. As of December 31, 2015, the Company had net foreign currency transaction pre-tax loss of $40 million in
accumulated other comprehensive income (loss) associated with hedging activity.
Net investment hedge
The Company's derivative financial instruments are subject to both market and counterparty credit risk. Market risk is the risk
of loss due to the potential change in an instrument's value caused by fluctuations in interest rates and other variables related
to currency exchange rates. The effect of a hypothetical 10% adverse change in foreign currency rates could result in a fair value
loss of approximately $128 million on the Company's foreign currency derivative contracts outstanding at December 31, 2015.
Counterparty credit risk is the risk of loss due to failure of the counterparty to perform its obligations in accordance with contractual
terms. To mitigate counterparty credit risk, the Company enters into derivative contracts with selected financial institutions
based upon their credit ratings and other factors. Generally, the Company does not obtain collateral related to derivatives because
of the high credit ratings of the counterparties.
The fair value of the foreign currency derivative contracts generally reflects the estimated amounts that the Company would
receive (or pay), on a pre-tax basis, to terminate the contracts at the reporting date based on broker quotes for the same or
similar instruments. The terms of the foreign currency derivative contracts are generally less than 18 months. The Company had
no deferred gains or losses related to foreign exchange contracts in accumulated other comprehensive income as of December
31, 2015 and 2014 as there were no derivative contracts accounted for under hedge accounting.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
MASTERCARD INCORPORATED
81
$ 51 $ (78) $ 52.
48
4
United States
526
232 $
1,430
44
Commitments to sell foreign currency
December 31,
2014
The Company's estimated settlement exposure from MasterCard, Cirrus and Maestro branded transactions was as follows:
The Company's global risk management policies and procedures are aimed at managing the settlement exposure. These risk
management procedures include interaction with the bank regulators of countries in which it operates, requiring customers to
make adjustments to settlement processes, and requiring collateral from customers. MasterCard requires certain customers that
are not in compliance with the Company's risk standards in effect at the time of review to post collateral, typically in the form of
cash, letters of credit, or guarantees. This requirement is based on management's review of the individual risk circumstances
for each customer that is out of compliance. In addition to these amounts, MasterCard holds collateral to cover variability and
future growth in customer programs. The Company may also hold collateral to pay merchants in the event of an acquirer failure.
Although the Company is not contractually obligated under its rules to effect such payments to merchants, the Company may
elect to do so to protect brand integrity. MasterCard monitors its credit risk portfolio on a regular basis and the adequacy of
collateral on hand. Additionally, from time to time, the Company reviews its risk management methodology and standards. As
such, the amounts of estimated settlement exposure are revised as necessary.
In the event that MasterCard effects a payment on behalf of a failed customer, MasterCard may seek an assignment of the
underlying receivables of the failed customer. Customers may be charged for the amount of any settlement loss incurred during
these ordinary course activities of the Company.
MasterCard's rules guarantee the settlement of many of the MasterCard, Cirrus and Maestro branded transactions between its
issuers and acquirers ("settlement risk"). Settlement exposure is the outstanding settlement risk to customers under MasterCard's
rules due to the difference in timing between the payment transaction date and subsequent settlement. While the term and
amount of the guarantee are unlimited, the duration of settlement exposure is short term and typically limited to a few days.
Gross settlement exposure is estimated using the average daily card volume during the quarter multiplied by the estimated
number of days to settle. The Company has global risk management policies and procedures, which include risk standards, to
provide a framework for managing the Company's settlement risk. Customer-reported transaction data and the transaction
clearing data underlying the settlement exposure calculation may be revised in subsequent reporting periods.
Note 19. Settlement and Other Risk Management
In January 2012, the plaintiffs in the ATM Operators Complaint and the ATM Consumer Complaints filed amended class action
complaints that largely mirror their prior complaints. In February 2013, the district court granted MasterCard's motion to dismiss
the complaints for failure to state a claim. On appeal, the Court of Appeals reversed the district court's order in August 2015 and
sent the case back for further proceedings.
Subsequently, multiple related complaints were filed in the U.S. District Court for the District of Columbia alleging both federal
antitrust and multiple state unfair competition, consumer protection and common law claims against MasterCard and Visa on
behalf of putative classes of users of ATM services (the "ATM Consumer Complaints"). The claims in these actions largely mirror
the allegations made in the ATM Operators Complaint, although these complaints seek damages on behalf of consumers of ATM
services who pay allegedly inflated ATM fees at both bank and non-bank ATM operators as a result of the defendants' ATM rules.
Plaintiffs seek both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the
alleged violations and their costs of suit, including attorneys' fees. Plaintiffs have not quantified their damages although they
allege that they expect damages to be in the tens of millions of dollars.
MasterCard and Visa (the "ATM Operators Complaint”). Plaintiffs seek to represent a class of non-bank operators of ATM terminals
that operate ATM terminals in the United States with the discretion to determine the price of the ATM access fee for the terminals
they operate. Plaintiffs allege that MasterCard and Visa have violated Section 1 of the Sherman Act by imposing rules that require
ATM operators to charge non-discriminatory ATM surcharges for transactions processed over MasterCard's and Visa's respective
networks that are not greater than the surcharge for transactions over other networks accepted at the same ATM. Plaintiffs seek
both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the alleged violations
and their costs of suit, including attorneys' fees. Plaintiffs have not quantified their damages although they allege that they
expect damages to be in the tens of millions of dollars.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
-
MASTERCARD INCORPORATED
In October 2011, a trade association of independent Automated Teller Machine ("ATM") operators and 13 independent ATM
operators filed a complaint styled as a class action lawsuit in the U.S. District Court for the District of Columbia against both
79
ATM Non-Discrimination Rule Surcharge Complaints
Europe. In July 2015, the European Commission issued a Statement of Objections related to MasterCard's interregional
interchange fees and central acquiring rules within the European Economic Area. The Statement of Objections, which follows
an investigation opened in 2013, includes preliminary conclusions concerning the anticompetitive effects of these practices. The
European Commission has indicated it intends to seek fines if these conclusions are subsequently confirmed. Although the
Statement of Objections does not quantify the level of fines, it is possible that they could be substantial. MasterCard would not
expect fines to be imposed if it agrees with the Commission to business practice changes that address the Commission's concerns.
In the United Kingdom, beginning in May 2012, a number of retailers filed claims against MasterCard seeking damages for alleged
anti-competitive conduct with respect to MasterCard's cross-border interchange fees and its U.K. and Ireland domestic
interchange fees. More than 30 different retailers have filed claims or threatened litigation. Approximately 30 additional
merchants have filed or threatened litigation with respect to interchange rates in Europe ("Pan-European claimants"). Although
the U.K. and Pan-European claimants have not quantified the full extent of their compensatory and punitive damages, their
purported damages exceed $2 billion. In June 2015, MasterCard entered into a settlement with one of these merchants for $61
million, recorded as a provision for litigation settlement. MasterCard has submitted statements of defense to the remaining
retailers' claims disputing liability and damages. A trial for liability and damages for one of the U.K. merchant cases commenced
in January 2016. The merchant in that action has claimed compensatory damages of approximately $300 million, and is also
seeking costs and punitive damages. MasterCard has argued that there is no liability or damage to the merchant. The trial is
expected to conclude in March 2016, with a decision expected later in the year.
Canada. In December 2010, a proposed class action complaint was commenced against MasterCard in Quebec on behalf of
Canadian merchants. That suit essentially repeated the allegations and arguments of a previously filed application by the Canadian
Competition Bureau to the Canadian Competition Tribunal (dismissed in MasterCard's favor) related to certain MasterCard rules
related to point-of-sale acceptance, including the "honor all cards" and "no surcharge" rules. The suit sought compensatory and
punitive damages in unspecified amounts, as well as injunctive relief. In the first half of 2011, additional purported class action
lawsuits containing similar allegations to the Quebec class action were commenced in British Columbia and Ontario against
MasterCard, Visa and a number of large Canadian financial institutions. The British Columbia suit seeks compensatory damages
in unspecified amounts, and the Ontario suit seeks compensatory damages of $5 billion. The British Columbia and Ontario suits
also seek punitive damages in unspecified amounts, as well as injunctive relief, interest and legal costs. The Quebec suit was
later amended to include the same defendants and similar claims as in the British Columbia and Ontario suits. With respect to
the status of the proceedings: (1) the Quebec suit has been stayed, (2) the Ontario suit is being temporarily suspended while the
British Columbia suit proceeds, and (3) the British Columbia appellate court issued an order in August 2015 allowing several of
the merchants' claims to proceed on a class basis. Additional proposed class action complaints have been filed in Saskatchewan
and Alberta with claims that largely mirror those in the British Columbia and Ontario suits. If the class action lawsuits are ultimately
successful, negative decisions could have a significant adverse impact on the revenue of MasterCard's Canadian customers and
on MasterCard's overall business in Canada and could result in substantial damage awards.
The portion of the accrued liability relating to the opt-out merchants does not represent an estimate of a loss, if any, if the opt-
out merchant matters were litigated to a final outcome, in which case MasterCard cannot estimate the potential liability.
MasterCard's estimate involves significant judgment and may change depending on progress in settlement negotiations or
depending upon decisions in any opt-out merchant cases. In addition, in the event that the merchant class litigation settlement
approval is overturned, a negative outcome in the litigation could have a material adverse effect on MasterCard's results of
operations, financial position and cash flows.
class litigation. As of December 31, 2015 and December 31, 2014, MasterCard had $541 million and $540 million, in the qualified
cash settlement fund classified as restricted cash on its balance sheet. The class settlement agreement provided for a return to
the defendants of a portion of the class cash settlement fund, based upon the percentage of purchase volume represented by
the opt-out merchants. This resulted in $164 million from the cash settlement fund being returned to MasterCard in January
2014 and reclassified at that time from restricted cash to cash and cash equivalents. In the fourth quarter of 2013, MasterCard
recorded an incremental net pre-tax charge of $95 million related to the opt-out merchants, representing a change in its estimate
of probable losses relating to these matters. MasterCard has executed settlement agreements with a number of opt-out
merchants and no adjustment to the amount previously recorded was deemed necessary. As of December 31, 2015, MasterCard
had accrued a liability of $709 million as a reserve for both the merchant class litigation and the filed and anticipated opt-out
merchant cases.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
-
MASTERCARD INCORPORATED
MasterCard recorded a pre-tax charge of $770 million in the fourth quarter of 2011 and an additional $20 million pre-tax charge
in the second quarter of 2012 relating to the settlement agreements described above. In 2012, MasterCard paid $790 million
with respect to the settlements, of which $726 million was paid into a qualified cash settlement fund related to the merchant
78
In October 2012, the parties entered into a definitive settlement agreement with respect to the merchant class litigation (including
with respect to the claims related to the IPO) and the defendants separately entered into a settlement agreement with the
individual merchant plaintiffs. The settlements included cash payments that were apportioned among the defendants pursuant
to the omnibus judgment sharing and settlement sharing agreement described above. MasterCard also agreed to provide class
members with a short-term reduction in default credit interchange rates and to modify certain of its business practices, including
its No Surcharge Rule. Objections to the settlement were filed by both merchants and certain competitors, including Discover.
Discover's objections include a challenge to the settlement on the grounds that certain of the rule changes agreed to in the
settlement constitute a restraint of trade in violation of Section 1 of the Sherman Act. The court granted final approval of the
settlement in December 2013. Objectors to the settlement appealed the decision, and an oral argument was heard on the appeal
in September 2015. Separately, the objectors filed a motion in July 2015 to set aside the approval order, contending that the
merchant class was inadequately represented and the settlement was insufficient because a counsel for several individual
merchant plaintiffs improperly exchanged communications with a defense counsel who at the time was representing MasterCard.
Merchants representing slightly more than 25% of the MasterCard and Visa purchase volume over the relevant period chose to
opt out of the class settlement. MasterCard anticipates that most of the larger merchants who opted out of the settlement will
initiate separate actions seeking to recover damages, and over 30 opt-out complaints have been filed on behalf of numerous
merchants in various jurisdictions. The defendants have consolidated all of these matters (except for one state court action in
New Mexico) in front of the same federal district court that is overseeing the approval of the settlement. In July 2014, the district
court denied the defendants' motion to dismiss the opt-out merchant complaints for failure to state a claim.
In February 2011, MasterCard and MasterCard International entered into each of: (1) an omnibus judgment sharing and settlement
sharing agreement with Visa Inc., Visa U.S.A. Inc. and Visa International Service Association and a number of financial institutions;
and (2) a MasterCard settlement and judgment sharing agreement with a number of financial institutions. The agreements
provide for the apportionment of certain costs and liabilities which MasterCard, the Visa parties and the financial institutions
may incur, jointly and/or severally, in the event of an adverse judgment or settlement of one or all of the cases in the merchant
litigations. Among a number of scenarios addressed by the agreements, in the event of a global settlement involving the Visa
parties, the financial institutions and MasterCard, MasterCard would pay 12% of the monetary portion of the settlement. In the
event of a settlement involving only MasterCard and the financial institutions with respect to their issuance of MasterCard cards,
MasterCard would pay 36% of the monetary portion of such settlement.
In July 2006, the group of purported merchant class plaintiffs filed a supplemental complaint alleging that MasterCard's initial
public offering of its Class A Common Stock in May 2006 (the "IPO") and certain purported agreements entered into between
MasterCard and financial institutions in connection with the IPO: (1) violate U.S. antitrust laws and (2) constituted a fraudulent
conveyance because the financial institutions allegedly attempted to release, without adequate consideration, MasterCard's right
to assess them for MasterCard's litigation liabilities. The class plaintiffs sought treble damages and injunctive relief including,
but not limited to, an order reversing and unwinding the IPO.
December 31,
2015
Gross settlement exposure
Settlement exposure covered by collateral
$
$
Commitments to purchase foreign currency
(in millions)
Estimated Fair
Value
Notional
Estimated Fair
Value
Notional
December 31, 2014
December 31, 2015
The Company does not designate foreign currency derivatives as hedging instruments pursuant to the accounting guidance for
derivative instruments and hedging activities. The Company records the change in the estimated fair value of the outstanding
derivatives at the end of the reporting period on its consolidated balance sheet and consolidated statement of operations.
As of December 31, 2015, the majority of derivative contracts to hedge foreign currency fluctuations had been entered into with
customers of MasterCard. MasterCard's derivative contracts are summarized below:
The Company enters into foreign currency derivative contracts to manage risk associated with anticipated receipts and
disbursements which are either transacted in a non-functional currency or valued based on a currency other than its functional
currency. The Company may also enter into foreign currency derivative contracts to offset possible changes in value due to foreign
exchange fluctuations of earnings, assets and liabilities denominated in currencies other than its functional currency. The objective
of these activities is to reduce the Company's exposure to gains and losses resulting from fluctuations of foreign currencies against
its functional currencies.
Derivatives
Options to sell foreign currency.
Note 20. Foreign Exchange Risk Management
General economic and political conditions in countries in which MasterCard operates affect the Company's settlement risk. Many
of the Company's financial institution customers have been directly and adversely impacted by political instability and uncertain
economic conditions. These conditions present increased risk that the Company may have to perform under its settlement
guarantee. This risk could increase if political, economic and financial market conditions deteriorate further. The Company's
global risk management policies and procedures are revised and enhanced from time to time. Historically, the Company has
experienced a low level of losses from financial institution failures.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
MASTERCARD INCORPORATED
80
38,314
36,073 $
$
Net uncollateralized settlement exposure..
(3,415)
(3,601)
41,729
(in millions)
39,674 $
MasterCard also provides guarantees to customers and certain other counterparties indemnifying them from losses stemming
from failures of third parties to perform duties. This includes guarantees of MasterCard-branded travelers cheques issued, but
not yet cashed of $420 million and $465 million at December 31, 2015 and 2014, respectively, of which $332 million and $370
million at December 31, 2015 and 2014, respectively, is mitigated by collateral arrangements. In addition, the Company enters
into business agreements in the ordinary course of business under which the Company agrees to indemnify third parties against
damages, losses and expenses incurred in connection with legal and other proceedings arising from relationships or transactions
with the Company. Certain indemnifications do not provide a stated maximum exposure. As the extent of the Company's
obligations under these agreements depends entirely upon the occurrence of future events, the Company's potential future
liability under these agreements is not determinable. Historically, payments made by the Company under these types of
contractual arrangements have not been material.
United States. In June 2005, the first of a series of complaints were filed on behalf of merchants (the majority of the complaints
were styled as class actions, although a few complaints were filed on behalf of individual merchant plaintiffs) against MasterCard
International, Visa U.S.A., Inc., Visa International Service Association and a number of financial institutions. Taken together, the
claims in the complaints were generally brought under both Sections 1 and 2 of the Sherman Act, which prohibit monopolization
and attempts or conspiracies to monopolize a particular industry, and some of these complaints contain unfair competition law
claims under state law. The complaints allege, among other things, that MasterCard, Visa, and certain financial institutions
conspired to set the price of interchange fees, enacted point of sale acceptance rules (including the no surcharge rule) in violation
of antitrust laws and engaged in unlawful tying and bundling of certain products and services. The cases were consolidated for
pre-trial proceedings in the U.S. District Court for the Eastern District of New York in MDL No. 1720. The plaintiffs filed a
consolidated class action complaint that seeks treble damages.
MASTERCARD INCORPORATED
2015 Quarter Ended
1,165
1,185
Basic weighted-average shares outstanding.
3.11
0.70 $
0.88 $
0.80 $
0.73 $
Basic earnings per share
3,617
801
1,015
931
870
Net income..
5,106
1,018
1,420
1,383
1,285
Operating income
9,441
2,411 $
2,490 $
2,368 $
1,157
1,153
1,165
Diluted earnings per share
84
MASTERCARD INCORPORATED
ITEM 9B. OTHER INFORMATION
There was no change in MasterCard's internal control over financial reporting that occurred during the three months ended
December 31, 2015 that has materially affected, or is reasonably likely to materially affect, MasterCard's internal control over
financial reporting.
Changes in Internal Control over Financial Reporting
In addition, MasterCard Incorporated's management assessed the effectiveness of MasterCard's internal control over financial
reporting as of December 31, 2015. Management's report on internal control over financial reporting is included in Part II, Item
8. PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the consolidated financial
statements included in this Annual Report on Form 10-K and, as part of their audit, has issued their report, included herein, on
the effectiveness of our internal control over financial reporting.
Internal Control over Financial Reporting
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) are designed to ensure that information required to be disclosed in the reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated
and communicated to management, including our President and Chief Executive Officer and our Chief Financial Officer, to allow
timely decisions regarding disclosure. The President and Chief Executive Officer and the Chief Financial Officer, with assistance
from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of
December 31, 2015 and, based on their evaluation, have concluded that the disclosure controls and procedures were effective
as of such date.
Evaluation of Disclosure Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
Not applicable.
ACCOUNTING AND FINANCIAL DISCLOSURE
2,172 $
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
* Tables may not sum due to rounding.
1,169
1,157
1,160
1,169
1,189
Diluted weighted-average shares outstanding..
3.10
0.69 $
0.87 $
0.80 $
0.73 $
83
SUMMARY OF QUARTERLY DATA (Unaudited)
$
(in millions, except per share data)
3,808
890
977
921
1,020
Not applicable.
5,078
1,107
1,369
1,251
1,351
9,667
2,517 $
2,530 $
2,390 $
2,230 $
$
Operating income
Net revenue
(in millions, except per share data)
2015 Total
December 31
September 30
June 30
March 31
Basic earnings per share.
$
0.89 $
0.81 $
2014 Total
December 31
September 30
June 30
March 31
2014 Quarter Ended
1,137
1,124
1,133
3.35
0.79 $
0.86 $
Net revenue
0.81 $
1,141
Diluted weighted-average shares outstanding ..
0.89 $
Diluted earnings per share
1,134
1,121
1,130
1,138
1,148
Basic weighted-average shares outstanding.
3.36
0.79 $
0.86 $
1,152
MasterCard's interchange fees and other practices are subject to regulatory and/or legal review and/or challenges in a number
of jurisdictions, including the proceedings described below. When taken as a whole, the resulting decisions, regulations and
legislation with respect to interchange fees and acceptance practices may have a material adverse effect on the Company's
prospects for future growth and its overall results of operations, financial position and cash flows.
Net income..
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
29
0.5 %
27
State tax effect, net of federal benefit.
35.0 %
1,575
35.0 %
1,778
35.0 %
1,735
Federal statutory tax. .
4,500
$
5,079
$
4,958
$
Income before income taxes
(in millions, except percentages)
Percent
Amount
2013
Percent
Amount
Percent
0.6 %
19
0.4 %
Foreign tax effect..
Other, net...…………
%
(3)
(0.1)%
(6)
(2.2)%
(109)
Other foreign tax credits. .
%
(4.6)%
(0.3)%
-
- %
Amount
(2.9)%
Impact of settlements with tax authorities. .
(14)
(3.5)%
(177)
(3.5)%
(172)
Foreign repatriation
(208)
(2.1)%
(108)
(2.9)%
(144)
(147)
(40)
2014
MasterCard has not provided for U.S. federal income and foreign withholding taxes on approximately $3.5 billion of undistributed
earnings from non-U.S. subsidiaries as of December 31, 2015 because such earnings are intended to be reinvested indefinitely
outside of the United States. If these earnings were distributed, foreign tax credits may become available under current law to
reduce the resulting U.S. income tax liability. However, it is not practicable to determine the amount of the tax and credits.
The provision for income taxes differs from the amount of income tax determined by applying the U.S. federal statutory income
tax rate of 35% to pretax income for the years ended December 31, as a result of the following:
State and local.
(100)
(81)
4
Federal.
Deferred
1,499
1,552
1,166
456
528
444
33
47
45
1,010
977 $
677 $
Foreign..
State and local.
Current
Federal.
2013
2014
(in millions)
2015
Interchange Litigation and Regulatory Proceedings
(3)
(3)
(4)
Foreign...
4,500
5,079 $
4,958 $
$
1,759
2,741
3,378 $
1,701
1,559
$
Income before income taxes
Foreign....
United States.
2015
2013
2015
The domestic and foreign components of income before income taxes for the years ended December 31 are as follows:
1,384
1,462 $
1,150 $
Income tax expense
(115)
(90)
(16)
(11)
(6)
(17)
2014
(in millions)
(0.8)%
3,399 $
The total income tax provision for the years ended December 31 is comprised of the following components:
$
2013
2014
(in millions)
2015
Ending balance
Expired statute of limitations.
Settlements with tax authorities.
Prior year tax positions
Reductions:
Prior year tax positions
Current year tax positions
Additions:
Beginning balance.
A reconciliation of the beginning and ending balance for the Company's unrecognized tax benefits for the years ended December
31, is as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
MASTERCARD INCORPORATED
16
76
The 2015 and 2014 valuation allowances relate primarily to the Company's ability to recognize tax benefits associated with certain
foreign net operating losses. The recognition of these benefits is dependent upon the future taxable income in such foreign
jurisdictions and the ability under tax law in these jurisdictions to utilize net operating losses following a change in control.
As described within Recent Accounting Pronouncements section of Note 1. Summary of Significant Accounting Policies, the Company has early
adopted recent guidance and now reflects 2015 deferred taxes as non-current deferred taxes within the Consolidated Balance Sheet.
274
238 $
283
330
18
364 $
320 $
257
20
MASTERCARD INCORPORATED
(54)
77
MasterCard is a party to legal and regulatory proceedings with respect to a variety of matters in the ordinary course of business.
Some of these proceedings are based on complex claims involving substantial uncertainties and unascertainable damages.
Accordingly, except as discussed below, it is not possible to determine the probability of loss or estimate damages, and therefore,
MasterCard has not established reserves for any of these proceedings. When the Company determines that a loss is both probable
and reasonably estimable, MasterCard records a liability and discloses the amount of the liability if it is material. When a material
loss contingency is only reasonably possible, MasterCard does not record a liability, but instead discloses the nature and the
amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Unless otherwise stated
below with respect to these matters, MasterCard cannot provide an estimate of the possible loss or range of loss based on one
or more of the following reasons: (1) actual or potential plaintiffs have not claimed an amount of monetary damages or the
amounts are unsupportable or exaggerated, (2) the matters are in early stages, (3) there is uncertainty as to the outcome of
pending appeals or motions, (4) there are significant factual issues to be resolved, (5) the existence in many such proceedings of
multiple defendants or potential defendants whose share of any potential financial responsibility has yet to be determined, and/
or (6) there are novel legal issues presented. Furthermore, except as identified with respect to the matters below, MasterCard
does not believe that the outcome of any individual existing legal or regulatory proceeding to which it is a party will have a
material adverse effect on its results of operations, financial condition or overall business. However, an adverse judgment or
other outcome or settlement with respect to any proceedings discussed below could result in fines or payments by MasterCard
and/or could require MasterCard to change its business practices. In addition, an adverse outcome in a regulatory proceeding
could lead to the filing of civil damage claims and possibly result in significant damage awards. Any of these events could have
a material adverse effect on MasterCard's results of operations, financial condition and overall business.
Note 18. Legal and Regulatory Proceedings
It is the Company's policy to account for interest expense related to income tax matters as interest expense in its statement of
operations, and to include penalties related to income tax matters in the income tax provision. For 2015, 2014 and 2013, the
Company recorded tax-related interest income of $3 million, $2 million and $4 million, respectively, in its consolidated statement
of operations. At December 31, 2015 and 2014, the Company had a net income tax-related interest payable of $12 million and
$15 million, respectively, in its consolidated balance sheet. At December 31, 2015 and 2014, the amounts the Company had
recognized for penalties payable in its consolidated balance sheet were not significant.
The entire unrecognized tax benefits of $181 million, if recognized, would reduce the effective tax rate. The Company is subject
to tax in the United States, Belgium, Singapore and various other foreign jurisdictions, as well as state and local jurisdictions.
Uncertain tax positions are reviewed on an ongoing basis and are adjusted after considering facts and circumstances, including
progress of tax audits, developments in case law and closing of statutes of limitation. Within the next twelve months, the Company
believes that the resolution of certain federal, foreign and state and local examinations are reasonably possible and that a change
in estimate, reducing unrecognized tax benefits, may occur. While such a change may be significant, it is not possible to provide
a range of the potential change until the examinations progress further or the related statutes of limitation expire. The Company
has effectively settled its U.S. federal income tax obligations through 2008, with the exception of transfer pricing issues which
are settled through 2011. With limited exception, the Company is no longer subject to state and local or foreign examinations
by tax authorities for years before 2006.
During 2015, there was a reduction to the balance of the Company's unrecognized tax benefits. This was primarily due to
settlements with tax authorities in multiple jurisdictions. Further, the information gained related to these matters was considered
in measuring uncertain tax benefits recognized for the periods subsequent to the periods settled.
320
364 $
181
(19)
30
(30)
(2)
(8)
12
(53)
(6)
(151)
12
80
61
529
19
20
(9)
115
10
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other items
Net operating losses
State taxes and other credits
Compensation and benefits.
Accrued liabilities
Deferred Tax Assets
Deferred tax assets and liabilities represent the expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of assets and liabilities. The components of deferred tax assets and liabilities at December 31 are as
follows:
Deferred Taxes
In 2010, in connection with the expansion of the Company's operations in the Asia Pacific, Middle East and Africa region, the
Company's subsidiary in Singapore, MasterCard Asia Pacific Pte. Ltd. ("MAPPL”) received an incentive grant from the Singapore
Ministry of Finance. The incentive had provided MAPPL with, among other benefits, a reduced income tax rate for the 10-year
period commencing January 1, 2010 on taxable income in excess of a base amount. The Company continued to explore business
opportunities in this region, resulting in an expansion of the incentives being granted by the Ministry of Finance, including a
further reduction to the income tax rate on taxable income in excess of a revised fixed base amount commencing July 1, 2011
and continuing through December 31, 2025. Without the incentive grant, MAPPL would have been subject to the statutory
income tax rate on its earnings. For 2015, 2014 and 2013, the impact of the incentive grant received from the Ministry of Finance
resulted in a reduction of MAPPL's income tax liability of $47 million, or $0.04 per diluted share, $40 million, or $0.03 per diluted
share, and $76 million, or $0.06 per diluted share, respectively.
During the fourth quarter of 2014, the Company implemented an initiative to better align its legal entity and tax structure with
its operational footprint outside of the U.S. This initiative resulted in a one-time taxable gain in Belgium relating to the transfer
of intellectual property to a related foreign entity in the United Kingdom. Management believes this improved alignment will
result in greater flexibility and efficiency with regard to the global deployment of cash, as well as ongoing benefits in the Company's
effective income tax rate. The Company recorded a deferred charge related to the income tax expense on intercompany profits
that resulted from the transfer. The tax associated with the transfer is deferred and amortized utilizing a 25-year life. This deferred
charge is included in other current assets and other assets on our consolidated balance sheet at December 31, 2015 in the
amounts of $15 million and $352 million, respectively. The comparable amounts included in other current assets and other
assets were $18 million and $407 million, respectively, at December 31, 2014, with the difference driven by changes in foreign
exchange rates and current period amortization.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Less: Valuation allowance.
75
Effective Income Tax Rate
30.8%
1,384
28.8 % $
1,462
23.2 % $
1,150
$
Income tax expense
118
0.3 %
15
The effective income tax rates for the years ended December 31, 2015, 2014 and 2013 were 23.2%, 28.8% and 30.8%, respectively.
The effective tax rate for 2015 was lower than the effective tax rate for 2014 primarily due to settlements with tax authorities in
multiple jurisdictions. Further, the information gained related to these matters was considered in measuring uncertain tax
benefits recognized for the periods subsequent to the periods settled. In addition, the recognition of other U.S. foreign tax credits
and a more favorable geographic mix of taxable earnings also contributed to the lower effective tax rate in 2015. The effective
tax rate for 2014 was lower than the effective tax rate for 2013 primarily due to the recognition of a larger repatriation benefit
and an increase in the Company's domestic production activity deduction in the U.S. related to the Company's authorization
revenue, partially offset by an unfavorable mix of taxable earnings in 2014.
Total Deferred Tax Assets..
MASTERCARD INCORPORATED
Prepaid expenses and other accruals
136
Deferred Tax Liabilities
557
568
(41)
(54)
38
90
56
67
54
58
65
242
Intangible assets
Property, plant and equipment.
Other items.....
262
Net Deferred Tax Assets
20151
Total Deferred Tax Liabilities.
2014
(in millions)
169 $
177
46
announced plans to enable token services on all cards, removing the primary account number from the
transaction flow. Enabling these services will help make the payment process simpler, more seamless and
more secure, while supporting our merchant partners in their card on file activities.
•
New payment flows. In order to help grow our business and offer more electronic payment options to
consumers, businesses and governments, Mastercard has developed and enhanced solutions beyond the
principal switching capabilities available on our core network. We believe this will allow us to capture more
payment flows, including B2B, P2P, B2C and government disbursements. In 2018, we:
reinforced our support for contactless payments across all markets, including in Europe, where we are working
with issuers, acquirers and merchants to ensure availability and support of contactless payments across the
continent by 2020.
• combined our proprietary Mastercard Send assets with Vocalink strategic partnerships to enable financial
institutions, financial technology companies (or fintechs), digital customers and other businesses to send real-
time payments to U.K. bank accounts. Mastercard Send will connect to Faster Payments, enabling a variety
of use cases such as P2P payments and B2C disbursements. This effort is part of our continued expansion of
Mastercard Send's capabilities, connecting more people, businesses and governments to facilitate the transfer
of funds quickly and securely both domestically and cross-border.
advanced business development efforts around the world with our real-time account-based payments
capabilities that we acquired with Vocalink in 2017. These efforts include the launch of a real-time payment
service in the U.S. in conjunction with The Clearing House that enables consumers and businesses to send and
receive immediate payments.
Talent and Culture. Our success is driven by the skills, experience, integrity and mindset of the talent we hire. We attract and
retain top talent from diverse backgrounds and industries by building a world-class culture based on decency, respect and inclusion
in which people have opportunities to do purpose-driven work that impacts customers, communities and co-workers on a global
scale. The diversity and skill sets of our people underpin everything we do.
Digital Payments. Technology is increasingly changing the way people get information, interact with each
other, shop and make purchases. As a result of these changes, digital commerce is growing significantly. In
this digital environment, consumers continue to seek a seamless experience where their payment is simple,
secure and familiar. These consumer demands are driving us to think and act differently. Our teams are
innovating to create solutions that meet the needs of our consumers and merchants, and applying emerging
technologies to maximize our opportunities from those needs. In 2018, we:
•
Recent Business and Legal/Regulatory Developments
•
5
providing services across data analytics, consulting, managed services, safety and security, loyalty and processing
Strategic Partners. We work with a variety of stakeholders. We provide financial institutions with solutions to help them increase
revenue by driving preference for Mastercard-branded products. We help merchants, financial institutions and other
organizations by delivering data-driven insights and other services that help them grow and create simple and secure customer
experiences. We partner with technology companies such as digital players and mobile providers to deliver digital payment
solutions powered by our technology, expertise and security protocols. We help national and local governments drive increased
financial inclusion and efficiency, reduce costs, increase transparency to reduce crime and corruption and advance social
programs. For consumers, we provide faster, safer and more convenient ways to pay and transfer funds.
supported the development and implementation of EMVCo's global standards for a simple and unified digital
experience for consumers, issuers and merchants in the form of a common checkout button. This button is
designed to provide consumers the same convenience and security in a digital environment that they have
when shopping and paying in a store, make it easier for merchants to implement secure digital payments and
provide issuers with improved fraud detection and prevention capability.
•
scaling Decision Intelligence™, our fraud scoring technology, to score billions of transactions in real time
every day while increasing approvals and reducing false declines.
continued to invest in and test proprietary permission-based Blockchain, with an initial focus on the cross-
border B2B payments space.
In 2018, we made an initial $100 million contribution to the Mastercard Impact Fund (formerly referred to as
Mastercard's Center for Inclusive Growth Fund), a non-profit charitable organization. This contribution is part
of a $500 million commitment to support initiatives that focus on inclusive growth, such as financial inclusion,
economic development, the future of work and data science for social impact.
creating and acquiring differentiated products to provide unique, innovative solutions that we bring to market to support
new payment flows, such as real-time account-based payment, Mastercard B2B Hub™ and Mastercard Send™ platforms
Legal and Regulatory. We operate in a dynamic and rapidly evolving legal and regulatory environment, with
heightened regulatory and legislative scrutiny, expansion of local regulatory schemes and other legal
challenges, particularly with respect to interchange fees (as discussed below under “Our Operations and
Network"). These challenges create both risks and opportunities for our industry. Our recent legal and
regulatory developments include:
Inclusive Growth. We are dedicated to increasing the opportunity for individuals and micro and small
merchants to achieve financial security and greater prosperity, with the benefits of economic growth shared
among all segments of society. Together with our partners, we are more than two-thirds of the way toward
an important initial step towards that goal by providing access to 500 million people previously excluded from
financial services by 2020. We also help communities build the ecosystems that support usage. In 2018, we
worked with governments and private sector partners across several geographies to develop and roll out
electronic payments solutions, social payment distribution mechanisms and digital identity solutions. We
organized a global network of cities to help city leaders address the challenges of urbanization and co-develop
solutions to improve life for residents and visitors and promote economic growth. We also deployed our
services, partnerships and technologies to develop platforms that help small business owners accept electronic
payments, manage their records, access market information, build a financial footprint and use digital
communications channels to receive training and business advice.
modified our rules so that signatures will no longer be required on either cards or receipts and merchants no
longer need to capture or compare a signature at the point of sale, helping to provide a faster checkout and
more advanced authentication methods.
piloted biometric cards in multiple markets, placing fingerprint readers directly onto a card to authenticate a
cardholder's identity (as an alternative to a PIN or signature) using existing chip and contactless acceptance
terminals.
expanded the reach of Vocalink's Pay by Bank application in the United Kingdom, enabling real-time payments
directly from a consumer's bank account using a mobile banking app, with real-time clearing and without the
need for a card.
introducing Al Express, a new accelerated technology implementation service to help issuers, acquirers
and merchants develop Al models to solve priority problems, including anti-money laundering, fraud, risk
management and cybersecurity.
implemented EMVCo's 3D Secure 2.0 specification as part of a new solution (launched with issuer and merchant
partners globally) that supports app-based authentication, integration with digital wallets and browser-based
e-commerce. This is complemented by biometrics, machine learning and artificial intelligence solutions,
alongside incremental transaction data, to help merchants seamlessly verify a consumer's identity. At the
same time, the solution reduces friction during the checkout process, as well as reduces fraud while increasing
payment approvals.
Safety and Security. As new technologies and cyber-security threats evolve, including organized cyber-crime
and nation state attacks, there is a growing need to protect the security and resilience of the payments
ecosystem for every stakeholder. It is critical to protect all transactional and personal data that is stored,
processed or transmitted regardless of the device or channel used to make a purchase, while at the same time
continuing to improve the payment experience for all stakeholders. We focus on security across networks,
and it is embedded in our policies, products, systems and analytics to prevent fraud. In 2018, we:
•
•
B
6
continued to extend our investments in Artificial Intelligence ("AI") by:
•
Digital-Physical Convergence
Acceptance
Build. We build our business by:
Customers & Geographies
• Payments Regulation
•
Credit
Debit
.
Commercial
Prepaid
•
.
Financial Inclusion
.
New Markets
Businesses
Governments
Merchants
•
Digital Players
broadening financial inclusion for the unbanked and underbanked
•
scaling our capabilities and business into new geographies, including growing acceptance in markets with limited
electronic payments acceptance today
working with new customers, including governments, merchants, financial technology companies, digital players,
mobile providers and other corporate businesses
•
Diversify. We diversify our business by:
•
Grow. We focus on growing our core business globally, including growing our consumer credit, debit, prepaid and commercial
products and solutions, as well as increasing the number of payment transactions we switch. We also look to take advantage of
the opportunities presented by the evolving ways people interact and transact in the growing digital economy. This includes
expanding merchant access to electronic payments through new technologies in an effort to deliver a better consumer experience,
while creating greater efficiencies and security.
Consulting, Managed Services
Safety & Security
Loyalty & Processing
New Payment Flows
Data Analytics
New Areas
BUILD
Local Schemes / Switches
•
Enabled by Brand, Data, Technology and People
•
mastercard.
Several jurisdictions have implemented payments regulation or initiated payments reviews in 2018. In the
U.K., the Payment Systems Regulator (the "PSR") published draft terms of reference for a formal review
of card-acquiring services provided by Mastercard, Visa and other card scheme operators that could lead
to future regulation. The European Commission expects to issue proposals in 2020 to revise the E.U.
Interchange Fee Regulation. In Australia, the Productivity Commission released a report recommending,
among other things, that regulators ban interchange fees by the end of 2019 and consider regulating
merchant service fees. In Brazil, the Central Bank implemented a weighted average and cap for domestic
debit interchange.
As part of our multi-layered approach to protect the global payments system, we also work with issuers, acquirers, merchants,
governments and payments industry associations to help develop and put in place standards (e.g., EMV) for safe and secure
transactions.
10
10
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)
Yes ☑ No ☐
Class A common stock, par value $0.0001 per share
Securities registered pursuant to Section 12(g): Class B common stock, par value $0.0001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☑ No ☐
Name of each exchange on which registered
New York Stock Exchange
(Registrant's telephone number, including area code)
(914) 249-2000
Title of each Class
(Address of principal executive offices)
2000 Purchase Street
Purchase, NY
(State or other jurisdiction of
incorporation or organization)
10577
(Zip Code)
(IRS Employer
Identification Number)
13-4172551
(Exact name of registrant as specified in its charter)
Mastercard Incorporated
DIVERSIFY
☑
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Payments System Security. Our payment solutions and products are designed to ensure safety and security for the global
payments system. The core network and additional platforms incorporate multiple layers of protection, both for continuity
purposes and to provide best-in-class security protection. We engage in many efforts to mitigate information security challenges,
including maintaining an information security program, a business continuity program and insurance coverage, as well as regularly
testing our systems to address potential vulnerabilities.
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission file number: 001-32877
to
☐
Delaware
Or
Real-time Account-based Payment Systems. Augmenting our core network, we now offer real-time account-based payment
capabilities through our acquisition of Vocalink, which enables payments between bank accounts in near real-time in countries
in which it has been deployed.
Core Network Architecture. Our core network features a globally integrated structure that provides scale for our issuers, enabling
them to expand into regional and global markets. It is based largely on a distributed (peer-to-peer) architecture with an intelligent
edge that enables the network to adapt to the needs of each transaction. Our core network accomplishes this by performing
intelligent routing and applying multiple value-added services (such as fraud scoring or rewards at the point of sale) to appropriate
transactions in real time. Our core network's architecture enables us to connect all parties regardless of where or how the
transaction is occurring. It has 24-hour a day availability and world-class response time.
Cross-Border and Domestic. Our core network switches transactions throughout the world when the acquirer country
and issuer country are different ("cross-border transactions"), providing account holders with the ability to use, and
merchants to accept, our products and services across country borders. We also provide switched transaction services
to customers where the acquirer country and the issuer country are the same ("domestic transactions"). We switch
more than half of all transactions for Mastercard and Maestro-branded cards, including nearly all cross-border
transactions. We switch the majority of Mastercard and Maestro-branded domestic transactions in the United States,
United Kingdom, Canada, Brazil and a select number of other countries. Outside of these countries, most domestic
transactions on our products are switched without our involvement.
Switching
Core Network
mastercard.
Typical Transaction. Our core network supports what is often referred to as a “four-party” payments network. The following
diagram depicts a typical transaction on our core network, and our role in that transaction:
We operate a unique and proprietary global payments network, our core network, that links issuers and acquirers around the
globe to facilitate the switching of transactions, permitting account holders to use a Mastercard product at millions of acceptance
locations worldwide. Our core network facilitates an efficient and secure means for receiving payments, a convenient, quick and
secure payment method for consumers to access their funds and a channel for businesses to receive insight through information
that is derived from our network. We authorize, clear and settle transactions through our core network for our issuer customers
in more than 150 currencies and in more than 210 countries and territories. Vocalink expands our range of payment capabilities
beyond our core network into real-time account-based payments.
Our Operations and Network
Authorization
payment from the defendants. We took a charge during 2018 to reflect our share of this payment. Under the
agreement, Mastercard and its customer financial institutions will receive a release of all damages claims that
were alleged, or could have been alleged by the merchant class members concerning our interchange and fee
structure and merchant acceptance rules. This release covers all retrospective claims, as well as prospective
claims for a period of five years after the resolution of all appeals relating to court approval of the agreement.
In January 2019, the district court issued an order granting preliminary approval of the settlement. The
agreement does not relate to the merchants' claims seeking changes to business practices. Separate settlement
negotiations for those claims are ongoing. See Note 20 (Legal and Regulatory Proceedings) to the consolidated
financial statements included in Part II, Item 8 for further discussion.
8
Some jurisdictions are currently considering adopting "data localization" requirements, which mandate
the collection, processing, and/or storage of data within their borders, including India, Kenya and Vietnam.
Litigation - In September 2018, we entered into an amended class settlement agreement with the merchant
damages class plaintiffs to settle their monetary damages claims in a U.S. antitrust litigation that was brought
against Mastercard, Visa and a number of financial institutions. Visa and the financial institutions are also
parties to the agreement, which is subject to court approval. In addition to the monetary amounts that
constituted the financial settlement under the original agreement, the agreement requires an additional
In 2018, the European Union General Data Protection Regulation (the "GDPR") became effective. The
GDPR is a data protection regulation that has increased our compliance burden for collecting, using and
processing personal and sensitive data of EEA residents. We have reviewed our products, services and
processes involving EEA personal data to ensure privacy and data protection requirements are embedded
into their design. We have also launched online data portals to allow EEA residents to request a copy of
their personal data, and to ask for their data to be updated, corrected or deleted as appropriate. In addition,
we have taken steps to assist our customers with their compliance efforts. As part of our implementation
approach, we co-founded with IBM a data trust called Truata to provide anonymization and analytics
services in a GDPR-compliant manner.
Privacy and Data Protection
The U.K. Treasury has extended the U.K. payment systems oversight to include our Vocalink business due
to its role as a payment service provider.
Jurisdictions around the globe continue to implement or consider open banking initiatives. Initiatives such
as the EEA's revised Payment Services Directive (commonly referred to as "PSD2") which went into effect
in 2018, require financial institutions to provide third-party payment processors access to consumer
payment accounts, as well as requiring additional verification information from consumers to complete
transactions. Other jurisdictions considering open banking initiatives include Australia, Canada, Hong
Kong, Japan, Singapore and the United States.
Our Business
In December 2018, we announced the anticipated resolution of an investigation by the European
Commission ("EC") related to the interregional interchange rates we set and our central acquiring rule
within the European Economic Area (the "EEA"). With respect to interregional interchange fees, the
proposed settlement included changes to those fees that, if accepted by the EC following market testing,
would avoid prolonged litigation and gain certainty concerning our business practices. With respect to
our historic central acquiring rule, the EC issued a negative decision in January 2019. The EC's negative
decision covers a period of time of less than two years before the rule's modification in 2015. The decision
does not require any modification of our current business practices but includes a fine of €571 million.
We recorded a charge of $654 million in the fourth quarter of 2018 in relation to this matter. See Note 20
(Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for
further discussion.
Clearing
Settlement
Payment System Security
Authorization, Clearing and Settlement. Through our core network, we enable the routing of a transaction to the
issuer for its approval, facilitate the exchange of financial transaction information between issuers and acquirers after
a successfully conducted transaction, and help to settle the transaction by facilitating the determination and exchange
of funds between parties via settlement banks chosen by us and our customers.
•
Switched Transactions
Additional Four-Party System Fees. The merchant discount rate is established by the acquirer to cover its costs of
both participating in the four-party system and providing services to merchants. The rate takes into consideration the
amount of the interchange fee which the acquirer generally pays to the issuer. Additionally, acquirers may charge
merchants processing and related fees in addition to the merchant discount rate, and issuers may also charge account
holders fees for the transaction, including, for example, fees for extending revolving credit.
Interchange Fees. Interchange fees reflect the value merchants receive from accepting our products and play a key
role in balancing the costs consumers and merchants incur. We do not earn revenues from interchange fees. Generally,
interchange fees are collected from acquirers and paid to issuers to reimburse the issuers for a portion of the costs
incurred. These costs are incurred by issuers in providing services that benefit all participants in the system, including
acquirers and merchants, whose participation in the network enables increased sales to their existing and new
customers, efficiencies in the delivery of existing and new products, guaranteed payments and improved experience
for their customers. We (or, alternatively, financial institutions) establish "default interchange fees" that apply when
there are no other established settlement terms in place between an issuer and an acquirer. We administer the
collection and remittance of interchange fees through the settlement process.
•
Acquirer
In a typical transaction, an account holder purchases goods or services from a merchant using one of our payment products.
After the transaction is authorized by the issuer, the issuer pays the acquirer an amount equal to the value of the transaction,
minus the interchange fee (described below), and then posts the transaction to the account holder's account. The acquirer pays
the amount of the purchase, net of a discount (referred to as the "merchant discount" rate), to the merchant.
→ Account Holder
Mi
Enabling Digital Payments
Issuer
Merchant
Value-Added Products and Services
Loyalty and Rewards | Analytics Insights and Consulting
Processing | Safety and Security
9
GROW
Core
4
Our Strategy
CONTROLS AND PROCEDURES
ITEM 9A.
110
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE..
58
56
110
37
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8.
ITEM 9.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 7A.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
36
གླུགྷ༥
SELECTED FINANCIAL DATA
ITEM 9B.
110
PART IV
111
111
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE..
PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 13.
ITEM 14.
111
OTHER INFORMATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
EXECUTIVE COMPENSATION
ITEM 11.
ITEM 12.
111
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10.
PART III
111
ITEM 15.
ITEM 6.
ITEM 7.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 1.
TABLE OF CONTENTS
FISCAL YEAR 2018 FORM 10-K ANNUAL REPORT
MASTERCARD INCORPORATED
Portions of the registrant's definitive proxy statement for the 2019 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
The aggregate market value of the registrant's Class A common stock, par value $0.0001 per share, held by non-affiliates (using the New York Stock Exchange
closing price as of June 29, 2018, the last business day of the registrant's most recently completed second fiscal quarter) was approximately $179.5 billion.
There is currently no established public trading market for the registrant's Class B common stock, par value $0.0001 per share. As of February 8, 2019,
there were 1,014,237,644 shares outstanding of the registrant's Class A common stock, par value $0.0001 per share and 11,671,404 shares outstanding
of the registrant's Class B common stock, par value $0.0001 per share.
BUSINESS
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
Smaller reporting company
Emerging growth company
Accelerated filer
ооо о
☐ (do not check if a smaller reporting company)
Large accelerated filer
Non-accelerated filer
☑
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.
34
ITEM 1A.
ITEM 1B.
ITEM 5.
PART II
33
+2333 m
19
Page
RISK FACTORS
PART I
ITEM 4.
LEGAL PROCEEDINGS
ITEM 3.
PROPERTIES
ITEM 2.
UNRESOLVED STAFF COMMENTS.
MINE SAFETY DISCLOSURES
We grow, diversify and build our business through a combination of organic growth and strategic investments. Our ability to
grow our business is influenced by personal consumption expenditure ("PCE") growth, driving cash and check transactions toward
electronic forms of payment, increasing our share in electronic payments and providing value-added products and services. In
addition, growing our business includes supplementing our core network with enhanced payment capabilities to capture new
payment flows, such as business to business ("B2B"), person to person ("P2P"), business to consumer ("B2C") and government
payments, through a combination of product offerings and expanded solutions for our customers.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY .
Dividends paid
$1.0B
Adjusted net income
$6.8B
Net income
$5.9B
50% YOY
38% YOY (currency-neutral)
↑ 17% 2.3
Repurchased
shares
$4.9B
Gross dollar volume
YOY (local currency basis)
$5.97 14%
in capital returned
to stockholders
$15.0B Net revenue
20% YOY (currency-neutral)
73.8B
$15.0B Net revenue
20% YOY
Switched transactions
YOY
$5.60
4
Adjusted for the deconsolidation of our Venezuelan subsidiaries in 2017. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Results- Revenue" in Part II, Item 7.
3
2 Adjusted to normalize for the effects of differing switching days between periods.
¹Non-GAAP results excludes the impact of Special Items and/or foreign currency. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Financial Results Overview" in Part II, Item 7 for the reconciliation to the most direct comparable GAAP financial measures.
Cross-border volume growth
YOY (local currency basis)
$6.2B
2
41% YOY (currency-neutral)
53% YOY
Cash flow from
operations
Adjusted diluted EPS
$6.49
Diluted EPS
↑ 18%
ITEM 16.
$6.0B
GAAP
potential or incurred liability and limitations on business related to any litigation or litigation settlements
the impact of competition in the global payments industry (including disintermediation and pricing pressure)
the challenges relating to rapid technological developments and changes
regulation that directly or indirectly applies to us based on our participation in the global payments industry
(including anti-money laundering, counter terrorist financing, economic sanctions and anti-corruption;
account-based payment systems; issuer practice regulation; and regulation of internet and digital transactions)
the impact of changes in tax laws, as well as regulations and interpretations of such laws or challenges to our
tax positions
regulation of privacy, data protection, security and the digital economy
the impact of preferential or protective government actions
regulation directly related to the payments industry (including regulatory, legislative and litigation activity with
respect to interchange rates, surcharging and the extension of current regulatory activity to additional
jurisdictions or products)
•
the challenges relating to operating a real-time account-based payment system and to working with new
customers and end users
•
This Report contains forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. All statements other than statements of historical facts may be forward-looking statements. When used in this
Report, the words "believe", "expect", "could", "may", "would", "will", "trend" and similar words are intended to identify forward-
looking statements. Examples of forward-looking statements include, but are not limited to, statements that relate to the
Company's future prospects, developments and business strategies.
Forward-Looking Statements
In this Report on Form 10-K ("Report"), references to the "Company," "Mastercard," "we,” “us” or “our” refer to the business
conducted by Mastercard Incorporated and its consolidated subsidiaries, including our operating subsidiary, Mastercard
International Incorporated, and to the Mastercard brand.
111
111
2
Many factors and uncertainties relating to our operations and business environment, all of which are difficult to predict and
many of which are outside of our control, influence whether any forward-looking statements can or will be achieved. Any one
of those factors could cause our actual results to differ materially from those expressed or implied in writing in any forward-
looking statements made by Mastercard or on its behalf, including, but not limited to, the following factors:
Non-GAAP¹
the impact of information security incidents, account data breaches, fraudulent activity or service disruptions
issues related to our relationships with our financial institution customers (including loss of substantial business
from significant customers, competitor relationships with our customers and banking industry consolidation)
the impact of our relationships with other stakeholders, including merchants and governments
exposure to loss or illiquidity due to our role as guarantor, as well as other contractual obligations
the impact of global economic, political, financial and societal events and conditions
The following are our key financial and operational results for 2018:
Our Performance
We generate revenues from assessing our customers based on the gross dollar volume ("GDV") of activity on the products that
carry our brands, from the fees we charge to our customers for providing transaction switching and from other payment-related
products and services.
A typical transaction on our core network involves four participants in addition to us: account holder (a consumer 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 branded products. In most cases, account holder relationships belong to, and are managed by, our financial institution
customers.
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 creating 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.
Through our core global payments processing network, we facilitate the switching (authorization, clearing and settlement) of
payment transactions and deliver related products and services. With additional payment capabilities that include real-time
account-based payments (including automated clearing house ("ACH") transactions), we offer customers one partner to turn to
for their payment needs for both domestic and cross-border transactions across multiple payment flows. We also provide value-
added offerings such as safety and security products, information and analytics services, consulting, loyalty and reward programs
and issuer and acquirer processing. Our payment solutions are designed to ensure safety and security for the global payments
system.
Overview
•
ITEM 1. BUSINESS
3
Please see "Risk Factors" in Part I, Item 1A for a complete discussion of these risk factors. We caution you that the important
factors referenced above may not contain all of the factors that are important to you. Our forward-looking statements speak
only as of the date of this Report or as of the date they are made, and we undertake no obligation to update our forward-looking
statements.
issues related to our Class A common stock and corporate governance structure
issues related to acquisition integration, strategic investments and entry into new businesses
the inability to attract, hire and retain a highly qualified and diverse workforce, or maintain our corporate
culture
reputational impact, including impact related to brand perception
PART I
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company"
in Rule 12b-2 of the Exchange Act. (Check One):
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. ☑
(in millions)
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
common stock after the vesting period. As of December 31, 2018, there was $153 million of total unrecognized compensation
cost related to non-vested RSUs. The cost is expected to be recognized over a weighted-average period of 1.7 years.
Performance Stock Units
The following table summarizes the Company's PSU activity for the year ended December 31, 2018:
Units
Weighted-Average
Grant-Date Fair Value
Aggregate Intrinsic
Value
96
(in millions)
Outstanding at January 1, 2018
Granted.
0.5
$
105
0.1 $
226
Converted
(0.3) $
(in millions)
99
The fair value of each RSU is the closing stock price on the New York Stock Exchange of the Company's Class A common stock on
the date of grant, adjusted for the exclusion of dividend equivalents. Upon vesting, a portion of the RSU award may be withheld
to satisfy the minimum statutory withholding taxes. The remaining RSUs will be settled in shares of the Company's Class A
$
Indefinite Reinvestment
In 2017, as a result of U.S. Tax Reform, among other things, the Company changed its assertion regarding the indefinite
reinvestment of foreign earnings outside the U.S. for certain of our foreign affiliates and recognized a provisional deferred tax
liability of $36 million. In 2018, the Company completed its analysis of global working capital and cash needs. It is the Company's
100
4.1
$
97
0.9 $
171
(1.1) $
680
90
110
Outstanding at December 31, 2018
3.7 $
117
$
702
RSUS expected to vest at December 31, 2018.
3.6
116
(0.2) $
During 2014, the Company implemented an initiative to better align its legal entity and tax structure with its operational footprint
outside of the U.S. This initiative resulted in a one-time taxable gain in Belgium relating to the transfer of intellectual property
to a related foreign entity in the United Kingdom. The Company recorded a deferred charge related to the income tax expense
on intercompany profits that resulted from the transfer. The tax associated with the transfer was deferred and amortized utilizing
a 25-year life. The deferred charge was included in other current assets and other assets on the consolidated balance sheet at
December 31, 2017 in the amounts of $17 million and $352 million, respectively. The aforementioned deferred charge of $369
million at December 31, 2017, was written off to retained earnings as a component of the cumulative-effect adjustment as of
January 1, 2018. In addition, deferred taxes are a component of the cumulative-effect adjustment whereby the Company has
recorded a $186 million deferred tax asset in this regard. See Note 1 (Summary of Significant Accounting Policies) for additional
information related to this guidance.
Other¹
PSUs expected to vest at December 31, 2018.
$
41
53
53
176 $
57
36
148
49
196
31
Total intrinsic value of Options exercised
RSUS:
242
106
Weighted-average grant-date fair value of awards granted..
171
112
968
94
86
Options:
Outstanding at December 31, 2018 ..
(in millions, except weighted-average fair value)
2016
0.3
$
94
0.6
$
120
$
119
0.6
Share-based compensation expense: Options, RSUs and PSUs.
Income tax benefit recognized for equity awards..
Income tax benefit realized related to Options exercised
$
$
118
1 Represents additional shares issued in March 2018 related to the 2015 PSU grant based on performance and market conditions achieved over the three-
year measurement period. These shares vested upon issuance.
Since 2013, PSUs containing performance and market conditions have been issued. Performance measures used to determine
the actual number of shares that vest after three years include net revenue growth, EPS growth and relative total shareholder
return (“TSR”). Relative TSR is considered a market condition, while net revenue and EPS growth are considered performance
conditions. The Monte Carlo simulation valuation model is used to determine the grant-date fair value.
Compensation expenses for PSUs are recognized over the requisite service period if it is probable that the performance target
will be achieved and subsequently adjusted if the probability assessment changes. As of December 31, 2018, there was $13
million of total unrecognized compensation cost related to non-vested PSUs. The cost is expected to be recognized over a
weighted-average period of 1.3 years.
Additional Information
The following table includes additional share-based payment information for each of the years ended December 31:
2018
2017
119
91
Intra-entity asset transfers
Singapore Income Tax Rate
2.000%
650
$
2021
Semi-annually
November 2016
2016 USD Notes .
$ 1,000
500
2.236%
500 $
3.950%
(in millions, except percentages)
3.500% 3.598% $
500
500
2028 $
$
2048
Semi-annually
February 2018
2018 USD Notes .
2017
3.990%
2018
650
Forfeited
1.265%
1.100%
700
€
2022
Annually
December 2015
2015 Euro Notes.
$ 2,000
650
600
3.893%
3.800%
600
2046
750
750
2.950% 3.044%
750
2026
600
In connection with the expansion of the Company's operations in the Asia Pacific, Middle East and Africa region, the Company's
subsidiary in Singapore, Mastercard Asia Pacific Pte. Ltd. ("MAPPL") received an incentive grant from the Singapore Ministry of
Finance in 2010. The incentive had provided MAPPL with, among other benefits, a reduced income tax rate for the 10-year
period commencing January 1, 2010 on taxable income in excess of a base amount. The Company continued to explore business
opportunities in this region, resulting in an expansion of the incentives being granted by the Ministry of Finance, including a
further reduction to the income tax rate on taxable income in excess of a revised fixed base amount commencing July 1, 2011
and continuing through December 31, 2025. Without the incentive grant, MAPPL would have been subject to the statutory
income tax rate on its earnings. For 2018, 2017 and 2016, the impact of the incentive grant received from the Ministry of Finance
resulted in a reduction of MAPPL's income tax liability of $212 million, or $0.20 per diluted share, $104 million, or $0.10 per
diluted share, and $49 million, or $0.04 per diluted share, respectively.
Rate
Interest
Rate
(82)
Income tax expense
$
1,345
18.7 % $
2,607
40.0 %
1,587
- %
- %
(1.5)%
28.1 %
(0.8)%
1
The effective tax rates for the years ended December 31, 2018, 2017 and 2016 were 18.7%, 40.0% and 28.1%, respectively. The
effective income tax rate for 2018 was lower than the effective income tax rate for 2017 primarily due to additional tax expense
of $873 million attributable to U.S. Tax Reform in 2017, a lower 2018 statutory tax rate in the U.S. and Belgium and a more
favorable geographic mix of earnings. The lower effective tax rate is also attributable to discrete tax benefits, relating primarily
to $90 million of foreign tax credits generated in 2018, which can be carried back and utilized in 2017 under transition rules in
the proposed foreign tax credit regulations issued on November 28, 2018, along with provisions for legal matters in the United
States. These benefits were partially offset by the nondeductible nature of the fine issued by the European Commission. See
Note 20 (Legal and Regulatory Proceedings) for further discussion of the European Commission fine and U.S. merchant class
litigation. The impact of U.S. Tax Reform for the period ending December 31, 2018 resulted in a net $75 million non-recurring
tax benefit due to the carry back of certain foreign tax credits, incremental transition tax and the remeasurement of deferred
taxes.
The effective income tax rate for 2017 was higher than the effective income tax rate for 2016 primarily due to additional tax
expense of $873 million attributable to U.S. Tax reform, which included provisional amounts of $825 million related to the
Transition Tax, the remeasurement of the Company's net deferred tax asset balance in the U.S. and the recognition of a deferred
tax liability related to a change in assertion regarding the indefinite reinvestment of a substantial amount of the Company's
foreign earnings, as well as $48 million due to a foregone foreign tax credit benefit on 2017 repatriations. In addition, the
99
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Company's 2017 effective income tax rate versus 2016 was impacted by a more favorable geographic mix of earnings in 2017,
partially offset by a lower U.S. foreign tax credit benefit.
SAB 118
The Company was able to make reasonable estimates at December 31, 2017 and had recorded a provisional charge of $629
million related to the Transition Tax, $157 million for the remeasurement of the Company's net deferred tax asset in the U.S. and
$36 million related to the change in assertion regarding the indefinite reinvestment of foreign earnings. However, these amounts
were adjusted during the measurement period due to evolving analysis and interpretations of law, including issuance by the
Internal Revenue Service (the "IRS”) and Treasury of Notices and regulations, discussions with the Department of Treasury
("Treasury"), as well as interpretations of how accounting for income taxes should be applied.
At the close of the measurement period, the Company has finalized its assessment of the impact of U.S. Tax Reform resulting in
a Transition Tax liability of $687 million and a $150 million charge related to the remeasurement of the Company's net deferred
tax assets in the U.S. In 2018, the Company recorded an increase in the transition tax liability of $36 million, with an offsetting
decrease to its deferred tax liabilities. The Company recorded additional Transition Tax expense of $22 million and has recorded
a $7 million reduction to the charge for the remeasurement of its net deferred tax assets. The adjustments in 2018 were primarily
the result of additional administrative guidance and proposed regulations issued by the IRS and Treasury.
The Transition Tax will be paid over eight annual installments. The initial installment of $55 million was due and paid by April
15, 2018. Additionally, the overpayment appearing on the 2017 U.S. federal tax return has been applied against the Company's
Transition Tax liability. Approximately $509 million of the remaining tax due is recorded in other liabilities on the consolidated
balance sheet at December 31, 2018. At December 31, 2017 the Company had reflected a current liability of $52 million and an
other liability of $577 million. Under U.S. Tax Reform, for purposes of IRS examination of the Transition Tax, the statute of
limitations is extended to six years.
Included within the impact of the 2018 foreign tax credits is a $90 million tax benefit relating to the carryback of certain foreign tax credits. Additionally,
included in 2016 is a $116 million benefit associated with the repatriation of 2016 foreign earnings. There was no benefit associated with the
repatriation of foreign earnings in 2018 and 2017 due to the enactment of U.S. Tax Reform.
Interest
(55)
(149)
Effective
Stated
Aggregate
Principal
Amount
Maturity
Date
Terms
Interest Payment
Issuance
Date
Notes
Long-term debt consisted of the following at December 31:
(2.0)%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 14. Debt
157
2.4 %
Windfall benefit..
(72)
(1.0)%
(43)
(0.7)%
Other, net..
MASTERCARD INCORPORATED
Total intrinsic value of RSUs converted into shares of Class A
common stock . .
194
131
1
(2)
(5)
(49)
(12)
(244)
1,345
86
(20)
2,607
(11)
1,587
2018
2017
Amount
Percent
Amount
Percent
2016
Amount
Percent
A reconciliation of the effective income tax rate to the U.S. federal statutory income tax rate for the years ended December 31,
is as follows:
Income before income taxes
(6)
(228)
Deferred
Federal.
State and local.
Foreign...
Income tax expense
Effective Income Tax Rate
2018
2017
(in millions)
2016
134
649 $
1,704 $
65
1,074
36
871
752
497
1,589
2,521
1,607
69
Foreign...
$
6,522
European Commission fine.
194
2.7 %
-
- %
Foreign tax credits¹
(110)
(1.5)%
(27)
(3.3)%
(0.4)%
Transition Tax. .
22
0.3 %
629
9.6 %
- %
(2.5)%
-
%
Remeasurement of deferred taxes..
(141)
7,204
(188)
(380)
(in millions, except percentages)
$
$
5,646
Federal statutory tax. . . .
1,513
21.0 %
2,283
35.0 %
1,976
(5.8)%
35.0 %
46
0.6 %
43
0.7 %
22
0.4 %
Foreign tax effect...
(92)
(1.3)%
State tax effect, net of federal benefit.
State and local.
Federal..
Current
$
426 $
259
175
121
67
327
1,375 $
Sponsorship,
Capital
Leases
Total
Operating
Leases
(in millions)
4 $
72 $
350
4
75
180
76
99
Licensing &
Other
53
Thereafter.
2022.
122
PSUs:
Weighted-average grant-date fair value of awards granted. .
Total intrinsic value of PSUs converted into shares of Class A
common stock . . .
97
226
126
40
40
12
2023.
92
13
25
Note 18. Commitments
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At December 31, 2018, the Company had the following future minimum payments due under non-cancelable agreements:
2019.
2020.
2021.
113
58
9
327
Components of Income and Income tax expense
The domestic and foreign components of income before income taxes for the years ended December 31 are as follows:
2018
2017
2016
United States
Foreign..
Income before income taxes
3,510
While the effective date of the law for most provisions was January 1, 2018, GAAP requires the effects of changes in tax rates be
accounted for in the reporting period of enactment, which was the 2017 reporting period.
(in millions)
$
3,482 $
3,040
3,736
1,910
7,204
6,522
5,646
98
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The total income tax provision for the years ended December 31 is comprised of the following components:
3,694
eliminates the domestic production activities deduction.
•
limits the deductibility of interest expense in certain situations and
8
676 $
691
Total..
Included in the table above are capital leases with a net present value of minimum lease payments of $8 million. In addition, at
December 31, 2018, $25 million of the future minimum payments in the table above for sponsorship, licensing and other
agreements was accrued. Consolidated rental expense for the Company's leased office space was $94 million, $77 million and
$62 million for 2018, 2017 and 2016, respectively. Consolidated lease expense for automobiles, computer equipment and office
equipment was $20 million, $22 million and $19 million for 2018, 2017 and 2016, respectively.
Note 19. Income Taxes
On December 22, 2017, U.S. Tax Reform was enacted into law with the effective date for most provisions being January 1, 2018.
U.S. Tax Reform represents significant changes to the U.S. internal revenue code and, among other things:
•
lowered the corporate income tax rate from 35% to 21%
•
imposed a one-time deemed repatriation tax on accumulated foreign earnings (the "Transition Tax")
• provides for a 100% dividends received deduction on dividends from foreign affiliates
•
requires a current inclusion in U.S. federal taxable income of earnings of foreign affiliates that are determined to be
global intangible low taxed income or "GILTI"
• creates the base erosion anti-abuse tax, or "BEAT"
•
provides for an effective tax rate of 13.125% for certain income derived from outside of the U.S. (referred to as foreign
derived intangible income or "FDII”)
• introduced further limitations on the deductibility of executive compensation
•
permits 100% expensing of qualifying fixed assets acquired after September 27, 2017
•
801
839
2027
800 2.100%
Other
Comprehensive
Income (Loss)
Accumulated
Sale
Plans²
Available-for-
Investment
Securities
Defined Benefit
Pension and
Other
Postretirement
Translation
Adjustments on
Net Investment
Hedge
Adjustments
(in millions)
Translation
The changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, for the years
ended December 31, 2018 and 2017 were as follows:
Note 16. Accumulated Other Comprehensive Income (Loss)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
94
11.8
1,018.6
Balance at December 31, 2018. . . . .
(2.3)
Foreign Currency
2.3
Balance at December 31, 2016.
(949) $
75
(279)
Other comprehensive income (loss).
(497)
1
25
(141)
(382)
Balance at December 31, 2017.
$
427
14
(153)
567
Other comprehensive income (loss). .
Converted
(924)
2 $
11 $
12 $
(1)
Balance at December 31, 2018.
Conversion of Class B to Class A common stock
Share-based payments
(in millions)
1,095.0
Balance at December 31, 2015.
Class B
Class A
Outstanding Shares
The following table presents the changes in the Company's outstanding Class A and Class B common stock for the years ended
December 31:
92.03 $ 120.44
128.4
40.8
21.3
$ 194.77 $ 141.99 $ 99.10 $
$
Cumulative average price paid per share.
28.2
19.0
December 31, 2018 ..
Cumulative shares repurchased through
$ 188.26
-
$
40.4
2.8
Purchases of treasury stock
Share-based payments
I
(26.2)
Purchases of treasury stock
14.1
1,039.7
Balance at December 31, 2017..
(5.2)
5.2
Conversion of Class B to Class A common stock
(36.9)
2.2
(30.1)
Purchases of treasury stock
19.3
1,062.4
Balance at December 31, 2016.
(2.0)
2.0
Conversion of Class B to Class A common stock
2.3
Share-based payments
$
(661) $
(66) $
93
$
7.6
112
(0.1) $
57
(1.8) $
Outstanding at December 31, 2018.
Forfeited/expired
6.4
Exercised
0.9 $
Granted
77
Granted.
$
8.6
Outstanding at January 1, 2018.
(in millions)
(in years)
173
(in millions)
$
Exercisable at December 31, 2018.
Value
Aggregate Intrinsic
Weighted-Average
Grant-Date Fair Value
Units
The following table summarizes the Company's RSU activity for the year ended December 31, 2018:
Restricted Stock Units
Outstanding at January 1, 2018
723
6.4 $
726
93
7.6
505
$
5.2
72
$
4.3
December 31, 2018..
Options vested and expected to vest at
$
Value
Aggregate Intrinsic
Weighted-Average
Remaining
Contractual Term
Expected term (in years)
Risk-free rate of return
The fair value of each Option is estimated on the date of grant using a Black-Scholes option pricing model. The following table
presents the weighted-average assumptions used in the valuation and the resulting weighted-average fair value per option granted
for the years ended December 31:
Stock Options
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
95
There are approximately 116 million shares of Class A common stock authorized for equity awards under the LTIP. Although the
LTIP permits the issuance of shares of Class B common stock, no such shares have been authorized for issuance. Shares issued
as a result of Option exercises and the conversions of RSUs and PSUs were funded primarily with the issuance of new shares of
Class A common stock.
For all awards granted prior to March 2017, a participant's unvested awards are forfeited upon termination of employment. For
all awards granted on or after March 1, 2017, in the event of termination due to job elimination (as defined by the Company), a
participant will retain a pro-rata portion of the unvested awards for services performed through the date of termination. In the
event a participant terminates employment due to disability or retirement more than six months (seven months for those granted
on or after March 1, 2017) after receiving the award, the participant retains all of their awards without providing additional
service to the Company. Retirement eligibility is dependent upon age and years of service. Compensation expense is recognized
over the shorter of the vesting periods stated in the LTIP or the date the individual becomes eligible to retire but not less than
six months (or seven months for grants awarded on or after March 1, 2017).
Expected volatility.
The Company has granted Options, RSUs and PSUs under the LTIP. The Options, which expire ten years from the date of grant,
generally vest ratably over four years from the date of grant. The RSUs and PSUs generally vest after three years. The Company
uses the straight-line method of attribution for expensing equity awards. Compensation expense is recorded net of estimated
forfeitures. Estimates are adjusted as appropriate.
Note 17. Share-Based Payments
3 During 2017 and 2018, gains and losses on available-for-sale investment securities, reclassified from accumulated other comprehensive income (loss)
to investment income, were not significant.
2 During 2017, the increase in the accumulated other comprehensive gain related to the Company's postretirement plans was driven primarily by the
addition of the Vocalink Plan. Deferred gains related to the Company's postretirement plans, reclassified from accumulated other comprehensive
income (loss) to earnings, were $2 million before tax and $1 million after tax. During 2018, the decrease in the accumulated other comprehensive
gain related to the Company's postretirement plans was driven primarily by an actuarial loss related to the Vocalink Plan. Deferred gains related to
the Company's postretirement plans, reclassified from accumulated other comprehensive income (loss) to earnings, were $1 million before and after
tax. See Note 13 (Pension, Postretirement and Savings Plans) for additional information.
1 During 2017, the decrease in the accumulated other comprehensive loss related to foreign currency translation adjustments was driven primarily by
the appreciation of the euro. During 2018, the increase in the accumulated other comprehensive loss related to foreign currency translation
adjustments was driven primarily by the devaluation of the euro, British pound and Brazilian real.
(718)
(1) $
(221)
(2)
(15)
10 $
In May 2006, the Company implemented the Mastercard Incorporated 2006 Long Term Incentive Plan, which was amended and
restated as of June 5, 2012 (the "LTIP"). The LTIP is a stockholder-approved plan that permits the grant of various types of equity
awards to employees.
Expected dividend yield..
Weighted-average fair value per Option granted
2018
Weighted-Average
Exercise Price
Options
The following table summarizes the Company's option activity for the year ended December 31, 2018:
The risk-free rate of return was based on the U.S. Treasury yield curve in effect on the date of grant. The expected term and the
expected volatility were based on historical Mastercard information. The expected dividend yields were based on the Company's
expected annual dividend rate on the date of grant.
18.58
21.23
40.90 $
0.8%
0.8%
0.6%
23.3%
19.3%
19.7%
5.00
5.00
6.00
1.3%
2.0%
2.7%
2016
2017
26.2
(in millions)
$ 125.05
95.18
Authorized Shares
(in millions)
Share
Class
A
Par Value Per
Mastercard's amended and restated certificate of incorporation authorizes the following classes of capital stock:
Classes of Capital Stock
Note 15. Stockholders' Equity
In March 2018, the Company filed a universal shelf registration statement (replacing a previously filed shelf registration statement
that was set to expire) to provide additional access to capital, if needed. Pursuant to the shelf registration statement, the Company
may from time to time offer to sell debt securities, guarantees of debt securities, preferred stock, Class A common stock, depository
shares, purchase contracts, units or warrants in one or more offerings.
Borrowings under the Commercial Paper Program and the Credit Facility are used to provide liquidity for general corporate
purposes, including providing liquidity in the event of one or more settlement failures by the Company's customers. The Company
may borrow and repay amounts under the Commercial Paper Program and Credit Facility from time to time. The Company had
no borrowings under the Credit Facility and the Commercial Paper Program at December 31, 2018 and 2017.
Dividend and Voting Rights
In conjunction with the Commercial Paper Program, the Company entered into a committed five-year unsecured $4.5 billion
revolving credit facility (the "Credit Facility") on November 15, 2018. The Credit Facility, which expires on November 15, 2023,
amended and restated the Company's prior $3.75 billion credit facility which was set to expire in October 2022. Borrowings
under the Credit Facility are available in U.S. dollars and/or euros. The facility fee under the Credit Facility is determined according
to the Company's credit rating and is payable on the average daily commitment, regardless of usage, per annum. In addition to
the facility fee, interest rates on borrowings under the Credit Facility would be based on prevailing market interest rates plus
applicable margins that fluctuate based on the Company's credit rating. The Credit Facility contains customary representations,
warranties, events of default and affirmative and negative covenants, including a financial covenant limiting the maximum level
of consolidated debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"). The Company was in
compliance in all material respects with the covenants of the Credit Facility at December 31, 2018 and 2017. The majority of
Credit Facility lenders are customers or affiliates of customers of Mastercard.
6,389
4,438
801
650
500
$
(in millions)
Total
Thereafter
On November 15, 2018, the Company increased its commercial paper program (the "Commercial Paper Program") from $3.75
billion to $4.5 billion under which the Company is authorized to issue unsecured commercial paper notes with maturities of up
to 397 days from the date of issuance. The Commercial Paper Program is available in U.S. dollars.
2023
$0.0001
One vote per share
Equity Ownership
General Voting
Power
Equity Ownership
2017
2018
Equity ownership and voting power of the Company's shares were allocated as follows as of December 31:
Ownership and Governance Structure
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
3,000
22
No shares issued or outstanding at December 31, 2018 and
2017, respectively. Dividend and voting rights are to be
determined by the Board of Directors of the Company upon
issuance.
Non-voting
Dividend rights
300
$0.0001
Preferred
1,200
$0.0001
B
Dividend rights
92
General Voting
Power
2022
2020
3.484%
500
500
2.178%
500 2.000%
1,000 3.375%
$ 1,500
2024
$
2019
Semi-annually
1,000
March 2014
180
172
2.562%
2.500%
150
€ 1,650
2030
958
916
2.189%
2014 USD Notes.
2021
1,000
Total debt outstanding
2019
Scheduled annual maturities of the principal portion of long-term debt outstanding at December 31, 2018 are summarized below.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
91
The outstanding debt, described above, is not subject to any financial covenants and it may be redeemed in whole, or in part,
at the Company's option at any time for a specified make-whole amount. These notes are senior unsecured obligations and
would rank equally with any future unsecured and unsubordinated indebtedness. The proceeds of the notes are to be used for
general corporate purposes.
The net proceeds, after deducting the original issue discount, underwriting discount and offering expenses, from the issuance
of the 2016 USD Notes, the 2015 Euro Notes and the 2014 USD Notes, were $1.969 billion, $1.723 billion and $1.484 billion,
respectively.
In February 2018, the Company issued $500 million principal amount of notes due February 2028 and $500 million principal
amount of notes due February 2048 (collectively the “2018 USD Notes"). The net proceeds from the issuance of the 2018 USD
Notes, after deducting the original issue discount, underwriting discount and offering expenses, were $991 million.
Relates to the current portion of the 2014 USD Notes, due in April 2019, classified as current portion of long-term debt on the consolidated balance
sheet.
Less: Unamortized discount and debt issuance costs
$ 5,834 $ 5,424
5,424
6,334
(53)
(55)
5,477
6,389
1
Long-term debt..
Less: Current portion¹.
(500)
Public Investors (Class A stockholders)
88.0%
89.0%
6,500 $
4,933
$
1,234 $
3,699 $
-
5,234
$
1,234 $
301 $
4,000 $
$
-
996 $
2,766 $
$
-
$ 4,996
996
4,000 $
3,762
$
- $ - $ - $
Shares repurchased in 2016. . .
36.9
5.7
89.76 $
96.15 $
9.1
21.0
$
31.2
$ 194.77 $ 171.11 $
$
Average price paid per share in 2018.
6,801
$ 131.97 $ 109.16 $
7.2
Shares repurchased in 2018..
$
Average price paid per share in 2017
Shares repurchased in 2017.
es
I
$
Average price paid per share in 2016
---
19.0
Remaining authorization at December 31, 2016. $
Dollar-value of shares repurchased in 2017…………. $
Remaining authorization at December 31, 2017. $
Dollar-value of shares repurchased in 2018..... $
Remaining authorization at December 31, 2018. $
507 $ 3,511
3,004 $
93
93
The Company's Board of Directors have approved share repurchase programs authorizing the Company to repurchase shares of
its Class A Common Stock. These programs become effective after the completion of the previously authorized share repurchase
program.
Stock Repurchase Programs
In connection and simultaneously with its 2006 initial public offering (the "IPO"), the Company issued and donated 135 million
newly authorized shares of Class A common stock to Mastercard Foundation. Mastercard Foundation is a private charitable
foundation incorporated in Canada that is controlled by directors who are independent of the Company and its principal
customers. Under the terms of the donation, Mastercard Foundation became able to resell the donated shares in May 2010 to
the extent necessary to meet charitable disbursement requirements dictated by Canadian tax law. Under Canadian tax law,
Mastercard Foundation is generally required to disburse at least 3.5% of its assets not used in administration each year for
qualified charitable disbursements. However, Mastercard Foundation obtained permission from the Canadian tax authorities to
defer the giving requirements until 2021. Mastercard Foundation, at its discretion, may decide to meet its disbursement
obligations on an annual basis or to settle previously accumulated obligations during any given year. Mastercard Foundation will
be permitted to sell all of its remaining shares beginning May 1, 2027, subject to certain conditions.
Mastercard Foundation
Shares of Class B common stock are convertible on a one-for-one basis into shares of Class A common stock. Entities eligible to
hold Mastercard's Class B common stock are defined in the Company's amended and restated certificate of incorporation
(generally the Company's principal or affiliate customers), and they are restricted from retaining ownership of shares of Class A
common stock. Class B stockholders are required to subsequently sell or otherwise transfer any shares of Class A common stock
received pursuant to such a conversion.
Class B Common Stock Conversions
10.8%
MASTERCARD INCORPORATED
10.6%
10.9%
Mastercard Foundation (Class A stockholders)...
-%
1.4%
-%
1.1%
Principal or Affiliate Customers (Class B stockholders) .
89.2%
88.0%
11.0%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes the Company's share repurchase authorizations of its Class A common stock through
December 31, 2018, as well as historical purchases:
Board authorization dates
$
-
$
$
Dollar-value of shares repurchased in 2016..
3,750 $ 22,250
(in millions, except average price data)
4,000 $
4,000 $ 4,000 $
6,500 $
$
Board authorization ..
Total
January
2015
February
2016
April 2017
March
2018
2019
Date program became effective
January
December
2014
December December December December
2018
2017
2016
2015
30.1
As of December 31, 2018, there was $34 million of total unrecognized compensation cost related to non-vested Options. The
cost is expected to be recognized over a weighted-average period of 2.1 years.
(0.1)%
(7)
(1) $
In February 2011, Mastercard and Mastercard International entered into each of: (1) an omnibus judgment sharing and settlement
sharing agreement with Visa Inc., Visa U.S.A. Inc. and Visa International Service Association and a number of financial institutions;
and (2) a Mastercard settlement and judgment sharing agreement with a number of financial institutions. The agreements
provide for the apportionment of certain costs and liabilities which Mastercard, the Visa parties and the financial institutions
may incur, jointly and/or severally, in the event of an adverse judgment or settlement of one or all of the cases in the merchant
litigations. Among a number of scenarios addressed by the agreements, in the event of a global settlement involving the Visa
parties, the financial institutions and Mastercard, Mastercard would pay 12% of the monetary portion of the settlement. In the
event of a settlement involving only Mastercard and the financial institutions with respect to their issuance of Mastercard cards,
Mastercard would pay 36% of the monetary portion of such settlement.
In October 2012, the parties entered into a definitive settlement agreement with respect to the merchant class litigation (including
with respect to the claims related to the IPO) and the defendants separately entered into a settlement agreement with the
individual merchant plaintiffs. The settlements included cash payments that were apportioned among the defendants pursuant
to the omnibus judgment sharing and settlement sharing agreement described above. Mastercard also agreed to provide class
members with a short-term reduction in default credit interchange rates and to modify certain of its business practices, including
its "no surcharge" rule. The court granted final approval of the settlement in December 2013, and objectors to the settlement
appealed that decision to the U.S. Court of Appeals for the Second Circuit. In June 2016, the court of appeals vacated the class
action certification, reversed the settlement approval and sent the case back to the district court for further proceedings. The
court of appeals' ruling was based primarily on whether the merchants were adequately represented by counsel in the settlement.
As a result of the appellate court ruling, the district court divided the merchants' claims into two separate classes - monetary
damages claims (the "Damages Class") and claims seeking changes to business practices (the "Rules Relief Class"). The court
appointed separate counsel for each class.
Prior to the reversal of the settlement approval, merchants representing slightly more than 25% of the Mastercard and Visa
purchase volume over the relevant period chose to opt out of the class settlement. Mastercard had anticipated that most of the
larger merchants who opted out of the settlement would initiate separate actions seeking to recover damages, and over 30 opt-
out complaints have been filed on behalf of numerous merchants in various jurisdictions. Mastercard has executed settlement
agreements with a number of opt-out merchants. Mastercard believes these settlement agreements are not impacted by the
ruling of the court of appeals. The defendants have consolidated all of these matters in front of the same federal district court
that approved the merchant class settlement. In July 2014, the district court denied the defendants' motion to dismiss the opt-
out merchant complaints for failure to state a claim.
103
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In September 2018, the parties to the Damages Class litigation entered into a class settlement agreement to resolve the Damages
Class claims. Mastercard increased its reserve by $237 million during 2018 to reflect both its expected financial obligation under
the Damages Class settlement agreement and the filed and anticipated opt-out merchant cases. In January 2019, the district
court issued an order granting preliminary approval of the settlement and authorized notice of the settlement to class members.
Damages Class members will now have the opportunity to opt out of the class settlement agreement, after which the district
court will schedule a hearing on final approval. The settlement agreement does not relate to the Rules Relief Class claims.
Separate settlement negotiations with the Rules Relief Class are ongoing.
As of December 31, 2018 and 2017, Mastercard had accrued a liability of $915 million and $708 million, respectively, as a reserve
for both the merchant class litigation and the filed and anticipated opt-out merchant cases. As of December 31, 2018 and 2017,
Mastercard had $553 million and $546 million, respectively, in a qualified cash settlement fund related to the merchant class
litigation and classified as restricted cash on its consolidated balance sheet. Mastercard believes the reserve for both the merchant
class litigation and the filed and anticipated opt-out merchants represents its best estimate of its probable liabilities in these
matters. The portion of the accrued liability relating to both the opt-out merchants and the merchant class litigation settlement
does not represent an estimate of a loss, if any, if the matters were litigated to a final outcome. Mastercard cannot estimate the
potential liability if that were to occur.
Canada. In December 2010, a proposed class action complaint was commenced against Mastercard in Quebec on behalf of
Canadian merchants. The suit essentially repeated the allegations and arguments of a previously filed application by the Canadian
Competition Bureau to the Canadian Competition Tribunal (dismissed in Mastercard's favor) concerning certain Mastercard rules
related to point-of-sale acceptance, including the "honor all cards” and “no surcharge” rules. The Quebec suit sought
compensatory and punitive damages in unspecified amounts, as well as injunctive relief. In the first half of 2011, additional
purported class action lawsuits were commenced in British Columbia and Ontario against Mastercard, Visa and a number of large
Canadian financial institutions. The British Columbia suit sought compensatory damages in unspecified amounts, and the Ontario
suit sought compensatory damages of $5 billion on the basis of alleged conspiracy and various alleged breaches of the Canadian
Competition Act. Additional purported class action complaints were commenced in Saskatchewan and Alberta with claims that
largely mirror those in the other suits. In June 2017, Mastercard entered into a class settlement agreement to resolve all of the
Canadian class action litigation. The settlement, which requires Mastercard to make a cash payment and modify its "no surcharge"
rule, has received court approval in each Canadian province. Objectors to the settlement have sought to appeal the approval
orders. In 2017, Mastercard recorded a provision for litigation of $15 million related to this matter.
Europe. In July 2015, the European Commission ("EC") issued a Statement of Objections related to Mastercard's interregional
interchange fees and central acquiring rule within the European Economic Area (the "EEA"). The Statement of Objections, which
followed an investigation opened in 2013, included preliminary conclusions concerning the alleged anticompetitive effects of
these practices. In December 2018, Mastercard announced the anticipated resolution of the EC's investigation. With respect to
interregional interchange fees, Mastercard made a settlement proposal whereby it would make changes to its interregional
interchange fees. The proposed settlement is subject to market testing by the EC before it is made binding in an EC decision.
The EC has announced that Visa has entered into a parallel proposed settlement. In addition, with respect to Mastercard's historic
central acquiring rule, the EC issued a negative decision in January 2019. The EC's negative decision covers a period of time of
less than two years before the rule's modification. The rule was modified in late 2015 to comply with the requirements of the
EEA Interchange Fee Regulation. The decision does not require any modification of Mastercard's current business practices but
includes a fine of €571 million. Mastercard incurred a charge of $654 million in the fourth quarter of 2018 in relation to this
matter.
Since May 2012, a number of United Kingdom ("U.K.") retailers filed claims or threatened litigation against Mastercard seeking
damages for alleged anti-competitive conduct with respect to Mastercard's cross-border interchange fees and its U.K. and Ireland
domestic interchange fees (the "U.K. Merchant claimants"). In addition, Mastercard, has faced similar filed or threatened litigation
by merchants with respect to interchange rates in other countries in Europe (the "Pan-European Merchant claimants"). In
aggregate, the alleged damages claims from the U.K. and Pan-European Merchant claimants were in the amount of approximately
£3 billion (approximately $4 billion as of December 31, 2018). Mastercard has resolved over £2 billion (approximately $3 billion
as of December 31, 2018) of these damages claims through settlement or judgment. Since June 2015, Mastercard has recorded
litigation provisions for settlements, judgments and legal fees relating to these claims, including charges of $237 million and $117
million in 2018 and 2016, respectively. There were no litigation charges relating to U.K. and Pan-European Merchant claimants
in 2017. As detailed below, Mastercard continues to litigate with the remaining U.K. and Pan-European Merchant claimants and
it has submitted statements of defense disputing liability and damages claims.
In January 2017, Mastercard received a liability judgment in its favor on all significant matters in a separate action brought by
ten of the U.K. Merchant claimants. Three of the U.K. Merchant claimants appealed the judgment, and these appeals were
104
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
combined with Mastercard's appeal of a 2016 judgment in favor of one U.K. merchant. In July 2018, the U.K. appellate court
ruled against both Mastercard and Visa on two of the three legal issues being considered, concluding that U.K. interchange rates
restricted competition and that they were not objectively necessary for the payment networks. The appellate court sent the
cases back to trial for reconsideration on the remaining issue concerning the "lawful" level of interchange. Mastercard and Visa
have been granted permission to appeal the appellate court ruling to the U.K. Supreme Court. Mastercard expects the litigation
process to be delayed pending the resolution of its appeal to the U.K. Supreme Court.
In September 2016, a proposed collective action was filed in the United Kingdom on behalf of U.K. consumers seeking damages
for intra-EEA and domestic U.K. interchange fees that were allegedly passed on to consumers by merchants between 1992 and
2008. The complaint, which seeks to leverage the European Commission's 2007 decision on intra-EEA interchange fees, claims
damages in an amount that exceeds £14 billion (approximately $18 billion as of December 31, 2018). In July 2017, the court
denied the plaintiffs' application for the case to proceed as a collective action. The plaintiffs were granted permission to appeal
the denial of their collective action application and the appellate court heard an oral argument on the appeal in February 2019.
ATM Non-Discrimination Rule Surcharge Complaints
In October 2011, a trade association of independent Automated Teller Machine ("ATM") operators and 13 independent ATM
operators filed a complaint styled as a class action lawsuit in the U.S. District Court for the District of Columbia against both
Mastercard and Visa (the "ATM Operators Complaint"). Plaintiffs seek to represent a class of non-bank operators of ATM terminals
that operate in the United States with the discretion to determine the price of the ATM access fee for the terminals they operate.
Plaintiffs allege that Mastercard and Visa have violated Section 1 of the Sherman Act by imposing rules that require ATM operators
to charge non-discriminatory ATM surcharges for transactions processed over Mastercard's and Visa's respective networks that
are not greater than the surcharge for transactions over other networks accepted at the same ATM. Plaintiffs seek both injunctive
and monetary relief equal to treble the damages they claim to have sustained as a result of the alleged violations and their costs
of suit, including attorneys' fees. Plaintiffs have not quantified their damages although they allege that they expect damages to
be in the tens of millions of dollars.
In July 2006, the group of purported merchant class plaintiffs filed a supplemental complaint alleging that Mastercard's initial
public offering of its Class A Common Stock in May 2006 (the "IPO") and certain purported agreements entered into between
Mastercard and financial institutions in connection with the IPO: (1) violate U.S. antitrust laws and (2) constituted a fraudulent
conveyance because the financial institutions allegedly attempted to release, without adequate consideration, Mastercard's right
to assess them for Mastercard's litigation liabilities. The class plaintiffs sought treble damages and injunctive relief including,
but not limited to, an order reversing and unwinding the IPO.
United States. In June 2005, the first of a series of complaints were filed on behalf of merchants (the majority of the complaints
were styled as class actions, although a few complaints were filed on behalf of individual merchant plaintiffs) against Mastercard
International, Visa U.S.A., Inc., Visa International Service Association and a number of financial institutions. Taken together, the
claims in the complaints were generally brought under both Sections 1 and 2 of the Sherman Act, which prohibit monopolization
and attempts or conspiracies to monopolize a particular industry, and some of these complaints contain unfair competition law
claims under state law. The complaints allege, among other things, that Mastercard, Visa, and certain financial institutions
conspired to set the price of interchange fees, enacted point of sale acceptance rules (including the no surcharge rule) in violation
of antitrust laws and engaged in unlawful tying and bundling of certain products and services. The cases were consolidated for
pre-trial proceedings in the U.S. District Court for the Eastern District of New York in MDL No. 1720. The plaintiffs filed a
consolidated class action complaint that seeks treble damages.
Mastercard's interchange fees and other practices are subject to regulatory, legal review and/or challenges in a number of
jurisdictions, including the proceedings described below. When taken as a whole, the resulting decisions, regulations and
legislation with respect to interchange fees and acceptance practices may have a material adverse effect on the Company's
prospects for future growth and its overall results of operations, financial position and cash flows.
Interchange Litigation and Regulatory Proceedings
(28)
(18)
(4)
(2)
(12)
(11)
(15)
164 $
Subsequently, multiple related complaints were filed in the U.S. District Court for the District of Columbia alleging both federal
antitrust and multiple state unfair competition, consumer protection and common law claims against Mastercard and Visa on
behalf of putative classes of users of ATM services (the "ATM Consumer Complaints"). The claims in these actions largely mirror
the allegations made in the ATM Operators Complaint, although these complaints seek damages on behalf of consumers of ATM
services who pay allegedly inflated ATM fees at both bank and non-bank ATM operators as a result of the defendants' ATM rules.
Plaintiffs seek both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the
alleged violations and their costs of suit, including attorneys' fees. Plaintiffs have not quantified their damages although they
allege that they expect damages to be in the tens of millions of dollars.
183
The entire unrecognized tax benefit of $164 million, if recognized, would reduce the effective tax rate. During 2018, there was
a reduction to the balance of the Company's unrecognized tax benefits. This was primarily due to a favorable court decision and
settlements with tax authorities in multiple jurisdictions. Further, the information gained related to these matters was considered
in measuring uncertain tax benefits recognized for the periods subsequent to the periods settled.
The Company is subject to tax in the U.S., Belgium, Singapore, the United Kingdom and various other foreign jurisdictions, as
well as state and local jurisdictions. Uncertain tax positions are reviewed on an ongoing basis and are adjusted after considering
facts and circumstances, including progress of tax audits, developments in case law and closing of statutes of limitation. Within
the next twelve months, the Company believes that the resolution of certain federal, foreign and state and local examinations
are reasonably possible and that a change in estimate, reducing unrecognized tax benefits, may occur. While such a change may
be significant, it is not possible to provide a range of the potential change until the examinations progress further or the related
statutes of limitation expire. The Company has effectively settled its U.S. federal income tax obligations through 2011. With
limited exception, the Company is no longer subject to state and local or foreign examinations by tax authorities for years before
2010.
At December 31, 2018 and 2017, the Company had a net income tax-related interest payable of $8 million and $10 million,
respectively, in its consolidated balance sheet. Tax-related interest income/(expense) in the periods 2018, 2017 and 2016, were
not material. In addition, as of December 31, 2018 and 2017, the amounts the Company has recognized for penalties payable
in its consolidated balance sheet were not material.
Note 20. Legal and Regulatory Proceedings
Mastercard is a party to legal and regulatory proceedings with respect to a variety of matters in the ordinary course of business.
Some of these proceedings are based on complex claims involving substantial uncertainties and unascertainable damages.
Accordingly, except as discussed below, it is not possible to determine the probability of loss or estimate damages, and therefore,
Mastercard has not established reserves for any of these proceedings. When the Company determines that a loss is both probable
and reasonably estimable, Mastercard records a liability and discloses the amount of the liability if it is material. When a material
loss contingency is only reasonably possible, Mastercard does not record a liability, but instead discloses the nature and the
amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Unless otherwise stated
below with respect to these matters, Mastercard cannot provide an estimate of the possible loss or range of loss based on one
or more of the following reasons: (1) actual or potential plaintiffs have not claimed an amount of monetary damages or the
amounts are unsupportable or exaggerated, (2) the matters are in early stages, (3) there is uncertainty as to the outcome of
pending appeals or motions, (4) there are significant factual issues to be resolved, (5) the existence in many such proceedings
of multiple defendants or potential defendants whose share of any potential financial responsibility has yet to be determined
and/or (6) there are novel legal issues presented. Furthermore, except as identified with respect to the matters below, Mastercard
does not believe that the outcome of any individual existing legal or regulatory proceeding to which it is a party will have a
material adverse effect on its results of operations, financial condition or overall business. However, an adverse judgment or
other outcome or settlement with respect to any proceedings discussed below could result in fines or payments by Mastercard
and/or could require Mastercard to change its business practices. In addition, an adverse outcome in a regulatory proceeding
could lead to the filing of civil damage claims and possibly result in significant damage awards. Any of these events could have
a material adverse effect on Mastercard's results of operations, financial condition and overall business.
102
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
169
In January 2012, the plaintiffs in the ATM Operators Complaint and the ATM Consumer Complaints filed amended class action
complaints that largely mirror their prior complaints. In February 2013, the district court granted Mastercard's motion to dismiss
the complaints for failure to state a claim. On appeal, the Court of Appeals reversed the district court's order in August 2015
and sent the case back for further proceedings.
U.S. Liability Shift Litigation
In March 2016, a proposed U.S. merchant class action complaint was filed in federal court in California alleging that Mastercard,
Visa, American Express and Discover (the "Network Defendants"), EMVCO and a number of issuing banks (the "Bank Defendants")
engaged in a conspiracy to shift fraud liability for card present transactions from issuing banks to merchants not yet in compliance
with the standards for EMV chip cards in the United States (the "EMV Liability Shift"), in violation of the Sherman Act and California
law. Plaintiffs allege damages equal to the value of all chargebacks for which class members became liable as a result of the EMV
Liability Shift on October 1, 2015. The plaintiffs seek treble damages, attorney's fees and costs and an injunction against future
violations of governing law, and the defendants have filed a motion to dismiss. In September 2016, the court denied the Network
Defendants' motion to dismiss the complaint, but granted such a motion for EMVCO and the Bank Defendants. In May 2017, the
court transferred the case to New York so that discovery could be coordinated with the U.S. merchant class interchange litigation
described above. The plaintiffs have filed a renewed motion for class certification, following the district court's denial of their
initial motion.
Mastercard also provides guarantees to customers and certain other counterparties indemnifying them from losses stemming
from failures of third parties to perform duties. This includes guarantees of Mastercard-branded travelers cheques issued, but
not yet cashed of $377 million and $395 million at December 31, 2018 and 2017, respectively, of which $297 million and $313
million at December 31, 2018 and 2017, respectively, is mitigated by collateral arrangements. In addition, the Company enters
into agreements in the ordinary course of business under which the Company agrees to indemnify third parties against damages,
losses and expenses incurred in connection with legal and other proceedings arising from relationships or transactions with the
Company. Certain indemnifications do not provide a stated maximum exposure. As the extent of the Company's obligations
under these agreements depends entirely upon the occurrence of future events, the Company's potential future liability under
these agreements is not determinable. Historically, payments made by the Company under these types of contractual
arrangements have not been material.
Note 22. Foreign Exchange Risk Management
The Company monitors and manages its foreign currency exposures as part of its overall risk management program which focuses
on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets
may have on its operating results. A primary objective of the Company's risk management strategies is to reduce the financial
impact that may arise from volatility in foreign currency exchange rates principally through the use of both foreign currency
derivative contracts (Derivatives) and foreign currency denominated debt (Net Investment Hedge).
106
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Derivatives
The Company enters into foreign currency derivative contracts to manage risk associated with anticipated receipts and
disbursements which are valued based on currencies other than the functional currencies of the entity. The Company may also
enter into foreign currency derivative contracts to offset possible changes in value due to foreign exchange fluctuations of earnings,
assets and liabilities. The objective of these activities is to reduce the Company's exposure to gains and losses resulting from
fluctuations of foreign currencies against its functional currencies.
42,642
As of December 31, 2018 and 2017, the majority of derivative contracts to hedge foreign currency fluctuations had been entered
into with customers of Mastercard. Mastercard's derivative contracts are summarized below:
December 31, 2017
Notional
Estimated Fair
Value
Notional
Estimated Fair
Value
(in millions)
Commitments to purchase foreign currency
$
December 31, 2018
(1)
44,955 $
(4,360)
105
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Telephone Consumer Protection Class Action
Mastercard is a defendant in a Telephone Consumer Protection Act ("TCPA") class action pending in Florida. The plaintiffs are
individuals and businesses who allege that approximately 381,000 unsolicited faxes were sent to them advertising a Mastercard
co-brand card issued by First Arkansas Bank ("FAB”). The TCPA provides for uncapped statutory damages of $500 per fax.
Mastercard has asserted various defenses to the claims, and has notified FAB of an indemnity claim that it has (which FAB has
disputed). In June 2018, the court granted Mastercard's motion to stay the proceedings until the Federal Communications
Commission makes a decision on the application of the TCPA to online fax services.
Note 21. Settlement and Other Risk Management
Mastercard's rules guarantee the settlement of many of the transactions between its customers ("settlement risk"). Settlement
exposure is the settlement risk to customers under Mastercard's rules due to the difference in timing between the payment
transaction date and subsequent settlement. While the term and amount of the guarantee are unlimited, the duration of
settlement exposure is short term and typically limited to a few days.
Gross settlement exposure is estimated using the average daily payment volume during the three months ended December 31,
2018 multiplied by the estimated number of days of exposure. The Company has global risk management policies and procedures,
which include risk standards, to provide a framework for managing the Company's settlement risk and exposure. In the event of
a failed customer, Mastercard may pursue one or more remedies available under our rules to recover potential losses. Historically,
the Company has experienced a low level of losses from customer failures.
$
As part of its policies, Mastercard requires certain customers that are not in compliance with the Company's risk standards to
post collateral, typically in the form of cash, letters of credit, or guarantees. This requirement is based on a review of the individual
risk circumstances for each customer. Mastercard monitors its credit risk portfolio on a regular basis and the adequacy of collateral
on hand. Additionally, from time to time, the Company reviews its risk management methodology and standards. As such, the
amounts of estimated settlement exposure are revised as necessary.
Gross settlement exposure
Collateral held for settlement exposure
Net uncollateralized settlement exposure
December 31,
2018
December 31,
2017
(in millions)
$
49,666 $
(4,711)
47,002
The Company's estimated settlement exposure was as follows:
(17)
13
9
48
Recoverable basis of deconsolidated entities.
35
1
Intangible assets
170
Previously taxed earnings and profits.
7
28
Other items
83
Less: Valuation allowance..
(94)
(91)
Total Deferred Tax Assets
832
493
Deferred Tax Liabilities
80
Prepaid expenses and other accruals
Unrealized gain/loss - 2015 Euro Notes
104
As part of its analysis, the Company determined that approximately $5.8 billion of the approximately $6.7 billion of unremitted
foreign earnings as of December 31, 2017, were no longer permanently reinvested. Notwithstanding the fact that some earnings
continue to be permanently reinvested, all historical earnings, approximately $7.0 billion, were taxed in the U.S. as part of
transition tax pursuant to U.S. Tax Reform, of which $267 million was repatriated in 2017.
Additionally, during 2018, the Company repatriated approximately $3.3 billion. As of December 31, 2018, the Company had
approximately $2.5 billion of accumulated earnings to be repatriated in the future, for which $8 million of deferred tax benefit
was recorded. The tax effect is primarily related to the estimated foreign exchange impact recognized when earnings are
repatriated. The Company expects that foreign withholding taxes associated with these future repatriated earnings will not be
material. Earnings of approximately $0.9 billion remain permanently reinvested and the Company estimates that an immaterial
U.S. federal and state and local income tax benefit would result, primarily from foreign exchange, if these earnings were to be
repatriated.
Deferred Taxes
Deferred tax assets and liabilities represent the expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of assets and liabilities. The components of deferred tax assets and liabilities at December 31 are as
follows:
2018
2017
(in millions)
Deferred Tax Assets
105
Accrued liabilities
297 $
158
210
127
State taxes and other credits
30
28
Net operating and capital losses
Compensation and benefits
34 $
Intangible assets
Previously taxed earnings and profits
Beginning balance.
Additions:
Current year tax positions
Prior year tax positions
Reductions:
Prior year tax positions
Settlements with tax authorities
Expired statute of limitations..
Ending balance
2018
A reconciliation of the beginning and ending balance for the Company's unrecognized tax benefits for the years ended
December 31, is as follows:
2017
(in millions)
183 $
169 $
181
23
35
22
21
20
2016
Property, plant and equipment
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
101
Other items ..
Total Deferred Tax Liabilities
Net Deferred Tax Assets
89
48
125
151
97
MASTERCARD INCORPORATED
83
18
31
329
349
503 $
144
1
On January 1, 2018 a $186 million deferred tax asset was established related to intra-entity transfers as discussed above.
Both the 2018 and 2017 valuation allowances relate primarily to the Company's ability to recognize tax benefits associated with
certain foreign net operating losses. The recognition of the foreign losses is dependent upon the future taxable income in such
jurisdictions and the ability under tax law in these jurisdictions to utilize net operating losses following a change in control.
36
MASTERCARD INCORPORATED
27 $
Commitments to sell foreign currency
2017 Total
(in millions, except per share data)
Net revenue
$
2,734 $
3,053 $
3,398 $
3,312 $
December 31
12,497
1,506
1,653
1,941
1,522
6,622
Net income..
1,081
1,177
Operating income
1,430
September 30
March 31
5.63
Basic weighted-average shares outstanding
1,051
1,043
1,037
1,032
1,041
Diluted earnings per share.
June 30
1.41 $
1,057
1.50 $
1,049
1.82 $
1,043
0.87 $
5.60
1,038
1,047
2017 Quarter Ended
Diluted weighted-average shares outstanding
0.87 $
227
Basic earnings per share
1,068
1,063
1,072
Note: Tables may not sum due to rounding.
109
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
1,075
ITEM 9A. CONTROLS AND PROCEDURES
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") are designed to ensure that information required to be disclosed in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules
and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated
and communicated to management, including our President and Chief Executive Officer and our Chief Financial Officer, to allow
timely decisions regarding disclosure. The President and Chief Executive Officer and the Chief Financial Officer, with assistance
from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of
December 31, 2018 and, based on their evaluation, have concluded that the disclosure controls and procedures were effective
as of such date.
Internal Control over Financial Reporting
In addition, Mastercard Incorporated's management assessed the effectiveness of Mastercard's internal control over financial
reporting as of December 31, 2018. Management's report on internal control over financial reporting is included in Part II, Item
8. PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the consolidated financial
statements included in this Annual Report on Form 10-K and, as part of their audit, has issued their report, included herein, on
the effectiveness of our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There was no change in Mastercard's internal control over financial reporting that occurred during the three months ended
December 31, 2018 that has materially affected, or is reasonably likely to materially affect, Mastercard's internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, we hereby incorporate by reference
herein the disclosure contained in Exhibit 99.1 of this Report.
110
Evaluation of Disclosure Controls and Procedures
3,915
1,082
3.65
$
1.00 $
1.10 $
1.34 $
0.21 $
3.67
Basic weighted-average shares outstanding
1,078
Diluted weighted-average shares outstanding
1,070
1,057
1,067
Diluted earnings per share
$
1.00 $
1.10 $
1.34 $
0.21 $
1,063
present intention to indefinitely reinvest a portion of its historic undistributed accumulated earnings associated with certain
foreign subsidiaries outside of the U.S.
1.83 $
1.42 $
2018
2017
(in millions)
2016
$
53 $
(75) $
(6)
The fair value of the foreign currency derivative contracts generally reflects the estimated amounts that the Company would
receive (or pay), on a pre-tax basis, to terminate the contracts. The terms of the foreign currency derivative contracts are generally
less than 18 months. The Company had no deferred gains or losses related to foreign exchange contracts in accumulated other
comprehensive income as of December 31, 2018 and 2017, as these contracts were not accounted for under hedge accounting.
The Company's derivative financial instruments are subject to both market and counterparty credit risk. Market risk is the potential
for economic losses to be incurred on market risk sensitive instruments arising from adverse changes in market factors such as
foreign currency exchange rates, interest rates and other related variables. The effect of a hypothetical 10% adverse change in
U.S. dollar forward rates could result in a fair value loss of approximately $113 million on the Company's foreign currency derivative
contracts outstanding at December 31, 2018. Counterparty credit risk is the risk of loss due to failure of the counterparty to
perform its obligations in accordance with contractual terms. To mitigate counterparty credit risk, the Company enters into
derivative contracts with a diversified group of selected financial institutions based upon their credit ratings and other factors.
Generally, the Company does not obtain collateral related to derivatives because of the high credit ratings of the counterparties.
Net Investment Hedge
Year Ended December 31,
The Company uses foreign currency denominated debt to hedge a portion of its net investment in foreign operations against
adverse movements in exchange rates, with changes in the value of the debt recorded within currency translation adjustment
in accumulated other comprehensive income (loss). In 2015, the Company designated its €1.65 billion euro-denominated debt
as a net investment hedge for a portion of its net investment in European foreign operations. As of December 31, 2018, the
Company had a net foreign currency transaction pre-tax loss of $120 million in accumulated other comprehensive income (loss)
associated with hedging activity. There was no ineffectiveness in the current period.
Note 23. Segment Reporting
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Mastercard has concluded it has one operating and reportable segment, "Payment Solutions." Mastercard's President and Chief
Executive Officer has been identified as the chief operating decision-maker. All of the Company's activities are interrelated, and
each activity is dependent upon and supportive of the other. Accordingly, all significant operating decisions are based upon
analysis of Mastercard at the consolidated level.
Revenue by geographic market is based on the location of the Company's customer that issued the card, as well as the location
of the merchant acquirer where the card is being used. Revenue generated in the U.S. was approximately 33% of total revenue
in 2018, 35% in 2017 and 38% in 2016. No individual country, other than the U.S., generated more than 10% of total revenue in
those periods.
Mastercard did not have any individual customer that generated greater than 10% of net revenue in 2018, 2017 or 2016. The
following table reflects the geographical location of the Company's property, plant and equipment, net, as of December 31:
United States
Other countries
107
Total.
General and administrative.
The amount of gain (loss) recognized on the consolidated statement of operations for the contracts to purchase and sell foreign
currency is summarized below:
1,066
Options to sell foreign currency..
25
26
4
968
27
(26)
2
Balance sheet location
Foreign currency derivative contracts
Accounts receivable
$ - $
Prepaid expenses and other current assets 1
Other current liabilities 1.
35
(6)
61
(30)
1
The derivative contracts are subject to enforceable master netting arrangements, which contain various netting and setoff provisions.
1
1.50 $
108
2017
(in millions)
$
3,580 $
3,665 $
3,898 $
3,807 $
14,950
1,825
1,936
Operating income
2,287
7,282
Net income..
1,492
1,569
1,899
899
5,859
Basic earnings per share..
1,234
2018
Net revenue
2018 Total
2016
$
613 $
308
572 $
504
257
229
$
(in millions, except per share data)
921 $
733
MASTERCARD INCORPORATED
SUMMARY OF QUARTERLY DATA (Unaudited)
2018 Quarter Ended
March 31
June 30
September 30
December 31
829 $
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Jackson Tai
Director
Certification of Martina Hund-Mejean, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
4.13
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Report:
1
Consolidated Financial Statements
See Index to Consolidated Financial Statements in Part II, Item 8.
2 Consolidated Financial Statement Schedules
None.
3 The following exhibits are filed as part of this Report or, where indicated, were previously filed and are hereby
incorporated by reference:
Refer to the Exhibit Index included herein.
ITEM 16. FORM 10-K SUMMARY
None.
111
EXHIBIT INDEX
The information required by this Item with respect to auditors' services and fees will appear in the Proxy Statement and is
incorporated by reference into this Report.
Exhibit
Number
3.1(b)
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
Exhibit Description
3.1(a)
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item with respect to transactions with related persons, the review, approval or ratification of
such transactions and director independence will appear in the Proxy Statement and is incorporated by reference into this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Amendment to Omnibus Agreement Regarding Interchange Litigation Judgment Sharing and
Settlement Sharing, dated as of August 25, 2014, by and among Mastercard Incorporated, Mastercard
International Incorporated, Visa Inc., Visa U.S.A Inc., Visa International Service Association and
Mastercard's customer banks that are parties thereto (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q filed October 30, 2014 (File No. 001-32877)).
Omnibus Agreement Regarding Interchange Litigation Judgment Sharing and Settlement Sharing,
dated as of February 7, 2011, by and among Mastercard Incorporated, Mastercard International
Incorporated, Visa Inc., Visa U.S.A. Inc., Visa International Service Association and Mastercard's
customer banks that are parties thereto (incorporated by reference to Exhibit 10.33 to Amendment
No.1 to the Company's Annual Report on Form 10-K/A filed on November 23, 2011).
101.CAL*
101.SCH*
101.INS*
99.1*
32.2*
32.1*
31.2*
31.1*
23.1*
21*
10.28
10.27.2
10.27.1
10.27**
10.26.2
The information required by this Item with respect to security ownership of certain beneficial owners and management equity
and compensation plans will appear in the Proxy Statement and is incorporated by reference into this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item with respect to executive officer and director compensation will appear in the Proxy
Statement and is incorporated by reference into this Report.
ITEM 11. EXECUTIVE COMPENSATION
The aforementioned information in the Proxy Statement is incorporated by reference into this Report.
The information required by this Item with respect to our directors and executive officers, code of ethics, procedures for
recommending nominees, audit committee, audit committee financial experts and compliance with Section 16(a) of the Exchange
Act will appear in our definitive proxy statement to be filed with the SEC and delivered to stockholders in connection with the
Annual Meeting of Stockholders to be held on June 25, 2019 (the "Proxy Statement").
Amended and Restated Certificate of Incorporation of Mastercard Incorporated (incorporated by
reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed September 29, 2016 (File
No. 001-32877)).
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Deed of Gift between Mastercard Incorporated and Mastercard Foundation (incorporated by
reference to Exhibit 10.28 to Pre-Effective Amendment No. 5 to the Company's Registration Statement
on Form S-1 filed May 3, 2006 (File No. 333-128337)).
Settlement Agreement, dated as of June 4, 2003, between Mastercard International Incorporated and
Plaintiffs in the class action litigation entitled In Re Visa Check/MasterMoney Antitrust Litigation
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed
August 8, 2003 (File No. 000-50250)).
Stipulation and Agreement of Settlement, dated July 20, 2006, between Mastercard Incorporated,
the several defendants and the plaintiffs in the consolidated federal class action lawsuit titled In re
Foreign Currency Conversion Fee Antitrust Litigation (MDL 1409), and the California state court action
titled Schwartz v. Visa Int'l Corp., et al. (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q filed November 1, 2006 (File No. 001-32877)).
114
10.26
10.26.1
PART III
Amended and Restated Bylaws of Mastercard Incorporated (incorporated by reference to Exhibit 3.2
to the Company's Current Report on Form 8-K filed September 29, 2016 (File No. 001-32877)).
Indenture, dated as of March 31, 2014, between the Company and Deutsche Bank Trust Company
Americas, as trustee (incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed on March 31, 2014 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of March 31, 2014 (incorporated by reference to Exhibit
4.2 of the Company's Current Report on Form 8-K filed on March 31, 2014 (File No. 001-32877)).
Contract of Employment between Mastercard UK Management Services Limited and Ann Cairns,
amended and restated as of April 5, 2018 (incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q filed May 2, 2018 (File No. 001-32877)).
Deed of Employment between Mastercard UK Management Services Limited and Ann Cairns, dated
July 6, 2011 (incorporated by reference to Exhibit 10.8.2 to the Company's Annual Report on Form
10-K filed February 16, 2012 (File No. 001-32877)).
Description of Employment Arrangement with Craig Vosburg (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q filed May 2, 2018 (File No. 001-32877)).
Mastercard International Senior Executive Annual Incentive Compensation Plan, as amended and
restated effective June 9, 2015 (incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed June 10, 2015 (File No. 001-32877)).
Mastercard International Incorporated Restoration Program, as amended and restated January 1,
2007 unless otherwise provided (incorporated by reference to Exhibit 10.22 to the Company's Annual
Report on Form 10-K filed February 19, 2009 (File No. 001-32877)).
Mastercard Incorporated Deferral Plan, as amended and restated effective December 1, 2008 for
account balances established after December 31, 2004 (incorporated by reference to Exhibit 10.25
to the Company's Annual Report on Form 10-K filed February 19, 2009 (File No. 001-32877)).
Mastercard Incorporated 2006 Long Term Incentive Plan, amended and restated effective June 5, 2012
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed
August 1, 2012 (File No. 001-32877)).
Form of Restricted Stock Unit Agreement for awards under 2006 Long Term Incentive Plan (effective
for awards granted on and subsequent to March 1, 2017) (incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q filed May 2, 2017 (File No. 001-32877)).
113
10.12+
10.13+
10.14+
10.15+
10.16+
10.17
10.18
10.19
Form of Deferred Stock Unit Agreement for awards under 2006 Non-Employee Director Equity
Compensation Plan, amended and restated effective June 5, 2012 (effective for awards granted on
and subsequent to June 27, 2017) (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q filed July 27, 2017 (File No. 001-32877)).
2006 Non-Employee Director Equity Compensation Plan, amended and restated effective as of June
26, 2018 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-
Q filed July 26, 2018 (File No. 001-32877)).
Schedule of Non-Employee Directors' Annual Compensation effective as of June 26, 2018
(incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed July
26, 2018 (File No. 001-32877)).
Amended and Restated Mastercard International Incorporated Change in Control Severance Plan,
amended and restated as of June 25, 2018 (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q filed July 26, 2018 (File No. 001-32877)).
Amended and Restated Mastercard International Incorporated Executive Severance Plan, amended
and restated as of April 10, 2018 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q filed May 2, 2018 (File No. 001-32877)).
Form of Mastercard Incorporated Long Term Incentive Plan Non-Competition and Non-Solicitation
Agreement for named executive officers (incorporated by reference to Exhibit 10.17 to the Company's
Annual Report on Form 10-K filed February 16, 2012 (File No. 001-32877)).
Description of Employment Arrangement with Gary Flood (incorporated by reference to Exhibit 10.11
to the Company's Annual Report on Form 10-K filed February 18, 2010 (File No. 001-32877)).
Form of Performance Unit Agreement for awards under 2006 Long Term Incentive Plan (effective for
awards granted on and subsequent to March 1, 2017) (incorporated by reference to Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q filed May 2, 2017 (File No. 001-32877)).
10.25
10.24
10.23
10.22
10.21
10.20
Form of Stock Option Agreement for awards under 2006 Long Term Incentive Plan (effective for awards
granted on and subsequent to March 1, 2017) (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q filed May 2, 2017 (File No. 001-32877)).
Second Amendment to Omnibus Agreement Regarding Interchange Litigation Judgment Sharing and
Settlement Sharing, dated as of October 22, 2015, by and among Mastercard Incorporated, Mastercard
International Incorporated, Visa Inc., Visa U.S.A Inc., Visa International Service Association and
Mastercard's customer banks that are parties thereto (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q filed October 29, 2015 (File No. 001-32877)).
Amendment to Amended and Restated Employment Agreement between Martina Hund-Mejean and
Mastercard International, dated as of December 21, 2017 (incorporated by reference to Exhibit 10.3.1
to the Company's Annual Report on Form 10-K filed February 14, 2018 (File No. 001-32877)).
Employment Agreement between Mastercard International Incorporated and Ajay Banga, dated as
of July 1, 2010 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form
8-K filed July 8, 2010 (File No. 001-32877)).
Form of Global Note representing the Company's 2.000% Notes due 2019 (included in Exhibit 4.2)
(incorporated by reference to Exhibit 4.3 of the Company's Current Report on Form 8-K filed on March
31, 2014 (File No. 001-32877)).
Form of Global Note representing the Company's 3.375% Notes due 2024 (included in Exhibit 4.2)
(incorporated by reference to Exhibit 4.4 of the Company's Current Report on Form 8-K filed on March
31, 2014 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of December 1, 2015 (incorporated by reference to
Exhibit 4.1 of the Company's Current Report on Form 8-K filed on December 1, 2015 (File No.
001-32877)).
Form of Global Note representing the Company's 1.100% Notes due 2022 (included in Exhibit 4.1)
(incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K filed on
December 1, 2015 (File No. 001-32877)).
Form of Global Note representing the Company's 2.100% Notes due 2027 (included in Exhibit 4.1)
(incorporated by reference to Exhibit 4.3 of the Company's Current Report on Form 8-K filed on
December 1, 2015 (File No. 001-32877)).
Form of Global Note representing the Company's 2.500% Notes due 2030 (included in Exhibit 4.1)
(incorporated by reference to Exhibit 4.4 of the Company's Current Report on Form 8-K filed on
December 1, 2015 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of November 21, 2016 (incorporated by reference to
Exhibit 4.1 of the Company's Current Report on Form 8-K filed on November 21, 2016 (File No.
001-32877)).
Form of Global Note representing the Company's 2.000% Notes due 2021 (included in Exhibit 4.1)
(incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K filed on
November 21, 2016 (File No. 001-32877)).
Form of Global Note representing the Company's 2.950% Notes due 2026 (included in Exhibit 4.1)
(incorporated by reference to Exhibit 4.3 of the Company's Current Report on Form 8-K filed on
November 21, 2016 (File No. 001-32877)).
Form of Global Note representing the Company's 3.800% Notes due 2046 (included in Exhibit 4.1)
(incorporated by reference to Exhibit 4.4 of the Company's Current Report on Form 8-K filed on
November 21, 2016 (File No. 001-32877)).
112
Form of Indemnification Agreement between Mastercard Incorporated and certain of its director
nominees (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-
Q filed May 2, 2006 (File No. 000-50250)).
4.14
4.15
10.1*
10.2+
10.3+
$4,500,000,000 Amended and Restated Credit Agreement, dated as of November 15, 2018, among
Mastercard Incorporated, the several lenders and agents from time to time party thereto, Citibank,
N.A., as managing administrative agent and JPMorgan Chase Bank, N.A. as administrative agent.
Form of Global Note representing the Company's 3.95% Notes due 2048 (included in Exhibit 4.1)
(incorporated by reference to Exhibit 4.1 of the of the Company's Current Report on Form 8-K filed
on February 26, 2018 (File No. 001-32877)).
Form of Global Note representing the Company's 3.5% Notes due 2028 (included in Exhibit 4.1)
(incorporated by reference to Exhibit 4.1 of the of the Company's Current Report on Form 8-K filed
on February 26, 2018 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of February 26, 2018 (incorporated by reference to
Exhibit 4.1 of the Company's Current Report on Form 8-K filed on February 26, 2018 (File No.
001-32877)).
10.11+
10.10+
Employment Agreement between Martina Hund-Mejean and Mastercard International, amended and
restated as of December 24, 2012 (incorporated by reference to Exhibit 10.5 to the Company's Annual
Report on Form 10-K filed February 14, 2013 (File No. 001-32877)).
10.9+
10.7+
10.6+
10.5.1+
10.5+
10.4+
10.3.1+
10.8+
Mastercard Settlement and Judgment Sharing Agreement, dated as of February 7, 2011, by and among
Mastercard Incorporated, Mastercard International Incorporated and Mastercard's customer banks
that are parties thereto (incorporated by reference to Exhibit 10.34 to Amendment No.1 to the
Company's Annual Report on Form 10-K/A filed on November 23, 2011).
Amendment to Mastercard Settlement and Judgment Sharing Agreement, dated as of August 26,
2014, by and among Mastercard Incorporated, Mastercard International Incorporated and
Mastercard's customer banks that are parties thereto (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q filed October 30, 2014 (File No. 001-32877)).
Second Amendment to Mastercard Settlement and Judgment Sharing Agreement, dated as of October
22, 2015, by and among Mastercard Incorporated, Mastercard International Incorporated and
Mastercard's customer banks that are parties thereto (incorporated by reference to Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q filed October 29, 2015 (File No. 001-32877)).
By:
Date: February 13, 2019
Date: February 13, 2019
By:
Director
Choon Phong Goh
/s/ CHOON PHONG GOH
By:
J..
Date: February 13, 2019
Director
By:
Julius Genachowski
Steven J. Freiberg
Director
/s/ STEVEN J. FREIBERG
Richard K. Davis
Director
/s/ RICHARD K. DAVIS
David R. Carlucci
Director
/s/ DAVID R. CARLUCCI
Director
Silvio Barzi
/s/ SILVIO BARZI
Corporate Controller
(Principal Accounting Officer)
Sandra Arkell
Form of Restricted Stock Agreement for awards under 2006 Non-Employee Director Equity
Compensation Plan, amended and restated effective June 5, 2012 (effective for awards granted on
and subsequent to June 27, 2017) (incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q filed July 27, 2017 (File No. 001-32877)).
Date: February 13, 2019
By:
Date: February 13, 2019
/s/ JACKSON TAI
Director
/s/ GABRIELLE SULZBERGER
Gabrielle Sulzberger
José Octavio Reyes Lagunes
Director
/s/ JOSÉ OCTAVIO REYES LAGUNES
Rima Qureshi
Director
/s/ RIMA QURESHI
Director
Oki Matsumoto
/s/ OKI MATSUMOTO
Director
Nancy Karch
/s/ NANCY KARCH
Merit E. Janow
Director
/s/ MERIT E. JANOW
/s/ RICHARD HAYTHORNTHWAITE
Richard Haythornthwaite
Chairman of the Board; Director
118
By:
Date: February 13, 2019
Date: February 13, 2019
By:
By:
Date: February 13, 2019
Date: February 13, 2019
By:
/s/ SANDRA ARKELL
Chief Financial Officer
(Principal Financial Officer)
/s/ JULIUS GENACHOWSKI
/s/ MARTINA HUND-MEJEAN
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other
disclosure other than with respect to the terms of the agreements or other documents themselves, and should not be relied
upon for that purpose. In particular, any representations and warranties made by the Company in these agreements or other
documents were made solely within the specific context of the relevant agreement or document and may not describe the actual
state of affairs as of the date they were made or at any other time.
Exhibit omits certain information that has been filed separately with the U.S. Securities and Exchange Commission and
has been granted confidential treatment.
**
Filed or furnished herewith.
*
Management contracts or compensatory plans or arrangements.
XBRL Taxonomy Extension Presentation Linkbase Document
101.PRE*
XBRL Taxonomy Extension Label Linkbase Document
101.LAB*
Martina Hund-Mejean
116
101.DEF*
115
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Schema Document
XBRL Instance Document
Disclosure pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012.
Certification of Ajay Banga, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Martina Hund-Mejean, Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Ajay Banga, President and Chief Executive Officer, pursuant to Rule 13a-14(a)/
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Consent of PricewaterhouseCoopers LLP.
List of Subsidiaries of Mastercard Incorporated.
Superseding and Amended Class Settlement Agreement, dated September 17, 2018, by and among
Mastercard Incorporated and Mastercard International Incorporated; Visa, Inc., Visa U.S.A. Inc. and
Visa International Service Association; the Class Plaintiffs defined therein; and the Customer Banks
defined therein (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form
8-K filed September 18, 2018 (File No. 001-32877)).
+
SIGNATURES
XBRL Taxonomy Extension Definition Linkbase Document
Date: February 13, 2019
President and Chief Executive Officer; Director
(Principal Executive Officer)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
/s/ AJAY BANGA
Ajay Banga
117
Date: February 13, 2019
By:
Date: February 13, 2019
By:
Date: February 13, 2019
By:
Date: February 13, 2019
By:
Date: February 13, 2019
Form of Indemnification Agreement between Mastercard Incorporated and certain of its directors
(incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed May
2, 2006 (File No. 000-50250)).
Date: February 13, 2019
By:
By:
(Registrant)
/s/ AJAY BANGA
Ajay Banga
President and Chief Executive Officer
(Principal Executive Officer)
MASTERCARD INCORPORATED
Date: February 13, 2019
By:
By:
Date: February 13, 2019
By:
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated:
ANALYTICS INSIGHTS
BRAND
CONSULTING
Core Products
11
Debit. We support a range of payment products and solutions that allow our customers to provide consumers with convenient
access to funds in deposit and other accounts. Our debit and deposit access programs can be used to make purchases and to
obtain cash in bank branches, at ATMs and, in some cases, at the point of sale. Our branded debit programs consist of Mastercard
(including standard, premium and affluent offerings), Maestro (the only PIN-based solution that operates globally) and Cirrus
(our primary global cash access solution).
Prepaid. Prepaid programs involve a balance that is funded prior to use and can be accessed via one of our payment products.
We offer prepaid payment programs using any of our brands, which we support with processing products and services. Segments
on which we focus include government programs such as Social Security payments, unemployment benefits and others;
commercial programs such as payroll, health savings accounts, employee benefits and others; and reloadable programs for
consumers without formal banking relationships and non-traditional users of electronic payments.
We also provide prepaid program management services, primarily outside of the United States, that manage and enable switching
and issuer processing for consumer and commercial prepaid travel cards for business partners such as financial institutions,
retailers, telecommunications companies, travel agents, foreign exchange bureaus, colleges and universities, airlines and
governments.
心心
Consumer Credit. We offer a number of programs that enable issuers to provide consumers with credit that allow them to defer
payment. These programs are designed to meet the needs of our customers around the world and address standard, premium
and affluent consumer segments.
Core
Products
0101
SAFETY AND
PROCESSING
0011
0111
DIGITAL
AND REWARDS
LOYALTY
i
We provide a wide variety of integrated products and services that support payment products that customers can offer to their
account holders. These offerings facilitate transactions on our core network among account holders, merchants, financial
institutions, businesses, governments and other organizations in markets globally.
Our Products and Services
Customer Risk. We guarantee the settlement of many of the transactions from issuers to acquirers to ensure the integrity of
our core network. We refer to the amount of this guarantee as our settlement exposure. We do not, however, guarantee
payments to merchants by their acquirers, or the availability of unspent prepaid account holder account balances.
Digital Payments. Our networks support and enable our digital payment platforms, products and solutions, reflecting the growing
digital economy where consumers are increasingly seeking to use their payment accounts to pay when, where and how they
SECURITY
want.
via mobile devices. The successful implementation of our loyalty and reward programs is an important part of enabling
these digital purchasing experiences.
20
% of Total GDV
(in millions)
Percentage
Increase from
December 31,
2017
1,2
Mastercard Branded Programs¹
Consumer Credit
Growth (Local)
$
Commercial Credit and Debit
2,520
2,724
657
11%
43%
824
Digitizing personal and business payments. We provide solutions that enable our customers to offer consumers the
ability to send and receive money quickly and securely domestically and around the world. These solutions allow our
customers to address new payment flows from any funding source, such as cash, card, bank account or mobile money
account, to any destination globally, securely and in real time.
46%
Consumer Debit and Prepaid
(in billions)
As of December 31, 2018
Cards
GDV
card-based payments, including credit, charge, debit, ATM and prepaid products, as well as limited-use products such
as private label
•
•
• cash and checks
We compete in the global payments industry against all forms of payment including:
Competition
14
We own a number of valuable trademarks that are essential to our business, including Mastercard, Maestro and Cirrus, through
one or more affiliates. We also own numerous other trademarks covering various brands, programs and services offered by us
to support our payment programs. Trademark and service mark registrations are generally valid indefinitely as long as they are
used and/or properly maintained. Through license agreements with our customers, we authorize the use of our trademarks on
a royalty-free basis in connection with our customers' issuing and merchant acquiring businesses. In addition, we own a number
of patents and patent applications relating to payment solutions, transaction processing, smart cards, contactless, mobile,
biometrics, Al, security systems, blockchain and other matters, many of which are important to our business operations. Patents
are of varying duration depending on the jurisdiction and filing date.
Intellectual Property
See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Revenue" in Part II, Item 7 for
more detail about our revenue, GDV, processed transactions and our other payment-related products and services.
We generate revenues primarily from assessing our customers based on GDV on the products that carry our brands, from the
fees we charge to our customers for providing transaction processing and from other payment-related products and services.
Our net revenues are classified into five categories: domestic assessments, cross-border volume fees, transaction processing,
other revenues and rebates and incentives (contra-revenue).
Revenue Sources
Our family of well-known brands includes Mastercard, Maestro and Cirrus. We manage and promote our brands through
advertising, promotions and sponsorships, as well as digital, mobile and social media initiatives, in order to increase people's
preference for our brands and usage of our products. We sponsor a variety of sporting, entertainment and charity-related
marketing properties to align with consumer segments important to us and our customers. Our advertising plays an important
role in building brand visibility, usage and overall preference among account holders globally. Our "PricelessⓇ" advertising
campaign, which has run in 52 languages in 120 countries worldwide, promotes Mastercard usage benefits and acceptance,
markets Mastercard payment products and solutions and provides Mastercard with a consistent, recognizable message that
supports our brand around the globe.
mastercard.
Identifying and experimenting with future technologies, start-ups and trends. Through Mastercard Labs, our global
innovation and development arm, we continue to bring customers and partners access to thought leadership,
innovation methodologies, new technologies and relevant early-stage fintech players.
Simplifying access to, and integration of, our digital assets. Our Mastercard Developer platform makes it easy for
customers and partners to leverage our many digital assets and services. By providing a single access point with tools
and capabilities to find what we believe are some of the best-in-class Application Program Interfaces ("APIS") across a
broad range of Mastercard services, we enable easy integration of our services into new and existing solutions.
Year Ended December 31, 2018
1,126
8%
15%
13%
11%
Loyalty and Rewards. We have built a scalable rewards platform that enables financial institutions to provide consumers with
a variety of benefits and services, such as personalized offers and rewards, access to a global airline lounge network, concierge
services, insurance services, emergency card replacement, emergency cash advances and a 24-hour account holder service center.
For merchants, we provide campaigns with targeted offers and rewards, management services for publishing offers, and
accelerated points programs for co-brand and rewards program members.
Processing. We extend our processing capabilities in the payments value chain in various regions and across the globe with an
expanded suite of offerings, including:
•
Issuer solutions designed to provide customers with a complete processing solution to help them create differentiated
products and services and allow quick deployment of payments portfolios across banking channels.
Payment gateways that offer a single interface to provide e-commerce merchants with the ability to process secure
online and in-app payments and offer value-added solutions, including outsourced electronic payments, fraud
prevention and alternative payment options.
Mobile gateways that facilitate transaction routing and processing for mobile-initiated transactions.
Analytics Insights and Consulting. We provide proprietary analysis, data-driven consulting and marketing services solutions to
help clients optimize, streamline and grow their businesses, as well as deliver value to consumers.
Our capabilities incorporate payments expertise and analytical and executional skills to create end-to-end solutions which are
increasingly delivered via platforms embedded in our customers' day-to-day operations. By observing patterns of payments
behavior based on billions of transactions switched globally, we leverage anonymized and aggregated information and a
consultative approach to help our customers make better business decisions. Our executional skills such as marketing, digital
implementation and staff augmentation allow us to assist clients implement actions based on these insights.
Increasingly, we have been helping financial institutions, retailers and governments innovate. Drawing on rapid prototyping
methodologies from our global innovation and development arm, Mastercard Labs, we offer "Launchpad," a five day app
prototyping workshop. Through our Applied Predictive Technology business, a software as a service platform, we can help our
customers conduct disciplined business experiments for in-market tests.
Digital Enablement
Leveraging our global innovations capability, we work to digitize payment services across all channels and devices:
•
Delivering better digital experiences everywhere. We are using our technologies and security protocols to develop
solutions to make digital shopping and selling experiences, such as on smartphones and other connected devices,
simpler, faster and safer for both consumers and merchants. We also offer products that make it easier for merchants
to accept payments and expand their customer base and are developing products and practices to facilitate acceptance
13
•
•
Brand
We have also worked with our financial institution customers to provide products to consumers globally with increased confidence
through the benefit of “zero liability”, or no responsibility for counterfeit or lost card losses in the event of fraud.
contactless, mobile and e-commerce payments, as well as cryptocurrency
The "Experience" layer improves the security experience for our stakeholders in areas from the speed of transactions,
enhancing approvals for online and card-on-file payments, to the ability to differentiate legitimate consumers from
fraudulent ones. Our offerings in this space include Mastercard In Control, for consumer alerts and controls and our
suite of digital token services available through our Mastercard Digital Enablement Service ("MDES").
The "Identify" layer allows us to help banks and merchants verify genuine consumers during the payment process.
Examples of solutions under this layer include Mastercard Identity Check™, a fingerprint, face and iris scanning biometric
technology to verify online purchases on mobile devices, and our recently launched Biometric Card which has a
fingerprint scanner built in to the card and is compatible with existing EMV payment terminals.
73
11%
1 Excludes Maestro and Cirrus cards and volume generated by those cards.
2 Prepaid includes both consumer and commercial prepaid.
Additional Platforms. In addition to the switching capabilities of our core network, we offer additional platforms with payment
capabilities that extend to new payment flows:
•
We offer commercial payment products and solutions, such as the Mastercard B2B Hub, which enables small and
midsized businesses to optimize their invoice and payment processes.
With Vocalink, we offer real-time account-based payments for ACH transactions. This platform enables payments
between bank accounts in real-time and provides enhanced data and messaging capabilities, making them particularly
well-suited for B2B and bill payment flows.
Value-Added Products and Services
We provide additional integrated products and services to our customers and stakeholders, including financial institutions,
retailers and governments that enhance the value proposition of our products and solutions.
Safety and Security. We offer integrated products and services to prevent, detect and respond to fraud and cyber-attacks and
to ensure the safety of transactions made using Mastercard products. We do this using a multi-layered safety and security
strategy:
•
The "Prevent" layer protects infrastructure, devices and data from attacks. We have continued to grow global usage
of EMV chip and contactless security technology, helping to reduce fraud. Greater usage of this technology has increased
12
•
•
the number of EMV cards issued and the transaction volume on EMV cards. While this technology is prevalent in
Europe, the U.S. market has been adopting this technology in recent years.
The "Detect" layer spots fraudulent behavior and cyber-attacks and takes action to stop these activities once detected.
Examples of our capabilities under this layer include our Early Detection System, Decision Intelligence and Safety Net™
services and technologies.
Securing more transactions. We are leveraging tokenization, biometrics and machine learning technologies in our
push to secure every transaction. These efforts include driving EMV-level security and benefits through all our payment
channels.
other electronic payments, including ACH payments, wire transfers, electronic benefits transfers and bill payments
•
Business and
Operations
Risk Highlights
Legal and
Regulatory
ITEM 1A. RISK FACTORS
18
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports
are available for review, without charge, on the investor relations section of our corporate website as soon as reasonably
practicable after they are filed with, or furnished to, the U.S. Securities and Exchange Commission (the "SEC"). The information
contained on our corporate website is not incorporated by reference into this Report. Our filings are also available electronically
from the SEC at www.sec.gov.
Our internet address is www.mastercard.com. From time to time, we may use our corporate website as a channel of distribution
of material company information. Financial and other material information is routinely posted and accessible on the investor
relations section of our corporate website. You can also visit "Investor Alerts" in the investor relations section to enroll your
email address to automatically receive email alerts and other information about Mastercard.
Payments Industry Regulation
Website and SEC Reports
Additional Information
As of December 31, 2018, we employed approximately 14,800 persons, of whom approximately 8,800 were employed outside
of the United States.
Employees
We do not experience meaningful seasonality.
Seasonality
17
Additional Regulatory Developments. Various regulatory agencies also continue to examine a wide variety of issues that could
impact us, including evolving laws surrounding marijuana, prepaid payroll cards, virtual currencies, identity theft, account
management guidelines, disclosure rules, security and marketing that would impact our customers directly.
Mastercard Incorporated was incorporated as a Delaware corporation in May 2001. We conduct our business principally through
our principal operating subsidiary, Mastercard International Incorporated, a Delaware non-stock (or membership) corporation
that was formed in November 1966. For more information about our capital structure, including our Class A common stock (our
voting stock) and Class B common stock (our non-voting stock), see Note 15 (Stockholders' Equity) to the consolidated financial
statements included in Part II, Item 8.
Competition and Technology
Preferential or Protective
Government Actions
Privacy, Data Protection
and Security
We are devoting substantial resources to defending our right to establish interchange rates in regulatory proceedings, litigation
and legislative activity. The potential outcome of any of these activities could have a more positive or negative impact on us
relative to our competitors. If we are ultimately unsuccessful in defending our ability to establish interchange rates, any resulting
legislation, regulation and/or litigation may have a material adverse impact on our overall business and results of operations. In
addition, regulatory proceedings and litigation could result (and in some cases has resulted) in us being fined and/or having to
pay civil damages, the amount of which could be material.
If issuers cannot collect or we are forced to reduce interchange rates, issuers may be less willing to participate in our four-party
payments system, or may reduce the benefits offered in connection with the use of our products, reducing the attractiveness of
our products to consumers. In particular, potential changes to interregional interchange fees as a result of the proposed resolution
of the European Commission's investigation could impact our cross-border transaction activity disproportionately versus
competitors that are not subject to similar reductions. These and other impacts could lower transaction volumes, and/or make
proprietary three-party networks or other forms of payment more attractive. Issuers could reduce the benefits associated with
our products or choose to charge higher fees to consumers to attempt to recoup a portion of the costs incurred for their services.
In addition, issuers could seek to decrease the expense of their payment programs by seeking a reduction in the fees that we
charge to them, particularly if regulation has a disproportionate impact on us as compared to our competitors in terms of the
fees we can charge. This could make our products less desirable to consumers, reduce the volume of transactions and our
profitability, and limit our ability to innovate or offer differentiated products.
Governments and merchant groups in a number of countries have implemented or are seeking interchange rate reductions
through legislation, competition law, central bank regulation and litigation. See “Government Regulation" and Note 20 (Legal
and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for more details.
Interchange rates are a significant component of the costs that merchants pay in connection with the acceptance of our products.
Although we do not earn revenues from interchange, interchange rates can impact the volume of transactions we see on our
payment products. If interchange rates are too high, merchants may stop accepting our products or route debit transactions
away from our network. If interchange rates are too low, issuers may stop promoting our integrated products and services,
eliminate or reduce loyalty rewards programs or other account holder benefits (e.g., free checking or low interest rates on
balances), or charge fees to account holders (e.g., annual fees or late payment fees).
Increased regulatory, legislative and litigation activity with respect to interchange rates could have an adverse impact on our
business.
Increased regulation and oversight of payment systems may result in costly compliance burdens or otherwise increase our costs.
Such laws or compliance burdens could result in issuers and acquirers being less willing to participate in our payments system,
reduce the benefits offered in connection with the use of our products (making our products less desirable to consumers), reduce
the volume of domestic and cross-border transactions or other operational metrics, disintermediate us, impact our profitability
and limit our ability to innovate or offer differentiated products and services, all of which could materially and adversely impact
our financial performance. Regulators could also require us to obtain prior approval for changes to its system rules, procedures
or operations, or could require customization with regard to such changes, which could impact market participant risk and
therefore risk to us. Such regulatory changes could lead to new or different criteria for participation in and access to our payments
system by financial institutions or other customers. Moreover, failure to comply with the laws and regulations to which we are
subject could result in fines, sanctions, civil damages or other penalties, which could materially and adversely affect our overall
business and results of operations, as well as have an impact on our brand and reputation.
Some enacted regulations require financial institutions to provide third party payment processors access to consumer payment
accounts. This may enable these third party payment processors to route transactions away from Mastercard products by offering
account information or payment initiation services directly to people who currently use our products. This may also allow these
processors to commoditize the data that are included in the transactions. New authentication standards have been enacted
requiring additional verification information from consumers to complete transactions. This may increase the number of
transactions that consumers abandon if we are unable to ensure a frictionless authentication experience. An increase in the
rate of abandoned transactions could adversely impact our volumes or other operational metrics.
These obligations, designations and restrictions may further expand and could conflict with each other as more jurisdictions
impose oversight of payment systems.
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Regulators increasingly seek to regulate certain aspects of payments systems such as ours, or establish or expand their authority
to do so. Many jurisdictions have enacted such regulations. These regulations have established, and could further expand,
obligations or restrictions with respect to the types of products and services that we may offer to financial institutions for
consumers, the countries in which our integrated products and services may be used, the way we structure and operate our
business and the types of consumers and merchants who can obtain or accept our products or services. New regulations and
oversight could also relate to our clearing and settlement activities (including risk management policies and procedures, collateral
requirements, participant default policies and procedures, the ability to complete timely switching of financial transactions, and
capital and financial resource requirements). In addition, several central banks or similar regulatory bodies around the world
have increased, or are seeking to increase, their formal oversight of the electronic payments industry and, in some cases, are
considering designating certain payments networks as "systemically important payment systems" or "critical infrastructure."
Global regulatory and legislative activity directly related to the payments industry may have a material adverse impact on our
overall business and results of operations.
Payments Industry Regulation
Settlement and
Third-Party Obligations
Financial Institution Customers
and other Stakeholder Relationships
Information Security and
Service Disruptions
Legal and Regulatory
Other Regulation
Privacy, Data Protection and Information Security. Aspects of our operations or business are subject to increasingly complex
privacy and data protection laws in the United States, the European Union and elsewhere around the world. For example, in the
United States, we and our customers are respectively subject to Federal Trade Commission and federal banking agency information
safeguarding requirements under the Gramm-Leach-Bliley Act that require the maintenance of a written, comprehensive
information security program. In the European Union, we are subject to the GDPR, which requires a comprehensive privacy and
data protection program to protect the personal and sensitive data of EEA residents. A number of regulators and policymakers
around the globe are using the GDPR as a reference to adopt new or updated privacy and data protection laws, including in the
U.S. (California), Argentina, Brazil, Chile, India, Indonesia and Kenya. Some jurisdictions are currently considering adopting "data
localization" requirements, which mandate the collection, processing, and/or storage of data within their borders, including
India, Kenya and Vietnam. Due to constant changes to the nature of data and the use of emerging technologies such as artificial
intelligence, regulations in this area are constantly evolving with regulatory and legislative authorities in numerous parts of the
world adopting proposals to protect information. In addition, the interpretation and application of these privacy and data
protection laws are often uncertain and in a state of flux, thus requiring constant monitoring for compliance.
Regulation of Internet and Digital Transactions. Various jurisdictions have enacted or have proposed regulation related to
internet transactions. The legislation applies to payments system participants, including us and our U.S. customers, and is
implemented through a federal regulation. We may also be impacted by evolving laws surrounding gambling, including fantasy
sports. Certain jurisdictions are also considering regulatory initiatives in digital-related areas that could impact us, such as cyber-
security and copyright and trademark infringement.
Issuer Practice Legislation and Regulation. Our customers are subject to numerous regulations and investigations applicable
to banks and other financial institutions in their capacity as issuers and otherwise, impacting us as a consequence. Such regulations
and investigations have been related to payment card add-on products, campus cards, bank overdraft practices, fees issuers
charge to account holders and the transparency of terms and conditions. Additionally, regulations such as PSD2 in the EEA require
financial institutions to provide third-party payment-processors access to consumer payment accounts, enabling them to provide
payment initiation and account information services directly to consumers.
Financial Sector Oversight. We are or may be subject to regulations related to our role in the financial industry and our relationship
with our financial institution customers. In addition, we are or may be subject to regulation by a number of agencies charged
with oversight of, among other things, consumer protection, financial and banking matters. The regulators have supervisory and
independent examination authority as well as enforcement authority that we may be subject to because of the services we
provide to financial institutions that issue and acquire our products.
highly adaptable global acceptance network built over 50 years which can reach a variety of parties enabling payments
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globally recognized brands
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Our competitive advantages include our:
15
Value-Added Products and Services. We face competition from companies that provide alternatives to our value-
added products and services, including information services and consulting firms that provide consulting services and
insights to financial institutions, as well as companies that compete against us as providers of loyalty and program
management solutions. In addition, our integrated products and services offerings face competition and potential
displacement from transaction processors throughout the world, which are seeking to enhance their networks that
link issuers directly with point-of-sale devices for payment transaction authorization and processing services. Regulatory
initiatives could also lead to increased competition in this space.
•
• Alternative Payments Systems and New Entrants. As the global payments industry becomes more complex, we face
increasing competition from alternative payment systems and emerging payment providers. Many of these providers
have developed payments systems focused on online activity in e-commerce and mobile channels (in some cases,
expanding to other channels), and may process payments using in-house account transfers, real-time account-based
payment networks or global or local networks. Examples include digital wallet providers (such as Paytm, PayPal, Alipay
and Amazon), mobile operator services, mobile phone-based money transfer and microfinancing services (such as
mPesa), handset manufacturers and cryptocurrencies. In some circumstances, these providers can be a partner or
customer, as well as a competitor.
Real-time Account-based Payment Systems. Through Vocalink, we face competition in the real-time account-based
payment space from other companies that provide these payment solutions. In addition, real-time account-based
payments face competition from other payment methods, such as cash and checks, cards, electronic, mobile and e-
commerce payment platforms, cryptocurrencies and other payments networks.
Debit and Local Networks. We compete with ATM and point-of-sale debit networks in various countries. In addition,
in many countries outside of the United States, local debit brands serve as the main domestic brands, while our brands
are used mostly to enable cross-border transactions (typically representing a small portion of overall transaction
volume). Certain jurisdictions have also created domestic card schemes focused mostly on debit (e.g., MIR in Russia).
Competition for Customer Business. We compete intensely with other payments companies for customer business.
Globally, financial institutions typically issue both Mastercard and Visa-branded payment products, and we compete
with Visa for business on the basis of individual portfolios or programs. In addition, a number of our customers issue
American Express and/or Discover-branded payment cards in a manner consistent with a four-party system. We
continue to face intense competitive pressure on the prices we charge our issuers and acquirers, and we seek to enter
into business agreements with them through which we offer incentives and other support to issue and promote our
payment products. We also compete for merchants, governments and mobile providers.
General Purpose Payment Networks. We compete worldwide with payment networks such as Visa, American Express,
JCB, China UnionPay and Discover, among others. Some competitors have more market share than we do in certain
jurisdictions. Some also have different business models that may provide an advantage in pricing, regulatory compliance
burdens or otherwise. In addition, several governments are promoting, or considering promoting, local networks for
domestic switching. See "Risk Factors" in Part I, Item 1A for a more detailed discussion of the risks related to payments
system regulation and government actions that may prevent us from competing effectively.
Cash, Check and Legacy ACH. Cash and checks continue to represent one of the most widely used forms of payment.
However, an even larger share of payments on a U.S. dollar volume basis are made via legacy, or "slow," ACH platforms.
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global payments network with world-class operating performance
We face a number of competitors both within and outside of the global payments industry:
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Anti-Money Laundering, Counter Terrorist Financing, Economic Sanctions and Anti-Corruption. We are subject to anti-money
laundering ("AML") and counter terrorist financing ("CTF") laws and regulations globally, including the U.S. Bank Secrecy Act and
the USA PATRIOT Act, as well as the various economic sanctions programs, including those imposed and administered by the U.S.
Office of Foreign Assets Control ("OFAC"). We have implemented a comprehensive AML/CTF program, comprised of policies,
procedures and internal controls, including the designation of a compliance officer, which is designed to prevent our payment
network from being used to facilitate money laundering and other illicit activity and to address these legal and regulatory
requirements and assist in managing money laundering and terrorist financing risks. The economic sanctions programs
administered by OFAC restrict financial transactions and other dealings with certain countries and geographies (specifically
Crimea, Cuba, Iran, North Korea and Syria) and with persons and entities included in OFAC sanctions lists including its list of
Specially Designated Nationals and Blocked Persons (the "SDN List"). We take measures to prevent transactions that do not
comply with OFAC and other applicable sanctions, including establishing a risk-based compliance program that has policies,
procedures and controls designed to prevent us from having unlawful business dealings with prohibited countries, regions,
individuals or entities. As part of this program, we obligate issuers and acquirers to comply with their local sanctions obligations
and the U.S. sanctions programs, including requiring the screening of account holders and merchants, respectively, against OFAC
sanctions lists (including the SDN List). Iran, Sudan and Syria have been identified by the U.S. State Department as terrorist-
sponsoring states, and we have no offices, subsidiaries or affiliated entities located in any of these countries or geographies and
do not license entities domiciled there. We are also subject to anti-corruption laws and regulations globally, including the U.S.
Foreign Corrupt Practices Act and the U.K. Bribery Act, which, among other things, generally prohibit giving or offering payments
or anything of value for the purpose of improperly influencing a business decision or to gain an unfair business advantage. We
have implemented policies, procedures and internal controls to proactively manage corruption risk.
designated us as a payments system subject to regulation), the National Bank of Belgium and regulators in Brazil, Hong Kong,
Mexico and Russia.
16
Payment Systems Regulation. Regulators in several countries around the world either have, or are seeking to establish, authority
to regulate certain aspects of the payment systems in their countries. Such authority has resulted in regulation of various aspects
of our business. In the European Union, legislation requires us to separate our scheme activities (brand, products, franchise and
licensing) from our switched transactions and other processing in terms of how we go to market, make decisions and organize
our structure. Additionally, several jurisdictions have created or granted authority to create new regulatory bodies that either
have or would have the authority to regulate payment systems, including the United Kingdom's PSR (Vocalink and Mastercard
are both participants in the payments system and are therefore subject to the PSR's duties and powers), India (which has also
Preferential or Protective Government Actions. Some governments have taken action to provide resources, preferential
treatment or other protection to selected domestic payments and processing providers, as well as to create their own national
providers. For example, governments in some countries mandate switching of domestic payments either entirely in that country
or by only domestic companies. In China, we are currently excluded from domestic switching and are seeking market access,
which is uncertain and subject to a number of factors, including receiving regulatory approval. We are in active discussions to
explore different solutions.
Interchange Fees. Interchange fees associated with four-party payments systems like ours are being reviewed or challenged in
various jurisdictions around the world via legislation to regulate interchange fees, competition-related regulatory proceedings,
central bank regulation and litigation. Examples include statutes in the United States that cap debit interchange for certain
regulated activities and European Union legislation capping consumer credit and debit interchange fees on payments issued and
acquired within the EEA. For more detail, see our risk factors in "Risk Factors-Regulations Related to Our Participation in the
Payments Industry" in Part I, Item 1A. Also see Note 20 (Legal and Regulatory Proceedings) to the consolidated financial statements
included in Part II, Item 8.
Payments Oversight. Several central banks or similar regulatory bodies around the world have increased, or are seeking to
increase, their formal oversight of the electronic payments industry. Actions by these organizations could influence other
organizations around the world to adopt or consider adopting similar oversight. As a result, Mastercard could be subject to new
regulation, supervisions and examination requirements. For example, in the U.K., the Bank of England has expanded its oversight
of systemically important payment systems to include service providers, as well. Also, in the EEA, the implementation of PSD2
will require financial institutions to provide third party payment processors access to consumer payment accounts, which may
enable these processors to route transactions away from Mastercard products by offering certain services directly to people who
currently use our products. PSD2 will also require a new standard for authentication of transactions, which necessitates additional
verification information from consumers to complete transactions. This may increase the number of transactions that consumers
abandon if we are unable to ensure a frictionless authentication experience under the new standards.
General. Government regulation impacts key aspects of our business. We are subject to regulations that affect the payments
industry in the many countries in which our integrated products and services are used. See "Risk Factors" in Part I, Item 1A for
more detail and examples.
Government Regulation
• world class talent
ability to serve a broad array of participants in global payments due to our expanded on-soil presence in individual
markets and a heightened focus on working with governments
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analytics insights and consulting services dedicated solely to the payments industry
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safety and security solutions embedded in our networks
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adoption of innovative products and digital solutions
expertise in real-time account-based payments through our Vocalink business
17%
The following chart provides GDV and number of cards featuring our brands in 2018 for select programs and solutions:
Commercial. We offer commercial payment products and solutions that help large corporations, midsize companies, small
businesses and government entities. Our solutions streamline procurement and payment processes, manage information and
expenses (such as travel and entertainment) and reduce administrative costs. Our card offerings include travel, small business
(debit and credit), purchasing and fleet cards. Our SmartData platform provides expense management and reporting capabilities.
Our Mastercard In Control™ platform generates virtual account numbers which provide businesses with enhanced controls, more
security and better data.
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Rapid and significant technological developments and changes could negatively impact our overall business and results of
operations or limit our future growth.
In the future, we may not be able to enter into agreements with our customers if they require terms that we are unable or
unwilling to offer, and we may be required to modify existing agreements in order to maintain relationships and to compete with
others in the industry. Some of our competitors are larger and have greater financial resources than we do and accordingly may
be able to charge lower prices to our customers. In addition, to the extent that we offer discounts or incentives under such
agreements, we will need to further increase transaction volumes or the amount of services provided thereunder in order to
benefit incrementally from such agreements and to increase revenue and profit, and we may not be successful in doing so,
particularly in the current regulatory environment. Our customers also may implement cost reduction initiatives that reduce or
eliminate payment product marketing or increase requests for greater incentives or greater cost stability. These factors could
have a material adverse impact on our overall business and results of operations.
In order to increase transaction volumes, enter new markets and expand our Mastercard-branded cards and enabled products
and services, we seek to enter into business agreements with customers through which we offer incentives, pricing discounts
and other support that promote our products. In order to stay competitive, we may have to increase the amount of these
incentives and pricing discounts. Over the past several years, we have experienced continued pricing pressure. The demand
from our customers for better pricing arrangements and greater rebates and incentives moderates our growth. We may not be
able to continue our expansion strategy to switch additional transaction volumes or to provide additional services to our customers
at levels sufficient to compensate for such lower fees or increased costs in the future, which could materially and adversely affect
our overall business and results of operations. In addition, increased pressure on prices increases the importance of cost
containment and productivity initiatives in areas other than those relating to customer incentives.
Continued intense pricing pressure may materially and adversely affect our overall business and results of operations.
Participants in the payments industry may merge, create joint ventures or form other business combinations that may
strengthen their existing business services or create new payment products and services that compete with our services.
Our failure to compete effectively against any of the foregoing competitive threats could materially and adversely affect our
overall business and results of operations.
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Although we partner with technology companies (such as digital players and mobile providers) that leverage our
technology, platforms and networks to deliver their products, they could develop platforms or networks that
disintermediate us from digital payments and impact our ability to compete in the digital economy. This risk is
heightened when we have relationships with these entities where we share Mastercard data. While we share this data
in a controlled manner subject to applicable anonymization and privacy and data protection standards, without proper
oversight we could inadvertently share too much data which could give the partner a competitive advantage.
Competitors, customers, technology companies, governments and other industry participants may develop products
that compete with or replace value-added products and services we currently provide to support our switched
transaction and payment offerings. These products could replace our own switching and payments offerings or could
force us to change our pricing or practices for these offerings. In addition, governments that develop national payment
platforms may promote their platforms in such a way that could put us at a competitive disadvantage in those markets.
Regulation in the EEA may disintermediate us by enabling third-party providers opportunities to route payment
transactions away from our networks and towards other forms of payment.
Parties that process our transactions in certain countries may try to eliminate our position as an intermediary in the
payment process. For example, merchants could switch (and in some cases are switching) transactions directly with
issuers. Additionally, processors could process transactions directly between issuers and acquirers. Large scale
consolidation within processors could result in these processors developing bilateral agreements or in some cases
switching the entire transaction on their own network, thereby disintermediating us.
•
As the payments industry continues to develop and change, we face disintermediation and related risks, including:
Disintermediation from stakeholders both within and outside of the payments value chain could harm our business.
If we are not able to differentiate ourselves from our competitors, drive value for our customers and/or effectively align our
resources with our goals and objectives, we may not be able to compete effectively against these threats. Our competitors may
also more effectively introduce their own innovative programs and services that adversely impact our growth. We also compete
against new entrants that have developed alternative payments systems, e-commerce payments systems and payments systems
for mobile devices, as well as physical store locations. A number of these new entrants rely principally on the Internet to support
their services and may enjoy lower costs than we do, which could put us at a competitive disadvantage. Our failure to compete
effectively against any of the foregoing competitive threats could materially and adversely affect our overall business and results
of operations.
Certain of our competitors operate three-party payments systems with direct connections to both merchants and consumers
and these competitors may derive competitive advantages from their business models. If we continue to attract more regulatory
scrutiny than these competitors because we operate a four-party system, or we are regulated because of the system we operate
in a way in which our competitors are not, we could lose business to these competitors. See “Business-Competition” in Part I,
Item 1.
Our ability to compete may also be affected by the outcomes of litigation, competition-related regulatory proceedings,
central bank activity and legislative activity.
Some of our traditional competitors, as well as alternative payment service providers, may have substantially greater
financial and other resources than we have, may offer a wider range of programs and services than we offer or may
use more effective advertising and marketing strategies to achieve broader brand recognition or merchant acceptance
than we have.
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The payments industry is subject to rapid and significant technological changes, which can impact our business in several ways:
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Our operations rely on the secure processing, transmission and storage of confidential, proprietary and other information in our
computer systems and networks. Our customers and other parties in the payments value chain, as well as account holders, rely
on our digital technologies, computer systems, software and networks to conduct their operations. In addition, to access our
Information security risks for payments and technology companies such as ours have significantly increased in recent years in
part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct
financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external
parties. These threats may derive from fraud or malice on the part of our employees or third parties, or may result from human
error or accidental technological failure. These threats include cyber-attacks such as computer viruses, malicious code, phishing
attacks or information security breaches and could lead to the misappropriation of consumer account and other information
and identity theft.
Information security incidents or account data compromise events could disrupt our business, damage our reputation, increase
our costs and cause losses.
Information Security and Service Disruptions
Our failure to render these integrated products and services could make our other integrated products and services less desirable
to customers, or put us at a competitive disadvantage. In addition, if there is a delay in the implementation of our products or
services or if our products or services do not perform as anticipated, we could face additional regulatory scrutiny, fines, sanctions
or other penalties, which could materially and adversely affect our overall business and results of operations, as well as negatively
impact our brand and reputation.
The payments markets in which we compete are characterized by rapid technological change, new product introductions, evolving
industry standards and changing customer and consumer needs. In order to remain competitive and meet the needs of the
payments market, we are continually involved in diversifying our integrated products and services. These efforts carry the risks
associated with any diversification initiative, including cost overruns, delays in delivery and performance problems. These projects
also carry risks associated with working with different types of customers, for example organizations such as corporations that
are not financial institutions and non-governmental organizations ("NGOS"), and end users than those we have traditionally
worked with. These differences may present new operational challenges in the development and implementation of our new
products or services.
Working with new customers and end users as we expand our integrated products and services can present operational
challenges, be costly and result in reputational damage if the new products or services do not perform as intended.
British regulators have designated this platform to be "critical national infrastructure" and regulators in other countries may in
the future expand their regulatory oversight of real-time account-based payment systems in similar ways. In addition, any
prolonged service outage on this network could result in quickly escalating impacts, including potential intervention by the Bank
of England and significant reputational risk to Vocalink and us. For a discussion of the regulatory risks related to our real-time
account-based payment platform, see our risk factor in "Risk Factors - Payments Industry Regulation" in this Part I, Item 1A.
Furthermore, the complexity of this payment technology requires careful management to address security vulnerabilities that
are different from those faced on our core network. Operational difficulties, such as the temporary unavailability of our services
or products, or security breaches on our real-time account-based payment network could cause a loss of business for these
products and services, result in potential liability for us and adversely affect our reputation.
Our acquisition of Vocalink in 2017 added real-time account-based payment technology to the suite of capabilities we offer.
While expansion into this space presents business opportunities, there are also regulatory and operational risks associated with
administering a real-time account-based payment network.
We cannot predict the effect of technological changes on our business, and our future success will depend, in part, on our ability
to anticipate, develop or adapt to technological changes and evolving industry standards. Failure to keep pace with these
technological developments or otherwise bring to market products that reflect these technologies could lead to a decline in the
use of our products, which could have a material adverse impact on our overall business and results of operations.
We work with technology companies (such as digital players and mobile providers) that use our technology to enhance
payment safety and security and to deliver their payment-related products and services quickly and efficiently to
consumers. Our inability to keep pace technologically could negatively impact the willingness of these customers to
work with us, and could encourage them to use their own technology and compete against us.
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Our ability to develop new technologies and reflect technological changes in our payments offerings will require
resources, which may result in additional expenses.
Our ability to adopt these technologies can also be inhibited by intellectual property rights of third parties. We have
received, and we may in the future receive, notices or inquiries from patent holders (for example, other operating
companies or non-practicing entities) suggesting that we may be infringing certain patents or that we need to license
the use of their patents to avoid infringement. Such notices may, among other things, threaten litigation against us or
our customers or demand significant license fees.
Our ability to develop evolving systems and products may be inhibited by any difficulty we may experience in attracting
and retaining technology experts.
Our ability to develop and adopt new services and technologies may be inhibited by industry-wide solutions and
standards (such as those related to EMV, tokenization or other safety and security technologies), and by resistance
from customers or merchants to such changes.
We rely in part on third parties, including some of our competitors and potential competitors, for the development of
and access to new technologies. The inability of these companies to keep pace with technological developments, or
the acquisition of these companies by competitors, could negatively impact our offerings.
Technological changes, including continuing developments of technologies in the areas of smart cards and devices,
contactless and mobile payments, e-commerce, cryptocurrency and block chain technology, machine learning and Al,
could result in new technologies that may be superior to, or render obsolete, the technologies we currently use in our
programs and services. Moreover, these changes could result in new and innovative payment methods and products
that could place us at a competitive disadvantage and that could reduce the use of our products.
•
The global payments industry is highly competitive. Our payment programs compete against all forms of payment, including
cash and checks; electronic, mobile and e-commerce payment platforms; cryptocurrencies; ACH payment services; and other
payments networks, which can have several competitive impacts on our business:
Substantial and intense competition worldwide in the global payments industry may materially and adversely affect our overall
business and results of operations.
Competition and Technology
Business and Operations
products and services to meet the needs of a changing marketplace, as well as acquire new companies, we may expand our
information profile through the collection of additional data from additional sources and across multiple channels. This expansion
could amplify the impact of these regulations on our business. Regulation of privacy and data protection and information security
often times require monitoring of and changes to our data practices in regard to the collection, use, disclosure, storage, transfer
and/or security of personal and sensitive information. We are also subject to enhanced compliance and operational requirements
in the European Union, and policymakers around the globe are using these requirements as a reference to adopt new or updated
privacy laws that could result in similar or stricter requirements in other jurisdictions. Some jurisdictions are also considering
requirements to collect, process and/or store data within their borders, as well as prohibitions on the transfer of data abroad,
leading to technological and operational implications. Other jurisdictions are considering adopting sector-specific regulations
for the payments industry, including forced data sharing requirements or additional verification requirements that overlap or
conflict with, or diverge from, general privacy rules. Failure to comply with these laws, regulations and requirements could result
in fines, sanctions or other penalties, which could materially and adversely affect our results of operations and overall business,
as well as have an impact on our reputation.
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We are subject to increasingly complex regulations related to privacy, data protection and information security in the jurisdictions
in which we do business. These regulations could result in negative impacts to our business. As we continue to develop integrated
Regulation of privacy, data protection, security and the digital economy could increase our costs, as well as negatively impact
our growth.
Privacy, Data Protection and Security
Such developments prevent us from utilizing our global switching capabilities for domestic or regional customers. Our efforts
to effect change in, or work with, these countries may not succeed. This could adversely affect our ability to maintain or increase
our revenues and extend our global brand.
Regional groups of countries are considering, or may consider, efforts to restrict our participation in the switching of
regional transactions.
Geopolitical events and resulting OFAC sanctions, adverse trade policies or other types of government actions could
lead jurisdictions affected by those sanctions to take actions in response that could adversely affect our business.
New requirements or reinterpretations of existing requirements in these areas, or the development of new regulatory schemes
related to the digital economy in general, may also increase our costs and could impact the products and services we offer and
other aspects of our business, such as fraud monitoring, the development of information-based products and solutions and
technology operations. In addition, these requirements may increase the costs to our customers of issuing payment products,
which may, in turn, decrease the number of our payment products that they issue. Moreover, due to account data compromise
events and privacy abuses by other companies, as well as the disclosure of monitoring activities by certain governmental agencies
in combination with the use of artificial intelligence and new technologies, there has been heightened legislative and regulatory
scrutiny around the world that could lead to further regulation and requirements and/or future enforcement. Those
developments have also raised public attention on companies' data practices and have changed consumer and societal
expectations for enhanced privacy and data protection. Any of these developments could materially and adversely affect our
overall business and results of operations.
Some jurisdictions are considering requirements to collect, process and/or store data within their borders, as well as
prohibitions on the transfer of data abroad, leading to technological and operational implications.
•
Governments in some countries have acted, or in the future may act, to provide resources, preferential treatment or other
protection to selected national payment and switching providers, or have created, or may in the future create, their own national
provider. This action may displace us from, prevent us from entering into, or substantially restrict us from participating in,
particular geographies, and may prevent us from competing effectively against those providers. For example:
Preferential and protective government actions related to domestic payment services could adversely affect our ability to
maintain or increase our revenues.
Preferential or Protective Government Actions
Limitations on our ability to restrict merchant surcharging could materially and adversely impact our results of operations.
We have historically implemented policies, referred to as no-surcharge rules, in certain jurisdictions, including the United States,
that prohibit merchants from charging higher prices to consumers who pay using our products instead of other means. Authorities
in several jurisdictions have acted to end or limit the application of these no-surcharge rules (or indicated interest in doing so).
Additionally, we have modified our no-surcharge rules to permit U.S. merchants to surcharge credit cards, subject to certain
limitations. It is possible that over time merchants in some or all merchant categories in these jurisdictions may choose to
surcharge as permitted by the rule change. This could result in consumers viewing our products less favorably and/or using
alternative means of payment instead of electronic products, which could result in a decrease in our overall transaction volumes,
and which in turn could materially and adversely impact our results of operations.
As a result, the risks to our business created by any one new law or regulation are magnified by the potential it has to be replicated
in other jurisdictions or involve other products within any particular jurisdiction. These include matters like interchange rates,
potential direct regulation of our network fees and pricing, network standards and network exclusivity and routing agreements.
Conversely, if widely varying regulations come into existence worldwide, we may have difficulty adjusting our products, services,
fees and other important aspects of our business to meet the varying requirements. Either of these outcomes could materially
and adversely affect our overall business and results of operations.
Regulators around the world increasingly replicate other regulators' approaches with regard to the regulation of payments and
other industries. Consequently, regulation in any one country, state or region may influence regulatory approaches in other
countries, states or regions. Similarly, new laws and regulations within a country, state or region involving one product may lead
to regulation of similar or related products. For example, regulations affecting debit transactions could lead to regulation of
other products (such as credit).
Current regulatory activity could be extended to additional jurisdictions or products, which could materially and adversely
affect our overall business and results of operations.
Governments in some countries are considering, or may consider, regulatory requirements that mandate switching of
domestic payments either entirely in that country or by only domestic companies.
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In addition, fraudulent activity could encourage regulatory intervention, which could damage our reputation and reduce the use
and acceptance of our integrated products and services or increase our compliance costs. Criminals are using increasingly
sophisticated methods to capture consumer account information to engage in illegal activities such as counterfeiting or other
fraud. As outsourcing and specialization become common in the payments industry, there are more third parties involved in
processing transactions using our payment products. While we are taking measures to make card and digital payments more
secure, increased fraud levels involving our integrated products and services, or misconduct or negligence by third parties
switching or otherwise servicing our integrated products and services, could lead to regulatory intervention, such as enhanced
security requirements, as well as damage to our reputation.
Regulations that directly or indirectly apply to Mastercard as a result of our participation in the global payments industry may
materially and adversely affect our overall business and results of operations.
23
Certain limitations have been placed on our business in recent years because of litigation and litigation settlements, such as
changes to our no-surcharge rule in the United States. Any future limitations on our business resulting from litigation or litigation
settlements could impact our relationships with our customers, including reducing the volume of business that we do with them,
which may materially and adversely affect our overall business and results of operations.
We are a defendant on a number of civil litigations and regulatory proceedings and investigations, including among others, those
alleging violations of competition and antitrust law and those involving intellectual property claims. See Note 20 (Legal and
Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for more details regarding the
allegations contained in these complaints and the status of these proceedings. In the event we are found liable in any material
litigations or proceedings, particularly in the event we may be found liable in a large class-action lawsuit or on the basis of an
antitrust claim entitling the plaintiff to treble damages or under which we were jointly and severally liable, we could be subject
to significant damages, which could have a material adverse impact on our overall business and results of operations.
Liabilities we may incur or limitations on our business related to any litigation or litigation settlements could materially and
adversely affect our results of operations.
Litigation
In addition, tax laws and regulations are complex and subject to varying interpretations, and any significant failure to comply
with applicable tax laws and regulations in all relevant jurisdictions could give rise to substantial penalties and liabilities. Any
changes in enacted tax laws, rules or regulatory or judicial interpretations; any adverse outcome in connection with tax audits
in any jurisdiction; or any change in the pronouncements relating to accounting for income taxes could materially and adversely
impact our effective tax rate, tax payments, financial condition and results of operations.
Increased regulatory focus on us, such as in connection with the matters discussed above, may result in costly compliance burdens
and/or may otherwise increase our costs. Similarly, increased regulatory focus on our customers may cause such customers to
reduce the volume of transactions processed through our systems, or may otherwise impact the competitiveness of our products.
Actions by regulators could influence other organizations around the world to enact or consider adopting similar measures,
amplifying any potential compliance burden. Finally, failure to comply with the laws and regulations discussed above to which
we are subject could result in fines, sanctions or other penalties. Each may individually or collectively materially and adversely
affect our financial performance and/or our overall business and results of operations, as well as have an impact on our reputation.
We could be subject to adverse changes in tax laws, regulations and interpretations or challenges to our tax positions.
We are subject to tax laws and regulations of the U.S. federal, state and local governments as well as various non-U.S. jurisdictions.
Potential changes in existing tax laws, including future regulatory guidance, may impact our effective tax rate and tax payments.
There can be no assurance that changes in tax laws or regulations, both within the U.S. and the other jurisdictions in which we
operate, will not materially and adversely affect our effective tax rate, tax payments, financial condition and results of operations.
Similarly, changes in tax laws and regulations that impact our customers and counterparties or the economy generally may also
impact our financial condition and results of operations.
Regulation of Internet and Digital Transactions - Proposed legislation in various jurisdictions relating to Internet
gambling and other digital areas such as cyber-security and copyright and trademark infringement could impose
additional compliance burdens on us and/or our customers, including requiring us or our customers to monitor, filter,
restrict, or otherwise oversee various categories of payment transactions.
Other Regulation
Issuer Practice Legislation and Regulation - Our financial institution customers are subject to numerous regulations,
which impact us as a consequence. In addition, certain regulations (such as PSD2 in the EEA) may disintermediate
issuers. If our customers are disintermediated in their business, we could face diminished demand for our integrated
products and services. In addition, existing or new regulations in these or other areas may diminish the attractiveness
of our products to our customers.
Account-based Payment Systems
•
•
•
22
Anti-Money Laundering, Counter Terrorist Financing, Economic Sanctions and Anti-Corruption - We are subject to
AML and CTF laws and regulations globally, including the U.S. Bank Secrecy Act and the USA PATRIOT Act, as well as
the various economic sanctions programs, including those imposed and administered by OFAC. The economic sanctions
programs administered by OFAC restrict financial transactions and other dealings with certain countries and
geographies (specifically Crimea, Cuba, Iran, North Korea and Syria) and with persons and entities included in OFAC
sanctions lists including the SDN List. Iran, Sudan and Syria have been identified by the U.S. State Department as
terrorist-sponsoring states. We are also subject to anti-corruption laws and regulations globally, including the U.S.
Foreign Corrupt Practices Act and the U.K. Bribery Act, which, among other things, generally prohibit giving or offering
payments or anything of value for the purpose of improperly influencing a business decision or to gain an unfair business
advantage. A violation and subsequent judgment or settlement against us, or those with whom we may be associated,
under these laws could subject us to substantial monetary penalties, damages, and/or have a significant reputational
impact.
•
We are subject to regulations that affect the payments industry in the many jurisdictions in which our integrated products and
services are used. Many of our customers are also subject to regulations applicable to banks and other financial institutions that,
at times, consequently affect us. Regulation of the payments industry, including regulations applicable to us and our customers,
has increased significantly in the last several years. See "Business - Government Regulation" in Part I, Item 1 for a detailed
description of such regulation and related legislation. Examples include:
In the U.K., the Treasury has expanded the Bank of England's oversight of certain
payment system providers that are systemically important to U.K.'s payment network. As a result of these changes,
aspects of our Vocalink business are now subject to the U.K. payment system oversight regime and are directly overseen
by the Bank of England.
integrated products and services, our customers and account holders increasingly use personal smartphones, tablet PCs and
other mobile devices that may be beyond our control. We, like other financial technology organizations, routinely are subject
to cyber-threats and our technologies, systems and networks have been subject to attempted cyber-attacks. Because of our
position in the payments value chain, we believe that we are likely to continue to be a target of such threats and attacks.
Additionally, geopolitical events and resulting government activity could also lead to information security threats and attacks by
affected jurisdictions and their sympathizers.
Operating a real-time account-based payment network presents risks that could materially affect our business.
Despite various mitigation efforts that we undertake, there can be no assurance that we will be immune to these risks and not
suffer material breaches and resulting losses in the future, or that our insurance coverage would be sufficient to cover all losses.
Our risk and exposure to these matters remain heightened because of, among other things, the evolving nature of these threats,
our prominent size and scale and our role in the global payments and technology industries, our plans to continue to implement
our digital and mobile channel strategies and develop additional remote connectivity solutions to serve our customers and
account holders when and how they want to be served, our global presence, our extensive use of third-party vendors and future
joint venture and merger and acquisition opportunities. As a result, information security and the continued development and
enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks
from attack, damage or unauthorized access remain a priority for us. As cyber-threats continue to evolve, we may be required
to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and
remediate any information security vulnerabilities. Any of the risks described above could materially adversely affect our overall
business and results of operations.
We are a guarantor of certain third-party obligations, including those of certain of our customers. In this capacity, we are exposed
to credit and liquidity risk from these customers and certain service providers. We may incur significant losses in connection
with transaction settlements if a customer fails to fund its daily settlement obligations due to technical problems, liquidity
shortfalls, insolvency or other reasons. Concurrent settlement failures of more than one of our larger customers or of several
of our smaller customers either on a given day or over a condensed period of time may exceed our available resources and could
materially and adversely affect our results of operations.
We have significant contractual indemnification obligations with certain customers. Should an event occur that triggers these
obligations, such an event could materially and adversely affect our overall business and result of operations.
29
Global Economic and Political Environment
Global economic, political, financial and societal events or conditions could result in a material and adverse impact on our
overall business and results of operations.
Adverse economic trends in key countries in which we operate may adversely affect our financial performance. Such impact
may include, but is not limited to, the following:
•
•
•
•
Customers mitigating their economic exposure by limiting the issuance of new Mastercard products and requesting
greater incentive or greater cost stability from us.
Government intervention (including the effect of laws, regulations and/or government investments on or in our financial
institution customers), as well as uncertainty due to changing political regimes in executive, legislative and/or judicial
branches of government, that may have potential negative effects on our business and our relationships with customers
or otherwise alter their strategic direction away from our products.
Tightening of credit availability that could impact the ability of participating financial institutions to lend to us under
the terms of our credit facility.
Additionally, we switch substantially all cross-border transactions using Mastercard, Maestro and Cirrus-branded cards and
generate a significant amount of revenue from cross-border volume fees and fees related to switched transactions. Revenue
from switching cross-border and currency conversion transactions for our customers fluctuates with the levels and destinations
of cross-border travel and our customers' need for transactions to be converted into their base currency. Cross-border activity
may be adversely affected by world geopolitical, economic, weather and other conditions. These include the threat of terrorism
and outbreaks of flu, viruses and other diseases, as well as major environmental events. The uncertainty that could result from
such events could decrease cross-border activity. Additionally, any regulation of interregional interchange fees could also
negatively impact our cross-border activity. In each case, decreased cross-border activity could decrease the revenue we receive.
Any of these developments could have a material adverse impact on our overall business and results of operations.
Adverse currency fluctuations and foreign exchange controls could negatively impact our results of operations.
During 2018, approximately 67% of our revenue was generated from activities outside the United States. This revenue (and the
related expense) could be transacted in a non-functional currency or valued based on a currency other than the functional
currency of the entity generating the revenues. Resulting exchange gains and losses are included in our net income. Our risk
management activities provide protection with respect to adverse changes in the value of only a limited number of currencies
and are based on estimates of exposures to these currencies.
In addition, some of the revenue we generate outside the United States is subject to unpredictable currency fluctuations including
devaluation of currencies where the values of other currencies change relative to the U.S. dollar. If the U.S. dollar strengthens
compared to currencies in which we generate revenue, this revenue may be translated at a materially lower amount than expected.
Furthermore, we may become subject to exchange control regulations that might restrict or prohibit the conversion of our other
revenue currencies into U.S. dollars, such as what we have experienced in Venezuela.
The occurrence of currency fluctuations or exchange controls could have a material adverse impact on our results of operations.
The United Kingdom's proposed withdrawal from the European Union could harm our business and financial results.
In June 2016, voters in the United Kingdom approved the withdrawal of the U.K. from the E.U. (commonly referred to as "Brexit").
The U.K. government triggered Article 50 of the Lisbon Treaty on March 29, 2017, which commenced the official E.U. withdrawal
process. Uncertainty over the terms of the U.K.'s departure from the E.U. could cause political and economic uncertainty in the
U.K. and the rest of Europe, which could harm our business and financial results.
Brexit could lead to legal uncertainty and potentially divergent national laws and regulations in the U.K. and E.U. We, as well as
our clients who have significant operations in the U.K., may incur additional costs and expenses as we adapt to potentially
divergent regulatory frameworks from the rest of the E.U. We may also face additional complexity with regard to immigration
and travel rights for our employees located in the U.K. and the E.U. These factors may impact our ability to operate in the E.U.
and U.K. seamlessly. Any of these effects of Brexit, among others, could harm our business and financial results.
30
To date, we have not experienced any material impact relating to cyber-attacks or other information security breaches. However,
future attacks or breaches could lead to security breaches of the networks, systems or devices that our customers use to access
our integrated products and services, which in turn could result in the unauthorized disclosure, release, gathering, monitoring,
misuse, loss or destruction of confidential, proprietary and other information (including account data information) or data security
compromises. Such attacks or breaches could also cause service interruptions, malfunctions or other failures in the physical
infrastructure or operations systems that support our businesses and customers (such as the lack of availability of our value-
added services), as well as the operations of our customers or other third parties. In addition, they could lead to damage to our
reputation with our customers and other parties and the market, additional costs to us (such as repairing systems, adding new
personnel or protection technologies or compliance costs), regulatory penalties, financial losses to both us and our customers
and partners and the loss of customers and business opportunities. If such attacks are not detected immediately, their effect
could be compounded.
Our role as guarantor, as well as other contractual obligations, expose us to risk of loss or illiquidity.
Settlement and Third-Party Obligations
Consumers and businesses lowering spending, which could impact cross-border travel patterns (on which a significant
portion of our revenues is dependent).
Our work with governments subjects us to U.S. and international anti-corruption laws, including the U.S. Foreign Corrupt
Practices Act and the U.K. Bribery Act. A violation and subsequent judgment or settlement under these laws could
subject us to substantial monetary penalties and damages and have a significant reputational impact.
In addition to information security risks for our systems, we also routinely encounter account data compromise events involving
merchants and third-party payment processors that process, store or transmit payment transaction data, which affect millions
of Mastercard, Visa, Discover, American Express and other types of account holders. Further events of this type may subject us
to reputational damage and/or lawsuits involving payment products carrying our brands. Damage to our reputation or that of
our brands resulting from an account data breach of either our systems or the systems of our customers, merchants and other
third parties could decrease the use and acceptance of our integrated products and services. Such events could also slow or
reverse the trend toward electronic payments. In addition to reputational concerns, the cumulative impact of multiple account
data compromise events could increase the impact of the fraud resulting from such events by, among other things, making it
more difficult to identify consumers. Moreover, while most of the lawsuits resulting from account data breaches do not involve
direct claims against us and while we have releases from many issuers and acquirers, we could still face damage claims, which,
if upheld, could materially and adversely affect our results of operations. Such events could have a material adverse impact on
our transaction volumes, results of operations and prospects for future growth, or increase our costs by leading to additional
regulatory burdens being imposed on us.
Working or contracting with governments, either directly or via our financial institution customers, can subject us to
heightened reputational risks, including extensive scrutiny and publicity, as well as a potential association with the
policies of a government as a result of a business arrangement with that government. Any negative publicity or negative
association with a government entity, regardless of its accuracy, may adversely affect our reputation.
Service disruptions that cause us to be unable to process transactions or service our customers could materially affect our
overall business and results of operations.
Our transaction switching systems and other offerings may experience interruptions as a result of technology malfunctions, fire,
weather events, power outages, telecommunications disruptions, terrorism, workplace violence, accidents or other catastrophic
events. Our visibility in the global payments industry may also put us at greater risk of attack by terrorists, activists, or hackers
who intend to disrupt our facilities and/or systems. Additionally, we rely on third-party service providers for the timely
transmission of information across our global data network. Inadequate infrastructure in lesser-developed markets could also
result in service disruptions, which could impact our ability to do business in those markets. If one of our service providers fails
to provide the communications capacity or services we require, as a result of natural disaster, operational disruptions, terrorism,
hacking or any other reason, the failure could interrupt our services. Although we maintain a business continuity program to
analyze risk, assess potential impacts, and develop effective response strategies, we cannot ensure that our business would be
immune to these risks, because of the intrinsic importance of our switching systems to our business, any interruption or
27
degradation could adversely affect the perception of the reliability of products carrying our brands and materially adversely affect
our overall business and our results of operations.
Financial Institution Customers and Other Stakeholder Relationships
In addition, a significant portion of our revenue is concentrated among our five largest financial institution customers. Loss of
business from any of our large customers could have a material adverse impact on our overall business and results of operations.
Exclusive/near exclusive relationships certain customers have with our competitors may have a material adverse impact on
our business.
Certain customers have exclusive, or nearly-exclusive, relationships with our competitors to issue payment products, and these
relationships may make it difficult or cost-prohibitive for us to do significant amounts of business with them to increase our
revenues. In addition, these customers may be more successful and may grow faster than the customers that primarily issue
our payment products, which could put us at a competitive disadvantage. Furthermore, we earn substantial revenue from
customers with nearly-exclusive relationships with our competitors. Such relationships could provide advantages to the customers
to shift business from us to the competitors with which they are principally aligned. A significant loss of our existing revenue or
transaction volumes from these customers could have a material adverse impact on our business.
Consolidation in the banking industry could materially and adversely affect our overall business and results of operations.
The banking industry has undergone substantial, accelerated consolidation in the past. Consolidations have included customers
with a substantial Mastercard portfolio being acquired by institutions with a strong relationship with a competitor. If significant
consolidation among customers were to continue, it could result in the substantial loss of business for us, which could have a
material adverse impact on our business and prospects. In addition, one or more of our customers could seek to merge with,
or acquire, one of our competitors, and any such transaction could also have a material adverse impact on our overall business.
Consolidation could also produce a smaller number of large customers, which could increase their bargaining power and lead to
lower prices and/or more favorable terms for our customers. These developments could materially and adversely affect our
results of operations.
Losing a significant portion of business from one or more of our largest financial institution customers could lead to significant
revenue decreases in the longer term, which could have a material adverse impact on our business and our results of operations.
Most of our financial institution customer relationships are not exclusive and may be terminated by our customers. Our customers
can reassess their commitments to us at any time in the future and/or develop their own competitive services. Accordingly, our
business agreements with these customers may not reduce the risk inherent in our business that customers may terminate their
relationships with us in favor of relationships with our competitors, or for other reasons, or might not meet their contractual
obligations to us.
While we work directly with many stakeholders in the payments system, including merchants, governments and large digital
companies and other technology companies, we are, and will continue to be, significantly dependent on our relationships with
our issuers and acquirers and their respective relationships with account holders and merchants to support our programs and
services. Furthermore, we depend on our issuing partners and acquirers to continue to innovate to maintain competitiveness
in the market. We do not issue cards or other payment devices, extend credit to account holders or determine the interest rates
or other fees charged to account holders. Each issuer determines these and most other competitive payment program features.
In addition, we do not establish the discount rate that merchants are charged for acceptance, which is the responsibility of our
acquiring customers. As a result, our business significantly depends on the continued success and competitiveness of our issuing
and acquiring customers and the strength of our relationships with them. In turn, our customers' success depends on a variety
of factors over which we have little or no influence, including economic conditions in global financial markets or their
disintermediation by competitors or emerging technologies, as well as regulation. If our customers become financially unstable,
we may lose revenue or we may be exposed to settlement risk. See our risk factor in "Risk Factors - Settlement and Third-Party
Obligations" in this Part I, Item 1A with respect to how we guarantee certain third-party obligations for further discussion.
With the exception of the United States and a select number of other jurisdictions, most in-country (as opposed to cross-border)
transactions conducted using Mastercard, Maestro and Cirrus cards are authorized, cleared and settled by our customers or
other processors. Because we do not provide domestic switching services in these countries and do not, as described above,
have direct relationships with account holders, we depend on our close working relationships with our customers to effectively
28
manage our brands, and the perception of our payments system, among consumers in these countries. We also rely on these
customers to help manage our brands and perception among regulators and merchants in these countries, alongside our own
relationships with them. From time to time, our customers may take actions that we do not believe to be in the best interests
of our payments system overall, which may materially and adversely impact our business.
Merchants' continued focus on acceptance costs may lead to additional litigation and regulatory proceedings and increase
our incentive program costs, which could materially and adversely affect our profitability.
Merchants are important constituents in our payments system. We rely on both our relationships with them, as well as their
relationships with our issuer and acquirer customers, to continue to expand the acceptance of our integrated products and
services. We also work with merchants to help them enable new sales channels, create better purchase experiences, improve
efficiencies, increase revenues and fight fraud. In the retail industry, there is a set of larger merchants with increasingly global
scope and influence. We believe that these merchants are having a significant impact on all participants in the global payments
industry, including Mastercard. Some large merchants have supported the legal, regulatory and legislative challenges to
interchange fees that Mastercard has been defending, including the U.S. merchant litigations. See our risk factor in "Risk Factors
- Risks Related to Our Participation in the Payments Industry" in this Part I, Item 1A with respect to payments industry regulation,
including interchange fees. The continued focus of merchants on the costs of accepting various forms of payment, including in
connection with the growth of digital payments, may lead to additional litigation and regulatory proceedings.
Certain larger merchants are also able to negotiate incentives from us and pricing concessions from our issuer and acquirer
customers as a condition to accepting our products. We also make payments to certain merchants to incentivize them to create
co-branded payment programs with us. As merchants consolidate and become even larger, we may have to increase the amount
of incentives that we provide to certain merchants, which could materially and adversely affect our results of operations.
Competitive and regulatory pressures on pricing could make it difficult to offset the costs of these incentives. Additionally, if the
rate of merchant acceptance growth slows our business could suffer.
Our work with governments exposes us to unique risks that could have a material impact on our business and results of
operations.
As we increase our work with national, state and local governments, both indirectly through financial institutions and with them
directly as our customers, we may face various risks inherent in associating or contracting directly with governments. These risks
include, but are not limited to, the following:
Our business significantly depends on the continued success and competitiveness of our issuing and acquiring customers and,
in many jurisdictions, their ability to effectively manage or help manage our brands.
•
Governmental entities typically fund projects through appropriated monies. Changes in governmental priorities or
other political developments, including disruptions in governmental operations, could impact approved funding and
result in changes in the scope, or lead to the termination of, the arrangements or contracts we or financial institutions
enter into with respect to our payment products and services.
3,915
5,859
5,106
5,078
5,761
4,415,574
2,390,996 $
1,027,633
996,945
4,059
Dollar Value of
Shares that may yet
be Purchased under
the Plans or
Programs
1
695,528,134
Programs
3,808
3.35
5.63
3.67
3.70
3.36
3.11
5.60
3.65
3.69
3.10
$ 24,860 $ 21,329 $ 18,675 $ 16,250 $ 15,329
5,834
5,424
492,962,254
3,617
6,800,613,788
7,668
35
5,180
6,622
7,282
4,335
4,589
5,015
5,875
$ 14,950 $ 12,497 $ 10,776 $ 9,667 $ 9,441
(in millions, except per share data)
2014
2015
2016
2017
Dollar value of shares that may yet be purchased under the 2017 Share Repurchase Program and the 2018 Share Repurchase Program are as of the
end of each period presented.
2018
36
Cash dividends declared per share.
Total equity.
Total assets
Long-term debt.
Balance Sheet Data:
Diluted earnings per share..
Basic earnings per share
Net income
Total operating expenses.
Operating income.
Net revenue
Statement of Operations Data:
The statement of operations data and the cash dividends declared per share presented below for the years ended December 31,
2018, 2017 and 2016, and the balance sheet data as of December 31, 2018 and 2017, 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, 2015 and 2014, and the balance sheet data as
of December 31, 2016, 2015 and 2014, 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.
ITEM 6. SELECTED FINANCIAL DATA
Years Ended December 31,
3,268
Key highlights for 2018 were as follows:
5,418
$ 12,497 $ 10,776
16%
Operating expenses
$ 7,668 $ 5,875
31%
$ 5,875 $ 5,015
17%
Operating income..
Operating margin
$ 7,282 $ 6,622
48.7% 53.0%
10%
$ 6,622 $ 5,761
15%
20%
(4.3) ppt
53.5% (0.5) ppt
Income tax expense
Effective income tax rate
$ 1,345 $ 2,607
18.7%
40.0%
(48)%
(21.3) ppt
$ 2,607 $ 1,587
64%
40.0%
28.1% 11.9 ppt
Net income
$ 5,859 $ 3,915
50%
53.0%
$14,950 $ 12,497
Net revenue
($ in millions, except per share data)
5,497
5,684
6,062
6,824
$
1.08 $
0.91 $
0.79 $
0.67 $
0.49
31
37
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. Certain prior period amounts have been reclassified
to conform to the 2018 presentation. For 2017 and 2016, $127 million and $113 million, respectively, of expenses were reclassified
from advertising and marketing expenses to general and administrative expenses. The reclassification had no impact on total
operating expenses, operating income or net income. 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.
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 creating 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.
Through our core global payments processing network, we facilitate the switching (authorization, clearing and settlement) of
payment transactions and deliver related products and services. With additional payment capabilities that include real-time
account based payments (including automated clearing house ("ACH") transactions), we offer customers one partner to turn to
for their payment needs for both domestic and cross-border transactions across multiple payment flows. We also provide value-
added offerings such as safety and security products, information and analytics services, consulting, loyalty and reward programs
and issuer and acquirer processing. Our payment solutions 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 consumer 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 branded products. In most cases, account holder relationships belong to, and are managed by, our financial institution
customers.
Financial Results Overview
The following tables provide a summary of our operating results:
Year ended December 31,
Year ended December 31,
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
2018
2017
Increase/
(Decrease)
2017
2016
Increase/
(Decrease)
1,494
201.20
2016
197.12
32
33
33
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Class A common stock trades on the New York Stock Exchange under the symbol "MA". At February 8, 2019, we had 73
stockholders of record for our Class A common stock. We believe that the number of beneficial owners is substantially greater
than the number of record holders because a large portion of our Class A common stock is held in "street name" by brokers.
There is currently no established public trading market for our Class B common stock. There were approximately 287 holders of
record of our non-voting Class B common stock as of February 8, 2019, constituting approximately 1.1% of our total outstanding
equity.
Stock Performance Graph
The graph and table below compare the cumulative total stockholder return of Mastercard's Class A common stock, the S&P 500
Financials and the S&P 500 Index for the five-year period ended December 31, 2018. The graph assumes a $100 investment in
our Class A common stock and both of the indices and the reinvestment of dividends. Mastercard's Class B common stock is not
publicly traded or listed on any exchange or dealer quotation system.
Comparison of Cumulative Five-Year Total Return
We believe that our facilities are suitable and adequate for the business that we currently conduct. However, we periodically
review our space requirements and may acquire or lease new space to meet the needs of our business, or consolidate and dispose
of facilities that are no longer required.
Mastercard
$200
$150
$100
$50
$0
2013
2014
S&P 500 Financials
2015
S&P 500 Index
$ 3,915
2017
2018
$250
Total returns to stockholders for each of the years presented were as follows:
As of December 31, 2018, Mastercard and its subsidiaries owned or leased 169 commercial properties. We own our corporate
headquarters, located in Purchase, New York. The building is approximately 500,000 square feet. There is no outstanding debt
on this building. Our principal technology and operations center, a leased facility located in O'Fallon, Missouri, is also
approximately 500,000 square feet. Our leased properties in the United States are located in nine states and in the District of
Columbia. We also lease and own properties in 74 other countries. These facilities primarily consist of corporate and regional
offices, as well as our operations centers.
Not applicable.
$ 6.49 $ 4.58
Note: Tables may not sum due to rounding.
1 The Summary of Non-GAAP Results excludes the impact of Special Items (subsequently defined) and/or foreign currency. See "Non-GAAP Financial
Information" for further information on the Special Items, the impact of foreign currency and the reconciliation to GAAP reported amounts.
Brand and Reputational Impact
Negative brand perception may materially and adversely affect our overall business.
Our brands and their attributes are key assets of our business. The ability to attract consumers to our branded products and
retain them depends upon the external perception of us and our industry. Our business may be affected by actions taken by our
customers, merchants or other organizations that impact the perception of our brands or the payments industry in general. From
time to time, our customers may take actions that we do not believe to be in the best interests of our brands, such as creditor
practices that may be viewed as "predatory". Moreover, adverse developments with respect to our industry or the industries of
our customers may also, by association, impair our reputation, or result in greater regulatory or legislative scrutiny. We have
also been pursuing the use of social media channels at an increasingly rapid pace. Under some circumstances, our use of social
media, or the use of social media by others as a channel for criticism or other purposes, could also cause rapid, widespread
reputational harm to our brands by disseminating rapidly and globally actual or perceived damaging information about us, our
products or merchants or other end users who utilize our products. Also, as we are headquartered in the United States, a negative
perception of the United States could impact the perception of our company, which could adversely affect our business. Such
perception and damage to our reputation could have a material and adverse effect to our overall business.
Lack of visibility of our brand in our products and services, or in the products and services of our partners who use our
technology, may materially and adversely affect our business.
As more players enter the global payments system, the layers between our brand and consumers and merchants increase. In
order to compete with other powerful consumer brands that are also becoming part of the consumer payment experience, we
often partner with those brands on payment solutions. These brands include large digital companies and other technology
companies who are our customers and use our networks to build their own acceptance brands. In some cases, our brand may
not be featured in the payment solution or may be secondary to other brands. Additionally, as part of our relationships with
some issuers, our payment brand is only included on the back of the card. As a result, our brand may either be invisible to
consumers or may not be the primary brand with which consumers associate the payment experience. This brand invisibility, or
any consumer confusion as to our role in the consumer payment experience, could decrease the value of our brand, which could
adversely affect our business.
Talent and Culture
We may not be able to attract, hire and retain a highly qualified and diverse workforce, or maintain our corporate culture,
which could impact our ability to grow effectively.
Our performance largely depends on the talents and efforts of our employees, particularly our key personnel and senior
management. We may be unable to retain or to attract highly qualified employees. The market for key personnel is highly
competitive, particularly in technology and other skill areas significant to our business. Additionally, changes in immigration and
work permit laws and regulations and related enforcement have made it difficult for employees to work in, or transfer among,
jurisdictions in which we have operations and could impair our ability to attract and retain qualified employees. Failure to attract,
hire, develop, motivate and retain highly qualified and diverse employee talent, or to maintain a corporate culture that fosters
innovation, creativity and teamwork could harm our overall business and results of operations.
We rely on key personnel to lead with integrity. To the extent our leaders behave in a manner that is not consistent with our
values, we could experience significant impact to our brand and reputation, as well as to our corporate culture.
Acquisitions
Acquisitions, strategic investments or entry into new businesses could disrupt our business and harm our results of operations
or reputation.
Although we may continue to evaluate and/or make strategic acquisitions of, or acquire interests in joint ventures or other entities
related to, complementary businesses, products or technologies, we may not be able to successfully partner with or integrate
them, despite original intentions and focused efforts. In addition, such an integration may divert management's time and
resources from our core business and disrupt our operations. Moreover, we may spend time and money on acquisitions or
projects that do not meet our expectations or increase our revenue. To the extent we pay the purchase price of any acquisition
in cash, it would reduce our cash reserves available to us for other uses, and to the extent the purchase price is paid with our
stock, it could be dilutive to our stockholders. Furthermore, we may not be able to successfully finance the business following
the acquisition as a result of costs of operations, including any litigation risk which may be inherited from the acquisition.
ITEM 2. PROPERTIES
31
Class A Common Stock and Governance Structure
Provisions in our organizational documents and Delaware law could be considered anti-takeover provisions and have an impact
on change-in-control.
Provisions contained in our amended and restated certificate of incorporation and bylaws and Delaware law could be considered
anti-takeover provisions, including provisions that could delay or prevent entirely a merger or acquisition that our stockholders
consider favorable. These provisions may also discourage acquisition proposals or have the effect of delaying or preventing
entirely a change in control, which could harm our stock price. For example, subject to limited exceptions, our amended and
restated certificate of incorporation prohibits any person from beneficially owning more than 15% of any of the Class A common
stock or any other class or series of our stock with general voting power, or more than 15% of our total voting power. In addition:
•
our stockholders are not entitled to the right to cumulate votes in the election of directors
•
our stockholders are not entitled to act by written consent
•
a vote of 80% or more of all of the outstanding shares of our stock then entitled to vote is required for stockholders
to amend any provision of our bylaws
any representative of a competitor of Mastercard or of Mastercard Foundation is disqualified from service on our board
of directors
Mastercard Foundation's substantial stock ownership, and restrictions on its sales, may impact corporate actions or acquisition
proposals favorable to, or favored by, the other public stockholders.
As of February 8, 2019, Mastercard Foundation owned 112,181,762 shares of Class A common stock, representing approximately
11.1% of our general voting power. Mastercard Foundation may not sell or otherwise transfer its shares of Class A common stock
prior to May 1, 2027, except to the extent necessary to satisfy its charitable disbursement requirements, for which purpose
earlier sales are permitted. Mastercard Foundation is permitted to sell all of its remaining shares after May 1, 2027, subject to
certain conditions. The directors of Mastercard Foundation are required to be independent of us and our customers. The
ownership of Class A common stock by Mastercard Foundation, together with the restrictions on transfer, could discourage or
make more difficult acquisition proposals favored by the other holders of the Class A common stock. In addition, because
Mastercard Foundation is restricted from selling its shares for an extended period of time, it may not have the same interest in
short or medium-term movements in our stock price as, or incentive to approve a corporate action that may be favorable to, our
other stockholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Any acquisition or entry into a new business could subject us to new regulations with which we would need to comply. This
compliance could increase our costs, and we could be subject to liability or reputational harm to the extent we cannot meet any
such compliance requirements. Our expansion into new businesses could also result in unanticipated issues which may be difficult
to manage.
192.94
Base period
For the Years Ended December 31,
Third Quarter
Fourth Quarter
Dividend per Share
2018
2017
0.25 $
0.25
0.22
0.22
0.25
0.22
0.25
0.22
On December 4, 2018, our Board of Directors declared a quarterly cash dividend of $0.33 per share paid on February 8, 2019 to
holders of record on January 9, 2019 of our Class A common stock and Class B common stock. On February 5, 2019, our Board
of Directors declared a quarterly cash dividend of $0.33 per share payable on May 9, 2019 to holders of record on April 9, 2019
of our Class A common stock and Class B common stock.
Second Quarter.
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.
On December 4, 2017, our Board of Directors approved a share repurchase program authorizing us to repurchase up to $4 billion
of our Class A common stock (the “2017 Share Repurchase Program"). This program became effective in 2018. 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.
During the fourth quarter of 2018, we repurchased a total of approximately 4.4 million shares for $888 million at an average
price of $201.20 per share of Class A common stock. Our repurchase activity during the fourth quarter of 2018 consisted of open
market share repurchases and is summarized in the following table:
Period
October 1-31
November 1-30
December 1 – 31
Total.
Total Number
of Shares
Purchased
2,390,996 $
1,027,633
996,945
4,415,574
Average Price
Paid per Share
(including
commission cost)
206.39
Issuer Purchases of Equity Securities
Indexed Returns
First Quarter
Dividend Declaration and Policy
Company/Index
2013
2014
2015
2016
2017
2018
Mastercard
$
100.00 $
S&P 500 Financials.
100.00
103.73 $
115.20
During the years ended December 31, 2018 and 2017, we paid the following quarterly cash dividends per share on our Class A
common stock and Class B common stock:
118.05 $
126.20 $
139.31
186.37 $
233.56
170.21
148.03
S&P 500 Index. .
100.00
113.69
115.26
129.05
157.22
150.33
34
113.44
$ 4,059
Refer to Note 12 (Accrued Expenses and Accrued Litigation) and Note 20 (Legal and Regulatory Proceedings) to the consolidated
financial statements included in Part II, Item 8.
Diluted earnings per share..
Tax act
•
During 2018, we recorded a $75 million net tax benefit ($0.07 per diluted share) which included a $90 million benefit
($0.09 per diluted share) related to the carryback of foreign tax credits due to transition rules, offset by a net $15 million
expense ($0.01 per diluted share) primarily related to the true-up to our 2017 mandatory deemed repatriation tax on
accumulated foreign earnings.
During 2017, we recorded additional tax expense of $873 million ($0.81 per diluted share) which includes $825 million
of provisional charges attributable to a one-time deemed repatriation tax on accumulated foreign earnings (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.
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 19 (Income Taxes) and Note 20 (Legal and Regulatory Proceedings)
to the consolidated financial statements included in Part II, Item 8 for further discussion.
We excluded these Special Items as management evaluates the underlying operations and performance of the Company separately
from litigation judgments and settlements related to interchange and other one-time items, as well as the related tax impacts.
In addition, we present growth rates adjusted for the impact of foreign 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 foreign 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 foreign currency represents the effect of converting revenue and expenses occurring in a currency other than
the functional currency. We believe the presentation of the impact of foreign currency provides relevant information.
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.
•
21%
21%
$ 3.77
$ 4.58
41%
42%
Adjusted diluted earnings per
share...
17%
18%
$ 4,144
$ 4,906
38%
38%
During 2016, we recorded pre-tax charges of $117 million ($85 million after tax, or $0.08 per diluted share) related to
litigation settlements with U.K. 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.
$237 million related to litigation settlements with U.K. and Pan-European merchants.
cases
(4)%
Net revenue increased 20% both as reported and on a currency-neutral basis, in 2018 versus 2017. Current year results
include growth of 4 percentage points from the impact of the adoption of the new revenue standard and an additional
0.5 percentage points from our prior year acquisitions. The remaining 15 percentage points of growth was primarily
driven by:
Switched transaction growth of 17%, adjusted for the impact of the Venezuela deconsolidation¹
Cross-border growth of 18% on a local currency basis¹
1 Adjusted to normalize for the effects of differing switching days between periods.
Gross dollar volume growth of 14% on a local currency basis
These increases were partially offset by higher rebates and incentives, which increased 18% both as reported and
on a currency-neutral basis.
Operating expenses increased 31% in 2018 versus 2017. Excluding the impact of Special Items (defined below), operating
expenses increased 15% both as adjusted and on a currency-neutral basis, primarily driven by:
➤ 3 percentage point increase from the adoption of the new revenue guidance
2 percentage point increase from acquisitions
2 percentage point increase from the $100 million contribution to the Mastercard Impact Fund (formerly referred
to as Mastercard's Center for Inclusive Growth Fund), a non-profit charitable organization.
$ 4,906
The remaining 8 percentage points of growth was primarily related to our continued investment in strategic initiatives
and higher operating costs.
Other financial highlights for 2018 were as follows:
•
We generated net cash flows from operations of $6.2 billion.
We completed a debt offering for an aggregate principal amount of $1.0 billion.
We repurchased 26 million shares of our common stock for $4.9 billion and paid dividends of $1.0 billion.
We recorded litigation provision charges of $1.1 billion. See Note 20 (Legal and Regulatory Proceedings) to the
consolidated financial statements included in Part II, Item 8 for further discussion.
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 the following special
items ("Special Items").
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
The effective income tax rate was 18.7% in 2018 versus 40.0% in 2017. The lower effective tax rate for the period was
primarily due to additional tax expense in 2017 attributable to comprehensive U.S. tax legislation ("U.S. Tax Reform")
passed on December 22, 2017, a lower enacted statutory tax rate in the U.S. and Belgium and a more favorable geographic
mix of earnings. The lower effective tax rate for the period was also attributable to discrete tax benefits, relating primarily
to the carryback of foreign tax credits due to transition rules, along with provisions for legal matters in the United States.
These benefits were partially offset by the non-deductible fine issued by the European Commission.
$ 6,792
Litigation provisions
28.1% (1.3) ppt (1.3) ppt
2017
2018
Year ended December 31,
Increase/(Decrease)
Year ended December 31,
Summary of Non-GAAP Results 1:
(3)%
1,101
1,072
(2)%
1,072
(1)%
$ 3.69
3.65
$
As
adjusted
Diluted weighted-average shares outstanding...
Currency-
neutral
2017
$ 5,693
15%
15%
$ 6,540 $ 5,693
Adjusted operating expenses ...
15%
16%
53%
($ in millions, except per share data)
20% $12,497 $10,776
$14,950 $12,497
$ 4,898
Net revenue
neutral
Currency-
As
adjusted
2016
20%
$ 5.60 $ 3.65
1,047
Increase/(Decrease)
Adjusted effective income tax
rate
16%
16%
Adjusted operating margin ....
54.4%
1.8 ppt
1.8 ppt
56.2%
54.5% (0.1) ppt (0.2) ppt
Adjusted net income
18.5%
26.8% (8.3) ppt
(8.2) ppt
54.4%
26.8%
4 %
11 %6
11%
18%
22%
14%
11%
0.5 %
2%
-%
1%
United States.
Latin America
Europe.
Canada..
Asia Pacific/Middle East/Africa.
Mastercard-branded GDV 1.
The following table provides a summary of the trend in volume and transaction growth:
Includes impacts from Advisors fees, safety and security fees, loyalty and reward solution fees and other payment-related products and services.
Includes the impact from timing of new, renewed and expired agreements.
*Includes impact of the allocation of revenue to service deliverables, which are recorded in other revenue when services are performed.
- %
5
Represents the foreign currency translational and transactional impact versus the prior year.
2
Represents the impact of our adoption of the new revenue guidance. For a more detailed discussion on the impact of the new revenue guidance,
refer to Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements included in Part II, Item 8.
Note: Table may not sum due to rounding
**Not applicable
Net revenue
16%
20%
2%
2%
3 Includes impact from pricing and other non-volume based fees.
1%
17%
-%
2%
7%
- %
-%
(1)%
1%
**
16%5
- %
10%
10%
incentives.
Rebates and
17%
9%5
(1)%
**
20%
(2)%
14%
15%
― %
-%
1%
Other revenues
― %
- %
1%
Cross-border volume 1
5 %
4%
19%
―%
Switched transactions
Growth
44
No individual country, other than the United States, generated more than 10% of total net revenue in any such period. A significant
portion of our revenue is concentrated among our five largest customers. In 2018, the net revenue from these customers was
approximately $3.1 billion, or 21%, of total net revenue. The loss of any of these customers or their significant card programs
could adversely impact our revenue.
16%
17%
17%
13%
15%
18%
15%
19%
Growth (Local)
2017
2018
For the Years Ended December 31,
1 Adjusted for the deconsolidation of Venezuela subsidiaries.
Switched transactions, normalized¹
Switched transactions as reported..
Cross-border volume, normalized
Cross-border volume as reported.
The following table reflects cross-border volume and switched transactions growth rates. For comparability purposes, we
normalized the growth rates for the effects of differing switching days between periods. Additionally, we adjusted the switched
transactions growth rate for the deconsolidation of our Venezuelan subsidiaries in 2017. For a more detailed discussion of the
deconsolidation of our Venezuelan subsidiaries, refer to Note 1 (Summary of Significant Accounting Policies) to the consolidated
financial statements included in Part II, Item 8.
16%
19%
10%
19%
Operating Expenses
10%
Operating expenses increased 31% and 17% in 2018 and 2017, respectively, versus the prior year. Excluding the impact of the
Special Items, adjusted operating expenses increased 15% and 16% in 2018 and 2017, respectively, versus the prior year, both
as adjusted and on a currency-neutral basis. Acquisitions contributed 2 percentage points of growth in 2018.
The components of operating expenses were as follows:
436
459
Depreciation and amortization
11%
18%
698
771
907
Advertising and marketing..
22%
11%
3,827
5,174 $ 4,653 $
$
General and administrative
($ in millions)
2017
2018
2016
2017
2018
Increase (Decrease)
Year ended December 31,
45
14%
8%
14%
10%
13%
10%
10%
9%
8%
13%
13%
8%
8%
14%
13%
(Local)
(USD)
(Local)
(USD)
processing..
Growth
Growth
Growth
2017
2018
Years Ended December 31,
18%
19%
10%
10%
Growth (Local)
2017
2018
For the Years Ended December 31,
1 Excludes volume generated by Maestro and Cirrus cards.
Europe as adjusted for EU Regulation
Europe as reported
Worldwide as adjusted for EU Regulation.
Worldwide as reported
GDV 1
The following table reflects GDV growth rates for Europe and Worldwide Mastercard. For comparability purposes, we adjusted
growth rates for the impact of Article 8 of the EU Interchange Fee Regulation related to card payments, to exclude the prior
period co-badged volume processed by other networks.
1 Excludes volume generated by Maestro and Cirrus cards.
In 2016, our GDV was impacted by the EU Interchange Fee Regulation related to card payments which became effective in June
2016. The regulation requires that we no longer collect fees on domestic European Economic Area payment transactions that
do not use our network brand. Prior to that, we collected a de minimis assessment fee in a few countries, particularly France,
on transactions with Mastercard co-badged cards if the brands of domestic networks (as opposed to Mastercard) were used. As
a result, the non Mastercard co-badged volume is no longer being included.
13%
15%
19%
5%
5%
10%
10%
15%
17%
17%
8%
17%
Transaction
10%
19%
Represents the foreign currency translational and transactional impact.
**Not applicable
Note: Tables may not sum due to rounding.
21 %
17%
(1.3) ppt
(0.2) ppt
16 %
Impact of Foreign Currency Rates
15%
1 %
(1)%
- ppt
(0.1) ppt
(1)%
(1)%
Foreign currency
1
Non-GAAP - currency-neutral.
Our primary revenue functional currencies are the U.S. dollar, euro, Brazilian real and the British pound. Our overall operating
results are impacted by foreign currency translation, which represents the effect of translating operating results where the
functional currency is different than our U.S. dollar reporting currency.
Our operating results can also be impacted by transactional foreign currency. The impact of the transactional foreign currency
represents the effect of converting revenue and expense transactions occurring in a currency other than the functional currency.
Changes in foreign currency exchange rates directly impact the calculation of gross dollar volume ("GDV") and gross euro volume
("GEV"), which are used in the calculation of our domestic assessments, cross-border volume fees and volume-related rebates
and incentives. In most non-European regions, GDV is calculated based on local currency spending volume converted to U.S.
dollars using average exchange rates for the period. In Europe, GEV is calculated based on local currency spending volume
converted to euros using average exchange rates for the period. As a result, our domestic assessments, cross-border volume
fees and volume-related rebates and incentives are impacted by the strengthening or weakening of the U.S. dollar versus non-
European local currencies and the strengthening or weakening of the euro versus other European local currencies. For example,
our billing in Australia is in the U.S. dollar, however, consumer spend in Australia is in the Australian dollar. The foreign currency
transactional impact of converting Australian dollars to our U.S. dollar billing currency will have an impact on the revenue
generated. The strengthening or weakening of the U.S. dollar is evident when GDV growth on a U.S. dollar-converted basis is
compared to GDV growth on a local currency basis. In 2018, GDV on a U.S. dollar-converted basis increased 13.0%, while GDV
on a local currency basis increased 14.0% versus 2017. In 2017, GDV on a U.S. dollar-converted basis increased 8.5%, while GDV
on a local currency basis increased 8.4% versus 2016. Further, the impact from transactional foreign currency occurs in transaction
processing revenue, other revenue and operating expenses when the local currency of these items are different than the functional
currency.
($ in millions)
2017
2018
Percent Increase (Decrease)
2016
2017
2018
For the Years Ended December 31,
The significant components of our net revenue were as follows:
43
43
See Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements included in Part II, Item 8 for
a further discussion of the new revenue guidance. Additionally, see Note 3 (Revenue) to the consolidated financial statements
included in Part II, Item 8 for a further discussion of how we recognize revenue.
Our net revenue increased 20% and 16%, or 20% and 15% on a currency-neutral basis, in 2018 and 2017, respectively, versus
the prior year. Current year results include growth of 4 percentage points from the impact of the adoption of the new revenue
standard and an additional 0.5 percentage points from our prior year acquisitions.
Rebates and incentives increased 18% and 22% in 2018 and 2017, respectively, versus the prior year, both as reported and on a
currency-neutral basis. The increases in rebates and incentives in 2018 and 2017 were primarily due to the impact from new
and renewed agreements and increased volumes.
Gross revenue increased 19% and 18%, or 19% and 17% on a currency-neutral basis, in 2018 and 2017, respectively, versus the
prior year. The increase in both 2018 and 2017 was primarily driven by an increase in transactions, dollar volume of activity on
cards carrying our brands for both domestic and cross-border transactions and other payment-related products and services.
Revenue
Financial Results
We are exposed to currency devaluation in certain countries. In addition, we are subject to exchange control regulations that
restrict the conversion of financial assets into U.S. dollars. While these revenues and assets are not material to us on a consolidated
basis, we can be negatively impacted should there be a continued and sustained devaluation of local currencies relative to the
U.S. dollar and/or a continued and sustained deterioration of economic conditions in these countries. Specifically, in 2017, due
to foreign exchange regulations which were restricting access to U.S. dollars in Venezuela, an other-than-temporary lack of
exchangeability between the Venezuela bolivar and the U.S. dollar impacted our ability to manage risk, process cross-border
transactions and satisfy U.S. dollar denominated liabilities related to our Venezuelan operations. As a result of these factors, we
concluded that, effective December 31, 2017, we did not meet the accounting criteria for consolidation of these subsidiaries,
and therefore we transitioned to the cost method of accounting. This accounting change resulted in a pre-tax charge of $167
million ($108 million after tax, or $0.10 per diluted share) in 2017. We continue to operate and serve our Venezuelan issuers,
acquirers, merchants and account holders with our products and services. See Note 1 (Summary of Significant Accounting Policies)
to the consolidated financial statements included in Part II, Item 8 for further discussion.
We incur foreign currency gains and losses from remeasuring monetary assets and liabilities that are in a currency other than
the functional currency and from remeasuring foreign exchange derivative contracts ("Foreign Exchange Activity"). The impact
of Foreign Exchange Activity has not been eliminated in our currency-neutral results (see "Non-GAAP Financial Information")
and is recorded in general and administrative expenses. We manage foreign currency balance sheet remeasurement and cash
flow risk through our foreign exchange risk management activities, which are discussed further in Note 22 (Foreign Exchange
Risk Management) to the consolidated financial statements included in Part II, Item 8. Since we do not designate foreign currency
derivatives as hedging instruments pursuant to the accounting standards for derivative instruments and hedging activities, we
record gains and losses on foreign exchange derivatives immediately in current-period earnings, with the related hedged item
being recognized as the exposures materialize.
21 %
Domestic assessments
18 %
(0.1) ppt
**
**
**
Diluted
earnings per
share
Net income
Effective
income tax rate
Operating
margin
(0.5) ppt
17 %
Tax act
Operating
expenses
Reported - GAAP
Increase/(Decrease)
Year Ended December 31, 2017 as compared to the Year Ended December 31, 2016
41 %
38 %
(8.2) ppt
1.8 ppt
15 %
Net revenue
16 %
Venezuela charge
Litigation provisions
11.9 ppt
(13.4) ppt
16 %
16 %
Non-GAAP
(3)%
(2)%
- ppt
(1.0) ppt
3 %
**
3 %
3 %
0.2 ppt
1.3 ppt
(3)%
**
22 %
21%
(1)%
(4)%
(1.3) ppt
$
6,138 $
5,130 $
14%
assessments ..
Domestic
2017
2018
2017
Total
373
-
2018
2018
2017
2018
2017
2018
2017
2018
Other
2017
%
-%
6%
3%
― %
―%
1 %
-%
1 %
―%
- %
14%
17%
fees
Cross-border volume
16%
20%
6%4
2%4
1%
(1)%
―%
3
Foreign Currency 2
Revenue
Standard 1
Acquisitions
2,431
2,853
3,348
Other revenues
20%
19%
5,143
6,188
7,391
Transaction processing
17%
19%
3,568
4,174
4,954
Cross-border volume fees.
16%
20%
4,411
17%
17%
17%
21,831
Volume
For the Years Ended December 31,
The following table summarizes the primary drivers of net revenue growth:
16%
20%
10,776
12,497 $
14,950 $
Net revenue
22%
18%
(4,777)
(5,848)
(6,881)
Rebates and incentives (contra-revenue)
18%
19%
15,553
18,345
Gross revenue
5%
(4)%
Provision for litigation
We rely on existing liquidity, cash generated from operations and access to capital to fund our global operations, credit and
settlement exposure, capital expenditures, investments in our business and current and potential obligations. The following
table summarizes the cash, cash equivalents, investments and credit available to us at December 31:
Cash, cash equivalents and investments
2018
2017
$
(in billions)
8.4 $
7.8
4.5
Liquidity and Capital Resources
3.8
1
Investments include available-for-sale securities and short-term held-to-maturity securities. At December 31, 2018 and 2017, this amount excludes
restricted cash related to the U.S. merchant class litigation settlement of $553 million and $546 million, respectively. This amount also excludes restricted
security deposits held for customers of $1.1 billion at both December 31, 2018 and 2017.
In 2017, as a result of U.S. Tax Reform, among other things, we changed our assertion regarding the indefinite reinvestment of
foreign earnings outside the U.S. for certain of our foreign affiliates and recognized a provisional deferred tax liability of $36
million. In 2018, we completed our analysis of global working capital and cash needs. It is our present intention to indefinitely
reinvest approximately $0.9 billion of our historic undistributed accumulated earnings associated with certain foreign subsidiaries
outside of the U.S. See Note 19 (Income Taxes) to the consolidated financial statements included in Part II, Item 8 for further
discussion.
Our liquidity and access to capital could be negatively impacted by global credit market conditions. We guarantee the settlement
of many of the transactions between our customers. See Note 21 (Settlement and Other Risk Management) to the consolidated
financial statements in Part II, Item 8 for a description of these guarantees. Historically, payments under these guarantees have
not been significant; however, historical trends may not be an indication of potential future losses. The risk of loss on these
guarantees is specific to individual customers, but may also be driven significantly by regional or global economic conditions,
including, but not limited to the health of the financial institutions in a country or region.
Our liquidity and access to capital could also be negatively impacted by the outcome of any of the legal or regulatory proceedings
to which we are a party. For additional discussion of these and other risks facing our business, see our risk factor in "Risk Factors
Legal and Regulatory Risks" in Part I, Item 1A and Note 20 (Legal and Regulatory Proceedings) to the consolidated financial
statements included in Part II, Item 8; and Part II, Item 7 (Business Environment).
-
Cash Flow
The table below shows a summary of the cash flows from operating, investing and financing activities for the years ended
December 31:
Unused line of credit
49
49
See Note 19 (Income Taxes) to the consolidated financial statements included in Part II, Item 8 for further discussion.
Other, net...
(149)
(2.0)%
(55)
(0.8)%
(82)
(1.5)%
Income tax expense
$
1,345
18.7 % $
2,607
40.0 % $
1,587
28.1 %
Included within the impact of the 2018 foreign tax credits is a $90 million tax benefit relating to the carry back of certain foreign tax credits. Additionally,
included in 2016 is a $116 million benefit associated with the repatriation of 2016 foreign earnings. There was no benefit associated with the
repatriation of foreign earnings in 2018 and 2017 due to the enactment of U.S. Tax Reform.
Our GAAP effective income tax rates for 2018, 2017 and 2016 were affected by the tax benefits related to the Special Items as
previously discussed.
Our unrecognized tax benefits related to positions taken during the current and prior periods were $164 million and $183 million,
as of December 31, 2018 and 2017, respectively, all of which would reduce our effective tax rate if recognized. Within the next
twelve months, we believe that the resolution of certain federal, foreign and state and local tax examinations is reasonably
possible and that a change in estimate, reducing unrecognized tax benefits, may occur. It is not possible to provide a range of
the potential change until the examinations progress further or the related statute of limitations expire.
In 2010, in connection with the expansion of our operations in the Asia Pacific, Middle East and Africa region, our subsidiary in
Singapore, Mastercard Asia Pacific Pte. Ltd. ("MAPPL"), received an incentive grant from the Singapore Ministry of Finance.
Cash Flow Data:
- %
2018
2016
Data processing and telecommunication expenses increased 19% and 20%, respectively, both as reported
and on a currency-neutral basis, due to capacity growth of our business. Acquisitions contributed 3 and
8 percentage points, respectively.
Personnel expenses increased 20% and 21%, or 19% and 20% on a currency-neutral basis, respectively.
The 2018 and 2017 increases were driven by a higher number of employees to support our continued
investment in the areas of real-time account-based payments, digital, services, data analytics and
geographic expansion. The impact of acquisitions contributed 2 and 6 percentage points of growth for
2018 and 2017, respectively.
The primary drivers of general and administrative expenses in 2018 and 2017, versus the prior year, were as follows:
See "Non-GAAP Financial Information" for further information on Special Items.
2
¹ Foreign exchange activity includes gains and losses on foreign exchange derivative contracts and the impact of remeasurement of assets and liabilities
denominated in foreign currencies. See Note 22 (Foreign Exchange Risk Management) to the consolidated financial statements included in Part II,
Item 8 for further discussion.
** Not meaningful
Note: Table may not sum due to rounding.
Foreign exchange activity contributed a benefit of 3 percentage points in 2018 related to gains from our
foreign exchange activity for derivative contracts primarily due to the strengthening of the U.S. dollar,
partially offset by balance sheet remeasurement losses. In 2017, foreign exchange activity had a negative
impact of 2 percentage points due to greater losses from foreign exchange derivative contracts.
17%
3,827
4,486 $
5,174 $
$
expenses (excluding Special Item)²
Adjusted general and administrative
**
**
15%
Other expenses increased 2% and 23%, or 2% and 25% on a currency-neutral basis, respectively. In 2018,
other expenses increased primarily due to the $100 million contribution to the Mastercard Impact Fund.
The remaining increase was due to costs to support our strategic development efforts. These increases
were primarily offset by the non-recurring Venezuela charge of $167 million recorded in 2017 which was
the primary driver of growth for that period. Other expenses include costs to provide loyalty and rewards
solutions, travel and meeting expenses and rental expense for our facilities and other costs associated
with our business.
Advertising and Marketing
In 2018, advertising and marketing expenses increased 18% both as reported and on a currency-neutral basis versus 2017,
primarily due to a change in accounting for certain marketing fund arrangements as a result of our adoption of the new revenue
guidance, partially offset by a net decrease in spending on certain marketing campaigns. For a more detailed discussion on the
impact of the new revenue guidance, refer to Note 1 (Summary of Significant Accounting Policies). In 2017, advertising and
marketing expenses increased 11%, or 10% on a currency-neutral basis versus 2016, mainly due to higher marketing spend
primarily related to certain marketing campaigns.
(in millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
$
6,223 $
(506)
(4,966)
5,664 $
(1,781)
(4,764)
4,637
(1,163)
(2,344)
Net cash provided by operating activities increased $559 million in 2018 versus 2017, primarily due to higher net income as
adjusted for non-cash items, partially offset by deferred payments associated with U.S. Tax Reform in the prior year and the
timing of settlement with customers. Net cash provided by operating activities in 2017 versus 2016, increased by $1.0 billion,
primarily due to higher net income as adjusted for non-cash items and deferred payments associated with U.S. Tax Reform.
Net cash used in investing activities decreased $1.3 billion in 2018 versus 2017, primarily due to 2017 acquisitions. Net cash
used in investing activities increased $618 million in 2017 versus 2016, primarily due to 2017 acquisitions and investments in
nonmarketable equity investments, partially offset by higher net proceeds of investment securities.
Net cash used in financing activities increased $202 million in 2018 versus 2017, primarily due to higher repurchases of our Class
A common stock and dividends paid, partially offset by the proceeds from debt issued in the current year. Net cash used in
financing activities increased $2.4 billion in 2017 versus 2016, primarily due to proceeds from debt issued in 2016, higher
repurchases of our Class A common stock and dividends paid.
50
20 %
Income Taxes
Other income (expense) is comprised primarily of investment income, interest expense, our share of income (losses) from equity
method investments and other gains and losses. Total other expense decreased $22 million to $78 million in 2018 versus $100
million in 2017 due to higher investment income partially offset by higher interest expense related to our debt issuance in February
2018 and higher equity losses in the current year. Total other expense decreased $15 million to $100 million in 2017 versus $115
million in 2016 due to lower impairment charges taken on certain investments last year and a gain on an investment recorded
in 2017, partially offset by higher interest expense from debt issued in the fourth quarter of 2017.
Other Income (Expense)
In 2018, we recorded pre-tax charges of $1,128 million which includes $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. During 2017 and 2016, we
recorded pre-tax charges of $15 million and $117 million related to litigations with merchants in Canada and the U.K., respectively.
See Note 20 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for further
discussion.
Provision for Litigation
Depreciation and amortization expenses increased 5% and 17% in 2018 and 2017, respectively, versus the prior year, both as
reported and on a currency-neutral basis. The increase in 2018 was primarily due to the impact of acquisitions partially offset
by the full amortization of certain intangible assets. In 2017, the increase was primarily due to the impact of acquisitions.
Depreciation and Amortization
47
2017
(0.7)%
(43)
(1.0)%
2018
Amount
Percent
2017
Amount
Percent
2016
Amount
For the Years Ended December 31,
Percent
Income before income taxes
$
7,204
$
6,522
$
5,646
Federal statutory tax. .
($ in millions)
The effective income tax rate for 2017 was higher than the effective income tax rate for 2016 primarily due to additional tax
expense of $873 million attributable to U.S. Tax reform, which included provisional amounts of $825 million related to the
Transition Tax, the remeasurement of our net deferred tax asset balance in the U.S. and the recognition of a deferred tax liability
related to a change in assertion regarding the indefinite reinvestment of a substantial amount of our foreign earnings, as well as
$48 million due to a foregone foreign tax credit benefit on current year repatriations. Excluding the impact of U.S. Tax Reform
and other Special Items, the 2017 adjusted effective income tax rate improved by 1.3 percentage points to 26.8% from 28.1% in
2016 primarily due to a more favorable geographical mix of earnings, partially offset by a lower U.S. foreign tax credit benefit.
The provision for income taxes differs from the amount of income tax determined by applying the U.S. federal statutory income
tax rate of 21% for 2018 and 35.0% for 2017 and 2016 to pretax income for the years ended December 31, as a result of the
following:
48
The effective tax rates for the years ended December 31, 2018, 2017 and 2016 were 18.7%, 40.0% and 28.1%, respectively. The
effective income tax rate for 2018 was lower than the effective income tax rate for 2017 primarily due to additional tax expense
of $873 million attributable to U.S. Tax Reform in 2017, a lower 2018 statutory tax rate in the U.S. and Belgium and a more
favorable geographic mix of earnings. The lower effective tax rate is also attributable to discrete tax benefits, relating primarily
to $90 million of foreign tax credits generated in 2018, which can be carried back and utilized in 2017 under transition rules in
the proposed foreign tax credit regulations issued on November 28, 2018, along with provisions for legal matters in the United
States. These benefits were partially offset by the nondeductible nature of the fine issued by the European Commission. Excluding
the impact of Special Items, the 2018 adjusted effective income tax rate improved by 8.3 percentage points to 18.5% from 26.8%
in 2017 primarily due to the lower tax rate in the U.S. and a more favorable geographical mix of earnings.
On December 22, 2017, U.S. Tax Reform was enacted into law with the effective date for most provisions being January 1, 2018.
U.S. Tax Reform represents significant changes to the U.S. internal revenue code and, among other things:
• lowered the corporate income tax rate from 35% to 21%
•
imposed a one-time deemed repatriation tax on accumulated foreign earnings
•
provides for a 100% dividends received deduction on dividends from foreign affiliates
•
requires a current inclusion in U.S. federal taxable income of earnings of foreign affiliates that are determined to be
global intangible low taxed income or "GILTI"
•
creates the base erosion anti-abuse tax, or "BEAT"
provides for an effective tax rate of 13.125% for certain income derived from outside of the U.S. (referred to as foreign
derived intangible income or "FDII")
•
introduced further limitations on the deductibility of executive compensation
•
permits 100% expensing of qualifying fixed assets acquired after September 27, 2017
•
limits the deductibility of interest expense in certain situations and
eliminates the domestic production activities deduction.
While the effective date of the law for most provisions was January 1, 2018, GAAP requires the effects of changes in tax rates be
accounted for in the reporting period of enactment, which was the 2017 reporting period.
1,513
21.0 %
2,283
35.0 %
(1.5)%
(27)
(0.4)%
(141)
(2.5)%
Transition Tax. .
22
0.3 %
629
9.6 %
%
Remeasurement of deferred taxes.
(7)
(0.1)%
157
2.4 %
%
Windfall benefit..
(72)
(110)
(167)
Foreign tax credits¹
%
1,976
35.0 %
State tax effect, net of federal benefit.
46
0.6 %
43
0.7 %
22
0.4 %
Foreign tax effect.
(92)
(1.3)%
(380)
(5.8)%
(188)
(3.3)%
European Commission fine.
194
2.7 %
%
2
Special Item
22%
9%
(4)%
marketing....
Advertising and
22%
11%
1 %
-%
-
-%
6%
1%
5%
11 % 11%
administrative
General and
2018 2017
2018 2017
―% -% 2%
%
-%
-%
-%
-%
―%
-%
17%
10%
-%
%
-%
(5)%
amortization
Depreciation and
11%
18%
1 %
-%
-%
21% -% -%
1%
Total
4
Foreign
Currency
Mastercard
Impact Fund 3
2017 2018 2017
Items¹)
Adjusted total operating expenses (excluding Special
**
**
(117)
(182)
(1,128)
Special Items¹
17%
31%
5,015
5,875
7,668
Total operating expenses
**
**
117
15
1,128
$
-%
6,540 $
4,898
2018
2017
2018
2017 2018 2017
2018
2
Revenue
Standard
Acquisitions
Special Items
Operational
1
For the Years Ended December 31,
The following table summarizes the primary drivers of changes in operating expenses in 2018 and 2017:
1 See "Non-GAAP Financial Information" for further information on Special Items.
Not meaningful
**
Note: Table may not sum due to rounding.
16%
15%
5,693 $
17%
%
17%
5%
6%
337
355
377
Professional fees
21%
20%
Data processing and telecommunications.
2,225
3,214 $
$
Personnel
($ in millions)
2016
2017
2018
2017
2,687 $
600
504
420
11%
3,827
4,653
5,174
General and administrative expenses
23%
2%
811
1,001
1,019
Other..
**
**
34
106
(36)
Foreign exchange activity
20%
19%
2018
Percent Increase (Decrease)
For the Years Ended December 31,
The significant components of our general and administrative expenses were as follows:
8% 10% 16%
expenses
Total operating
litigation..
**
**
**
**
**
**
**
**
**
**
**
**
**
**
Provision for
1%
5%
2%
3%
General and Administrative
46
46
Represents the foreign currency translational and transactional impact versus the prior year.
4
3 Represents contribution to a non-profit entity.
Represents the impact of our adoption of the new revenue guidance. For a more detailed discussion on the impact of the new revenue guidance,
refer to Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements included in Part II, Item 8.
2
See "Non-GAAP Financial Information" for further information on Special Items.
1
**Not meaningful
Note: Table may not sum due to rounding.
17%
31%
1 %
-%
-%
2%
-%
6%
Non-GAAP -currency-neutral
85
- %
(13.4)%
**
**
Tax act....
3.65
3,915 $
40.0 % $
53.0%
5,875
$
Reported - GAAP
($ in millions, except per share data)
Diluted
earnings per
share
Net income
income tax rate
873
0.81
Venezuela charge..
(167)
4,906 $
26.8 % $
54.4%
5,693
$
Non-GAAP
0.01
Effective
10
0.1%
(15)
Litigation provisions.
0.10
108
0.2 %
1.3%
%
Operating
margin
Year ended December 31, 2017
6.49
18.7 % $
($ in millions, except per share data)
48.7%
7,668
$
-
Reported GAAP
share
5,859 $
Net income
Effective
income tax rate
margin
Operating
Operating
expenses
Year ended December 31, 2018
Operating expenses, operating margin, effective income tax rate, net income and diluted earnings per share, adjusted for Special
Items, are non-GAAP financial measures and should not be relied upon as substitutes for measures calculated in accordance with
GAAP. The following tables reconcile our as-reported financial measures calculated in accordance with GAAP to the respective
non-GAAP adjusted financial measures:
- %
Diluted
earnings per
4.58
5.60
(1,128)
6,792 $
18.5 % $
56.2%
6,540
$
Non-GAAP
(0.07)
Litigation provisions..
(75)
**
**
Tax act.
0.96
1,008
(1.1)%
7.5%
0.9%
Year ended December 31, 2016
Operating
expenses
Operating
margin
(33)%
14.2 ppt
**
**
**
26 %
25 %
**
(1.0) ppt
(19)%
**
53 %
50%
(21.3) ppt
(4.3) ppt
31 %
7.4 ppt
20 %
3 %
(0.2) ppt
0.1 ppt
Operating
expenses
- ppt
- %
― %
Foreign currency
1
(1.3) ppt
42 %
(8.3) ppt
1.8 ppt
15%
20 %
Non-GAAP
(3)%
(3)%
38 %
Venezuela charge
(34)%
Tax act
Non-GAAP
0.08
3.69
4,059 $
28.1% $
-%
1.0%
Effective
$
Litigation provisions.
5,015
$
Reported - GAAP
($ in millions, except per share data)
Diluted
earnings per
share
Net income
income tax rate
53.5%
4,898
(117)
Effective
income tax rate
54.5%
Reported -GAAP
Diluted
earnings per
share
Net income
Operating
expenses
Net revenue
Litigation provisions.
Operating
margin
Year Ended December 31, 2018 as compared to the Year Ended December 31, 2017
Net revenue, operating expenses, operating margin, effective income tax rate, net income and diluted earnings per share, adjusted
for Special Items and/or the impact of foreign currency, are non-GAAP financial measures and should not be relied upon as
substitutes for measures calculated in accordance with GAAP. The following tables represent the reconciliation of our growth
rates reported under GAAP to our Non-GAAP growth rates:
**Not applicable
Note: Tables may not sum due to rounding.
3.77
4,144 $
28.1% $
Increase/(Decrease)
77
93
33
Fixed/Variable Interest
-
8
6
217
271
Asset-backed securities. .
1
3
71
316
381
1,043
Fixed/Variable Interest
Total
2020
1,432 $ 376
Corporate securities
2021
2022
2019
2018
2017
Summary Terms
Financial Instrument
2023
and
there-
December 31,
Value at
Fair Market
Maturity
$ 9 $ 1
$ 104
$ 454
$ 488
$
45
(1) $
84
Fair Market
Value at
December 31,
Maturity
Our interest rate sensitive assets are our investments in fixed income securities, which we generally hold as available-for-sale
investments. Our policy is to invest in high quality securities, while providing adequate liquidity and maintaining diversification
to avoid significant exposure. The fair value and maturity distribution of our available-for-sale investments for fixed income
securities as of December 31 was as follows:
Interest Rate Risk
56
We also use foreign currency denominated debt to hedge a portion of our net investment in foreign operations against adverse
movements in exchange rates, with changes in the translated value of the debt recorded within currency translation adjustment
in accumulated other comprehensive income (loss). We have designated our euro-denominated debt as a net investment hedge
for a portion of our net investment in European foreign operations. Our euro-denominated debt is vulnerable to changes in the
euro to U.S. dollar exchange rates. The principal amounts of our euro-denominated debt as well as the effective interest rates
and scheduled annual maturities of the principal is included in Note 14 (Debt) to the consolidated financial statements included
in Part II, Item 8.
2
2024
27
(26)
968
26
27 $
34 $
1,066
25
Commitments to sell foreign currency.
Options to sell foreign currency
after
4
and
there-
Financial Instrument
Summary Terms
157
Fixed/Variable Interest
Government and agency securities ...
es
2 $
13 $
15 $
Fixed/Variable Interest
Municipal securities
(in millions)
after
2023
2022
2021
2020
2019
2018
28
(in millions)
/s/ PricewaterhouseCoopers LLP
Fixed/Variable Interest
63
62
61
60
59
Page
5
64
58
Consolidated Statement of Cash Flows..
Consolidated Statement of Changes in Equity.
Consolidated Statement of Comprehensive Income.
Consolidated Statement of Operations. .
Consolidated Balance Sheet.
Report of Independent Registered Public Accounting Firm. . .
As of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016
Management's Report on Internal Control over Financial Reporting.
Notes to Consolidated Financial Statements
65
66
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
We have served as the Company's auditor since 1989.
February 13, 2019
New York, New York
$
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Definition and Limitations of Internal Control over Financial Reporting
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's
Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company's consolidated financial statements
and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Basis for Opinions
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the COSO.
We have audited the accompanying consolidated balance sheets of Mastercard Incorporated and its subsidiaries (the "Company") as of
December 31, 2018 and 2017 and the related consolidated statements of operations, comprehensive income, changes in equity and cash flows
for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the "consolidated
financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
Opinions on the Financial Statements and Internal Control over Financial Reporting
of Mastercard Incorporated:
To the Board of Directors and Stockholders
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
59
Mastercard Incorporated
Municipal securities
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
876
Fixed/Variable Interest
Fixed/Variable Interest
Asset-backed securities..
Corporate securities
23
16
59
212
87
Fixed/Variable Interest
Government and agency securities . . .
-
$
5 $
12 $
17 $
185
277
287
76
44
57
At December 31, 2018, we have the Commercial Paper Program and the Credit Facility which provide liquidity for general corporate
purposes, including providing liquidity in the event of one or more settlement failures by our customers. Borrowing rates under
the Commercial Paper Program are based on market conditions. Borrowing rates under the Credit Facility are variable rates,
which are applied to the borrowing based on terms and conditions set forth in the agreement. See Note 14 (Debt) to the
consolidated financial statements in Part II, Item 8 for additional information on the Credit Facility and the Commercial Paper
Program. We had no borrowings under the Commercial Paper Program or the Credit Facility at December 31, 2018 and 2017.
At December 31, 2018, we have U.S. dollar-denominated and euro-denominated debt, which is subject to interest rate risk. The
principal amounts of this debt as well as the effective interest rates and scheduled annual maturities of the principal is included
in Note 14 (Debt) to the consolidated financial statements included in Part II, Item 8. See "Future Obligations" for estimated
interest payments due by period relating to the U.S. dollar-denominated and euro-denominated debt.
We also have time deposits that are classified as held-to-maturity securities. At December 31, 2018 and 2017, the cost which
approximates fair value, of our short-term held-to-maturity securities was $264 million and $700 million, respectively.
1
$ 338 $ 107 $ 23 $
$ 365
-
8
35
24
70
3
1,148 $ 314
$
Total
1
23
MASTERCARD INCORPORATED
Commitments to purchase foreign currency
327
Estimated Fair
Value
We have no off-balance sheet debt, other than lease arrangements and other commitments as presented in the Future Obligations
table that follows.
See Note 15 (Stockholders' Equity) to the consolidated financial statements included in Part II, Item 8 for further discussion.
Off-Balance Sheet Arrangements
188.26
$
26.2
6,801
$
52
4,933
5,234
$
14,500
$
(in millions, except per share data)
Average price paid per share in 2018
Shares repurchased in 2018.
$
Future Obligations
The following table summarizes our obligations as of December 31, 2018 that are expected to impact liquidity and cash flow in
future periods. We believe we will be able to fund these obligations through cash generated from operations and our cash
balances.
Payments Due by Period
1,295
4,438
801 $
288
2024 and
thereafter
2022- 2023
2020-2021
(in millions)
650 $
323
166
2,072
500 $
6,389 $
$
2019
Total
Operating leases.
Capital leases
Interest on debt
Debt.
Remaining authorization at December 31, 2018
8
Dollar-value of shares repurchased in 2018
Board authorization
5,497
5,418
6,968
7,778
8,793
11,593
13,797
We believe that our existing cash, cash equivalents and investment securities balances, our cash flow generating capabilities,
our borrowing capacity and our access to capital resources are sufficient to satisfy our future operating cash needs, capital asset
purchases, outstanding commitments and other liquidity requirements associated with our existing operations and potential
obligations.
16,171 $
2017
2018
Long-term liabilities.
Equity
Current liabilities
Current assets
Balance Sheet Data:
The table below shows a summary of select balance sheet data at December 31:
(in millions)
Debt and Credit Availability
In February 2018, we issued $500 million principal amount of notes due in 2028 and an additional $500 million principal amount
of notes due in 2048. Our total debt outstanding (including the current portion) was $6.3 billion and $5.4 billion at December 31,
2018 and 2017, respectively, with the earliest maturity of $500 million of principal occurring in April 2019.
As of December 31, 2018, we have a commercial paper program (the "Commercial Paper Program"), under which we are
authorized to issue up to $4.5 billion in outstanding notes, with maturities up to 397 days from the date of issuance. In conjunction
with the Commercial Paper Program, we have a committed unsecured $4.5 billion revolving credit facility (the "Credit Facility")
which expires in November 2023.
Repurchased shares of our common stock are considered treasury stock. The timing and actual number of additional shares
repurchased will depend on a variety of factors, including the operating needs of the business, legal requirements, price and
economic and market conditions. In December 2018, 2017 and 2016, our Board of Directors approved share repurchase programs
authorizing us to repurchase up to $6.5 billion, $4 billion and $4 billion, respectively, of our Class A common stock. The program
approved in 2018 became effective in January 2019 after completion of the share repurchase program authorized in 2017. The
following table summarizes our share repurchase authorizations of our Class A common stock through December 31, 2018, under
the plans approved in 2018, 2017 and 2016:
On February 5, 2019, our Board of Directors declared a quarterly cash dividend of $0.33 per share payable on May 9, 2019 to
holders of record on April 9, 2019 of our Class A common stock and Class B common stock. The aggregate amount of this dividend
is estimated to be $339 million.
51
On December 4, 2018, our Board of Directors declared a quarterly cash dividend of $0.33 per share paid on February 8, 2019 to
holders of record on January 9, 2019 of our Class A common stock and Class B common stock. The aggregate amount of this
dividend was $340 million.
(in millions, except per share data)
1.00 $ 0.88 $ 0.76
1,044 $ 942 $ 837
$
$
Years Ended December 31,
2016
2017
2018
Cash dividends paid. . .
Cash dividend, per share.
We have historically paid quarterly dividends on our outstanding Class A common stock and Class B common stock. Subject to
legally available funds, we intend to continue to pay a quarterly cash dividend. 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. The following table summarizes the annual,
per share dividends paid in the years reflected:
Dividends and Share Repurchases
See Note 14 (Debt) to the consolidated financial statements included in Part II, Item 8 for further discussion on our debt, the
Commercial Paper Program and the Credit Facility.
In March 2018, we filed a universal shelf registration statement (replacing a previously filed shelf registration statement that was
set to expire) to provide additional access to capital, if needed. Pursuant to the shelf registration statement, we may from time
to time offer to sell debt securities, guarantees of debt securities, preferred stock, Class A common stock, depository shares,
purchase contracts, units or warrants in one or more offerings.
Borrowings under the Commercial Paper Program and the Credit Facility are to provide liquidity for general corporate purposes,
including providing liquidity in the event of one or more settlement failures by our customers. In addition, we may borrow and
repay amounts under these facilities for business continuity purposes. We had no borrowings outstanding under the Commercial
Paper Program or the Credit Facility at December 31, 2018 and 2017.
Remaining authorization at December 31, 2017
4
4
-
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.
Significant judgment is required in determining the valuation allowance. We consider projected future taxable income and
ongoing tax planning strategies in assessing the need for the valuation allowance. If it is determined that we are able to realize
deferred tax assets in excess of the net carrying value or to the extent we are unable to realize a deferred tax asset, we would
adjust the valuation allowance in the period in which such a determination is made, with a corresponding increase or decrease
to earnings.
In calculating our effective income tax rate, we need to make estimates regarding the timing and amount of taxable and deductible
items which will adjust the pretax income earned in various tax jurisdictions. Through our interpretation of local tax regulations,
adjustments to pretax income for income earned in various tax jurisdictions are reflected within various tax filings. Although we
believe that our estimates and judgments discussed herein are reasonable, actual results may be materially different than the
estimated amounts.
Income Taxes
We are currently involved in various claims and legal proceedings. We regularly review the status of each significant matter and
assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the
amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the
determination of probability and whether an exposure is reasonably estimable. Our judgments are subjective based on the
status of the legal or regulatory proceedings, the merits of our defenses and consultation with in-house and outside legal counsel.
Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As
additional information becomes available, we reassess the potential liability related to pending claims and litigation and may
revise our estimates. Due to the inherent uncertainties of the legal and regulatory process in the multiple jurisdictions in which
we operate, our judgments may be materially different than the actual outcomes. See Note 20 (Legal and Regulatory Proceedings)
to the consolidated financial statements included in Part II, Item 8 for further discussion.
Loss Contingencies
Application of the various accounting principles in GAAP related to the measurement and recognition of revenue requires us to
make judgments and estimates. Specifically, complex arrangements with nonstandard terms and conditions may require
significant contract interpretation to determine the appropriate accounting. Domestic assessment revenue requires an estimate
of our customers' performance in order to recognize this revenue. Rebates and incentives are recorded as a reduction to gross
revenue based on these estimates. We consider various factors in estimating customer performance, including a review of
specific transactions, historical experience with that customer and market and economic conditions. Differences between actual
results and our estimates are adjusted in the period the customer reports actual performance. If our customers' actual
performance is not consistent with our estimates of their performance, net revenue may be materially different.
Revenue Recognition
We record tax liabilities for uncertain tax positions taken, or expected to be taken, which may not be sustained or may only be
partially sustained, upon examination by the relevant taxing authorities. We consider all relevant facts and current authorities
in the tax law in assessing whether any benefit resulting from an uncertain tax position is more likely than not to be sustained
54
The application of GAAP requires us to make estimates and assumptions about certain items and future events that directly affect
our reported financial condition. We have established detailed policies and control procedures to provide reasonable assurance
that the methods used to make estimates and assumptions are well controlled and are applied consistently from period to period.
The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to our
financial statements. An accounting estimate is considered critical if both (a) the nature of the estimate or assumption is material
due to the levels of subjectivity and judgment involved, and (b) the impact within a reasonable range of outcomes of the estimate
and assumption is material to our financial condition. Senior management has discussed the development, selection and
disclosure of these estimates with the Audit Committee of our Board of Directors. Our significant accounting policies, including
recent accounting pronouncements, are described in Note 1 (Summary of Significant Accounting Policies) to the consolidated
financial statements included in Part II, Item 8.
revenue.
We do not experience meaningful seasonality. No individual quarter in 2018, 2017 or 2016 accounted for more than 30% of net
Seasonality
53
53
We have recorded a liability for unrecognized tax benefits of $164 million at December 31, 2018. Within the next twelve months, we believe that the
resolution of certain federal, foreign and state and local examinations are reasonably possible and that a change in estimate, reducing unrecognized tax
benefits, may occur. It is not possible to provide a range of the potential change until the examinations progress further or the related statute of
limitations expire. These amounts have been excluded from the table since the settlement period of this liability cannot be reasonably estimated. The
timing of these payments will ultimately depend on the progress of tax examinations with the various authorities.
Amount relates to the fixed-price put option for the Vocalink remaining shareholders to sell their ownership interest to Mastercard on the third and
fifth anniversaries of the transaction and quarterly thereafter. See Note 2 (Acquisitions) to the consolidated financial statements included in Part II,
Item 8 for further discussion.
Critical Accounting Estimates
and, if so, how current law impacts the amount reflected within these financial statements. If upon examination, we realize a
tax benefit which is not fully sustained or is more favorably sustained, this would decrease or increase earnings in the period. In
certain situations, we will have offsetting tax credits or taxes in other jurisdictions.
Deferred taxes are established on the estimated foreign exchange gains or losses for foreign earnings that are not considered
permanently reinvested, which will be recognized through cumulative translation adjustments as incurred. Ultimately, the
working capital requirements of foreign affiliates will determine the amount of cash to be remitted from respective jurisdictions.
Valuation of Assets
Notional
Estimated Fair
Value
Notional
December 31, 2017
December 31, 2018
As of December 31, 2018, the majority of derivative contracts to hedge foreign currency fluctuations had been entered into with
our customers. Our derivative contracts are summarized below:
Foreign currency exposures are managed together through our foreign exchange risk management activities, which are discussed
further in Note 22 (Foreign Exchange Risk Management) to the consolidated financial statements included in Part II, Item 8. The
terms of the forward contracts are generally less than 18 months.
We may also enter into foreign currency derivative contracts to offset possible changes in value due to foreign exchange
fluctuations of earnings, assets and liabilities denominated in currencies other than the functional currency of the entity. The
objective of these activities is to reduce our exposure to transaction gains and losses resulting from fluctuations of foreign
currencies against our functional and reporting currencies, principally the U.S. dollar and euro.
Our settlement activities are subject to foreign exchange risk resulting from foreign exchange rate fluctuations. This risk is typically
limited to the one business day between setting the foreign exchange rates and clearing the financial transactions. We enter
into foreign currency contracts to manage risk associated with anticipated receipts and disbursements which are either transacted
in a non-functional currency or valued based on a currency other than the functional currencies of the entity.
Foreign Exchange Risk
Market risk is the potential for economic losses to be incurred on market risk sensitive instruments arising from adverse changes
in market factors such as interest rates and foreign currency exchange rates. Our exposure to market risk from changes in interest
rates and foreign exchange rates is limited. Management establishes and oversees the implementation of policies governing our
funding, investments and use of derivative financial instruments. We monitor risk exposures on an ongoing basis. The effect of
a hypothetical 10% adverse change in foreign exchange rates could result in a fair value loss of approximately $113 million on
our foreign currency derivative contracts outstanding at December 31, 2018 related to the hedging program. In addition, a 100
basis point adverse change in interest rates would not have a material impact on our investments at December 31, 2018 and
2017.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
55
Our estimates in the valuation of these assets are based upon assumptions believed to be reasonable, but which are inherently
uncertain and unpredictable. These valuations require the use of management's assumptions, which would not reflect
unanticipated events and circumstances that may occur.
The impairment test for indefinite-lived intangible assets consists of a qualitative assessment to evaluate all relevant events and
circumstances that could affect the significant inputs used to determine the fair value of indefinite-lived intangible assets. In
performing these qualitative assessments, we consider relevant events and conditions, including but not limited to,
macroeconomic trends, industry and market conditions, overall financial performance, cost factors, company-specific events,
and legal and regulatory factors. If the qualitative assessments indicate that it is more likely than not that the fair value of the
indefinite-lived intangible assets is less than their carrying amounts, we must perform a quantitative impairment test.
We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis or sooner if indicators of impairment
exist. Goodwill is tested for impairment at the reporting unit level utilizing a quantitative assessment. We use market capitalization
for estimating the fair value of our reporting unit. If the fair value exceeds the carrying value, goodwill is not impaired. If the
carrying value exceeds the fair value, then goodwill is impaired and the excess of the reporting unit's carrying value over the fair
value is recognized as an impairment charge.
The valuation of assets acquired in a business combination and asset impairment reviews require the use of significant estimates
and assumptions. The acquisition method of accounting for business combinations requires us to estimate the fair value of assets
acquired, liabilities assumed and any non-controlling interest in the acquiree to properly allocate purchase price consideration.
Impairment testing for assets, other than goodwill and indefinite-lived intangible assets, requires the allocation of cash flows to
those assets or group of assets and if required, an estimate of fair value for the assets or group of assets.
Amounts relate to the U.S. tax liability on the Transition Tax on accumulated non-U.S. earnings of U.S entities. See Note 19 (Income Taxes) to the
consolidated financial statements included in Part II, Item 8 for further discussion.
Amounts relate to severance liabilities along with expected funding requirements for defined benefit pension and postretirement plans.
Amounts primarily relate to sponsorships to promote the Mastercard brand. Future cash payments that will become due to our customers under
agreements which provide pricing rebates on our standard fees and other incentives in exchange for transaction volumes are not included in the table
because the amounts due are contingent on future performance. We have accrued $4.1 billion as of December 31, 2018 related to customer and
merchant agreements.
6
106
46
49
72
273
Employee benefits ³
62
279
350
691
Sponsorship, licensing and other 2
Other obligations 1
60
126
151
72
676
Transition Tax4
(in millions)
509
156
The table does not include the $1.6 billion provision as of December 31, 2018 related to litigation as the timing of payments is not fixed and determinable.
See Note 20 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for further discussion. The table also
does not include the $219 million accrual as of December 31, 2018 related to the contingent consideration attributable to acquisitions made in 2017,
which is pending our final assessment in accordance with the terms of the purchase agreement. This payment is expected to be completed in 2019.
See Note 7 (Fair Value and Investment Securities) to the consolidated financial statements included in Part II, Item 8 for further discussion.
5
4
3
2
1
6,472
1,479 $
1,576 $
1,164 $
10,691 $
$
Total 6
73
73
Redeemable non-controlling interests 5.
306
47
60
The management of Mastercard Incorporated ("Mastercard") is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in
accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. As required by Section 404 of the Sarbanes-
Oxley Act of 2002, management has assessed the effectiveness of Mastercard's internal control over financial reporting as of
December 31, 2018. In making its assessment, management has utilized the criteria set forth in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management
has concluded that, based on its assessment, Mastercard's internal control over financial reporting was effective as of
December 31, 2018. The effectiveness of Mastercard's internal control over financial reporting as of December 31, 2018 has
been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which
appears on the next page.
3,303
7,193
$
8,337 $
7,592 $
8,273
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Organization
Mastercard Incorporated and its consolidated subsidiaries, including Mastercard International Incorporated ("Mastercard
International" and together with Mastercard Incorporated, “Mastercard” or the “Company”), 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. The Company
makes payments easier and more efficient by creating a wide range of payment solutions and services through a family of well-
known brands, including Mastercard®, MaestroⓇ and Cirrus®. The Company is a multi-rail network. Through its core global
payments processing network, Mastercard facilitates the switching (authorization, clearing and settlement) of payment
transactions, and delivers related products and services. With additional payment capabilities that include real-time account
based payments (including automated clearing house ("ACH") transactions), Mastercard offers customers one partner to turn to
for their payment needs for both domestic and cross-border transactions across multiple payment flows. The Company also
provides value-added offerings such as safety and security products, information and analytics services, consulting, loyalty and
reward programs and issuer and acquirer processing. The Company's payment solutions are designed to ensure safety and
security for the global payments system.
A typical transaction on the Company's core network involves four participants in addition to the Company: account holder (a
consumer 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). The Company does 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 the Company's branded products. In most cases, account holder relationships
belong to, and are managed by, the Company's financial institution customers.
Significant Accounting Policies
Consolidation and basis of presentation - The consolidated financial statements include the accounts of Mastercard and its
majority-owned and controlled entities, including any variable interest entities ("VIES") for which the Company is the primary
beneficiary. Investments in VIES for which the Company is not considered the primary beneficiary are not consolidated and are
accounted for as equity method or cost method investments and recorded in other assets on the consolidated balance sheet.
At December 31, 2018 and 2017, there were no significant VIES which required consolidation and the investments were not
considered material to the consolidated financial statements. Intercompany transactions and balances have been eliminated in
consolidation. Certain prior period amounts have been reclassified to conform to the 2018 presentation. For 2017 and 2016,
$127 million and $113 million, respectively, of expenses were reclassified from advertising and marketing expenses to general
and administrative expenses. The reclassification had no impact on total operating expenses, operating income or net income.
The Company follows accounting principles generally accepted in the United States of America ("GAAP").
Prior to December 31, 2017, the Company included the financial results from its Venezuela subsidiaries in the consolidated
financial statements using the consolidation method of accounting. In 2017, due to foreign exchange regulations restricting
access to U.S. dollars in Venezuela, an other-than-temporary lack of exchangeability between the Venezuelan bolivar and U.S.
dollar impacted the Company's ability to manage risk, process cross-border transactions and satisfy U.S. dollar denominated
liabilities related to operations in Venezuela. As a result of these factors, Mastercard concluded that effective December 31,
2017, it did not meet the accounting criteria for consolidation of these Venezuelan subsidiaries, and therefore would transition
to the cost method of accounting as of December 31, 2017. This accounting change resulted in a pre-tax charge of $167 million
($108 million after tax or $0.10 per diluted share) that was recorded in general and administrative expenses on the consolidated
statement of operations for the year ended December 31, 2017.
Non-controlling interests represent the equity interest not owned by the Company and are recorded for consolidated entities in
which the Company owns less than 100% of the interests. Changes in a parent's ownership interest while the parent retains its
controlling interest are accounted for as equity transactions, and upon loss of control, retained ownership interests are
remeasured at fair value, with any gain or loss recognized in earnings. For 2018, 2017 and 2016, losses from non-controlling
interests were de minimis and, as a result, amounts are included on the consolidated statement of operations within other income
(expense).
The Company accounts for investments in common stock or in-substance common stock under the equity method of accounting
when it has the ability to exercise significant influence over the investee, generally when it holds between 20% and 50% ownership
66
8,273
MASTERCARD INCORPORATED
7,592
1,080
Other financing activities
(4)
(6)
(2)
Net cash used in financing activities
(4,966)
(4,764)
(2,344)
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash
equivalents
(6)
200
(50)
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash
equivalents
745
(681)
Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period
Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period. . .
The accompanying notes are an integral part of these consolidated financial statements.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
in the entity. In addition, investments in flow-through entities such as limited partnerships and limited liability companies are
also accounted for under the equity method when the Company has the ability to exercise significant influence over the investee,
generally when the investment ownership percentage is equal to or greater than 5% of the outstanding ownership interest. The
excess of the cost over the underlying net equity of investments accounted for under the equity method is allocated to identifiable
tangible and intangible assets and liabilities based on fair values at the date of acquisition. The amortization of the excess of the
cost over the underlying net equity of investments and Mastercard's share of net earnings or losses of entities accounted for
under the equity method of accounting is included in other income (expense) on the consolidated statement of operations.
The Company accounts for investments in common stock or in-substance common stock under the cost method of accounting
when it does not exercise significant influence, generally when it holds less than 20% ownership in the entity or when the interest
in a limited partnership or limited liability company is less than 5% and the Company has no significant influence over the operation
of the investee. Investments in companies that Mastercard does not control, but that are not in the form of common stock or
in-substance common stock, are also accounted for under the cost method of accounting. These investments for which there is
no readily determinable fair value and the cost method of accounting is used are adjusted for changes resulting from observable
price changes in orderly transactions for identical or similar investments of the same issuer.
Investments for which the equity method or cost method of accounting is used are classified as nonmarketable equity investments
and recorded in other assets on the consolidated balance sheet.
records interest expense related to income tax matters as interest expense on the consolidated statement of operations. The
Company includes penalties related to income tax matters in the income tax provision.
The Company will recognize earnings of foreign affiliates that are determined to be global intangible low taxed income ("GILTI")
in the period it arises and it will not recognize deferred taxes for basis differences that may reverse as GILTI in future years.
Cash and cash equivalents - Cash and cash equivalents include certain investments with daily liquidity and with a maturity of
three months or less from the date of purchase. Cash equivalents are recorded at cost, which approximates fair value.
Restricted cash - The Company classifies cash and cash equivalents as restricted when it is unavailable for withdrawal or use in
its general operations. The Company has the following types of restricted cash and restricted cash equivalents:
•
•
•
Restricted cash for litigation settlement - The Company has restricted cash for litigation within a qualified settlement
fund related to a preliminary settlement agreement for the U.S. merchant class litigation. The funds continue to be
restricted for payments until the litigation matter is resolved.
Restricted security deposits held for customers - The Company requires collateral from certain customers for settlement
of their transactions. The majority of collateral for settlement is in the form of standby letters of credit and bank
guarantees which are not recorded on the consolidated balance sheet. Additionally, the Company holds cash deposits
and certificates of deposit from certain customers as collateral for settlement of their transactions, which are recorded
as assets on the consolidated balance sheet. These assets are fully offset by corresponding liabilities included on the
consolidated balance sheet. These security deposits are typically held for the duration of the agreement with the
customers.
Other restricted cash balances - The Company has other restricted cash balances which include contractually restricted
deposits, as well as cash balances that are restricted based on the Company's intention with regard to usage. These
funds are classified on the consolidated balance sheet within prepaid expenses and other current assets and other
assets.
Fair value - The Company measures certain financial assets and liabilities at fair value on a recurring basis by estimating the price
that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants.
The Company classifies these recurring fair value measurements into a three-level hierarchy ("Valuation Hierarchy").
The Valuation Hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement
date. A financial instrument's categorization within the Valuation Hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The three levels of the Valuation Hierarchy are as follows:
•
•
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active
markets.
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets and liabilities in inactive markets and inputs that are observable for the asset
or liability.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
68
Income taxes - The Company follows an asset and liability based approach in accounting for income taxes as required under GAAP.
Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences
between the financial statement carrying amounts and income tax bases of assets and liabilities. Deferred income taxes are
displayed separately as noncurrent assets and liabilities on the consolidated balance sheet. Valuation allowances are provided
against assets which are not more likely than not to be realized. The Company recognizes all material tax positions, including
uncertain tax positions in which it is more likely than not that the position will be sustained based on its technical merits and if
challenged by the relevant taxing authorities. At each balance sheet date, unresolved uncertain tax positions are reassessed to
determine whether subsequent developments require a change in the amount of recognized tax benefit. The allowance for
uncertain tax positions is recorded in other current and noncurrent liabilities on the consolidated balance sheet. The Company
Use of estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Future
events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment.
The accounting estimates used in the preparation of the Company's consolidated financial statements may change as new events
occur, as more experience is acquired, as additional information is obtained and as the Company's operating environment changes.
Actual results may differ from these estimates.
Revenue recognition - Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services. Revenue is
generated by charging fees to issuers, acquirers and other stakeholders for providing switching services, as well as by assessing
customers based primarily on the dollar volume of activity, or gross dollar volume, on the cards and other devices that carry the
Company's brands. Revenue is generally derived from transactional information accumulated by Mastercard's systems or reported
by customers.
Volume-based revenue (domestic assessments and cross-border volume fees) is recorded as revenue in the period it is earned,
which is when the related volume is generated on the cards. Certain volume-based revenue is based upon information reported
by customers. Transaction-based revenue is primarily based on the number and type of transactions and is recognized as revenue
in the same period in which the related transactions occur. Other payment-related products and services are recognized as
revenue in the period in which the related services are performed or transactions occur.
Mastercard has business agreements with certain customers that provide for rebates or other support when the customers meet
certain volume hurdles as well as other support incentives such as marketing, which are tied to performance. Rebates and
incentives are recorded as a reduction of revenue primarily when volume- and transaction-based revenues are recognized over
the contractual term. Rebates and incentives are calculated based upon estimated performance and the terms of the related
business agreements. In addition, Mastercard may make payments to a customer directly related to entering into an agreement,
which are generally capitalized and amortized over the life of the agreement on a straight-line basis.
Contract assets include unbilled consideration typically resulting from executed consulting, data analytic and research services
performed for customers in connection with Mastercard's payment network service arrangements. Collection for these services
typically occurs over the contractual term. Contract assets are included in prepaid expenses and other current assets and other
assets on the consolidated balance sheet.
The Company defers the recognition of revenue when consideration has been received prior to the satisfaction of performance
obligations. As these performance obligations are satisfied, revenue is subsequently recognized. Deferred revenue is primarily
derived from consulting, data analytic and research services. Deferred revenue is included in other current liabilities and other
liabilities on the consolidated balance sheet.
Business combinations - The Company accounts for business combinations under the acquisition method of accounting. The
Company measures the tangible and intangible identifiable assets acquired, liabilities assumed and any non-controlling interest
67
37
MASTERCARD INCORPORATED
in the acquiree, at their fair values at the acquisition date. Acquisition-related costs are expensed as incurred and are included
in general and administrative expenses. Any excess of purchase price over the fair value of net assets acquired, including
identifiable intangible assets, is recorded as goodwill.
Goodwill and other intangible assets - Indefinite-lived intangible assets consist of goodwill, which represents the synergies
expected to arise after the acquisition date and the assembled workforce, and customer relationships. Finite-lived intangible
assets consist of capitalized software costs, trademarks, tradenames, customer relationships and other intangible assets.
Intangible assets with finite useful lives are amortized over their estimated useful lives, on a straight-line basis, which range from
one to twenty years. Capitalized software includes internal and external costs incurred directly related to the design, development
and testing phases of each capitalized software project.
Impairment of assets - Goodwill and indefinite-lived intangible assets are not amortized but are tested annually for impairment
in the fourth quarter, or sooner when circumstances indicate an impairment may exist. The impairment evaluation for goodwill
utilizes a quantitative assessment. If the fair value of a reporting unit exceeds the carrying value, goodwill is not impaired. If the
fair value of the reporting unit is less than its carrying value, then goodwill is impaired and the excess of the reporting unit's
carrying value over the fair value is recognized as an impairment charge.
The impairment test for indefinite-lived intangible assets consists of a qualitative assessment to evaluate relevant events and
circumstances that could affect the significant inputs used to determine the fair value of indefinite-lived intangible assets. If the
qualitative assessment indicates that it is more likely than not that indefinite-lived intangible assets are impaired, then a
quantitative assessment is required.
Long-lived assets, other than goodwill and indefinite-lived intangible assets, are tested for impairment whenever events or
circumstances indicate that their carrying amount may not be recoverable. If the carrying value of the asset cannot be recovered
from estimated future cash flows, undiscounted and without interest, the fair value of the asset is calculated using the present
value of estimated net future cash flows. If the carrying amount of the asset exceeds its fair value, an impairment is recorded.
Impairment charges, if any, are recorded in general and administrative expenses on the consolidated statement of operations.
Litigation - The Company is a party to certain legal and regulatory proceedings with respect to a variety of matters. The Company
evaluates the likelihood of an unfavorable outcome of all legal or regulatory proceedings to which it is a party and accrues a loss
contingency when the loss is probable and reasonably estimable. These judgments are subjective based on the status of the
legal or regulatory proceedings, the merits of its defenses and consultation with in-house and external legal counsel. Legal costs
are expensed as incurred and recorded in general and administrative expenses on the consolidated statement of operations.
Settlement and other risk management - Mastercard's rules guarantee the settlement of many of the transactions between its
customers. Settlement exposure is the outstanding settlement risk to customers under Mastercard's rules due to the difference
in timing between the payment transaction date and subsequent settlement. While the term and amount of the guarantee are
unlimited, the duration of settlement exposure is short term and typically limited to a few days.
The Company also enters into agreements in the ordinary course of business under which the Company agrees to indemnify
third parties against damages, losses and expenses incurred in connection with legal and other proceedings arising from
relationships or transactions with the Company. As the extent of the Company's obligations under these agreements depends
entirely upon the occurrence of future events, the Company's potential future liability under these agreements is not
determinable.
The Company accounts for each of its guarantees by recording the guarantee at its fair value at the inception or modification
date through earnings.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Level 3 - inputs to the valuation methodology are unobservable and cannot be directly corroborated by observable
market data.
57
Cash proceeds from exercise of stock options
604
304
277
Proceeds from maturities of investment securities available-for-sale
379
500
339
Proceeds from maturities of investments held-to-maturity
929
1,020
456
Purchases of property, plant and equipment
(330)
(300)
(215)
Proceeds from sales of investment securities available-for-sale.
Capitalized software
(867)
(509)
577
Net change in other assets and liabilities
(261)
27
(187)
Net cash provided by operating activities
Investing Activities
6,223
5,664
4,637
Purchases of investment securities available-for-sale
(1,300)
(714)
(957)
Purchases of investments held-to-maturity
(1,145)
(174)
(123)
(167)
(1,163)
(4,933)
(3,762)
(3,511)
991
-
1,972
(64)
(1,044)
(942)
(837)
48
(80)
(47)
(51)
(1,781)
(506)
2
(1)
Acquisition of businesses, net of cash acquired
(1,175)
Investment in nonmarketable equity investments
Other investing activities
Net cash used in investing activities
Financing Activities
Purchases of treasury stock
104
Proceeds from debt
Dividends paid
Tax benefit for share-based payments
Tax withholdings related to share-based payments
(91)
(147)
(31)
(14)
Payment of debt
Certain assets are measured at fair value on a nonrecurring basis. The Company's non-financial assets measured at fair value on
a nonrecurring basis include property, plant and equipment, goodwill and other intangible assets. These assets are subject to
fair value adjustments in certain circumstances, such as when there is evidence of impairment.
The valuation methods for goodwill and other intangible assets acquired in business combinations involve assumptions concerning
comparable company multiples, discount rates, growth projections and other assumptions of future business conditions. The
Company uses various valuation techniques to determine fair value, primarily discounted cash flows analysis, relief-from-royalty,
and multi-period excess earnings for estimating the fair value of its intangible assets. The Company uses market capitalization
for estimating the fair value of its reporting unit. As the assumptions employed to measure these assets are based on
management's judgment using internal and external data, these fair value determinations are classified in Level 3 of the Valuation
Hierarchy.
69
19,418
(924)
28
5,684
.--- - 3,915 -- 3,915
1
1
427
(969)
427
(969)
: 182 (3,747) (3,747)
Adoption of revenue standard
Adoption of intra-entity asset
transfers standard
Net income ..
(17,021)
4,365
4,183
- - 179 4 - --183
Balance at December 31, 2017
$
4,004
- - -
$ (13,522) $ 16,222 $
-
4,059
- - 4,059
(6)
(6)
(248)
(248)
(863)
(3,503)
(863)
(3,503)
| | | |༄ ོ | | སྦེ
(20,764)
22,364
(497)
Purchases of treasury stock.
Share-based payments.
Conversion of Class B to Class A
common stock
Balance at December 31, 2018
- - - - - (221) - (221)
---(1,123) -
(4,991)
(1,123)
(4,
(4,991)
. - - 215 5 --- 220
$ - $ - $ 4,580 $ (25,750) $ 27,283 $ (718) $ 23 $ 5,418
The accompanying notes are an integral part of these consolidated financial statements.
64
MASTERCARD INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
Operating Activities
stock, $1.08 per share
Class A and Class B common
Cash dividends declared on
...
29
5,497
366
366
(183)
(183)
: --- 5,859
Conversion of Class B to Class A
common stock
5,859
|
(6)
(6)
Activity related to non-
controlling interests.
Other comprehensive income
(loss), net of tax
-----
Purchases of treasury stock.
Share-based payments.
stock, $0.91 per share
Class A and Class B common
14
(2)
Investment securities available-for-sale
(3)
(3)
3
Income tax effect
1
2
(1)
Investment securities available-for-sale, net of income tax effect
(2)
(1)
2
Other comprehensive income (loss), net of income tax effect.
Comprehensive Income..
(15)
Defined benefit pension and other postretirement plans, net of income tax
effect
ཁྱི།།
-
Contingent consideration
-
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Certain business combinations involve the potential for future payment of consideration that is
contingent upon the achievement of performance milestones. These liabilities are classified within Level 3 of the Valuation
Hierarchy as the inputs used to measure fair value are unobservable and require management's judgment. The fair value of the
contingent consideration at the acquisition date and subsequent periods is determined utilizing an income approach based on
a Monte Carlo technique and is recorded in other current liabilities and other liabilities on the consolidated balance sheet.
Changes to projected performance milestones of the acquired businesses could result in a higher or lower contingent
consideration liability. Measurement period adjustments, if any, to the preliminary estimated fair value of contingent
consideration as of the acquisition date will be recorded to goodwill, however, changes in fair value as a result of updated
assumptions will be recorded in general and administrative expenses on the consolidated statement of operations.
Investment securities - The Company classifies investments in debt securities as available-for-sale. Available-for-sale securities
that are available to meet the Company's current operational needs are classified as current assets. Available-for-sale securities
that are not available to meet the Company's current operational needs are classified as non-current assets on the consolidated
balance sheet.
The investments in debt securities are carried at fair value, with unrealized gains and losses, net of applicable taxes, recorded as
a separate component of accumulated other comprehensive income (loss) on the consolidated statement of comprehensive
income. Net realized gains and losses on debt securities are recognized in investment income on the consolidated statement of
operations. The specific identification method is used to determine realized gains and losses.
(221)
The Company evaluates its debt securities for other-than-temporary impairment on an ongoing basis. When there has been a
decline in fair value of a debt security below the amortized cost basis, the Company recognizes an other-than-temporary
impairment if: (1) it has the intent to sell the security; (2) it is more likely than not that it will be required to sell the security
before recovery of the amortized cost basis; or (3) it does not expect to recover the entire amortized cost basis of the security.
The credit loss component of the impairment would be recognized in other income (expense), net on the consolidated statement
of operations while the non-credit loss would remain in accumulated other comprehensive income (loss) until realized from a
sale or an other-than-temporary impairment.
Derivative financial instruments - The Company's derivative financial instruments are recorded as either assets or liabilities on
the balance sheet and measured at fair value. The Company's foreign exchange forward and option contracts are included in
Level 2 of the Valuation Hierarchy as the fair value of these contracts are based on inputs, which are observable based on broker
quotes for the same or similar instruments. As the Company does not elect hedge accounting for any derivative instruments,
realized and unrealized gains and losses from the change in fair value of these contracts are recognized immediately in current-
period earnings. The Company's derivative contracts hedge foreign exchange risk and are not entered into for trading or
speculative purposes. The Company did not have any derivative contracts accounted for under hedge accounting as of December
31, 2018 and 2017.
The Company has numerous investments in its foreign subsidiaries. The net assets of these subsidiaries are exposed to volatility
in foreign currency exchange rates. The Company uses foreign currency denominated debt to hedge a portion of its net investment
in foreign operations against adverse movements in exchange rates. The effective portion of the foreign currency gains and
losses related to the foreign currency denominated debt are reported in accumulated other comprehensive income (loss) on the
consolidated balance sheet as part of the cumulative translation adjustment component of equity. The ineffective portion, if
any, is recognized in earnings in the current period. The Company evaluates the effectiveness of the net investment hedge each
quarter.
Settlement due from/due to customers - The Company operates systems for clearing and settling payment transactions among
customers. Net settlements are generally cleared daily among customers through settlement cash accounts by wire transfer or
other bank clearing means. However, some transactions may not settle until subsequent business days, resulting in amounts
due from and due to customers.
Property, plant and equipment - Property, plant and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets.
70
3
(1)
The Company classifies time deposits with maturities greater than three months as held-to-maturity. Held-to-maturity securities
that mature within one year are classified as current assets while held-to-maturity securities with maturities of greater than one
year are classified as non-current assets. Time deposits are carried at amortized cost on the consolidated balance sheet and are
intended to be held until maturity.
(20)
427
5,638 $
Balance at December 31, 2015
Net income..
Activity related to non-
controlling interests.
Other comprehensive income
(loss), net of tax . . . .
Cash dividends declared on
Class A and Class B common
stock, $0.79 per share
Purchases of treasury stock.
Share-based payments. .
Conversion of Class B to Class A
common stock
Balance at December 31, 2016 ..
Net income...
Activity related to non-
controlling interests.
Other comprehensive income
(loss), net of tax
Cash dividends declared on
(in millions, except per share data)
$ 6,062
34
(676) $
4,342 $
3,811
The accompanying notes are an integral part of these consolidated financial statements.
63
63
MASTERCARD INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(248)
Stockholders' Equity
Class A Class B
Additional
Paid-In
Capital
Class A
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-
Controlling
Interests
Total
Equity
Common Stock
2,298
Long-term taxes payable
589
4,580
(25,750)
4,365
(20,764)
27,283
22,364
(718)
5,395
(497)
5,468
Non-controlling interests
23
29
Total Equity
5,418
5,497
Total Liabilities, Redeemable Non-controlling Interests and Equity.
24,860 $
-
21,329
Total Stockholders' Equity
Retained earnings
5,424
67
106
1,877
19,371
1,438
15,761
Commitments and Contingencies
Redeemable Non-controlling Interests
71
71
14
Stockholders' Equity
Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,387 and 1,382 shares issued and
1,019 and 1,040 outstanding, respectively
Class B common stock, $0.0001 par value; authorized 1,200 shares, 12 and 14 issued and outstanding,
respectively
Additional paid-in-capital
Class A treasury stock, at cost, 368 and 342 shares, respectively.
Accumulated other comprehensive income (loss)
The accompanying notes are an integral part of these consolidated financial statements.
61
MASTERCARD INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
436
373
Provision for litigation
1,128
15
117
Total operating expenses
7,668
5,875
5,015
Operating income
7,282
6,622
5,761
Other Income (Expense)
459
Depreciation and amortization
698
771
For the Years Ended December 31,
2018
2017
(in millions, except per share data)
2016
Net Revenue
Operating Expenses
5,834
General and administrative
14,950 $
12,497 $
10,776
5,174
4,653
3,827
907
Advertising and marketing.
Investment income.
8,793
792
2,452
1,969
2,276
1,849
1,696
546
553
5,933
6,682 $
$
Deferred income taxes
Property, plant and equipment, net
Total Current Assets
Prepaid expenses and other current assets
Restricted security deposits held for customers
1,375
Settlement due from customers
1,080
1,432
1,120
991
3,035
2,904
Total Assets
Other assets
Other intangible assets, net
Goodwill
250
570
829
921
13,797
16,171
1,040
1,085
Accounts receivable
Investments
Restricted cash for litigation settlement
Accrued litigation
1,591
709
Accrued expenses
4,747
3,931
Current portion of long-term debt
500
Other current liabilities
Total Current Liabilities
Long-term debt
Deferred income taxes
Other liabilities
Total Liabilities
949
1,085
1,080
Restricted security deposits held for customers
1,343
Cash and cash equivalents
(in millions, except per share data)
2017
December 31,
2018
ASSETS
CONSOLIDATED BALANCE SHEET
11,593
MASTERCARD INCORPORATED
21,329
LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY
Accounts payable
537
933
Settlement due to customers
2,189
24,860 $
Interest expense
Other income (expense), net
Total other income (expense)
2016
$
5,859
$ 3,915
$ 4,059
1,235
1,001
860
459
437
373
196
176
149
(48)
For the Years Ended December 31,
2018
(244)
2017
(in millions)
Accounts receivable
(18)
15
G
(2)
Income tax effect
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of customer and merchant incentives
Depreciation and amortization
Share-based compensation
Tax benefit for share-based payments
Deferred income taxes
Venezuela charge
Other
Changes in operating assets and liabilities:
Income taxes receivable
86
(20)
167
17
Restricted security deposits held for customers
(6)
94
96
Accounts payable
101
290
145
Settlement due to customers
849
394
66
Accrued expenses.
439
(12)
Accrued litigation and legal settlements.
(1,073)
(1,402)
31
59
29
12
(317)
(445)
(338)
Defined benefit pension and other postretirement plans
(120)
(1)
Settlement due from customers
(1,078)
(281)
(10)
Prepaid expenses
(1,769)
(8)
38
(153)
75
Net Income
5,859
3,915
4,059
Basic Earnings per Share ...
5.63
3.67 $
3.70
Basic weighted-average shares outstanding
Diluted Earnings per Share
1,041
1,067
1,098
5.60
3.65
1,587
2,607
1,345
5,646
Income before income taxes
Income tax expense
122
56
43
(186)
(154)
3.69
(95)
(2)
(63)
(78)
(100)
(115)
7,204
6,522
(14)
520
Diluted weighted-average shares outstanding
1,072
Foreign currency translation adjustments, net of income tax effect.
40
(279)
2
(11)
567
(286)
Translation adjustments on net investment hedge
96
(236)
60
Income tax effect
(21)
83
(22)
Translation adjustments on net investment hedge, net of income tax effect
Income tax effect
(275)
565
(319)
1,101
The accompanying notes are an integral part of these consolidated financial statements.
62
62
MASTERCARD INCORPORATED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Years Ended December 31,
2018
1,047
2017
(in millions)
Net Income
$
5,859 $
3,915 $
4,059
Other comprehensive income (loss):
Foreign currency translation adjustments.
2016
869
...
21,831
1,969 $
44 $
$
- $
2,
2,013
Prepaid expenses and other current assets...
1,040
181
(17)
1,204
Assets
Deferred income taxes.
(69)
186
367
Other assets
2,298
690
(352)
2,636
933
(495)
250
(in millions)
Impact of revenue
standard
Balance at
December 31, 2017
4,375
372
4,747
1,085
(136)
949
1,145
732
1,877
Equity
Retained earnings..
26,692
591
27,283
For a more detailed discussion on revenue recognition, refer to Note 3 (Revenue).
74
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cumulative Effect of the Adopted Accounting Pronouncements
The following table summarizes the cumulative impact of the changes made to the January 1, 2018 consolidated balance sheet
for the adoption of the new accounting standards pertaining to revenue recognition and intra-entity asset transfers. The prior
periods have not been restated and have been reported under the accounting standards in effect for those periods.
Impact of intra-
entity asset
transfers standard
Balance at
January 1, 2018
3,931
391
792
(44)
The Company has finalized the purchase accounting for businesses acquired during 2017. The final fair values of the purchase
price allocations, as of the acquisition dates, are noted below:
Cash consideration. .
Contingent consideration.
Redeemable non-controlling interests
Gain on previously held minority interest
Total fair value of businesses acquired.
Assets:
Cash and cash equivalents.
Other current assets. .
Other intangible assets
Goodwill
Other assets
Total assets
Liabilities:
Short-term debt¹.
Other current liabilities
Net pension liability
Other liabilities
Total liabilities
Net assets acquired
1 The short-term debt assumed through acquisitions was repaid during 2017.
76
(in millions)
1,286
202
In 2017, the Company acquired businesses for total consideration of $1.5 billion, representing both cash and contingent
consideration. For the businesses acquired, Mastercard allocated the values associated with the assets, liabilities and redeemable
non-controlling interests based on their respective fair values on the acquisition dates. Refer to Note 1 (Summary of Significant
Accounting Policies), for the valuation techniques Mastercard utilizes to fair value the assets and liabilities acquired in business
combinations. The residual value allocated to goodwill is not expected to be deductible for local tax purposes.
537
Note 2. Acquisitions
Credit losses - In June 2016, the FASB issued accounting guidance to amend the measurement of credit losses for financial
instruments. The guidance requires all expected credit losses for most financial assets held at the reporting date to be measured
based on historical experience, current conditions, and reasonable and supportable forecasts, generally resulting in the earlier
recognition of allowance for losses. The guidance is effective for periods beginning after December 15, 2019, with early adoption
permitted. The Company is required to apply the provisions of this guidance as a cumulative effect adjustment to retained
earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company will adopt this guidance
effective January 1, 2020 and does not expect the impacts of this standard to be material.
1,438
628
438
4,322
748
2,066
Liabilities
Accounts payable
Accrued expenses.
Other current liabilities
Other liabilities
Equity
Retained earnings.
Recent accounting pronouncements not yet adopted
22,364
366
(183)
22,547
Implementation costs incurred in a hosting arrangement that is a service contract - In August 2018, the FASB issued accounting
guidance which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service
contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This
guidance is effective for periods beginning after December 15, 2019 and early adoption is permitted. Companies are required
to adopt this guidance either retrospectively or by prospectively applying the guidance to all implementation costs incurred after
the date of adoption. The Company is in the process of evaluating when it will adopt this guidance and the potential effects this
guidance will have on its consolidated financial statements.
Disclosure requirements for fair value measurement - In August 2018, the FASB issued accounting guidance which modifies
disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures. This guidance is
effective for periods beginning after December 15, 2019. Companies are permitted to early adopt the removed or modified
disclosures and delay adoption of added disclosures until the effective date. Companies are required to adopt the guidance for
certain added disclosures prospectively for only the most recent interim or annual period presented in the initial fiscal year of
adoption and all other amendments retrospectively to all periods presented upon their effective date. The Company is in the
process of evaluating when it will adopt this guidance and the potential effects this guidance will have on its disclosures.
Comprehensive income - In February 2018, the FASB issued accounting guidance that allows for a one-time reclassification from
accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from U.S. Tax Reform.
The guidance is effective for periods beginning after December 15, 2018, with early adoption permitted. The Company will adopt
this guidance effective January 1, 2019 and does not expect the impacts of this standard to be material.
Derivatives and hedging - In August 2017, the FASB issued accounting guidance to improve and simplify existing guidance to
allow companies to better reflect their risk management activities in the financial statements. The guidance expands the ability
to hedge nonfinancial and financial risk components, eliminates the requirement to separately measure and recognize hedge
ineffectiveness and eases requirements of an entity's assessment of hedge effectiveness. This guidance is effective for periods
beginning after December 15, 2018 and early adoption is permitted. The Company currently does not account for its foreign
currency derivative contracts under hedge accounting. The Company will adopt this guidance effective January 1, 2019 and does
not expect the impacts of this standard to be material. For a more detailed discussion of the Company's foreign exchange risk
management activities, refer to Note 22 (Foreign Exchange Risk Management).
75
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Leases -In February 2016, the FASB issued accounting guidance that will change how companies account for and present lease
arrangements. This guidance requires companies to recognize leased assets and liabilities for both financing and operating leases.
This guidance is effective for periods beginning after December 15, 2018. The Company will adopt this guidance effective January
1, 2019 using the modified retrospective approach as of the date of adoption with the available practical expedients. Upon
adoption of the standard, the estimated impact on the Company's consolidated financial statements is expected to be an increase
in non-current assets with a corresponding increase in current and non-current liabilities. The Company estimates that the
increase in assets and liabilities will represent approximately 2% of the Company's total assets and total liabilities as of December
31, 2018 and expects no significant impact to retained earnings.
(422)
959
Other liabilities
Recently adopted accounting pronouncements
Disclosure requirements for defined benefit plans - In August 2018, the Financial Accounting Standards Board (the “FASB") issued
accounting guidance which modifies disclosure requirements for employers that sponsor defined benefit pension or other
postretirement plans by removing, modifying and adding certain disclosures. This guidance is required to be applied
retrospectively and is effective for periods ending after December 15, 2020, with early adoption permitted. The Company adopted
this guidance effective December 31, 2018, which did not result in a material impact on the Company's current year consolidated
financial statements.
Income taxes -In March 2018, the FASB incorporated the Securities and Exchange Commission's (the "SEC's") interpretive guidance
from Staff Accounting Bulletin No. 118 ("SAB 118"), issued on December 22, 2017, into the income tax accounting codification
under GAAP. The guidance allows for the recognition of provisional amounts related to 2017 U.S. tax reform ("U.S. Tax Reform")
during a one year measurement period with changes recorded as a component of income tax expense. This guidance was effective
upon issuance. Refer to Note 19 (Income Taxes) for further discussion.
Net periodic pension cost and net periodic postretirement benefit cost - In March 2017, the FASB issued accounting guidance to
improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. Under this guidance, the
service cost component is required to be reported in the same line item as other compensation costs arising from services
rendered by employees during the period. The other components of the net periodic benefit costs are required to be presented
on the consolidated statement of operations separately from the service cost component and outside of operating income. This
guidance is required to be applied retrospectively and is effective for periods beginning after December 15, 2017. The Company
adopted this guidance effective January 1, 2018, which did not result in a material impact on the Company's current year
consolidated financial statements. The Company did not apply this guidance retrospectively, as the impact was de minimis to
the prior year consolidated financial statements. Refer to Note 13 (Pension, Postretirement and Savings Plans) for the components
of the Company's net periodic pension cost and net periodic postretirement benefit costs.
Restricted cash- In November 2016, the FASB issued accounting guidance to address diversity in the classification and presentation
of changes in restricted cash on the consolidated statement of cash flows. Under this guidance, companies are required to
present restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period
and end-of-period amounts shown on the consolidated statement of cash flows. This guidance is required to be applied
retrospectively and is effective for periods beginning after December 15, 2017, with early adoption permitted. The Company
adopted this guidance effective January 1, 2018. In accordance with the adoption of this standard, the Company includes restricted
cash, which currently consists of restricted cash for litigation settlement, restricted security deposits held for customers and
other restricted cash balances in its reconciliation of beginning-of-period and end-of-period amounts shown on the consolidated
statement of cash flows. Refer to Note 5 (Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents) for related
disclosures.
Intra-entity asset transfers - In October 2016, the FASB issued accounting guidance to simplify the accounting for income tax
consequences of intra-entity transfers of assets other than inventory. Under this guidance, companies are required to recognize
72
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
the income tax consequences of an intra-entity asset transfer when the transfer occurs. This guidance must be applied on a
modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the period of adoption. The
guidance is effective for periods beginning after December 15, 2017. The Company adopted this guidance effective January 1,
2018. Refer to Note 19 (Income Taxes) for further discussion. See the section in this note entitled Cumulative Effect of the
Adopted Accounting Pronouncements for a summary of the cumulative impact of adopting this standard as of January 1, 2018.
-
Financial instruments In January 2016, the FASB issued accounting guidance to amend certain aspects of recognition,
measurement, presentation and disclosure of financial instruments, including the requirement to measure certain equity
investments at fair value with changes in fair value recognized in income. This guidance is required to be applied by means of a
cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. Amendments related to
equity securities without readily determinable fair values should be applied prospectively to equity investments that exist as of
the date of adoption. The guidance is effective for periods beginning after December 15, 2017. The Company adopted this
guidance effective January 1, 2018. The cumulative effect of the adoption of the standard was de minimis to the Company's
balance sheet upon adoption. For the year ended December 31, 2018, the Company recorded a gain on non-marketable equity
investments, which resulted in a pre-tax increase of $12 million.
Revenue recognition - In May 2014, the FASB issued accounting guidance that provides a single, comprehensive revenue
recognition model for all contracts with customers and supersedes most of the existing revenue recognition requirements. Under
this guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company
adopted this guidance effective January 1, 2018 under the modified retrospective transition method, applying the standard to
contracts not completed as of January 1, 2018 and considered the aggregate amount of modifications. See the section in this
note entitled Cumulative Effect of the Adopted Accounting Pronouncements for a summary of the cumulative impact of adopting
this standard as of January 1, 2018.
This new revenue guidance impacts the timing of certain customer incentives recognized in the Company's consolidated statement
of operations, as they are recognized over the life of the contract. Previously, such incentives were recognized when earned by
the customer. The new revenue guidance also impacts the Company's accounting recognition for certain market development
fund contributions and expenditures. Historically, these items were recorded on a net basis in net revenue and will now be
recognized on a gross basis, resulting in an increase to both revenues and expenses.
73
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following tables summarize the impact of the revenue standard on the Company's consolidated statement of operations for
the year ended December 31, 2018 and consolidated balance sheet as of December 31, 2018:
Net Revenue
Operating Expenses
Advertising and marketing.
Income before income taxes
Income tax expense..
Redeemable non-controlling interests - The Company's business combinations may include provisions allowing non-controlling
equity owners the ability to require the Company to purchase additional interests in the subsidiary at their discretion. These
interests are initially recorded at fair value and in subsequent reporting periods are accreted or adjusted to their estimated
redemption value. These adjustments to the redemption value will impact retained earnings or additional paid-in capital on the
consolidated balance sheet, but will not impact the consolidated statement of operations. The redeemable non-controlling
interests are considered temporary and reported outside of permanent equity on the consolidated balance sheet at the greater
of the carrying amount adjusted for the non-controlling interest's share of net income (loss) or its redemption value.
Earnings per share - The Company calculates basic earnings per share ("EPS") by dividing net income by the weighted-average
number of common shares outstanding during the year. Diluted EPS is calculated by dividing net income by the weighted-average
number of common shares outstanding during the year, adjusted for the potentially dilutive effect of stock options and unvested
stock units using the treasury stock method. The Company may be required to calculate EPS using the two-class method as a
result of its redeemable non-controlling interests. If redemption value exceeds the fair value of the redeemable non-controlling
interests, the excess would be a reduction to net income for the EPS calculation. For 2018, 2017 and 2016, there was no impact
to EPS for adjustments related to redeemable non-controlling interests.
Net Income
model is used to determine the grant date fair value of performance stock units ("PSUs") granted. All share-based compensation
expenses are recorded in general and administrative expenses on the consolidated statement of operations.
MASTERCARD INCORPORATED
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Depreciation of leasehold improvements and amortization of capital leases is included in depreciation and amortization expense
on the consolidated statement of operations.
The useful lives of the Company's assets are as follows:
Buildings..
Asset Category
Building equipment. .
Furniture and fixtures and equipment
Leasehold improvements.
Capital leases.
Estimated Useful Life
30 years
10-15 years
3-5 years
Shorter of life of improvement or lease term
Shorter of life of the asset or lease term
Leases - The Company enters into operating and capital leases for the use of premises and equipment. Rent expense related to
lease agreements that contain lease incentives is recorded on a straight-line basis over the term of the lease.
Pension and other postretirement plans - The Company recognizes the funded status of its single-employer defined benefit
pension plans and postretirement plans as assets or liabilities on its consolidated balance sheet and recognizes changes in the
funded status in the year in which the changes occur through accumulated other comprehensive income (loss). The funded
status is measured as the difference between the fair value of plan assets and the projected benefit obligation at December 31,
the measurement date. Overfunded plans, if any, are aggregated and recorded in other assets, while underfunded plans are
aggregated and recorded as accrued expenses and other liabilities on the consolidated balance sheet.
Net periodic pension and postretirement benefit cost/(income), excluding the service cost component, is recognized in other
income (expense) on the consolidated statement of operations. These costs include interest cost, expected return on plan assets,
amortization of prior service costs or credits and gains or losses previously recognized as a component of accumulated other
comprehensive income (loss). The service cost component is recognized in general and administrative expenses on the
consolidated statement of operations.
Defined contribution plans - The Company's contributions to defined contribution plans are recorded when employees render
service to the Company. The charge is recorded in general and administrative expenses on the consolidated statement of
operations.
Advertising and marketing - Expenses incurred to promote Mastercard's products, services and brand are recognized in advertising
and marketing on the consolidated statement of operations. The cost of media advertising is expensed when the advertising
takes place. Advertising production costs are expensed as incurred. Promotional items are expensed at the time the promotional
event occurs. Sponsorship costs are recognized over the period of benefit.
Foreign currency remeasurement and translation - Monetary assets and liabilities are remeasured to functional currencies using
current exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are recorded at historical exchange
rates. Revenue and expense accounts are remeasured at the weighted-average exchange rate for the period. Resulting exchange
gains and losses related to remeasurement are included in general and administrative expenses on the consolidated statement
of operations.
Where a non-U.S. currency is the functional currency, translation from that functional currency to U.S. dollars is performed for
balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts
using a weighted-average exchange rate for the period. Resulting translation adjustments are reported as a component of
accumulated other comprehensive income (loss).
Treasury stock - The Company records the repurchase of shares of its common stock at cost on the trade date of the transaction.
These shares are considered treasury stock, which is a reduction to stockholders' equity. Treasury stock is included in authorized
and issued shares but excluded from outstanding shares.
Share-based payments - The Company measures share-based compensation expense at the grant date, based on the estimated
fair value of the award and uses the straight-line method of attribution, net of estimated forfeitures, for expensing awards over
the requisite employee service period. The Company estimates the fair value of its non-qualified stock option awards ("Options")
using a Black-Scholes valuation model. The fair value of restricted stock units ("RSUS") is determined and fixed on the grant date
based on the Company's stock price, adjusted for the exclusion of dividend equivalents. The Monte Carlo simulation valuation
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
69
Assets
Balances
excluding
(in millions)
As reported
Accounts receivable
$
2,214 $
62 $
2,276
Prepaid expenses and other current assets
1,176
256
1,432
Deferred income taxes. .
666
(96)
570
Other assets
2,388
915
3,303
Liabilities
Accounts payable
Accrued expenses
Other current liabilities
standard
Year Ended December 31, 2018
revenue
revenue
revenue
standard
$ 14,471 $
Impact of
revenue
standard
(in millions)
As reported
479 $
14,950
743
164
907
6,889
315
7,204
1,278
67
1,345
5,611
248
5,859
December 31, 2018
Balances
excluding
Impact of
standard
14
Accounts receivable
$
1,041
1,067
1,098
6
5
3
1,047
1,072
1,101
$
5.63 $
3.67 $
3.70
$
5.60 $
3.65
$
3.69
For the years presented, the calculation of diluted EPS excluded a minimal amount of anti-dilutive share-based payment awards.
Note 5. Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
The following table provides a reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents reported
on the consolidated balance sheet that total to the amounts shown on the consolidated statement of cash flows.
2018
2017
4,059
December 31,
2016
3,915 $
$
Contract assets are included in prepaid expenses and other current assets and other assets on the consolidated balance sheet
at December 31, 2018 in the amounts of $40 million and $92 million, respectively. The Company did not have contract assets
at December 31, 2017.
Deferred revenue is included in other current liabilities and other liabilities on the consolidated balance sheet at December 31,
2018 in the amounts of $218 million and $101 million, respectively. The comparable amounts included in other current liabilities
and other liabilities at December 31, 2017 were $230 million and $17 million, respectively. Revenue recognized from such
performance obligations satisfied during 2018 was $904 million.
The Company's remaining performance periods for its contracts with customers for its payment network services are typically
long-term in nature (generally up to 10 years). As a payment network service provider, the Company provides its customers with
continuous access to its global payment processing network and stands ready to provide transaction processing and related
services over the contractual term. Consideration is variable based upon the number of transactions processed and volume
activity on the cards and other devices that carry the Company's brands. The Company has elected the optional exemption to
not disclose the remaining performance obligations related to its payment network services. The Company also earns revenues
from other value added services comprised of bank account-based payment services, consulting and research fees, loyalty
programs and other payment-related products and services. At December 31, 2018, the estimated aggregate consideration
allocated to unsatisfied performance obligations for these other value added services is $1.0 billion, which is expected to be
recognized through 2022. The estimated remaining performance obligations related to these revenues are subject to change
and are affected by several factors, including modifications and terminations and are not expected to be material to any future
annual period.
79
MASTERCARD INCORPORATED
Note 4. Earnings Per Share
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The components of basic and diluted EPS for common shares for each of the years ended December 31 were as follows:
2017
Numerator
Net income
Denominator
Basic weighted-average shares outstanding.
Dilutive stock options and stock units..
1
Diluted weighted-average shares outstanding
Earnings per Share
Basic
Diluted
Note: Table may not sum due to rounding.
1
2018
2016
(in millions, except per share data)
5,859 $
Receivables from contracts with customers of $2.1 billion and $1.9 billion as of December 31, 2018 and 2017, respectively, are
recorded within accounts receivable on the consolidated balance sheet. The Company's customers are billed quarterly or more
frequently dependent upon the nature of the performance obligation and the underlying contractual terms. The Company does
not offer extended payment terms to customers.
2015
Cash and cash equivalents. .
Fair value of liabilities assumed related to acquisitions.
80
80
2018
(in millions)
$
1,790 $ 1,893 $ 1,579
153
135
74
260
47
101
340
263
238
11 5
10
30
3
1,825
│|
365
Fair value of assets acquired, net of cash acquired..
(in millions)
Capital leases and other
Non-cash investing and financing activities
Restricted cash and restricted cash equivalents
Restricted cash for litigation settlement
Restricted security deposits held for customers.
Prepaid expenses and other current assets.
Other assets
Cash, cash equivalents, restricted cash and restricted cash equivalents.
Note 6. Supplemental Cash Flows
$ 6,682 $ 5,933 $ 6,721 $ 5,747
553
1,080
22
546
1,085
543
541
991
895
28
3
10
--15
$ 8,337 $ 7,592 $ 8,273 $ 7,193
The following table includes supplemental cash flow disclosures for each of the years ended December 31:
2017
2016
Cash paid for income taxes, net of refunds
1,571
Cash paid for legal settlements
Dividends declared but not yet paid
14,950
Cash paid for interest.
198
9.9
3
1.4
488
8.3
For the businesses acquired in 2017, the largest acquisition relates to Vocalink, a payment systems and ATM switching platform
operator, located principally in the U.K. On April 28, 2017, Mastercard acquired 92.4% controlling interest in Vocalink for cash
consideration of £719 million ($929 million as of the acquisition date). In addition, the Vocalink sellers have the potential to earn
additional contingent consideration of £169 million (approximately $214 million as of December 31, 2018), upon meeting 2018
revenue targets in accordance with terms of the purchase agreement. Refer to Note 7 (Fair Value and Investment Securities) for
additional information related to the fair value of contingent consideration.
A majority of Vocalink's shareholders have retained a 7.6% ownership for at least three years, which is recorded as redeemable
non-controlling interests on the consolidated balance sheet. These remaining shareholders have a put option to sell their
ownership interest to Mastercard on the third and fifth anniversaries of the transaction and quarterly thereafter (the "Third
Anniversary Option" and "Fifth Anniversary Option”, respectively). The Third Anniversary Option is exercisable at a fixed price
of £58 million (approximately $73 million as of December 31, 2018) ("Fixed Price”). The Fifth Anniversary Option is exercisable
at the greater of the Fixed Price or fair value. Additionally, Mastercard has a call option to purchase the remaining interest from
Vocalink's shareholders on the fifth anniversary of the transaction and quarterly thereafter, which is exercisable at the greater
of the Fixed Price or fair value. The fair value of the redeemable non-controlling interests was determined utilizing a market
approach, which extrapolated the consideration transferred that was discounted for lack of control and marketability.
The consolidated financial statements include the operating results of the acquired businesses from the dates of their respective
acquisition. Pro forma information related to the acquisitions was not included because the impact on the Company's consolidated
results of operations was not considered to be material.
Note 3. Revenue
Mastercard's business model involves four participants in addition to the Company: account holders, issuers (the account holders'
financial institutions), merchants and acquirers (the merchants' financial institutions). Revenue from contracts with customers
is recognized when services are performed in an amount that reflects the consideration to which the Company expects to be
entitled to in exchange for those services. Revenue recognized from domestic assessments, cross-border volume fees and
transaction processing are derived from Mastercard's payment network services. Revenue is generated by charging fees to
issuers, acquirers and other stakeholders for providing switching services, as well as by assessing customers based primarily on
the dollar volume of activity, or gross dollar volume, on the cards and other devices that carry the Company's brands. Revenue
is generally derived from transactional information accumulated by Mastercard's systems or reported by customers. In addition,
the Company recognizes revenue from other payment-related products and services in the period in which the related transactions
occur or services are performed.
The price structure for Mastercard's products and services is dependent on the nature of volumes, types of transactions and
type of products and services offered to customers. Net revenue can be impacted by the following:
• domestic or cross-border transactions
• geographic region or country in which the transaction occurs
•
volumes/transactions subject to tiered rates
•
processed or not processed by the Company
•
amount of usage of the Company's other products or services
•
amount of rebates and incentives provided to customers
77
The Company classifies its net revenue into the following five categories:
166
Domestic assessments are fees charged to issuers and acquirers based primarily on the dollar volume of activity on cards and
other devices that carry the Company's brands where the acquirer country and the issuer country are the same. Revenue from
domestic assessments is recorded as revenue in the period it is earned, which is when the related volume is generated on the
cards or other devices that carry the Company's brands.
7.5
$
$
111
110
488
1,135
91
1,935
64
170
66
64
364
1,571
The following table summarizes the identified intangible assets acquired:
Developed technologies
Other
Other intangible assets
Acquisition Date
Fair Value
Weighted-Average
Useful Life
(in millions)
(Years)
319
Cross-border volume fees are charged to issuers and acquirers based on the dollar volume of activity on cards and other devices
that carry the Company's brands where the acquirer country and the issuer country are different. Revenue from cross-border
volume is recorded as revenue in the period it is earned, which is when the related volume is generated on the cards or other
devices that carry the Company's brands.
Customer relationships.
•
Transaction processing
Other revenues
Gross revenue
Rebates and incentives (contra-revenue).
Net revenue
(in millions)
$
6,138
4,954
7,391
3,348
(6,881)
$
14,950
North American Markets..
International Markets
Other
1
Net revenue
¹Includes revenues managed by corporate functions.
5,311
Transaction processing revenue is recognized for both domestic and cross-border transactions in the period in which the related
transactions occur. Transaction processing includes the following:
9,441
Cross-border volume fees
Domestic assessments..
Net revenue by geographic region:
The following table disaggregates the Company's net revenue by source and geographic region for the year ended December 31,
2018:
Switched transaction revenue is generated from the following products and services:
•
Revenue by source:
о
Authorization is the process by which a transaction is routed to the issuer for approval. In certain circumstances,
such as when the issuer's systems are unavailable or cannot be contacted, Mastercard or others approve such
transactions on behalf of the issuer in accordance with either the issuer's instructions or applicable rules (also
known as "stand-in").
Clearing is the determination and exchange of financial transaction information between issuers and acquirers
after a transaction has been successfully conducted at the point of interaction. Transactions are cleared among
customers through Mastercard's central and regional processing systems.
Settlement is facilitating the exchange of funds between parties.
Other processing fees include issuer and acquirer processing solutions; payment gateways for e-commerce merchants;
mobile gateways for mobile initiated transactions; and safety and security.
Other revenues consist of value added service offerings that are typically sold with the Company's payment service offerings
and are recognized in the period in which the related services are performed or transactions occur. Other revenues include the
following:
•
Consulting, data analytic and research fees.
•
Connectivity fees are charged to issuers, acquirers and other financial institutions for network access, equipment and
the transmission of authorization and settlement messages. These fees are based on the size of the data being
transmitted and the number of connections to the Company's network.
•
Mastercard may make incentive payments to a customer directly related to entering into an agreement, which are generally
capitalized and amortized over the life of the agreement on a straight-line basis.
•
Other payment-related products and services, including account and transaction enhancement services, rules
compliance and publications.
•
•
Bank account-based payment services relating to ACH transactions and other ACH related services.
Program management services provided to prepaid card issuers consist of foreign exchange margin, commissions, load
fees and ATM withdrawal fees paid by cardholders on the sale and encashment of prepaid cards.
Loyalty and rewards solutions fees are charged to issuers for benefits provided directly to consumers with Mastercard-
branded cards, such as access to a global airline lounge network, global and local concierge services, individual insurance
coverages, emergency card replacement, emergency cash advance services and a 24-hour cardholder service center.
Loyalty and reward solution fees also include rewards campaigns and management services.
Safety and security services fees are for products and services offered to prevent, detect and respond to fraud and to
ensure the safety of transactions made primarily on Mastercard products.
Rebates and incentives (contra-revenue) are provided to customers that meet certain volume targets and can be in the form of
a rebate or other support incentives, which are tied to performance. Rebates and incentives are recorded as a reduction of
revenue primarily when volume- and transaction-based revenues are recognized over the contractual term. In addition,
78
Amortized Costs and Fair Values - Available-for-Sale Investment Securities
$
219
MASTERCARD INCORPORATED
(14)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fair
Value
Gross
Unrealized
Loss
Amortized
Cost
December 31, 2018
Gross
Unrealized
Gain
Fair
Value
Amortized
Cost
(5)
December 31, 2017
Gross
Unrealized
Gain
Gross
Unrealized
Loss
The major classes of the Company's available-for-sale investment securities, for which unrealized gains and losses are recorded
as a separate component of other comprehensive income (loss) on the consolidated statement of comprehensive income, and
their respective amortized cost basis and fair values as of December 31, 2018 and 2017 were as follows:
19
Contingent Consideration
$
Held-to-Maturity Securities
Investments on the consolidated balance sheet include both available-for-sale and short-term held-to-maturity securities. Held-
to-maturity securities are not measured at fair value on a recurring basis and are not included in the Valuation Hierarchy table
above. At December 31, 2018 and 2017, the Company held $264 million and $700 million, respectively, of held-to-maturity
securities due within one year. The cost of these securities approximates fair value.
(in millions)
Nonmarketable Equity Investments
The Company's nonmarketable equity investments are measured at fair value at initial recognition. In addition, nonmarketable
equity investments accounted for under the cost method of accounting are adjusted for changes resulting from identifiable price
changes in orderly transactions for the identical or similar investments of the same issuer. Nonmarketable equity investments
are classified within Level 3 of the Valuation Hierarchy due to the absence of quoted market prices, the inherent lack of liquidity,
and the fact that inputs used to measure fair value are unobservable and require management's judgment. The Company uses
discounted cash flows and market assumptions to estimate the fair value of its nonmarketable equity investments when certain
events or circumstances indicate that impairment may exist. These investments are included in other assets on the consolidated
balance sheet. See Note 8 (Prepaid Expenses and Other Assets) for further details.
Debt
The Company estimates the fair value of its long-term debt based on market quotes. These debt instruments are not traded in
active markets and are classified as Level 2 of the Valuation Hierarchy. At December 31, 2018, the carrying value and fair value
of total long-term debt (including the current portion) was $6.3 billion and $6.5 billion, respectively. At December 31, 2017, the
carrying value and fair value of long-term debt was $5.4 billion and $5.7 billion, respectively.
Other Financial Instruments
Certain financial instruments are carried on the consolidated balance sheet at cost, which approximates fair value due to their
short-term, highly liquid nature. These instruments include cash and cash equivalents, restricted cash, accounts receivable,
settlement due from customers, restricted security deposits held for customers, accounts payable, settlement due to customers
and other accrued liabilities.
The contingent consideration attributable to acquisitions made in 2017 is primarily based on the achievement of 2018 revenue
targets and is measured at fair value on a recurring basis. This contingent consideration liability is included in other current
liabilities on the consolidated balance sheet and is classified within Level 3 of the Valuation Hierarchy due to the absence of
quoted market prices. The activity of the Company's contingent consideration liability for 2018 was as follows:
Balance at December 31, 2017
Net change in valuation
Payments.
Foreign currency translation
Balance at December 31, 2018
82
(in millions)
219
Municipal securities
70
15 $
70
|
Equity securities
1
1
Total.
$ 1,433 $
217
1 $
3 $
(1) $1,149
The Company's available-for-sale investment securities held at December 31, 2018 and 2017, primarily carried a credit rating of
A-, or better. The municipal securities are primarily comprised of tax-exempt bonds and are diversified across states and sectors.
Government and agency securities include U.S. government bonds, U.S. government sponsored agency bonds and foreign
government bonds with similar credit quality to that of the U.S. government bonds. Corporate securities are comprised of
commercial paper and corporate bonds. The asset-backed securities are investments in bonds which are collateralized primarily
by automobile loan receivables.
Investment Maturities:
The maturity distribution based on the contractual terms of the Company's investment securities at December 31, 2018 was as
follows:
Financial Instruments - Non-Recurring Measurements
Due within 1 year.
(2) $1,432 $ 1,147 $
$
876
2
$ - $ - $
15 $
17 $
$ - $ - $ 17
Government and agency securities.
157
157
(1)
185
Corporate securities.
Asset-backed securities
1,044
217
1
(2)
1,043
875
185
and accordingly are not included in the Valuation Hierarchy table above. Settlement and other guarantee liabilities are classified
within Level 3 of the Valuation Hierarchy as their valuation requires substantial judgment and estimation of factors that are not
observable in the market. See Note 21 (Settlement and Other Risk Management) for additional information regarding the
Company's settlement and other guarantee liabilities.
Total
MASTERCARD INCORPORATED
Other
Observable
Inputs
(Level 2)
December 31, 2017
Significant
Significant
Unobservable
Inputs
(Level 3)
(in millions)
$
in Active
Markets
(Level 1)
-
15 $
$ 15 $
$ 17 $
$ 17
Government and agency
securities..
65
$
92
Total
Quoted
Prices
Due after 1 year through 5 years
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7. Fair Value and Investment Securities
Financial Instruments - Recurring Measurements
The Company classifies its fair value measurements of financial instruments within the Valuation Hierarchy. There were no
transfers made among the three levels in the Valuation Hierarchy for 2018.
The distribution of the Company's financial instruments measured at fair value on a recurring basis within the Valuation Hierarchy
were as follows:
Inputs
(Level 3)
Assets
for sale 1:
Municipal securities.
in Active
Markets
(Level 1)
Other
Observable
Inputs
(Level 2)
Quoted
Prices
December 31, 2018
Significant
Significant
Unobservable
Investment securities available
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Corporate securities.
Asset-backed securities
Deferred compensation plan 4:
Deferred compensation liabilities.
$ - $ (6) $ - $ (6) $
- $
(30) $ - $ (30)
(54) - - (54)
(54) - - (54)
1The Company's U.S. government securities and marketable equity securities are classified within Level 1 of the Valuation Hierarchy as the fair values
are based on unadjusted quoted prices for identical assets in active markets. The fair value of the Company's available-for-sale municipal securities,
government and agency securities, corporate securities and asset-backed securities are based on observable inputs such as quoted prices, benchmark
yields and issuer spreads for similar assets in active markets and are therefore included in Level 2 of the Valuation Hierarchy.
Foreign currency derivative
liabilities
2
4
The Company's foreign currency derivative asset and liability contracts have been classified within Level 2 of the Valuation Hierarchy as the fair value
is based on observable inputs such as broker quotes relating to foreign currency exchange rates for similar derivative instruments. See Note 22
(Foreign Exchange Risk Management) for further details.
The Company has a nonqualified deferred compensation plan where assets are invested primarily in mutual funds held in a rabbi trust, which is
restricted for payments to participants of the plan. The Company has elected to use the fair value option for these mutual funds, which are measured
using quoted prices of identical instruments in active markets and are included in prepaid expenses and other current assets on the consolidated
balance sheet.
The deferred compensation liabilities are measured at fair value based on the quoted prices of identical instruments to the investment vehicles
selected by the participants. These are included in other liabilities on the consolidated balance sheet.
Settlement and Other Guarantee Liabilities
The Company estimates the fair value of its settlement and other guarantees using market assumptions for relevant though not
directly comparable undertakings, as the latter are not observable in the market given the proprietary nature of such guarantees.
At December 31, 2018 and 2017, the carrying value and fair value of settlement and other guarantee liabilities were not material
81
3
1,043
Derivative instruments 2:
55 - - 55
217
157
1,043
217
81
104
185
876
876
Liabilities
70
1
Equity securities
Derivative instruments 2:
Foreign currency derivative assets
Deferred compensation plan 3:
Deferred compensation assets.
- 35 - 35 -6 -6
54 - - 54
70
Due after 5 years through 10 years
Total
20
Amortized
Cost
Pension settlement charge
Net periodic benefit cost. .
$ 9$ 9 $ 10 $ 1 $ 1 $ 1
12
8
1
(20)
(13)
(1)
2
ཌ ས།||སྱེ
1
2
(2)
(2)
Amortization of prior service credit . . .
Amortization of actuarial loss.
Expected return on plan assets.
Curtailment gain...
Interest cost
430
428
427
410
For the year ended December 31, 2018, the Company's projected benefit obligation related to its Pension Plans decreased $30
million attributable primarily to foreign currency translation and benefits paid. For the year ended December 31, 2017, the
Company's projected benefit obligation related to its Pension Plans increased $422 million attributable primarily to the acquisition
of Vocalink.
Components of net periodic benefit cost recorded in earnings were as follows for the Plans for each of the years ended
December 31:
Pension Plans
$
Postretirement Plan
2017
2016
2018
2017
2016
(in millions)
Service cost. .
2018
468
1 $
10 $
(in millions)
- $
1
- $ - $ -
(2)
5
22 1
es
Total net periodic benefit cost and
other comprehensive loss (income).... $
18 $
(22) $
1 $
$
7 $
1
$ 19 $ (18) $ 11 $ 1$ 8$ 3
88
$ - $ - $
(22)
17
2016
2017
1 $
1 $
2
Net periodic benefit cost, excluding the service cost component, is recognized in other income (expense) on the consolidated
statement of operations. The service cost component is recognized in general and administrative expenses on the consolidated
statement of operations.
Other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31
were as follows:
Curtailment gain
Current year actuarial loss (gain)
Current year prior service credit
4 $
Amortization of prior service credit. . . .
Total other comprehensive loss
(income)...
Pension Plans
Postretirement Plan
2018
2017
2016
2018
Pension settlement charge..
(in millions)
438 $
2017
2018
$
(28) $
(41) $
(57) $
(61)
Accumulated other comprehensive income consists of:
Net actuarial (gain) loss.
$
(5) $
(22) $
(7) $
(5)
Prior service credit.
1
(6
(58)
(54)
(41)
(28)
40
Fair value of plan assets at end of year
410
427
Funded status at end of year .
$
(28) $
(8)
(41) $
(61)
Amounts recognized on the consolidated balance sheet
consist of:
Other liabilities, short-term.
$
(3) $
(3)
Other liabilities, long-term
(57) $
Balance at end of year.
$
(4) $
*
*
Postretirement Plan
*
*
3.00%
3.00%
2.60%
3.85%
* Not applicable
87
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Each of the Pension Plans had benefit obligations in excess of plan assets at December 31, 2018 and 2017. Information on the
Pension Plans were as follows:
Projected benefit obligation.
Accumulated benefit obligation
Fair value of plan assets
80
MASTERCARD INCORPORATED
2.60%
4.00%
Non-U.S. Plans.
(22) $
(13) $
(13)
Weighted-average assumptions used to determine end
of year benefit obligations
Discount rate
Non-U.S. Plans..
Vocalink Plan
Vocalink Plan
1.80%
3.10%
1.80%
2.80%
*
*
4.25%
3.50%
Rate of compensation increase
Postretirement Plan
(21)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Weighted-average assumptions used to determine net periodic benefit cost were as follows for the years ended December 31:
21 $
$
21
154
30
5 58
88
88
21
95
116
184
146
28
174
22 $
22 $ - $ - $
(in millions)
Fair Value
Mutual funds
Insurance contracts
Asset-backed securities
Other..
Total.
December 31, 2018
Quoted
Prices in
Active
Markets
(Level 1)
57 34
Significant
Other
Observable
Inputs
(Level 2)
Quoted
Prices in
Active
Significant
Fair Value
Markets
(Level 1)
Other
Observable
Inputs
(Level 2)
December 31, 2017
Significant
Unobservable
Inputs
(Level 3)
Significant
Unobservable
Inputs
(Level 3)
securities..
57
45
Postretirement Plan
(in millions)
$
14 $
3
10
4
11
4
14
4
13
4
64
Available-For-Sale
Pension Plans
96
90
2024 - 2028
34
31
31
25
25
2
16
45
22
$ 176 $ 200 $ 34 $ 410 $ 190 $ 184 $ 53 $ 427
The following table summarizes expected benefit payments through 2028 for the Pension Plans and the Postretirement Plan,
including those payments expected to be paid from the Company's general assets. Actual benefit payments may differ from
expected benefit payments.
2019
2020
2021
2022
2023
40
Government and agency
Cash and cash equivalents. . $
The following tables set forth by level, within the Valuation Hierarchy, the Pension Plans' assets at fair value as of December 31,
2018 and 2017:
3.50%
*
*
*
*
4.00%
4.25%
Expected return on plan assets
Non-U.S. Plans..
3.00%
3.25%
3.25%
*
*
Vocalink Plan
*
*
*
2.50%
Discount rate
Pension Plans
Postretirement Plan
2018
2017
2016
2018
4.75%
2017
Non-U.S. Plans..
Vocalink Plan
Postretirement Plan
1.80%
1.60%
1.85%
2.80%
2016
4.75%
*
*
The following additional assumptions were used at December 31 in accounting for the Postretirement Plan:
Health care cost trend rate assumed for next year.
Ultimate trend rate.
Year that the rate reaches the ultimate trend rate.
2018
2017
6.00%
6.50%
The Company's discount rate assumptions are based on yield curves derived from high quality corporate bonds, which are matched
to the expected cash flows of each respective plan. The expected return on plan assets assumptions are derived using the current
and expected asset allocations of the Pension Plans' assets and considering historical as well as expected returns on various
classes of plan assets. The rates of compensation increases are determined by the Company, based upon its long-term plans for
such increases.
5.00%
2
Assets
Plan assets are managed taking into account the timing and amount of future benefit payments. The Vocalink Plan assets are
managed within the following target asset allocations: non-government fixed income 39%, government securities (including
U.K. governmental bonds) 28%, investment funds 25% and other 8%. The investment funds are currently comprised of
approximately 44% derivatives, 28% equity, 16% fixed income and 12% other. For the non-U.S. Plans, the assets are concentrated
primarily in insurance contracts.
The Valuation Hierarchy of the Pension Plans' assets is determined using a consistent application of the categorization
measurements for the Company's financial instruments. See Note 1 (Summary of Significant Accounting Policies) for additional
information.
Cash and cash equivalents and other public investment vehicles (including certain mutual funds and government and agency
securities) are valued at quoted market prices, which represent the net asset value of the shares held by the Vocalink Plan, and
are therefore included in Level 1 of the Valuation Hierarchy. Certain other mutual funds (including commingled funds),
governmental and agency securities and insurance contracts are valued at unit values provided by investment managers, which
are based on the fair value of the underlying investments utilizing public information, independent external valuation from third-
party services or third-party advisors, and are therefore included in Level 2 of the Valuation Hierarchy. Asset-backed securities
are classified as Level 3 due to a lack of observable inputs in measuring fair value.
89
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5.00%
3
Assumptions
* Not applicable
3.00%
*
*
Rate of compensation increase
Non-U.S. Plans..
2.60%
2.59%
2.64%
3.00%
*
Vocalink Plan
3.85%
3.95%
*
Postretirement Plan
*
3.00%
*
Foreign currency translation.
20
4
2017
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying Gross Carrying
Amount
Amount
Accumulated
Amortization
Net Carrying
Amount
(in millions)
Finite-lived intangible assets
Capitalized software
$
Customer relationships
1,514 $
439
(898) $
(232)
2018
The following table sets forth net intangible assets, other than goodwill, at December 31:
Note 11. Other Intangible Assets
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Beginning balance
$
(in millions)
3,035 $
1,756
Additions
2
1,136
616 $
Foreign currency translation.
143
Ending balance.
$
2,904 $
The Company had no accumulated impairment losses for goodwill at December 31, 2018. Based on annual impairment testing,
the Company's goodwill is not impaired.
84
MASTERCARD INCORPORATED
(133)
2017
207
(888) $
Total.
$
2,166 $
(1,175) $
167
991 $
175
175
2,277 $
(1,157) $
1,120
The decrease in the gross carrying amount of amortized intangible assets in 2018 was primarily related to the retirement of fully
amortized intangible assets, partially offset by additions to capitalized software. Certain intangible assets are denominated in
foreign currencies. As such, the change in intangible assets includes a component attributable to foreign currency translation.
Based on the qualitative assessment performed in 2018, it was determined that the Company's indefinite-lived intangible assets
were not impaired.
Amortization on the assets above amounted to $250 million, $252 million and $221 million in 2018, 2017 and 2016, respectively.
The following table sets forth the estimated future amortization expense on finite-lived intangible assets on the consolidated
balance sheet at December 31, 2018 for the years ending December 31:
2019.
2020.
2021.
167
Customer relationships.
Indefinite-lived intangible assets
945
684
(214)
259
Other.
46
(45)
1
1,572 $
473
57
2
Total.
1,999
(1,175)
824
2,102
(1,157)
(55)
2018
The changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2017 were as follows:
Note 10. Goodwill
77
499
1,040
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other assets consisted of the following at December 31:
Customer and merchant incentives.
Nonmarketable equity investments.
Prepaid income taxes
Income taxes receivable
Other
Total other assets. .
$
2018
2017
(in millions)
2,458 $
464
(in millions)
778 $
51
603
1,432 $
$
2017
Fair Value
$
(in millions)
376 $
1,056
1
376
1,055
1
$
1,433 $
1,432
337
Investment Income
Prepaid expenses and other current assets consisted of the following at December 31:
Customer and merchant incentives
Prepaid income taxes
Other
Total prepaid expenses and other current assets
83
2018
Investment income primarily consists of interest income generated from cash, cash equivalents and investments. Gross realized
gains and losses are recorded within investment income on the Company's consolidated statement of operations. The gross
realized gains and losses from the sales of available-for-sale securities for 2018, 2017 and 2016 were not significant.
Note 8. Prepaid Expenses and Other Assets
1,434
249
352
481 $
455
987
841
85
81
215
$
166
1,543
(847)
(714)
$
921
829
As of December 31, 2018 and 2017, capital leases of $33 million and $32 million, respectively, were included in equipment.
Accumulated amortization of these capital leases was $24 million and $18 million as of December 31, 2018 and 2017, respectively.
Depreciation and amortization expense for the above property, plant and equipment was $209 million, $185 million and $151
million for 2018, 2017 and 2016, respectively.
1,768
2022
(in millions)
2018
298
178
210
85
3,303
2,298
Customer and merchant incentives represent payments made to customers and merchants under business agreements. Costs
directly related to entering into such an agreement are generally deferred and amortized over the life of the agreement. The
increase in customer and merchant incentives and the decrease in prepaid income taxes at December 31, 2018 from December 31,
2017 are primarily due to the impact from the adoption of the new accounting standards pertaining to revenue recognition and
intra-entity asset transfers, respectively. See Note 1 (Summary of Significant Accounting Policies) for additional information on
the cumulative impact of the adoption of these accounting pronouncements.
2017
Note 9. Property, Plant and Equipment
Building, building equipment and land
Equipment
Furniture and fixtures
Leasehold improvements
Property, plant and equipment..
Less: accumulated depreciation and amortization
Property, plant and equipment, net. . .
Property, plant and equipment consisted of the following at December 31:
2023 and thereafter.
3,035
Actual (loss) gain on plan assets.
Transfers in .
Foreign currency translation.
Pension Plans
Postretirement Plan
2018
2017
2018
2017
($ in millions)
46 $
410
9
9
12
8
(7)
Benefits paid..
Actuarial (gain) loss
Service cost. . .
Benefit obligation acquired during the year
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of December 31, 2018 and 2017, the Company's provision for litigation was $1,591 million and $709 million, respectively.
These amounts are not included in the accrued expenses table above and are separately reported as accrued litigation on the
consolidated balance sheet. See Note 20 (Legal and Regulatory Proceedings) for additional information regarding the Company's
accrued litigation.
Note 13. Pension, Postretirement and Savings Plans
The Company and certain of its subsidiaries maintain various pension and other postretirement plans that cover substantially all
employees worldwide.
Defined Contribution Plans
The Company sponsors defined contribution retirement plans. The primary plan is the Mastercard Savings Plan, a 401(k) plan
for substantially all of the Company's U.S. employees, which is subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA"), as amended. In addition, the Company has several defined contribution plans outside of the U.S.
The Company's total expense for its defined contribution plans was $98 million, $84 million and $73 million in 2018, 2017 and
2016, respectively.
Defined Benefit and Other Postretirement Plans
(44)
The Company sponsors pension and postretirement plans for certain non-U.S. employees (the "non-U.S. Plans") that cover various
benefits specific to their country of employment. In 2017, the Company acquired a majority interest in Vocalink. Vocalink has
a defined benefit pension plan (the "Vocalink Plan") which was permanently closed to new entrants and future accruals as of
July 21, 2013, however, plan participants' obligations are adjusted for future salary changes. The Company has agreed to make
contributions of £15 million (approximately $18 million as of December 31, 2018) annually until March 2020. The term "Pension
Plans" includes the non-U.S. Plans and the Vocalink Plan.
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company uses a December 31 measurement date for the Pension Plans and its Postretirement Plan (collectively the "Plans”).
The Company recognizes the funded status of its Plans, measured as the difference between the fair value of the plan assets and
the projected benefit obligation, in the consolidated balance sheet. The following table sets forth the Plans' funded status, key
assumptions and amounts recognized in the Company's consolidated balance sheet at December 31:
Change in benefit obligation
Benefit obligation at beginning of year
$
468
The Company maintains a postretirement plan providing health coverage and life insurance benefits for substantially all of its
U.S. employees hired before July 1, 2007 (the "Postretirement Plan”).
MASTERCARD INCORPORATED
(22)
71225
33
(8)
344
(4)
Employer contributions..
33
23
Benefits paid..
(23)
(12)
Transfers in
2
3
| | | |
| | | 5 5
ལྐ་
Fair value of plan assets acquired during the year
427
Fair value of plan assets at beginning of year
61 $
59
(2)
(5)
1
3
2123 |
(12)
(4)
48
438
468
57
61
Benefit obligation at end of year
Change in plan assets
(23)
86
Interest cost
85
211
51
127
187
248
$
(in millions)
$
Total accrued expenses
Income and other taxes.
Advertising.
Personnel costs
Customer and merchant incentives
Accrued expenses consisted of the following at December 31:
Note 12. Accrued Expenses and Accrued Litigation
88
Other..
824
(4)
194
3,931
4,747 $
$
388
467
2018
158
88
103
613
744
Customer and merchant incentives represent amounts to be paid to customers under business agreements. The increase in
customer and merchant incentives is due to the adoption of the new accounting standard pertaining to revenue recognition and
timing of payments to customers. See Note 1 (Summary of Significant Accounting Policies) for additional information on the
cumulative impact of the adoption of the revenue recognition guidance.
2,648
3,275 $
$
(in millions)
2017
114
Directors, executive officers and corporate governance
PART II
114
PART III
Item 11.
Item 10.
Executive compensation
116
Item 12. Security ownership of certain beneficial owners and management and related
stockholder matters
114
Item 13.
114
Item 14.
Certain relationships and related transactions, and director independence
Principal accountant fees and services
Changes in and disagreements with accountants on accounting and financial disclosure
Item 9A. Controls and procedures
PART IV
114
Item 9B. Other Information
Item 7.
112
Information about our executive officers
the impact of global economic, political, financial and societal events and conditions, including adverse currency fluctuations and
foreign exchange controls
22
42
Item 5.
Market for registrant's common equity, related stockholder matters and issuer
purchases of equity securities
Management's discussion and analysis of financial condition and results of operations
Item 7A. Quantitative and qualitative disclosures about market risk
43
Item 6.
Reserved
44
58
59
Item 8.
Financial statements and supplementary data
112
Item 9.
112
Item 15.
.
exposure to loss or illiquidity due to our role as guarantor and other contractual obligations
regulation of privacy, data, security and the digital economy
the impact of preferential or protective government actions
regulation directly related to the payments industry (including regulatory, legislative and litigation activity with respect to
interchange rates and surcharging)
•
•
.
.
•
Many factors and uncertainties relating to our operations and business environment, all of which are difficult to predict and many of
which are outside of our control, influence whether any forward-looking statements can or will be achieved. Any one of those
factors could cause our actual results to differ materially from those expressed or implied in writing in any forward-looking
statements made by Mastercard or on its behalf, including, but not limited to, the following factors:
This Report contains forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. All statements other than statements of historical facts may be forward-looking statements. When used in this Report,
the words "believe", "expect", "could", "may", "would", "will", "trend" and similar words are intended to identify forward-looking
statements. Examples of forward-looking statements include, but are not limited to, statements that relate to the Company's future
prospects, developments and business strategies.
Forward-Looking Statements
In this Report on Form 10-K ("Report"), references to the "Company," "Mastercard," "we," "us" or "our" refer to the business
conducted by Mastercard Incorporated and its consolidated subsidiaries, including our operating subsidiary, Mastercard International
Incorporated, and to the Mastercard brand.
3
MASTERCARD 2021 FORM 10-K
Form 10-K summary
38
Item 16.
regulation that directly or indirectly applies to us based on our participation in the global payments industry (including anti-
money laundering, counter financing of terrorism, economic sanctions and anti-corruption, account-based payments systems,
and issuer practice regulation)
Exhibits and financial statement schedules
the impact of changes in tax laws, as well as regulations and interpretations of such laws or challenges to our tax positions
•
issues related to our relationships with our stakeholders (including loss of substantial business from significant customers,
competitor relationships with our customers, banking industry consolidation, merchants' continued focus on acceptance costs
and unique risks from our work with governments)
the impact of information security incidents, account data breaches or service disruptions
users
the challenges relating to operating a real-time account-based payments system and to working with new customers and end
the challenges relating to rapid technological developments and changes
the impact of competition in the global payments industry (including disintermediation and pricing pressure)
•
•
•
•
•
•
116
•
.
the impact of the global COVID-19 pandemic and measures taken in response
potential or incurred liability and limitations on business related to any litigation or litigation settlements
4
Mine safety disclosures
New York Stock Exchange
37
(State or other jurisdiction of
incorporation or organization)
(Exact name of registrant as specified in its charter)
Delaware
Mastercard Incorporated
Commission file number: 001-32877
to
For the transition period from
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Or
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
Form 10-K
Securities registered pursuant to Section 12(g) of the Act:
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
UNITED STATES
☑
reputational impact, including impact related to brand perception and lack of visibility of our brands in products and services
2000 Purchase Street
Purchase, NY
(Address of principal executive offices)
(914) 249-2000
New York Stock Exchange
New York Stock Exchange
Name of each exchange of which registered
MA30
MA27
MA22
MA
Trading Symbol
New York Stock Exchange
2.5% Notes due 2030
1.1% Notes due 2022
Class A Common Stock, par value $0.0001 per share
Title of each class
Securities registered pursuant to Section 12(b) of the Act:
(Registrant's telephone number, including area code)
10577
(Zip Code)
(IRS Employer
Identification Number)
13-4172551
2.1% Notes due 2027
Item 4.
Class B common stock, par value $0.0001 per share
Yes ☑
Portions of the registrant's definitive proxy statement for the 2022 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
MASTERCARD INCORPORATED FISCAL YEAR 2021 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
6
Item 1.
Business
23
Item 1A. Risk factors
37
Item 1B. Unresolved staff comments
37
Item 2.
Properties
37
Item 3.
Legal proceedings
Yes ☐
The aggregate market value of the registrant's Class A common stock, par value $0.0001 per share, held by non-affiliates (using the New York Stock Exchange
closing price as of June 30, 2021, the last business day of the registrant's most recently completed second fiscal quarter) was approximately $317.9 billion.
There is currently no established public trading market for the registrant's Class B common stock, par value $0.0001 per share. As of February 8, 2022, there
were 969,729,455 shares outstanding of the registrant's Class A common stock, par value $0.0001 per share and 7,746,984 shares outstanding of the registrant's
Class B common stock, par value $0.0001 per share.
No ☑
☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
No ☐
Yes ☐
No ☑
Yes ☑
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Yes ☑
No ☐
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
Large accelerated filer
凶
Non-accelerated filer ☐ (do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
☐ ☐ ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report.
emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company"
in Rule 12b-2 of the Exchange Act. (Check One):
the inability to attract, hire and retain a highly qualified and diverse workforce, or maintain our corporate culture
(growth on a local currency basis)
issues related to acquisition integration, strategic investments and entry into new businesses
.
Enhancing the value of payments by making payments safe, secure, intelligent and seamless
Expanding services to new segments and use cases to address the needs of a larger set of customers, including financial
institutions, merchants, governments, digital players and others, while expanding our geographic reach
Supporting and strengthening new network capabilities, including expanding services associated with digital identities and
deploying our expertise in open banking and open data, including with improved analytics
Embrace new network opportunities. We are building and managing new adjacent network capabilities to power commerce,
creating new opportunities to develop and embed services. We do so by:
•
•
Applying our open banking solutions to help institutions and individuals exchange data securely and easily, by enabling the
reliable access, transmission and management of consumer data (including for opening new accounts, securing loans, increasing
credit scores and enabling consumer choice in money movement and personal finance management)
Enabling digital identity solutions, including device intelligence, document proofing, internet protocol ("IP") intelligence,
biometrics, transaction fraud data, location, identity attributes and payment authorization to make transactions across individual
devices and accounts efficient, safe and secure
Each of our priorities supports and builds upon each other and are fundamentally interdependent:
•
.
•
Payments provide data and distribution to drive scale and differentiation in services and enable the development and adoption
of new network capabilities
Services improve the security, efficiency and intelligence of payments, improve portfolio performance, differentiate our offerings
and strengthen our customer relationships. They also power our open banking and digital identity platforms
New network opportunities strengthen our digital payments value proposition, including improved authentication with digital
identity, and new opportunities to develop and embed services in our expanding product offerings
These priorities are supported by six key drivers:
•
•
Extend our services. Our services drive value for our customers and the broader payments ecosystem. We continue to do that as
well as diversify our business, by extending our services, which include cyber and intelligence solutions, insights and analytics, test
and learn, consulting, managed services, loyalty, processing and payment gateway solutions for e-commerce merchants. As we drive
value, our services help accelerate our top-line financial performance by supporting revenue growth in our core payments network.
We extend our services by:
Leaning into new payment innovations such as our planned launch in 2022 of Mastercard Installments, our buy-now-pay-later
solution, and developing solutions that support digital currencies and blockchain applications
BUILD
new areas for
the future
People
Brand
Data
Technology
Franchise
People. Our success is driven by the skills, experience, integrity and mindset of the talent we hire. We attract and retain top talent
from diverse backgrounds and industries. Our people and our winning culture is based on decency, respect and inclusion where
people have opportunities to perform purpose-driven work that impacts communities, customers and co-workers on a global scale.
The diversity and skill sets of our people underpin everything we do.
Doing Well by
Doing Good
Expand in payments. We continue to focus on expanding upon our core payments network to enable payment flows for consumers,
businesses, governments and others, providing them with choice and flexibility to transact across multiple payment rails (including
cards, real-time payments and account-to-account) while ensuring that all payments are done safely, securely and seamlessly. We
do so by:
Driving growth in consumer purchases with a focus on accelerating digitization, growing acceptance and pursuing an expanded
set of use cases, including through partnerships
MASTERCARD 2021 FORM 10-K 7
PARTI
ITEM 1. BUSINESS
•
•
Capturing new payment flows by expanding our multi-rail capabilities and applications to penetrate key flows such as
disbursements and remittances (through Mastercard Send™ and Cross-Border Services), business-to-business ("B2B") (including
Mastercard Track Business Payment ServiceTM ("Track BPS") and areas beyond payments such as enablement of supply chain
financing) and consumer bill payments
Our Key Strategic Priorities
Powering Our Success
10 MASTERCARD 2021 FORM 10-K
Data. We use our data assets, infrastructure and platforms to create a range of products and services for our customers, while
incorporating our data principles in how we design, implement and deliver those solutions. Our Privacy by Design and Data by
Design processes have been developed to ensure we embed privacy, security and data controls in all of our products and services,
keeping a clear focus on protecting customers' and individuals' data.
Payments System Security
Value-Added Products and Services
Cyber and Intelligence Solutions | Insights, Analytics and Test
and Learn | Consulting and Innovation | Managed Services
Issuer and Merchant Loyalty | Processing and Gateway
Issuer
Merchant
Enabling Digital Payments
บบบ
Account Holder
In a typical transaction, an account holder purchases goods or services from a merchant using one of our payment products. After
the transaction is authorized by the issuer, the issuer pays the acquirer an amount equal to the value of the transaction, minus the
interchange fee (described below) and other applicable fees, and then posts the transaction to the account holder's account. The
acquirer pays the amount of the purchase, net of a discount (referred to as the "merchant discount” rate), to the merchant.
•
Interchange Fees. Interchange fees reflect the value merchants receive from accepting our products and play a key role in
balancing the costs and benefits that consumers and merchants derive. Generally, interchange fees are collected from acquirers
and paid to issuers to reimburse the issuers for a portion of the costs incurred. These costs are incurred by issuers in providing
services that benefit all participants in the system, including acquirers and merchants, whose participation in the network
enables increased sales to their existing and new customers, efficiencies in the delivery of existing and new products, guaranteed
payments and improved experience for the customers. We (or, alternatively, financial institutions) establish "default interchange
fees" that apply when there are no other established settlement terms in place between an issuer and an acquirer. We
administer the collection and remittance of interchange fees through the settlement process.
Additional Four-Party System Fees. The merchant discount rate is established by the acquirer to cover its costs of both
participating in the four-party system and providing services to merchants. The rate takes into consideration the amount of the
interchange fee which the acquirer generally pays to the issuer. Additionally, acquirers may charge merchants processing and
related fees in addition to the merchant discount rate. Issuers may also charge account holders fees for the transaction,
including, for example, fees for extending revolving credit.
Switched Transactions
•
Authorization, Clearing and Settlement. Through our core network, we enable the routing of a transaction to the issuer for its
approval, facilitate the exchange of financial transaction information between issuers and acquirers after a successfully
conducted transaction, and settle the transaction by facilitating the exchange of funds between parties via settlement banks
chosen by us and our customers.
•
Cross-Border and Domestic. Our core network switches transactions throughout the world when the merchant country and
country of issuance are different ("cross-border transactions"), providing account holders with the ability to use, and merchants
Authorization | Clearing | Settlement
Switching
CORE NETWORK
Acquirer
Technology. Our technology provides resiliency, scalability and flexibility in how we serve customers. It enables broader reach to
scale digital payment services to multiple channels, including mobile devices. Our technology standards, services and governance
model help us to serve as the connection that allows financial institutions, financial technology companies (fintechs) and others to
interoperate and enable consumers, businesses, governments and merchants to engage through digital channels.
8
MASTERCARD 2021 FORM 10-K
PART I
ITEM 1. BUSINESS
Franchise. We manage an ecosystem of stakeholders who participate in our network. Our franchise creates and sustains a
comprehensive series of value exchanges across our ecosystem. We provide a balanced ecosystem where all participants benefit
from the availability, innovation and safety and security of our network and platforms. Our franchise enables the scale of our
payments network and helps ensure our multiple payment capabilities operate under a single governance structure, which can be
extended to new opportunities.
Doing Well by Doing Good. We apply the full breadth of our technology, insights, partnerships and people to build a more
financially inclusive and sustainable digital economy, with a commitment to diversity, equity and inclusion and a focus on a
sustainable future. We are committed to our core values of operating ethically, responsibly and with decency. This commitment is
directly connected to our continuing success as a business. We refer you to our most recently published Sustainability Report and
Proxy Statement (each located on our website) for our efforts and initiatives in the area of sustainability.
Our Business
Brand. Our brands and brand identities (including our sonic brand identity) serve as a differentiator for our business, representing
our values and enabling us to accelerate growth in new areas.
Our Multi-Rail Network and Payment Capabilities
Core Network
Our core network links issuers and acquirers around the globe to facilitate the switching of transactions, permitting account holders
to use a Mastercard product at tens of millions of acceptance locations worldwide. This network facilitates an efficient, safe and
secure means for receiving payments, a convenient, quick and secure payment method for consumers to access their funds and a
channel for businesses to receive insight through information that is derived from our network. We enable transactions for our
customers through our core network in more than 150 currencies and in more than 210 countries and territories.
MASTERCARD 2021 FORM 10-K 9
PARTI
ITEM 1. BUSINESS
Core Network Transactions. Our core network supports what is often referred to as a "four-party" payments network and includes
the following participants: 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.
The following graphic depicts a typical transaction on our core network, and our role in that transaction:
We enable a wide variety of payment capabilities (including integrated products and value-added service solutions) over our multi-
rail network among account holders, merchants, financial institutions, businesses, governments and others, offering our customers
one partner for their payment needs.
New Networks
Powering Our Success
Our Services
up 23%
Net revenue
$18.9B
up 22%
$7.6B
in capital returned
to stockholders
GAAP
Net income
$8.7B
1
up 35%
Non-GAAP (currency-neutral)
Adjusted net income
$8.3B
up 28%
$5.9B Repurchased shares
$18.9B
Net revenue
The following are our key financial and operational highlights for 2021, including growth rates over the prior year:
Our Performance
•
Embrace
Please see "Risk Factors” in Part I, Item 1A for a complete discussion of these risk factors. We caution you that the important factors
referenced above may not contain all of the factors that are important to you. Our forward-looking statements speak only as of the
date of this Report or as of the date they are made, and we undertake no obligation to update our forward-looking statements.
MASTERCARD 2021 FORM 10-K
PART I
Item 1. Business
Item 1A. Risk factors
Item 1B. Unresolved staff comments
$1.7B Dividends paid
Item 2. Properties
Item 4. Mine safety disclosures
Information about our executive officers
PARTI
ITEM 1. BUSINESS
Item 1. 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.
For a full discussion of our business, please see page 9.
Item 3. Legal proceedings
Diluted EPS
issues related to our Class A common stock and corporate governance structure
up 38%
ITEM 1. BUSINESS
Our Strategy
We remain committed to our strategy to grow our core payments network, diversify our customers and geographies and build new
capabilities through a combination of organic and inorganic strategic initiatives. We are executing on this strategy through a focus
on three key priorities:
•
expand in payments for consumers, businesses and governments
• extend our services to enhance transactions and drive customer value
•
embrace new network opportunities to enable open banking, digital identity and other adjacent network capabilities
PARTI
Each of our priorities supports and builds upon each other and are fundamentally interdependent.
GROW
our core
DIVERSIFY
into new customers
and geographies
Our Key Priorities
$8.76
Extend
Our Strategy
MASTERCARD 2021 FORM 10-K
Expand
In Payments
For a full discussion of our results of operations, including impacts of the COVID-19 pandemic, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item II, Part 7.
Adjusted diluted EPS
6
$8.40
up 30%
$9.5B
cash flows
from operations
$7.7T
up 21%
Gross dollar volume
<-----
Switched transactions
up 32%
112.1B
1
up 25%
Non-GAAP results exclude the impact of gains and losses on equity investments, Special Items and/or foreign currency. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Financial Results Overview" in Part II, Item 7 for the reconciliation to
the most direct comparable GAAP financial measures.
Cross-border volume growth
(on a local currency basis)
Units
(in millions)
(in millions)
0.8 $
231
$
2.5
Value
Converted
Units
(in millions)
Intrinsic
Aggregate
Weighted-
Average
Grant-Date
Outstanding at December 31, 2021
Forfeited
358
Granted
Fair Value
(1.0) $
$
(0.1) $
Weighted-
Average
Outstanding at January 1, 2021
Outstanding at December 31, 2021
Other
Converted
Granted
Outstanding at January 1, 2021
PSUs vest after three years, however, awards granted on or after March 1, 2019 are subject to a mandatory one-year post-vest hold.
A participant's unvested awards are forfeited upon termination of employment. In the event of termination due to job elimination
(as defined by the Company), however, a participant will retain a pro-rata portion of the unvested awards for services performed
through the date of termination. In the event a participant terminates employment due to disability or retirement more than seven
months after receiving the award, the participant retains all of their awards without providing additional service to the Company.
The following table summarizes the Company's PSU activity for the year ended December 31, 2021:
199
Performance Stock Units
RSUs expected to vest at December 31, 2021
751
289
2.1 $
781
291 $
2.2 $
282
The fair value of each RSU is the closing stock price on the New York Stock Exchange of the Company's Class A common stock on the
date of grant, adjusted for the exclusion of dividend equivalents. Upon vesting, a portion of the RSU award may be withheld to
satisfy the minimum statutory withholding taxes. The remaining RSUs will be settled in shares of the Company's Class A common
stock after the vesting period. As of December 31, 2021, there was $283 million of total unrecognized compensation cost related to
non-vested RSUs. The cost is expected to be recognized over a weighted-average period of 2.6 years.
The following table summarizes the Company's RSU activity for the year ended December 31, 2021:
-
Restricted Stock Units
(in years)
Intrinsic
Value
Term
Remaining Aggregate
Contractual
Average
Exercise
Price
Options
(in millions)
Average
Weighted-
Weighted-
Exercisable at December 31, 2021
Outstanding at December 31, 2021
Forfeited/expired
Exercised
Granted
Outstanding at January 1, 2021
The following table summarizes the Company's option activity for the year ended December 31, 2021:
Grant-Date
Fair Value
(in millions)
5.7 $
0.3
137
363
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
98 MASTERCARD 2021 FORM 10-K
As of December 31, 2021, there was $26 million of total unrecognized compensation cost related to non-vested Options. The cost is
expected to be recognized over a weighted-average period of 1.9 years.
5.3 $ 1,109
Options vested and expected to vest at December 31, 2021
152
5.3 $
For RSUs granted on or after March 1, 2020, the awards generally vest ratably over four years. For RSUs granted before March 1,
2020, the awards generally vest after three years. A participant's unvested awards are forfeited upon termination of employment.
In the event of termination due to job elimination (as defined by the Company), however, a participant will retain a pro-rata portion
of the unvested awards for services performed through the date of termination. In the event a participant terminates employment
due to disability or retirement more than seven months after receiving the award, the participant retains all of their awards without
providing additional service to the Company. Compensation expense is recognized over the shorter of the vesting periods stated in
the LTIP or the date the individual becomes eligible to retire but not less than seven months.
986
5.3 $
4.6 $
122
4.2 $
152
5.4 $
$ 259
96
(0.6) $
1,109
Aggregate
Intrinsic
792
0.4
231
ཀླཚ
92
32
Total intrinsic value of PSUs converted into shares of Class A common stock
291
385
Weighted-average grant-date fair value of awards granted
394
330
360
Total intrinsic value of RSUs converted into shares of Class A common stock
PSUS:
226
288
358
Weighted-average grant-date fair value of awards granted
RSUS:
85
317
Note 19. Commitments
2022
The risk-free rate of return was based on the U.S. Treasury yield curve in effect on the date of grant. The expected term and the
expected volatility were based on historical Mastercard information. The expected dividend yields were based on the Company's
expected annual dividend rate on the date of grant.
$
es
1
3
48
114
202
424
(in millions)
$
100 MASTERCARD 2021 FORM 10-K
Total
Thereafter
2026
2025
2024
2023
At December 31, 2021, the Company had the following future minimum payments due under noncancelable agreements, primarily
related to sponsorships to promote the Mastercard brand and licensing arrangements. The Company has accrued $17 million of
these future payments as of December 31, 2021.
317
169
69
MASTERCARD 2021 FORM 10-K 99
Since 2013, PSUs containing performance and market conditions have been issued. Performance measures used to determine the
actual number of shares that vest after three years include net revenue growth, EPS growth and relative total shareholder return
("TSR"). Relative TSR is considered a market condition, while net revenue and EPS growth are considered performance conditions.
The Monte Carlo simulation valuation model is used to determine the grant-date fair value.
PSUs expected to vest at December 31, 2021
128
334 $
0.4 $
128
334 $
0.4 $
231
(0.1) $
226
(0.1) $
385
0.2 $
259
$
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Compensation expense for PSUs is recognized over the requisite service period, or the date the individual becomes eligible to retire
but not less than seven months, if it is probable that the performance target will be achieved and subsequently adjusted if the
probability assessment changes. During the year ended December 31, 2020, performance targets related to PSU awards granted in
2018 ("2018 PSU Awards") were adjusted to exclude certain pandemic-related financial impacts deemed outside of the Company's
control. The adjustment during the year ended December 31, 2020 required the Company to apply modification accounting to the
2018 PSU Awards which had an immaterial impact on compensation expense. As of December 31, 2021, there was $34 million of
total unrecognized compensation cost related to non-vested PSUs. The cost is expected to be recognized over a weighted-average
period of 1.5 years.
Additional Information
68
36
53
53
57
250
273 $ 254 $
$
Value
(in millions)
(in millions, except weighted-
average fair value)
2020
Total intrinsic value of Options exercised
Options:
Income tax benefit realized related to Options exercised
Income tax benefit recognized for equity awards
Share-based compensation expense: Options, RSUs and PSUs
2021
The following table includes additional share-based payment information for each of the years ended December 31:
2019
$ 53.09
8,000 $ 6,000 $
0.6 %
1,500
3.430 %
1,500
1,500
3.896 %
2019 USD Notes
2.950 % Senior Notes due June 2029
3.650 % Senior Notes due June 2049
2.000 % Senior Notes due March 2025
1,000
1,000
3.030 %
1,000
1,000
3.689 %
750
750
2.147 %
2018 USD Notes
3.500 % Senior Notes due February 2028
3.950 % Senior Notes due February 2048
500
500
3.598 %
500
500
3.990 %
2016 USD Notes
2.000 % Senior Notes due November 2021
2.950 % Senior Notes due November 2026
3.800 % Senior Notes due November 2046
650
1,500
3.420 %
1,000
1,000
18
3
21
3
21
4
19
4
124
19
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Debt
2.236 %
Long-term debt consisted of the following at December 31:
2020
Effective
Interest Rate
2021 USD Notes
2.000 % Senior Notes due November 2031
1.900 % Senior Notes due March 2031
2.950 % Senior Notes due March 2051
$
(in millions)
750 $
2.112 %
600
1.981 %
700
3.013 %
2020 USD Notes
3.300% Senior Notes due March 2027
3.350 % Senior Notes due March 2030
3.850 % Senior Notes due March 2050
2021
3
750
3.044 %
(792)
(649)
Long-term debt
$
13,109 $
12,023
1 €1.650 billion euro-denominated debt issued in December 2015.
2
3
In 2021, the Company entered into an interest rate swap which is accounted for as a fair value hedge. See Note 23 (Derivative and Hedging
Instruments) for additional information.
2015 EUR Notes due December 2022 and 2016 USD Notes due November 2021 are classified as current portion of long-term debt on the
consolidated balance sheet as of December 31, 2021 and 2020, respectively.
In March 2021, the Company issued $600 million principal amount of notes due March 2031 and $700 million principal amount of
notes due March 2051. In November 2021, the Company also issued $750 million principal amount of notes due November 2031.
The two issuances in 2021 are collectively referred to as the "2021 USD Notes". The net proceeds from the issuance of the 2021 USD
Notes, after deducting the original issue discount, underwriting discount and offering expenses, were $2.024 billion.
In March 2020, the Company issued $1 billion principal amount of notes due March 2027, $1.5 billion principal amount of notes due
March 2030 and $1.5 billion principal amount notes due March 2050 (collectively the "2020 USD Notes"). The net proceeds from the
issuance of the 2020 USD Notes, after deducting the original issue discount, underwriting discount and offering expenses, were
$3.959 billion.
MASTERCARD 2021 FORM 10-K 93
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 2019, the Company issued $1 billion principal amount of notes due June 2029 and $1 billion principal amount of notes due
June 2049. In December 2019, the Company also issued $750 million principal amount of notes due March 2025. The two issuances
in 2019 are collectively referred to as the "2019 USD Notes". The net proceeds from the issuance of the 2019 USD Notes, after
deducting the original issue discount, underwriting discount and offering expenses, were $2.724 billion.
The outstanding debt, described above, is not subject to any financial covenants and it may be redeemed in whole, or in part, at the
Company's option at any time for a specified make-whole amount. These notes are senior unsecured obligations and would rank
equally with any future unsecured and unsubordinated indebtedness.
Scheduled annual maturities of the principal portion of long-term debt outstanding at December 31, 2021 are summarized below.
(in millions)
2022
2023
793
2024
2025
2026
Thereafter
Total
12,672
13,901
3
Less: Current portion ³
600
600
3.893 %
1
2015 EUR Notes
1.100% Senior Notes due December 2022
2.100 % Senior Notes due December 2027
2.500 % Senior Notes due December 2030
793
859
1.265 %
906
982
2.189 %
170
750
184
2014 USD Notes
3.375 % Senior Notes due April 2024
1,000
1,000
3.484 %
14,019
12,775
Less: Unamortized discount and debt issuance costs
(103)
Less: Cumulative hedge accounting fair value adjustments ²
(2)
―
Total debt outstanding
2.562 %
27 $
$
(in millions)
2021
2019
2020
2021
Pension Plans
Weighted-average assumptions used to determine net periodic benefit cost were as follows for the years ended December 31:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
*
*
3.00 % 3.00 % 3.00 %
* Not applicable
The Company's discount rate assumptions are based on yield curves derived from high quality corporate bonds, which are matched
to the expected cash flows of each respective plan. The expected return on plan assets assumptions are derived using the current
and expected asset allocations of the Pension Plans' assets and considering historical as well as expected returns on various classes
of plan assets. The rates of compensation increases are determined by the Company, based upon its long-term plans for such
increases.
The following additional assumptions were used at December 31 in accounting for the Postretirement Plan:
Healthcare cost trend rate assumed for next year
Ultimate trend rate
Year that the rate reaches the ultimate trend rate
Assets
2021
2020
6.75 %
5.00 %
7.00 %
5.00 %
7
8
Plan assets are managed taking into account the timing and amount of future benefit payments. The Vocalink Plan assets are
managed with the following target asset allocations: cash and cash equivalents 42%, U.K. government securities 18%, fixed income
17%, equity 15% and real estate 8%. For the non-U.S. Plans, the assets are concentrated primarily in insurance contracts.
The Valuation Hierarchy of the Pension Plans' assets is determined using a consistent application of the categorization
measurements for the Company's financial instruments. See Note 1 (Summary of Significant Accounting Policies) for additional
information.
MASTERCARD 2021 FORM 10-K 91
Postretirement Plan
2020
2019
Discount rate
Non-U.S. Plans
*
*
*
2.50%
1.50 %
1.50 % 1.50 %
2.75 % 2.75 %
3.20 % 3.20% 3.75 %
*
1.60 % 1.60 % 2.10 %
4.25 %
2.50 % 3.25 %
*
*
PART II
*
1.55 % 1.55 %
*
1.80 %
0.70 % 0.70 %
Postretirement Plan
Vocalink Plan
Non-U.S. Plans
Rate of compensation increase
Vocalink Plan
Non-U.S. Plans
Expected return on plan assets
Postretirement Plan
Vocalink Plan
2.00 %
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
$ 637
$ 329
213 $
-
$ 542
Investments at Net Asset Value ("NAV") 4
Total Plan Assets
51
$ 688
75
$ 617
1 Cash and cash equivalents are valued at quoted market prices, which represent the net asset value of the shares held by the Plans.
2 Certain mutual funds are valued at quoted market prices, which represent the value of the shares held by the Plans, and are therefore included in
Level 1. Certain other mutual funds are valued at unit values provided by investment managers, which are based on the fair value of the
underlying investments utilizing public information, independent external valuation from third-party services or third-party advisors, and are
therefore included in Level 2.
3
$
4
Investments at NAV include mutual funds (comprised primarily of credit investments) and other investments (comprised primarily of real estate
investments) and are valued using the net asset value provided by the administrator as a practical expedient, and therefore these investments
are not included in the valuation hierarchy. These investments have quarterly redemption frequencies with redemption notice periods ranging
from 60 to 90 days.
The following table summarizes expected benefit payments (as of December 31, 2021) through 2031 for the Pension Plans and the
Postretirement Plan, including those payments expected to be paid from the Company's general assets. Actual benefit payments
may differ from expected benefit payments.
2022
2023
2024
2025
2026
2027-2031
92
92
MASTERCARD 2021 FORM 10-K
Pension Plans
Postretirement Plan
Insurance contracts are valued at unit values provided by investment managers, which are based on the fair value of the underlying investments
utilizing public information, independent external valuation from third-party services or third-party advisors.
1,000
206
$
Inputs
(Level 2)
The following tables set forth by level, within the Valuation Hierarchy, the Pension Plans' assets at fair value:
December 31, 2021
Significant
December 31, 2020
Significant
Significant
Unobservable
Inputs
(Level 3)
Unobservable
Inputs
(Level 3)
Quoted
Prices in
Active
Fair Markets
Value
(Level 1)
(in millions)
Other
Observable
Inputs
(Level 2)
Fair
Value
Cash and cash equivalents ¹
Mutual funds
1
431 $
$ 246 $ - $ - $ 246 $
185
102
287
270
117
- 387
3
Insurance contracts
104
104
96
- 96
Total
59 $ - $ - $ 59
750
750
10,726
5
(20)
43
Investment securities available-for-sale
Accumulated Other Comprehensive Income (Loss)
$
(680) $
(131) $
(1)
2 5 | N
(1)
4
5
(128)
(2)
21
(1)
2 $
(809)
Foreign currency translation adjustments 1
Translation adjustments on net investment hedges
Cash flow hedges
December 31,
2019
Increase /
(Decrease)
Reclassifications
December 31,
2020
(in millions)
$
Defined benefit pension and other postretirement plans 5
-
)
(133)
As of December 31, 2021, the remaining authorization under the share repurchase programs approved by the Company's Board of
Directors was $11.9 billion.
96 MASTERCARD 2021 FORM 10-K
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17. Accumulated Other Comprehensive Income (Loss)
The changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, for the years ended
December 31, 2021 and 2020 were as follows:
December 31,
2020
Increase/
(Decrease)
Reclassifications
December 31,
2021
(in millions)
1
Foreign currency translation adjustments ¹
(638) $
Translation adjustments on net investment hedges 2
Foreign exchange contracts
3
$
(352) $
(387) $
$ - $ (739)
(175)
209
34
-
5
Interest rate contracts
4
Cash flow hedges
286 $
2
(38)
In 2019, the Company entered into treasury rate locks which are accounted for as cash flow hedges. In the first quarter of 2020, in connection
with the issuance of the 2020 USD Notes, these contracts were settled for a loss of $175 million, or $136 million net of tax, recorded in
accumulated other comprehensive income (loss). The cumulative loss will be reclassified as an adjustment to interest expense over the
respective terms of the 2020 USD Notes. See Note 23 (Derivative and Hedging Instruments) for additional information.
During 2021, the increase in the accumulated other comprehensive income related to the Plans was driven primarily by a net actuarial gain
within the Pension Plans. During 2020, the increase in the accumulated other comprehensive loss related to the Plans was driven primarily by an
actuarial loss within the Postretirement Plan. See Note 14 (Pension, Postretirement and Savings Plans) for additional information.
40
MASTERCARD 2021 FORM 10-K 97
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18. Share-Based Payments
In May 2006, the Company granted the following awards under the Mastercard Incorporated 2006 Long Term Incentive Plan, which
was amended and restated as of June 5, 2012 (the "LTIP"). The LTIP is a stockholder-approved plan that permits the grant of various
types of equity awards to employees. The Company has granted Options, RSUs and PSUs under the LTIP. The Company uses the
straight-line method of attribution for expensing all equity awards. Compensation expense is recorded net of estimated forfeitures,
with estimates adjusted as appropriate.
There are approximately 116 million shares of Class A common stock authorized for equity awards under the LTIP. Although the LTIP
permits the issuance of shares of Class B common stock, no such shares have been authorized for issuance. Shares issued as a result
of Option exercises and the conversions of RSUs and PSUs were funded primarily with the issuance of new shares of Class A common
stock.
Stock Options
Options expire ten years from the date of grant and vest ratably over four years. For Options granted, a participant's unvested
awards are forfeited upon termination. In the event a participant terminates employment due to disability or retirement more than
seven months after receiving the award, however, the participant retains all of their awards without providing additional service to
the Company. Retirement eligibility is dependent upon age and years of service. Compensation expense is recognized over the
vesting period as stated in the LTIP.
The fair value of each Option is estimated on the date of grant using a Black-Scholes option pricing model. The following table
presents the weighted-average assumptions used in the valuation and the resulting weighted-average fair value per Option granted
for the years ended December 31:
Risk-free rate of return
Beginning in 2021, certain foreign exchange derivative contracts are designated as cash flow hedging instruments. Gains and losses resulting
from changes in the fair value of these contracts are deferred in accumulated other comprehensive income (loss) and subsequently reclassified
to the consolidated statement of operations when the underlying hedged transactions impact earnings. See Note 23 (Derivative and Hedging
Instruments) for additional information.
Expected term (in years)
Expected dividend yield
Weighted-average fair value per Option granted
2021
2020
2019
0.9 %
6.00
1.0 %
6.00
26.1 %
19.3 %
2.6 %
6.00
19.6 %
0.5 %
$ 91.70
0.6 %
Expected volatility
312.68 $ 245.89
During 2021, the increase in the accumulated other comprehensive income related to the net investment hedges was driven by the depreciation
of the euro against the U.S. dollar. During 2020, the increase in the accumulated other comprehensive loss related to the net investment hedge
was driven by the appreciation of the euro. See Note 23 (Derivative and Hedging Instruments) for additional information.
4
(137)
(352)
(175)
4
Interest rate contracts
11
(147)
5
Defined benefit pension and other postretirement plans
(9)
(10)
Investment securities available-for-sale
1
5
(1)
3
(133)
(1)
(20)
Accumulated Other Comprehensive Income (Loss)
$
(673) $
(9) $
2 $
(680)
1 During 2021, the increase in the accumulated other comprehensive loss related to foreign currency translation adjustments was driven primarily
by the depreciation of the euro against the U.S. dollar. During 2020, the decrease in the accumulated other comprehensive loss related to
foreign currency translation adjustments was driven primarily by the appreciation of the euro and British pound partially offset by the
depreciation of the Brazilian real.
2
3
mཊེ།
$ 80.92
356.82 $
26.4
Ownership and Governance Structure
2021
2020
2019
(in millions, except per share data)
$
1.81 $
1.64 $
1.39
1,781 $
1,641 $
1,408
Equity ownership and voting power of the Company's shares were allocated as follows as of December 31:
Public Investors (Class A stockholders)
Principal or Affiliate Customers (Class B stockholders)
Mastercard Foundation (Class A stockholders)
Class B Common Stock Conversions
2021
2020
Equity
Ownership
88.4 %
0.8 %
10.8 %
General
Voting Power
89.2 %
%
Equity
Ownership
General
Voting Power
88.2 %
0.8 %
88.9 %
Total dividends declared
Dividends declared per share
The Company declared total per share dividends on its Class A and Class B Common Stock during the years ended December 31 as
summarized below:
The Company declared a quarterly cash dividend on its Class A and Class B Common Stock during each of the four quarters of 2021,
2020 and 2019.
$
14,019
As of December 31, 2021, the Company has a commercial paper program (the "Commercial Paper Program") under which the
Company is authorized to issue up to $6 billion in unsecured commercial paper notes with maturities of up to 397 days from the date
of issuance. The Commercial Paper Program is available in U.S. dollars.
In conjunction with the Commercial Paper Program, the Company has a committed five-year unsecured $6 billion revolving credit
facility (the "Credit Facility”). The Credit Facility, which previously expired on November 13, 2025, was amended and extended on
November 13, 2021 for an additional year and now expires on November 12, 2026. The amendment and extension did not result in
material changes to the terms and conditions of the Credit Facility. Borrowings under the Credit Facility are available in U.S. dollars
and/or euros. The facility fee under the Credit Facility is determined according to the Company's credit rating and is payable on the
average daily commitment, regardless of usage, per annum. In addition to the facility fee, interest rates on borrowings under the
Credit Facility would be based on prevailing market interest rates plus applicable margins that fluctuate based on the Company's
credit rating. The Credit Facility contains customary representations, warranties, affirmative and negative covenants, events of
default and indemnification provisions. The Company was in compliance in all material respects with the covenants of the Credit
Facility at December 31, 2021 and 2020.
Borrowings under the Commercial Paper Program and the Credit Facility are to be used to provide liquidity for general corporate
purposes, including providing liquidity in the event of one or more settlement failures by the Company's customers. The Company
may borrow and repay amounts under the Commercial Paper Program and Credit Facility from time to time. The Company had no
borrowings under the Credit Facility and the Commercial Paper Program at December 31, 2021 and 2020.
Note 16. Stockholders' Equity
Classes of Capital Stock
Mastercard's amended and restated certificate of incorporation authorizes the following classes of capital stock:
Authorized
Shares
Class
Par Value
Per Share
A
$0.0001
- %
(in millions)
3,000
One vote per share
Dividend rights
B
$0.0001
1,200 Non-voting
Dividend rights
Preferred
$0.0001
300
No shares issued or outstanding at December 31, 2021 and 2020. Dividend and voting
rights are to be determined by the Board of Directors of the Company upon issuance.
94 MASTERCARD 2021 FORM 10-K
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dividends
Dividend and Voting Rights
10.8 %
11.0 %
11.1 %
(14.3)
2.3
2.9
(2.9)
986.9
8.3
(16.5)
1.2
0.5
(0.5)
972.1
7.8
The Company's Board of Directors have approved share repurchase programs authorizing the Company to repurchase shares of its
Class A Common Stock. The following table summarizes the Company's share repurchase authorizations of its Class A common stock
for the years ended December 31:
11.2
Board authorization
Shares repurchased
Average price paid per share
2021
2020
2019
(In millions, except per share data)
8,000
$
5,904 $
4,473 $
6,497
16.5
14.3
Dollar-value of shares repurchased
$
996.0
0.6
Shares of Class B common stock are convertible on a one-for-one basis into shares of Class A common stock. Entities eligible to hold
Mastercard's Class B common stock are defined in the Company's amended and restated certificate of incorporation (generally the
Company's principal or affiliate customers), and they are restricted from retaining ownership of shares of Class A common stock.
Class B stockholders are required to subsequently sell or otherwise transfer any shares of Class A common stock received pursuant
to such a conversion.
Mastercard Foundation
In connection and simultaneously with its 2006 initial public offering (the “IPO”), the Company issued and donated 135 million newly
authorized shares of Class A common stock to Mastercard Foundation. Mastercard Foundation is a private charitable foundation
incorporated in Canada that is controlled by directors who are independent of the Company and its principal customers. Under the
terms of the donation, Mastercard Foundation became able to resell the donated shares in May 2010 to the extent necessary to
meet charitable disbursement requirements pursuant to Canadian tax law. Under such current law, Mastercard Foundation must
annually disburse at least 3.5% of its assets not used in its charitable activities and administration in the previous eight quarters
("Disbursement Quota"). However, Mastercard Foundation obtained permission from the Canada Revenue Agency to, until
December 31, 2021, meet its cumulative Disbursement Quota obligations over a period of time that, on average, demonstrates
compliance with the requirement for such established time period. Mastercard Foundation will be permitted to sell all of its
remaining shares beginning May 1, 2027, subject to certain conditions.
MASTERCARD 2021 FORM 10-K 95
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock Activity
The following table presents the changes in the Company's outstanding Class A and Class B common stock for the years ended
December 31:
Balance at December 31, 2018
Purchases of treasury stock
Share-based payments
Conversion of Class B to Class A common stock
Balance at December 31, 2019
(0.6)
Purchases of treasury stock
Conversion of Class B to Class A common stock
Balance at December 31, 2020
Purchases of treasury stock
Share-based payments
Conversion of Class B to Class A common stock
Balance at December 31, 2021
Outstanding Shares
Class A
Class B
(in millions)
1,018.6
11.8
(26.4)
3.2
Share-based payments
(116)
Assumptions
109
40
47
136
147
24
58
333
276
206
182
137
142
(415)
(353)
1,218
1,041
114
78
153
218
60
260
497 $
Net operating and capital losses
Unrealized gain/loss - 2015 EUR Notes
U.S. foreign tax credits
Intangible assets
Other items
Total Deferred Tax Assets
Deferred Tax Liabilities
Prepaid expenses and other accruals
Gains on equity investments
Goodwill and intangible assets
Property, plant and equipment
Previously taxed earnings and profits
Other items
Total Deferred Tax Liabilities
Net Deferred Tax Assets
2021
2020
(in millions)
$
324
State taxes and other credits
571
174
(in millions)
$
388
$
203
$
164
17
19
31
22
4
192
37
(31)
(10)
(11)
(15)
(12)
2019
216
2020
Expired statute of limitations
Ending balance
183
3
61
112
38
1,127
636
$
91 $
405
The valuation allowance balance at December 31, 2021 and 2020 primarily relates to the Company's ability to recognize future tax
benefits associated with the carry forward of U.S. foreign tax credits generated in the current and prior periods and certain foreign
losses. The recognition of the foreign tax credits is dependent upon the realization of future foreign source income in the
appropriate foreign tax credit basket in accordance with U.S. federal income tax law. The recognition of the foreign losses is
dependent on the timing and character of future taxable income in such jurisdictions.
A reconciliation of the beginning and ending balance for the Company's unrecognized tax benefits for the years ended December 31,
is as follows:
Beginning balance
Additions:
Current year tax positions
Prior year tax positions
Reductions:
Prior year tax positions
Settlements with tax authorities
2021
(2)
Compensation and benefits
Deferred Tax Assets
21.0 %
1,630
21.0 %
2,044
21.0 %
State tax effect, net of federal benefit
60
0.6 %
57
0.7%
65
0.7 %
Foreign tax effect
(283)
(2.7)%
(193)
(2.5)%
(208)
(2.1)%
2,164
1
Federal statutory tax
$
73
(7)
1,620 $ 1,349 $ 1,613
Effective Income Tax Rate
A reconciliation of the effective income tax rate to the U.S. federal statutory income tax rate for the years ended December 31, is as
follows:
2021
2020
Amount
Percent
Amount
Percent
2019
Amount
Percent
(in millions, except percentages)
Income before income taxes
$ 10,307
$
7,760
9,731
Accrued liabilities
U.S. tax benefits
2
17.4 % $ 1,613
16.6 %
1 Refer to the description below for the components that represent U.S. tax benefits.
Included within the impact of other is $27 million of tax benefits for 2019 relating to the carryback of certain foreign tax credits.
2
The effective income tax rates for the years ended December 31, 2021, 2020 and 2019 were 15.7%, 17.4% and 16.6%, respectively.
The effective income tax rate for 2021 was lower than the effective income tax rate for 2020, 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 the
Company's lower effective tax rate. These benefits were partially offset by a lower discrete tax benefit related to share-based
payments in 2021.
MASTERCARD 2021 FORM 10-K 101
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The effective income tax rate for 2020 was higher than the effective income tax rate for 2019, primarily due to higher discrete tax
benefits in 2019, partially offset by a more favorable geographic mix of earnings in 2020. The 2019 discrete tax benefits related to a
favorable court ruling, a reduction to the Company's transition tax liability and additional foreign tax credits which can be carried
back under U.S. tax reform transition rules issued by the Department of the Treasury and the Internal Revenue Service.
Singapore Income Tax Rate
In connection with the expansion of the Company's operations in the Asia Pacific, Middle East and Africa region, the Company's
subsidiary in Singapore, Mastercard Asia Pacific Pte. Ltd. ("MAPPL") received an incentive grant from the Singapore Ministry of
Finance in 2010. The incentive had provided MAPPL with, among other benefits, a reduced income tax rate for the 10-year period
commencing January 1, 2010 on taxable income in excess of a base amount. The Company continued to explore business
opportunities in this region, resulting in an expansion of the incentives being granted by the Ministry of Finance, including a further
reduction to the income tax rate on taxable income in excess of a revised fixed base amount commencing July 1, 2011 and
continuing through December 31, 2025. Without the incentive grant, MAPPL would have been subject to the statutory income tax
rate on its earnings. For 2021, 2020 and 2019, the impact of the incentive grant received from the Ministry of Finance resulted in a
reduction of MAPPL's income tax liability of $300 million, or $0.30 per diluted share, $260 million, or $0.26 per diluted share, and
$300 million, or $0.29 per diluted share, respectively.
Indefinite Reinvestment
As of December 31, 2021 the Company had immaterial deferred tax liabilities related to the tax effect of the estimated foreign
exchange impact on unremitted earnings. The Company expects that foreign withholding taxes associated with future repatriation
of these earnings will not be material. Earnings of approximately $1.1 billion remain permanently reinvested and the Company
estimates that immaterial U.S. federal and state and local income tax benefits would result, primarily from foreign exchange, if these
earnings were to be repatriated.
102
MASTERCARD 2021 FORM 10-K
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Taxes
Deferred tax assets and liabilities represent the expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of assets and liabilities. The components of deferred tax assets and liabilities at December 31 are as
follows:
1,349
Windfall benefit
15.7 % $
$
(132)
(1.3)%
- %
-
%
(67)
(0.7)%
(119)
(1.5)%
(129)
(1.3)%
Other, net
Income tax expense
(122)
(1.2)%
(26)
(0.3)%
(159)
(1.7)%
1,620
(70)
(3)
(7)
19
Derivative liabilities:
Derivatives designated as hedging instruments
Foreign exchange contracts in a cash flow hedge 1
Interest rate contracts in a fair value hedge 2
Foreign exchange contracts in a net investment hedge ¹
1
$
104 $
3 $
1,000
8
- $ -
--
1,473
4
Derivatives not designated as hedging instruments
1
Foreign exchange contracts
406
483 $
8
14 $
$
(in millions)
Derivative assets:
Derivatives designated as hedging instruments
Foreign exchange contracts in a cash flow hedge 1
$
102 $
7 $ - $ -
2
**
6
| |
Interest rate contracts in a fair value hedge
Derivatives not designated as hedging instruments
Foreign exchange contracts 1
Total Derivative Assets
124
1
483
19
226 $
Fair Value
1,016
Total Derivative Liabilities
Foreign exchange contracts
Interest rate contracts
Derivative financial instruments in a
net investment hedge relationship:
Foreign exchange contracts
es is
$ 6$
$
-
- $ –
(189) $
14
Net revenue
Interest expense
$
114 $ - $ -
$
es
$
(6) $ (4) $ -
The Company estimates that $1 million, pre-tax, of the net deferred loss on cash flow hedges recorded in accumulated other
comprehensive income (loss) at December 31, 2021 will be reclassified into the consolidated statement of operations within the next
12 months. The term of the foreign exchange derivative contracts designated in hedging relationships are generally less than 18
months.
110 MASTERCARD 2021 FORM 10-K
Derivative financial instruments in a
cash flow hedge relationship:
28
(in millions)
2020
$
2,983 $
23 $
1,016 $
28
1
Foreign exchange derivative assets and liabilities are recorded at fair value and are included within prepaid expenses and other current assets
and other current liabilities, respectively, on the consolidated balance sheet.
2
Interest rate derivative assets and liabilities are recorded at fair value and are included within prepaid and other current assets and other
liabilities, respectively, on the consolidated balance sheet.
** As of December 31, 2021, the total notional of interest rate contracts in a fair value hedge is $1.0 billion.
The pre-tax gain (loss) related to the Company's derivative financial instruments designated as hedging instruments are as follows:
Gain (Loss) Recognized in OCI
Year ended December 31,
2019
2021
2020
(in millions)
Gain (Loss) Reclassified from AOCI
Year ended December 31,
Location of Gain
(Loss) Reclassified
from AOCI into
Earnings
2021
2019
(4)
Notional
Notional
Europe. Since May 2012, a number of United Kingdom ("U.K.") merchants filed claims or threatened litigation against Mastercard
seeking damages for excessive costs paid for acceptance of Mastercard credit and debit cards arising out of alleged anti-competitive
conduct with respect to, among other things, Mastercard's cross-border interchange fees and its U.K. and Ireland domestic
interchange fees (the "U.K. Merchant claimants"). In addition, Mastercard, has faced similar filed or threatened litigation by
merchants with respect to interchange rates in other countries in Europe (the "Pan-European Merchant claimants"). Mastercard has
resolved a substantial amount of these damages claims through settlement or judgment. Approximately £1 billion (approximately
$1.2 billion as of December 31, 2021) of unresolved damages claims remain.
In January 2017, Mastercard received a liability judgment in its favor on all significant matters in a separate action brought by ten of
the U.K. Merchant claimants. Three of the U.K. Merchant claimants appealed the judgment, and these appeals were combined with
Mastercard's appeal of a 2016 judgment in favor of one U.K. merchant. In July 2018, the U.K. appellate court heard the appeals of
MASTERCARD 2021 FORM 10-K 105
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the four merchant claimants and ruled against both Mastercard and Visa on two of the three legal issues being considered. The
parties appealed the rulings to the U.K. Supreme Court. In June 2020, the U.K. Supreme Court ruled against Mastercard and Visa
with respect to one of the liability issues being considered by the Court related to U.K domestic interchange fees. Additionally, the
U.K Supreme Court set out the legal standard that should be applied by lower trial courts with respect to determining whether
interchange was exemptible under applicable law, and provided guidance to lower courts with regard to the legal standard that
should be applied in assessing merchants' damages claims. The U.K. Supreme Court sent three of the merchant cases back to the
trial court solely for the purpose of determining damages issues which is scheduled to commence in January 2023.
Mastercard continues to litigate with the remaining U.K. and Pan-European Merchant claimants and it has submitted statements of
defense disputing liability and damages claims. The majority of these merchant claims generally had been stayed pending the
decision of the U.K. Supreme Court, and a number of those matters are now progressing with motion practice and discovery. In one
of the actions involving multiple merchant plaintiff claims, in November 2021 the trial court denied the plaintiffs' motion for
summary judgment on certain liability issues. The plaintiffs were granted permission to appeal that ruling. In 2021 and 2020,
Mastercard incurred charges of $94 million and $28 million, respectively, to reflect both the litigation settlements and estimated
attorneys' fees with a number of U.K. merchants as well as settlements with a number of Pan-European merchants.
In September 2016, a proposed collective action was filed in the United Kingdom on behalf of U.K. consumers seeking damages for
intra-EEA and domestic U.K. interchange fees that were allegedly passed on to consumers by merchants between 1992 and 2008.
The complaint, which seeks to leverage the European Commission's 2007 decision on intra-EEA interchange fees, claims damages in
an amount that exceeds £14 billion (approximately $19 billion as of December 31, 2021). In July 2017, the trial court denied the
plaintiffs' application for the case to proceed as a collective action. In April 2019, the U.K. appellate court granted the plaintiffs'
appeal of the trial court's decision and sent the case back to the trial court for a re-hearing on the plaintiffs' collective action
application. In December 2020, the U.K. Supreme Court rejected Mastercard's appeal of this ruling. In March 2021, the trial court
held a re-hearing on the plaintiffs' collective action application, during which Mastercard sought to narrow the scope of the
proposed class. In August 2021, the trial court issued a decision in which it granted class certification but agreed with Mastercard's
argument and narrowed the scope of the class. The plaintiffs did not appeal the trial court's decision narrowing the class.
ATM Non-Discrimination Rule Surcharge Complaints
In October 2011, a trade association of independent Automated Teller Machine ("ATM") operators and 13 independent ATM
operators filed a complaint styled as a class action lawsuit in the U.S. District Court for the District of Columbia against both
Mastercard and Visa (the "ATM Operators Complaint"). Plaintiffs seek to represent a class of non-bank operators of ATM terminals
that operate in the United States with the discretion to determine the price of the ATM access fee for the terminals they operate.
Plaintiffs allege that Mastercard and Visa have violated Section 1 of the Sherman Act by imposing rules that require ATM operators
to charge non-discriminatory ATM surcharges for transactions processed over Mastercard's and Visa's respective networks that are
not greater than the surcharge for transactions over other networks accepted at the same ATM. Plaintiffs seek both injunctive and
monetary relief equal to treble the damages they claim to have sustained as a result of the alleged violations and their costs of suit,
including attorneys' fees.
Subsequently, multiple related complaints were filed in the U.S. District Court for the District of Columbia alleging both federal
antitrust and multiple state unfair competition, consumer protection and common law claims against Mastercard and Visa on behalf
of putative classes of users of ATM services (the "ATM Consumer Complaints"). The claims in these actions largely mirror the
allegations made in the ATM Operators Complaint, although these complaints seek damages on behalf of consumers of ATM services
who pay allegedly inflated ATM fees at both bank and non-bank ATM operators as a result of the defendants' ATM rules. Plaintiffs
seek both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the alleged
violations and their costs of suit, including attorneys' fees.
In January 2012, the plaintiffs in the ATM Operators Complaint and the ATM Consumer Complaints filed amended class action
complaints that largely mirror their prior complaints. In February 2013, the district court granted Mastercard's motion to dismiss the
complaints for failure to state a claim. On appeal, the Court of Appeals reversed the district court's order in August 2015 and sent
the case back for further proceedings. In September 2019, the plaintiffs filed their motions for class certification in which the
plaintiffs, in aggregate, allege over $1 billion in damages against all of the defendants. In August 2021, the trial court issued an order
granting the plaintiffs' request for class certification. Visa and Mastercard's request for permission to appeal the certification
decision to the appellate court was granted. Briefing on the appeal is expected to take place over the course of 2022. Mastercard
intends to vigorously defend against both the plaintiffs' liability and damages claims.
106 MASTERCARD 2021 FORM 10-K
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. Liability Shift Litigation
In March 2016, a proposed U.S. merchant class action complaint was filed in federal court in California alleging that Mastercard, Visa,
American Express and Discover (the "Network Defendants"), EMVCO and a number of issuing banks (the "Bank Defendants")
engaged in a conspiracy to shift fraud liability for card present transactions from issuing banks to merchants not yet in compliance
with the standards for EMV chip cards in the United States (the "EMV Liability Shift"), in violation of the Sherman Act and California
law. Plaintiffs allege damages equal to the value of all chargebacks for which class members became liable as a result of the EMV
Liability Shift on October 1, 2015. The plaintiffs seek treble damages, attorney's fees and costs and an injunction against future
violations of governing law, and the defendants have filed a motion to dismiss. In September 2016, the district court denied the
Network Defendants' motion to dismiss the complaint, but granted such a motion for EMVCo and the Bank Defendants. In May
2017, the district court transferred the case to New York so that discovery could be coordinated with the U.S. merchant class
interchange litigation described above. In August 2020, the district court issued an order granting the plaintiffs' request for class
certification. In January 2021, the Network Defendants' request for permission to appeal the district court's certification decision to
the appellate court was denied. The plaintiffs have submitted expert reports that allege aggregate damages in excess of $1 billion
against the four Network Defendants. The Network Defendants have submitted expert reports rebutting both liability and damages.
Briefing on summary judgment is expected to occur in 2022.
Telephone Consumer Protection Class Action
Mastercard is a defendant in a Telephone Consumer Protection Act ("TCPA") class action pending in Florida. The plaintiffs are
individuals and businesses who allege that approximately 381,000 unsolicited faxes were sent to them advertising a Mastercard co-
brand card issued by First Arkansas Bank ("FAB"). The TCPA provides for uncapped statutory damages of $500 per fax. Mastercard
has asserted various defenses to the claims, and has notified FAB of an indemnity claim that it has (which FAB has disputed). In June
2018, the district court granted Mastercard's motion to stay the proceedings until the Federal Communications Commission makes a
decision on the application of the TCPA to online fax services. In December 2019, the FCC issued a declaratory ruling clarifying that
the TCPA does not apply to faxes sent to online fax services that are received via e-mail. As a result of the ruling, the stay of the
litigation was lifted in January 2020. In January 2021, the magistrate judge serving on the district court issued an opinion
recommending that the district court judge deny plaintiffs' class certification motion. In light of an appellate court decision, issued
subsequent to the magistrate's recommendation, the district court judge instructed the parties to re-brief the motion for class
certification, and the motion has been fully briefed. In December 2021, the trial court narrowed the scope of the potential class as it
denied the plaintiffs' motion for class certification of a class of all fax recipients (both stand-alone faxes and online faxes sent via
email). However, the court granted class certification for a narrower class of online fax recipients only. Mastercard has filed a
motion for reconsideration of the part of the trial court's order granting partial certification.
U.S. Federal Trade Commission Investigation
In June 2020, the U.S. Federal Trade Commission's Bureau of Competition ("FTC") informed Mastercard that it has initiated a formal
investigation into compliance with the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act. In
particular, the investigation focuses on Mastercard's compliance with the debit routing provisions of the Durbin Amendment. The
FTC has issued a subpoena and Mastercard is cooperating with it in the investigation.
As of December 31, 2021 and 2020, Mastercard had accrued a liability of $783 million as a reserve for both the Damages Class
litigation and the opt-out merchant cases. As of December 31, 2021 and 2020, Mastercard had $586 million in a qualified cash
settlement fund related to the Damages Class litigation and classified as restricted cash on its consolidated balance sheet. The
reserve as of December 31, 2021 for both the Damages Class litigation and the opt-out merchants represents Mastercard's best
estimate of its probable liabilities in these matters. The portion of the accrued liability relating to both the opt-out merchants and
the Damages Class litigation settlement does not represent an estimate of a loss, if any, if the matters were litigated to a final
outcome. Mastercard cannot estimate the potential liability if that were to occur.
U.K. Prepaid Cards Matter
In September 2018, the parties to the Damages Class litigation entered into a class settlement agreement to resolve the Damages
Class claims. The time period during which Damages Class members were permitted to opt out of the class settlement agreement
ended in July 2019 with merchants representing slightly more than 25% of the Damages Class interchange volume choosing to opt
out of the settlement. The district court granted final approval of the settlement in December 2019. The district court's settlement
approval order has been appealed and oral argument on the appeal is scheduled for March 2022. Mastercard has commenced
settlement negotiations with a number of the opt-out merchants and has reached settlements and/or agreements in principle to
settle a number of these claims. The Damages Class settlement agreement does not relate to the Rules Relief Class claims. Separate
settlement negotiations with the Rules Relief Class are ongoing. Briefing on summary judgment motions in the Rules Relief Class and
opt-out merchant cases was completed in December 2020. In September 2021, the district court granted the Rules Relief Class's
motion for class certification.
In February 2011, Mastercard and Mastercard International entered into each of: (1) an omnibus judgment sharing and settlement
sharing agreement with Visa Inc., Visa U.S.A. Inc. and Visa International Service Association and a number of financial institutions;
and (2) a Mastercard settlement and judgment sharing agreement with a number of financial institutions. The agreements provide
for the apportionment of certain costs and liabilities which Mastercard, the Visa parties and the financial institutions may incur,
jointly and/or severally, in the event of an adverse judgment or settlement of one or all of the merchant litigation cases. Among a
number of scenarios addressed by the agreements, in the event of a global settlement involving the Visa parties, the financial
institutions and Mastercard, Mastercard would pay 12% of the monetary portion of the settlement. In the event of a settlement
involving only Mastercard and the financial institutions with respect to their issuance of Mastercard cards, Mastercard would pay
36% of the monetary portion of such settlement.
$
360 $
388 $
203
MASTERCARD 2021 FORM 10-K 103
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021, the amount of unrecognized tax benefit was $360 million. This amount, if recognized, would reduce the
effective income tax rate. The Company's unrecognized tax benefits increased in 2020 primarily due to a prior year tax issue
resulting from a refund claim filed in 2020.
The Company is subject to tax in the U.S., Belgium, Singapore, the United Kingdom and various other foreign jurisdictions, as well as
state and local jurisdictions. Uncertain tax positions are reviewed on an ongoing basis and are adjusted after considering facts and
circumstances, including progress of tax audits, developments in case law and closing of statutes of limitation. Within the next
twelve months, the Company believes that the resolution of certain federal, foreign and state and local examinations are reasonably
possible and that a change in estimate, reducing unrecognized tax benefits, may occur. While such a change may be significant, it is
not possible to provide a range of the potential change until the examinations progress further or the related statutes of limitation
expire. The Company has effectively settled its U.S. federal income tax obligations through 2011. With limited exception, the
Company is no longer subject to state and local or foreign examinations by tax authorities for years before 2010.
At December 31, 2021 and 2020, the Company had a net income tax-related interest payable of $20 million and $24 million,
respectively, in its consolidated balance sheet. Tax-related interest income/(expense) in 2021, 2020 and 2019 was not material. In
addition, as of December 31, 2021 and 2020, the amounts the Company has recognized for penalties payable in its consolidated
balance sheet were not material.
Note 21. Legal and Regulatory Proceedings
Mastercard is a party to legal and regulatory proceedings with respect to a variety of matters in the ordinary course of business.
Some of these proceedings are based on complex claims involving substantial uncertainties and unascertainable damages.
Accordingly, except as discussed below, it is not possible to determine the probability of loss or estimate damages, and therefore,
Mastercard has not established reserves for any of these proceedings. When the Company determines that a loss is both probable
and reasonably estimable, Mastercard records a liability and discloses the amount of the liability if it is material. When a material
loss contingency is only reasonably possible, Mastercard does not record a liability, but instead discloses the nature and the amount
of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Unless otherwise stated below with
respect to these matters, Mastercard cannot provide an estimate of the possible loss or range of loss based on one or more of the
following reasons: (1) actual or potential plaintiffs have not claimed an amount of monetary damages or the amounts are
unsupportable or exaggerated, (2) the matters are in early stages, (3) there is uncertainty as to the outcome of pending appeals or
motions, (4) there are significant factual issues to be resolved, (5) the existence in many such proceedings of multiple defendants or
potential defendants whose share of any potential financial responsibility has yet to be determined and/or (6) there are novel legal
issues presented. Furthermore, except as identified with respect to the matters below, Mastercard does not believe that the
outcome of any individual existing legal or regulatory proceeding to which it is a party will have a material adverse effect on its
results of operations, financial condition or overall business. However, an adverse judgment or other outcome or settlement with
respect to any proceedings discussed below could result in fines or payments by Mastercard and/or could require Mastercard to
change its business practices. In addition, an adverse outcome in a regulatory proceeding could lead to the filing of civil damage
claims and possibly result in significant damage awards. Any of these events could have a material adverse effect on Mastercard's
results of operations, financial condition and overall business.
Interchange Litigation and Regulatory Proceedings
Mastercard's interchange fees and other practices are subject to regulatory, legal review and/or challenges in a number of
jurisdictions, including the proceedings described below. When taken as a whole, the resulting decisions, regulations and legislation
with respect to interchange fees and acceptance practices may have a material adverse effect on the Company's prospects for future
growth and its overall results of operations, financial position and cash flows.
United States. In June 2005, the first of a series of complaints were filed on behalf of merchants (the majority of the complaints
were styled as class actions, although a few complaints were filed on behalf of individual merchant plaintiffs) against Mastercard
International, Visa U.S.A., Inc., Visa International Service Association and a number of financial institutions. Taken together, the
claims in the complaints were generally brought under both Sections 1 and 2 of the Sherman Act, which prohibit monopolization and
attempts or conspiracies to monopolize a particular industry, and some of these complaints contain unfair competition law claims
under state law. The complaints allege, among other things, that Mastercard, Visa, and certain financial institutions conspired to set
the price of interchange fees, enacted point of sale acceptance rules (including the no surcharge rule) in violation of antitrust laws
and engaged in unlawful tying and bundling of certain products and services, resulting in merchants paying excessive costs for the
acceptance of Mastercard and Visa credit and debit cards. The cases were consolidated for pre-trial proceedings in the U.S. District
Court for the Eastern District of New York in MDL No. 1720. The plaintiffs filed a consolidated class action complaint that seeks
treble damages.
104 MASTERCARD 2021 FORM 10-K
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July 2006, the group of purported merchant class plaintiffs filed a supplemental complaint alleging that Mastercard's initial public
offering of its Class A Common Stock in May 2006 (the "IPO") and certain purported agreements entered into between Mastercard
and financial institutions in connection with the IPO: (1) violate U.S. antitrust laws and (2) constituted a fraudulent conveyance
because the financial institutions allegedly attempted to release, without adequate consideration, Mastercard's right to assess them
for Mastercard's litigation liabilities. The class plaintiffs sought treble damages and injunctive relief including, but not limited to, an
order reversing and unwinding the IPO.
In October 2012, the parties entered into a definitive settlement agreement with respect to the merchant class litigation (including
with respect to the claims related to the IPO) and the defendants separately entered into a settlement agreement with the individual
merchant plaintiffs. The settlements included cash payments that were apportioned among the defendants pursuant to the
omnibus judgment sharing and settlement sharing agreement described above. Mastercard also agreed to provide class members
with a short-term reduction in default credit interchange rates and to modify certain of its business practices, including its "no
surcharge" rule. The court granted final approval of the settlement in December 2013, and objectors to the settlement appealed
that decision to the U.S. Court of Appeals for the Second Circuit. In June 2016, the court of appeals vacated the class action
certification, reversed the settlement approval and sent the case back to the district court for further proceedings. The court of
appeals' ruling was based primarily on whether the merchants were adequately represented by counsel in the settlement. As a
result of the appellate court ruling, the district court divided the merchants' claims into two separate classes - monetary damages
claims (the "Damages Class”) and claims seeking changes to business practices (the "Rules Relief Class"). The court appointed
separate counsel for each class.
Fair Value
In 2019, Mastercard was informed by the U.K. Payment Systems Regulator ("PSR") that Mastercard was a target of its investigation
into alleged anti-competitive conduct by public sector prepaid card program managers in the U.K. This matter focused exclusively on
historic behavior. In March 2021, the PSR announced the resolution and settlement of this investigation. As part of the resolution,
Mastercard agreed to pay a maximum fine of £32 million. This matter has no prospective impact on Mastercard's on-going business.
In connection with this matter, in the fourth quarter of 2020, Mastercard recorded a litigation charge of $45 million. In January
2022, the PSR issued a decision which concludes the matter and which requires that Mastercard pay its previously agreed fine in
March 2022.
Mastercard's rules guarantee the settlement of many of the transactions between its customers ("settlement risk"). Settlement
exposure is the settlement risk to customers under Mastercard's rules due to the difference in timing between the payment
transaction date and subsequent settlement. While the term and amount of the guarantee are unlimited, the duration of settlement
exposure is short term and typically limited to a few days.
The Company may enter into foreign exchange derivative contracts, including forwards and options, to manage the impact of foreign
currency variability on anticipated revenues and expenses, which fluctuate based on currencies other than the functional currency of
the entity. The objective of these hedging activities is to reduce the effect of movement in foreign exchange rates for a portion of
revenues and expenses forecasted to occur. As these contracts are designated as cash flow hedging instruments, gains and losses
resulting from changes in fair value of these contracts are deferred in accumulated other comprehensive income (loss) and
subsequently reclassified to the consolidated statement of operations when the underlying hedged transactions impact earnings.
In addition, the Company may enter into interest rate derivative contracts to manage the effects of interest rate movements on the
Company's aggregate liability portfolio, including potential future debt issuances, and designate such derivatives as hedging
instruments in a cash flow hedging relationship. In 2019, the Company entered into treasury rate locks which are accounted for as
cash flow hedges. In the first quarter of 2020, in connection with the issuance of the 2020 USD Notes, these contracts were settled
at a loss of $136 million, after tax, in accumulated other comprehensive income (loss). As of December 31, 2021, a cumulative loss
of $128 million, after tax, remains in accumulated other comprehensive income (loss) associated with these contracts and will be
reclassified as an adjustment to interest expense over the respective terms of the 2020 USD Notes due in March 2030 and March
2050.
108 MASTERCARD 2021 FORM 10-K
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Hedges
The Company may enter into interest rate derivative contracts, including interest rate swaps, to manage the effects of interest rate
movements on the fair value of the Company's fixed-rate debt and designate such derivatives as hedging instruments in a fair value
hedging relationship. Changes in fair value of these contracts and changes in fair value of fixed-rate debt attributable to changes in
the hedged benchmark interest rate generally offset each other and are recorded in interest expense on the consolidated statement
of operations. Gains or losses related to the net settlements of interest rate swaps are also recorded in interest expense on the
consolidated statement of operations. The periodic cash settlements are included in operating activities on the consolidated
statement of cash flows.
During the fourth quarter of 2021, the Company entered into an interest rate swap designated as a fair value hedge related to
$1.0 billion of the 3.850% Senior Notes due March 2050. In effect, the interest rate swap synthetically converts the fixed interest
rate on this debt to a variable interest rate based on the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap Rate. The
net impact to interest expense for the year ended December 31, 2021 was not material.
Net Investment Hedges
The Company may use foreign currency denominated debt and/or foreign exchange derivative contracts to hedge a portion of its net
investment in foreign subsidiaries against adverse movements in exchange rates. The effective portion of the net investment hedge
is recorded as a currency translation adjustment in accumulated other comprehensive income (loss). Forward points are designated
as an excluded component and recognized in general and administrative expenses on the consolidated statement of operations over
the hedge period. The amounts recognized in earnings related to forward points for 2021 were not material.
In 2015, the Company designated its €1.65 billion euro-denominated debt as a net investment hedge for a portion of its net
investment in its European operations. During 2021, 2020 and 2019 the Company recorded a pre-tax net foreign currency gain of
$155 million, loss of $177 million and gain of $36 million, respectively, in other comprehensive income (loss).
As of December 31, 2021 and 2020, the Company had a net foreign currency gain of $34 million and loss of $175 million, after tax,
respectively, in accumulated other comprehensive income (loss) associated with this hedging activity.
Non-designated Derivatives
The Company may also enter into foreign exchange derivative contracts to serve as economic hedges, such as to offset possible
changes in the value of monetary assets and liabilities due to foreign exchange fluctuations, without designating these derivative
contracts as hedging instruments. In addition, the Company is subject to foreign exchange risk as part of its daily settlement
activities. This risk is typically limited to a few days between when a payment transaction takes place and the subsequent
settlement with customers. To manage this risk, the Company may enter into short duration foreign exchange derivative contracts
based upon anticipated receipts and disbursements for the respective currency position. The objective of these activities is to
reduce the Company's exposure to volatility arising from gains and losses resulting from fluctuations of foreign currencies against its
functional currencies. Gains and losses resulting from changes in fair value of these contracts are recorded in general and
administrative expenses on the consolidated statement of operations, net, along with the foreign currency gains and losses on
monetary assets and liabilities.
MASTERCARD 2021 FORM 10-K
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the fair value of the Company's derivative financial instruments and the related notional amounts:
December 31, 2021
December 31, 2020
Cash Flow Hedges
Note 22. Settlement and Other Risk Management
The Company monitors and manages its foreign currency and interest rate exposures as part of its overall risk management program
which focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of
these markets may have on its operating results. A primary objective of the Company's risk management strategies is to reduce the
financial impact that may arise from volatility in foreign currency exchange rates principally through the use of both foreign
exchange derivative contracts and foreign currency denominated debt. In addition, the Company may enter into interest rate
derivative contracts to manage the effects of interest rate movements on the Company's aggregate liability portfolio, including
potential future debt issuances.
Mastercard also provides guarantees to customers and certain other counterparties indemnifying them from losses stemming from
failures of third parties to perform duties. This includes guarantees of Mastercard-branded travelers cheques issued, but not yet
cashed of $361 million and $370 million at December 31, 2021 and 2020, respectively, of which the Company has risk mitigation
arrangements for $287 million and $294 million at December 31, 2021 and 2020, respectively. In addition, the Company enters into
agreements in the ordinary course of business under which the Company agrees to indemnify third parties against damages, losses
and expenses incurred in connection with legal and other proceedings arising from relationships or transactions with the Company.
Certain indemnifications do not provide a stated maximum exposure. As the extent of the Company's obligations under these
agreements depends entirely upon the occurrence of future events, the Company's potential future liability under these agreements
is not determinable. Historically, payments made by the Company under these types of contractual arrangements have not been
material.
Gross settlement exposure is estimated using the average daily payment volume during the three months prior to period end
multiplied by the estimated number of days of exposure. The Company has global risk management policies and procedures, which
MASTERCARD 2021 FORM 10-K 107
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
include risk standards, to provide a framework for managing the Company's settlement risk and exposure. In the event of a failed
customer, Mastercard may pursue one or more remedies available under the Company's rules to recover potential losses.
Historically, the Company has experienced a low level of losses from customer failures.
As part of its policies, Mastercard requires certain customers that are not in compliance with the Company's risk standards to enter
into risk mitigation arrangements, including cash collateral and/or other forms of credit enhancement such as letters of credit and
guarantees. This requirement is based on a review of the individual risk circumstances for each customer. Mastercard monitors its
credit risk portfolio and the adequacy of its risk mitigation arrangements on a regular basis. Additionally, from time to time, the
Company reviews its risk management methodology and standards. As such, the amounts of estimated settlement exposure are
revised as necessary.
The Company's estimated settlement exposure was as follows at December 31:
Gross settlement exposure
Risk mitigation arrangements applied to settlement exposure
Net settlement exposure
2021
2020
$
(in millions)
59,571 $
52,360
(7,710)
(6,021)
$
51,861 $
46,339
Note 23. Derivative and Hedging Instruments
(47)
Less: Valuation allowance
(35)
2020
(in millions)
2021
The total income tax provision for the years ended December 31 is comprised of the following components:
9,731
7,760 $
$ 10,307 $
Income before income taxes
5,518
4,456
4,213
2019
3,304 $
$
United States
Foreign
2019
2020
(in millions)
2021
The domestic and foreign components of income before income taxes for the years ended December 31 are as follows:
Components of Income and Income Tax Expense
Note 20. Income Taxes
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
4,261 $
6,046
Current
(42)
663 $ 439 $
Federal
9
(4)
40
106
(31)
Income tax expense
Foreign
State and local
Federal
Deferred
$
1,276
1,690
897
781
976
Foreign
81
56
51
State and local
1,620
642
Refer to the Exhibit Index included herein.
The following exhibits are filed as part of this Report or, where indicated, were previously filed and are hereby
incorporated by reference:
None.
Consolidated Financial Statement Schedules
(a) The following documents are filed as part of this Report:
3
2
Consolidated Financial Statements
1
Item 16. Form 10-K summary
See Index to Consolidated Financial Statements in Part II, Item 8.
None.
4.6
Exhibit index
Exhibit number
Exhibit Description
3.1
3.2
4.1
4.2
4.3
4.4
4.5
Item 15. Exhibits and financial statement schedules
4.7
4.8
116 MASTERCARD 2021 FORM 10-K
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS
The information required by this Item with respect to executive officer and director compensation will appear in the Proxy
Statement and is incorporated by reference into this Report.
Item 16. Form 10-K summary
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, we hereby incorporate by reference
herein the disclosure contained in Exhibit 99.1 of this Report.
112
MASTERCARD 2021 FORM 10-K
PART III
4.9
Item 10. Directors, executive officers and corporate governance
Item 11. Executive compensation
Item 12. Security ownership of certain beneficial owners and management and
related stockholder matters
Item 13. Certain relationships and related transactions, and director
independence
Item 14. Principal accountant fees and services
PART III
PART IV
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding our executive officers is included in section "Information about our executive officers" in Part I of this Report.
Additional information required by this Item with respect to our directors and executive officers, code of ethics, procedures for
recommending nominees, audit committee, audit committee financial experts and compliance with Section 16(a) of the Exchange
Act will appear in our definitive proxy statement to be filed with the SEC and delivered to stockholders in connection with our 2022
annual meeting of stockholders (the "Proxy Statement”).
The aforementioned information in the Proxy Statement is incorporated by reference into this Report.
Item 11. Executive compensation
Item 12. Security ownership of certain beneficial owners and
management and related stockholder matters
The information required by this Item with respect to security ownership of certain beneficial owners and management equity and
compensation plans will appear in the Proxy Statement and is incorporated by reference into this Report.
Item 13. Certain relationships and related transactions, and
director independence
The information required by this Item with respect to transactions with related persons, the review, approval or ratification of such
transactions and director independence will appear in the Proxy Statement and is incorporated by reference into this Report.
Item 14. Principal accountant fees and services
The information required by this Item with respect to auditors' services and fees will appear in the Proxy Statement and is
incorporated by reference into this Report.
114 MASTERCARD 2021 FORM 10-K
PART IV
Item 15. Exhibits and financial statement schedules
Item 10. Directors, executive officers and corporate governance
4.10
MASTERCARD 2021 FORM 10-K
4.12
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.30
Form of Global Note representing the Company's 2.000% Notes due 2031 (included in Officer's Certificate of the
Company, dated as of November 18, 2021) (incorporated by reference to Exhibit 4.1 of the Company's Current
Report on Form 8-K filed on November 18, 2021 (File No. 001-32877)).
10.1
10.1.1*
4.21
10.2+
Form of Global Note representing the Company's 2.950% Notes due 2029 (included in Officer's Certificate of the
Company, dated as of May 31, 2019) (incorporated by reference to Exhibit 4.1 of the Company's Current Report
on Form 8-K filed on May 31, 2019 (File No. 001-32877)).
Form of Global Note representing the Company's 3.650% Notes due 2049 (included in Officer's Certificate of the
Company, dated as of May 31, 2019) (incorporated by reference to Exhibit 4.1 of the Company's Current Report
on Form 8-K filed on May 31, 2019 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of December 3, 2019 (incorporated by reference to Exhibit 4.1 of
the Company's Current Report on Form 8-K filed on December 3, 2019 (File No. 001-32877)).
Form of Global Note representing the Company's 2.000% Notes due 2025 (included in Officer's Certificate of the
Company, dated as of December 3, 2019) (incorporated by reference to Exhibit 4.1 of the Company's Current
Report on Form 8-K filed on December 3, 2019 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of March 26, 2020 (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K filed on March 26, 2020 (File No. 001-32877)).
Form of Global Note representing the Company's 3.300% Notes due 2027 (included in Officer's Certificate of the
Company, dated as of March 26, 2020) (incorporated by reference to Exhibit 4.1 of the Company's Current Report
on Form 8-K filed on March 26, 2020 (File No. 001-32877)).
Form of Global Note representing the Company's 3.350% Notes due 2030 (included in Officer's Certificate of the
Company, dated as of March 26, 2020) (incorporated by reference to Exhibit 4.1 of the Company's Current Report
on Form 8-K filed on March 26, 2020 (File No. 001-32877)).
Form of Global Note representing the Company's 3.850% Notes due 2050 (included in Officer's Certificate of the
Company, dated as of March 26, 2020) (incorporated by reference to Exhibit 4.1 of the Company's Current Report
on Form 8-K filed on March 26, 2020 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of March 2, 2021 (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K filed on March 4, 2021 (File No. 001-32877)).
Form of Global Note representing the Company's 1.900% Notes due 2031 (included in Officer's Certificate of the
Company, dated as of March 2, 2021) (incorporated by reference to Exhibit 4.1 of the Company's Current Report
on Form 8-K filed on March 4, 2021 (File No. 001-32877)).
Form of Global Note representing the Company's 2.950% Notes due 2051 (included in Officer's Certificate of the
Company, dated as of March 2, 2021) (incorporated by reference to Exhibit 4.1 of the Company's Current Report
on Form 8-K filed on March 4, 2021 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of November 18, 2021 (incorporated by reference to Exhibit 4.1 of
the Company's Current Report on Form 8-K filed on November 18, 2021 (File No. 001-32877)).
10.2.1+
4.11
4.20
4.18
4.13
4.14
4.15
4.16
Amended and Restated Certificate of Incorporation of Mastercard Incorporated (incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K filed June 23, 2021 (File No. 001-32877)).
Amended and Restated By-Laws of Mastercard Incorporated (incorporated by reference to Exhibit 3.2 to the
Company's Current Report on Form 8-K filed June 23, 2021 (File No. 001-32877)).
Indenture, dated as of March 31, 2014, between the Company and Deutsche Bank Trust Company Americas, as
trustee (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed on March 31,
2014 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of March 31, 2014 (incorporated by reference to Exhibit 4.2 of the
Company's Current Report on Form 8-K filed on March 31, 2014 (File No. 001-32877)).
Form of Global Note representing the Company's 2.000% Notes due 2019 (included in Officer's Certificate of the
Company, dated as of March 31, 2014) (incorporated by reference to Exhibit 4.3 of the Company's Current Report
on Form 8-K filed on March 31, 2014 (File No. 001-32877)).
Form of Global Note representing the Company's 3.375% Notes due 2024 (included in Officer's Certificate of the
Company, dated as of March 31, 2014) (incorporated by reference to Exhibit 4.4 of the Company's Current Report
on Form 8-K filed on March 31, 2014 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of December 1, 2015 (incorporated by reference to Exhibit 4.1 of
the Company's Current Report on Form 8-K filed on December 1, 2015 (File No. 001-32877)).
Form of Global Note representing the Company's 1.100% Notes due 2022 (included in Officer's Certificate of the
Company, dated as of December 1, 2015) (incorporated by reference to Exhibit 4.2 of the Company's Current
Report on Form 8-K filed on December 1, 2015 (File No. 001-32877)).
4.19
Form of Global Note representing the Company's 2.100% Notes due 2027 (included in Officer's Certificate of the
Company, dated as of December 1, 2015) (incorporated by reference to Exhibit 4.3 of the Company's Current
Report on Form 8-K filed on December 1, 2015 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of November 21, 2016 (incorporated by reference to Exhibit 4.1 of
the Company's Current Report on Form 8-K filed on November 21, 2016 (File No. 001-32877)).
Form of Global Note representing the Company's 2.000% Notes due 2021 (included in Officer's Certificate of the
Company, dated as of November 21, 2016) (incorporated by reference to Exhibit 4.2 of the Company's Current
Report on Form 8-K filed on November 21, 2016 (File No. 001-32877)).
Form of Global Note representing the Company's 2.950% Notes due 2026 (included in Officer's Certificate of the
Company, dated as of November 21, 2016) (incorporated by reference to Exhibit 4.3 of the Company's Current
Report on Form 8-K filed on November 21, 2016 (File No. 001-32877)).
Form of Global Note representing the Company's 3.800% Notes due 2046 (included in Officer's Certificate of the
Company, dated as of November 21, 2016) (incorporated by reference to Exhibit 4.4 of the Company's Current
Report on Form 8-K filed on November 21, 2016 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of February 26, 2018 (incorporated by reference to Exhibit 4.1 of
the Company's Current Report on Form 8-K filed on February 26, 2018 (File No. 001-32877)).
Form of Global Note representing the Company's 3.5% Notes due 2028 (included in Officer's Certificate of the
Company, dated as of February 26, 2018) (incorporated by reference to Exhibit 4.1 of the of the Company's
Current Report on Form 8-K filed on February 26, 2018 (File No. 001-32877)).
Form of Global Note representing the Company's 3.95% Notes due 2048 (included in Officer's Certificate of the
Company, dated as of February 26, 2018) (incorporated by reference to Exhibit 4.1 of the Company's Current
Report on Form 8-K filed on February 26, 2018 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of May 31, 2019 (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K filed on May 31, 2019 (File No. 001-32877)).
Item 9B. Other Information
117
EXHIBIT INDEX
4.17
Form of Global Note representing the Company's 2.500% Notes due 2030 (included in Officer's Certificate of the
Company, dated as of December 1, 2015) (incorporated by reference to Exhibit 4.4 of the Company's Current
Report on Form 8-K filed on December 1, 2015 (File No. 001-32877)).
There was no change in Mastercard's internal control over financial reporting that occurred during the three months ended
December 31, 2021 that has materially affected, or is reasonably likely to materially affect, Mastercard's internal control over
financial reporting.
Item 9A. Controls and procedures
In addition, Mastercard Incorporated's management assessed the effectiveness of Mastercard's internal control over financial
reporting as of December 31, 2021. Management's report on internal control over financial reporting is included in Part II, Item 8.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the consolidated financial statements
included in this Annual Report on Form 10-K and, as part of their audit, has issued their report, included herein, on the effectiveness
of our internal control over financial reporting.
Description of Employment Arrangement with Gilberto Caldart (incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q filed April 30, 2019 (File No. 001-32877)).
Description of Employment Arrangement with Tim Murphy (incorporated by reference to Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q filed April 30, 2019 (File No. 001-32877)).
Description of Employment Arrangement with Michael Froman (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q filed April 29, 2020 (File No. 001-32877)).
Description of Employment Arrangement with Sachin Mehra (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q filed April 29, 2020 (File No. 001-32877)).
Description of Employment Arrangement with Michael Miebach (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q filed April 29, 2020 (File No. 001-32877)).
Mastercard International Senior Executive Annual Incentive Compensation Plan, as amended and restated
effective April 9, 2021 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-
Q filed April 29, 2021 (File No. 001-32877)).
Mastercard International Incorporated Restoration Program, as amended and restated January 1, 2007 unless
otherwise provided (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K
filed February 19, 2009 (File No. 001-32877)).
Mastercard Incorporated Deferral Plan, as amended and restated effective December 1, 2008 for account
balances established after December 31, 2004 (incorporated by reference to Exhibit 10.25 to the Company's
Annual Report on Form 10-K filed February 19, 2009 (File No. 001-32877)).
Mastercard Incorporated 2006 Long Term Incentive Plan, amended and restated effective June 22, 2021
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed July 29, 2021
(File No. 001-32877)).
Form of Restricted Stock Unit Agreement for awards under 2006 Long Term Incentive Plan (effective for awards
granted on and subsequent to March 1, 2021) (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q filed April 29, 2021 (File No. 001-32877)).
Form of Stock Option Agreement for awards under 2006 Long Term Incentive Plan (effective for awards granted
on and subsequent to March 1, 2021) (incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q filed April 29, 2021 (File No. 001-32877)).
Changes in Internal Control over Financial Reporting
Form of Mastercard Incorporated Long Term Incentive Plan Non-Competition and Non-Solicitation Agreement for
named executive officers (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form
10-K filed February 16, 2012 (File No. 001-32877)).
Amended and Restated Mastercard International Incorporated Executive Severance Plan, amended and restated
as of April 9, 2021 (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
filed April 29, 2021 (File No. 001-32877)).
Description of Employment Arrangement with Craig Vosburg (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q filed May 2, 2018 (File No. 001-32877)).
Amended and Restated Mastercard International Incorporated Change in Control Severance Plan, amended and
restated as of June 25, 2018 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q filed July 26, 2018 (File No. 001-32877)).
MASTERCARD 2021 FORM 10-K 119
EXHIBIT INDEX
10.21
10.22
10.23
PART II
10.24
10.25
10.26
10.27
10.28
10.29
Schedule of Non-Employee Directors' Annual Compensation effective as of January 1, 2022.
10.29.1
Deed of Employment between Mastercard UK Management Services Limited and Ann Cairns, dated July 6, 2011
(incorporated by reference to Exhibit 10.8.2 to the Company's Annual Report on Form 10-K filed February 16,
2012 (File No. 001-32877)).
Consulting Letter Agreement between Mastercard International Incorporated and Ajaypal Banga, dated as of
December 13, 2021.
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated
by reference to Exhibit 4.25 of the Company's Annual Report on Form 10-K filed on February 12, 2021 (File No.
001-328771)).
$6,000,000,000 Amended and Restated Credit Agreement, dated as of November 14, 2019, among Mastercard
Incorporated, the several lenders and agents from time to time party thereto, Citibank, N.A., as managing
administrative agent and JPMorgan Chase Bank, N.A. as administrative agent (incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-K filed February 14, 2020 (File No. 001-32877)).
First Amendment to Third Amended and Restated Credit Agreement, dated as of November 13, 2021, among
Mastercard Incorporated, the several lenders and agents from time to time party thereto, Citibank, N.A., as
managing administrative agent and JPMorgan Chase Bank, N.A. as administrative agent.
Employment Agreement between Mastercard International Incorporated and Ajaypal Banga, dated as of July 1,
2010 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed July 8, 2010
(File No. 001-32877)).
Employment Letter Agreement between Mastercard International Incorporated and Ajaypal Banga, dated as of
December 31, 2020 (incorporated by reference to Exhibit 10.2.1 to the Company's Annual Report on Form 10-K
filed February 12, 2021 (File No. 001-32877)).
118 MASTERCARD 2021 FORM 10-K
EXHIBIT INDEX
10.2.2*
10.3+
10.3.1+
10.4+
10.5+
10.6+
Contract of Employment between Mastercard UK Management Services Limited and Ann Cairns, amended and
restated as of April 5, 2018 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q filed May 2, 2018 (File No. 001-32877)).
10.7+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
10.16+
10.17+
10.18+
10.19+
10.20*
10.8+
10.29.2
Form of Performance Stock Unit Agreement for awards under 2006 Long Term Incentive Plan (effective for
awards granted on and subsequent to March 1, 2021) (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q filed April 29, 2021 (File No. 001-32877)).
10.30.1
The following table reflects the geographical location of the Company's property, equipment and right-of-use assets, net, as of
December 31:
United States
Other countries
Total
2021
2020
2019
(in millions)
$
1,117 $
1,185 $
790
Revenue by geographic market is based on the location of the Company's customer that issued the card, the location of the
merchant acquirer where the card is being used or the location of the customer receiving services. Revenue generated in the U.S.
was approximately 32% of total revenue in 2021, 33% in 2020 and 32% in 2019. No individual country, other than the U.S.,
generated more than 10% of total revenue in those periods. Mastercard did not have any individual customer that generated
greater than 10% of net revenue in 2021, 2020 or 2019.
717
1,907 $
1,902 $
1,147
681
1,828
10.30**
PART II
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Item 9. Changes in and disagreements with accountants on
accounting and financial disclosure
Not applicable.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") are designed to ensure that information required to be disclosed in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of
the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated
to management, including our President and Chief Executive Officer and our Chief Financial Officer, to allow timely decisions
regarding disclosure. The President and Chief Executive Officer and the Chief Financial Officer, with assistance from other members
of management, have reviewed the effectiveness of our disclosure controls and procedures as of December 31, 2021 and, based on
their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.
Internal Control over Financial Reporting
$
Mastercard has concluded it has one reportable operating segment, "Payment Solutions." Mastercard's Chief Executive Officer has
been identified as the chief operating decision-maker. All of the Company's activities are interrelated, and each activity is dependent
upon and supportive of the other. Accordingly, all significant operating decisions are based upon analysis of Mastercard at the
consolidated level.
MASTERCARD 2021 FORM 10-K 111
The Company's derivative financial instruments are subject to both market and counterparty credit risk. Market risk is the potential
for economic losses to be incurred on market risk sensitive instruments arising from adverse changes in market factors such as
foreign currency exchange rates, interest rates and other related variables. Counterparty credit risk is the risk of loss due to failure
of the counterparty to perform its obligations in accordance with contractual terms. The Company's derivative contracts are subject
to enforceable master netting arrangements, which contain various netting and setoff provisions. To mitigate counterparty credit
risk, the Company enters into derivative contracts with a diversified group of selected financial institutions based upon their credit
ratings and other factors. Generally, the Company does not obtain collateral related to derivatives because of the high credit ratings
of the counterparties.
Note 24. Segment Reporting
2006 Non-Employee Director Equity Compensation Plan, amended and restated effective as of June 22, 2021
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed July 29, 2021
(File No. 001-32877)).
Form of Deferred Stock Unit Agreement for awards under 2006 Non-Employee Director Equity Compensation
Plan, amended and restated effective June 26, 2018 (effective for awards granted on and subsequent to June 25,
2019) (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed July 30,
2019 (File No. 001-32877)).
Form of Restricted Stock Agreement for awards under 2006 Non-Employee Director Equity Compensation Plan,
amended and restated effective June 26, 2018 (effective for awards granted on and subsequent to June 25, 2019)
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed July 30, 2019
(File No. 001-32877)).
Form of Indemnification Agreement between Mastercard Incorporated and certain of its director nominees
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed May 2, 2006
(File No. 000-50250)).
Deed of Gift between Mastercard Incorporated and Mastercard Foundation (incorporated by reference to Exhibit
10.28 to Pre-Effective Amendment No. 5 to the Company's Registration Statement on Form S-1 filed May 3, 2006
(File No. 333-128337)).
Settlement Agreement, dated as of June 4, 2003, between Mastercard International Incorporated and Plaintiffs in
the class action litigation entitled In Re Visa Check/MasterMoney Antitrust Litigation (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed August 8, 2003 (File No. 000-50250)).
Stipulation and Agreement of Settlement, dated July 20, 2006, between Mastercard Incorporated, the several
defendants and the plaintiffs in the consolidated federal class action lawsuit titled In re Foreign Currency
Conversion Fee Antitrust Litigation (MDL 1409), and the California state court action titled Schwartz v. Visa Int'l
Corp., et al. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed
November 1, 2006 (File No. 001-32877)).
Omnibus Agreement Regarding Interchange Litigation Judgment Sharing and Settlement Sharing, dated as of
February 7, 2011, by and among Mastercard Incorporated, Mastercard International Incorporated, Visa Inc., Visa
U.S.A. Inc., Visa International Service Association and Mastercard's customer banks that are parties thereto
(incorporated by reference to Exhibit 10.33 to Amendment No.1 to the Company's Annual Report on Form 10-K/A
filed on November 23, 2011).
Amendment to Omnibus Agreement Regarding Interchange Litigation Judgment Sharing and Settlement Sharing,
dated as of August 25, 2014, by and among Mastercard Incorporated, Mastercard International Incorporated, Visa
Inc., Visa U.S.A Inc., Visa International Service Association and Mastercard's customer banks that are parties
thereto (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed October
30, 2014 (File No. 001-32877)).
Second Amendment to Omnibus Agreement Regarding Interchange Litigation Judgment Sharing and Settlement
Sharing, dated as of October 22, 2015, by and among Mastercard Incorporated, Mastercard International
Incorporated, Visa Inc., Visa U.S.A Inc., Visa International Service Association and Mastercard's customer banks
that are parties thereto (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q filed October 29, 2015 (File No. 001-32877)).
Mastercard Settlement and Judgment Sharing Agreement, dated as of February 7, 2011, by and among
Mastercard Incorporated, Mastercard International Incorporated and Mastercard's customer banks that are
parties thereto (incorporated by reference to Exhibit 10.34 to Amendment No.1 to the Company's Annual Report
on Form 10-K/A filed on November 23, 2011).
Amendment to Mastercard Settlement and Judgment Sharing Agreement, dated as of August 26, 2014, by and
among Mastercard Incorporated, Mastercard International Incorporated and Mastercard's customer banks that
are parties thereto (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
filed October 30, 2014 (File No. 001-32877)).
120 MASTERCARD 2021 FORM 10-K
Form of Indemnification Agreement between Mastercard Incorporated and certain of its directors (incorporated
by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed May 2, 2006 (File No.
000-50250)).
The amount of gain (loss) recognized on the consolidated statement of operations for non-designated derivative contracts is
summarized below:
(39)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
40 $
(10) $
2019
$
2021
Year ended December 31,
General and administrative
Foreign exchange derivative contracts
Derivatives not designated as hedging instruments:
2020
(in millions)
101.SCH*
XBRL Taxonomy Extension Schema Document
101.PRE*
101.CAL*
101.DEF*
101.LAB*
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit omits certain information that has been filed separately with the U.S. Securities and Exchange Commission and has been granted
confidential treatment.
+
*
Filed or furnished herewith.
**
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other
disclosure other than with respect to the terms of the agreements or other documents themselves, and should not be relied upon
for that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents
were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs
as of the date they were made or at any other time.
MASTERCARD 2021 FORM 10-K 121
Signatures
101.INS
Management contracts or compensatory plans or arrangements.
99.1*
31.1*
Disclosure pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
EXHIBIT INDEX
10.30.2
10.31
21*
23.1*
31.2*
32.1*
32.2*
Second Amendment to Mastercard Settlement and Judgment Sharing Agreement, dated as of October 22, 2015,
by and among Mastercard Incorporated, Mastercard International Incorporated and Mastercard's customer
banks that are parties thereto (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q filed October 29, 2015 (File No. 001-32877)).
Superseding and Amended Class Settlement Agreement, dated September 17, 2018, by and among Mastercard
Incorporated and Mastercard International Incorporated; Visa, Inc., Visa U.S.A. Inc. and Visa International Service
Association; the Class Plaintiffs defined therein; and the Customer Banks defined therein (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed September 18, 2018 (File No.
001-32877)).
List of Subsidiaries of Mastercard Incorporated.
Consent of PricewaterhouseCoopers LLP.
Certification of Michael Miebach, President and Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Sachin Mehra, Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Michael Miebach, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Sachin Mehra, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document.
MASTERCARD INCORPORATED
Date: February 11, 2022
February 11, 2022
I, Michael Miebach, certify that:
1.
I have reviewed this annual report on Form 10-K of Mastercard Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date:
February 11, 2022
By:
/s/Michael Miebach
Michael Miebach
President and Chief Executive Officer
I, Sachin Mehra, certify that:
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
EXHIBIT 31.1
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
February 11, 2022
Mastercard Payment Gateway Services Group Limited
Mastercard UK Holdco Limited
Mastercard US Holdings LLC
1
Jurisdiction
United Kingdom
Delaware
Singapore
United Kingdom
Belgium
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
Singapore
United Kingdom
Delaware
United Kingdom
Date:
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-135572;
333-136460; and 333-143777) and Form S-3 (No. 333-253041) of Mastercard Incorporated of our report dated February 11,
2022 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in
this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
Delaware
Mastercard International Incorporated
1.
EXHIBIT 31.2
President and Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report of Mastercard Incorporated (the "Company") on Form 10-K for the period
ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I,
Sachin Mehra, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
February 11, 2022
/s/ Sachin Mehra
Sachin Mehra
Chief Financial Officer
Section 13(r) Disclosure
EXHIBIT 99.1
Mastercard Incorporated ("Mastercard") has established a risk-based compliance program designed to prevent us from having
business dealings with Iran, as well as other prohibited countries, regions, individuals or entities. This includes obligating
issuers and acquirers to screen account holders and merchants, respectively, against the U.S. Office of Foreign Assets
Control's ("OFAC") sanctions lists, including the List of Specially Designated Nationals ("SDN list").
We identified through our compliance program that for the period covered by this Report, Mastercard processed transactions
resulting from:
certain acquirers located in the Europe and Middle East/Africa regions having acquired transactions for an Iranian
airline, which accepted Mastercard cards in these regions
certain acquirers located in the Europe region having acquired transactions for consular services with Iranian
embassies in that region that accepted Mastercard cards
certain acquirers located in the Middle East/Africa region having acquired transactions for an Iranian merchant at an
international exhibition who may have been acting on behalf of the Iranian government, which accepted Mastercard
cards in this region. Our review of this activity is ongoing.
OFAC regulations and other legal authorities provide exemptions for certain activities involving dealings with Iran. However,
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 requires us to disclose whether we, or any of our
affiliates, have knowingly engaged in certain transactions or dealings involving the Government of Iran or with certain persons
or entities found on the SDN list, regardless of whether these dealings constitute a violation of OFAC regulations.
We do not calculate net revenues or net profits associated with specific merchants (our customers' customers). However, we
used our fee schedule and the aggregate number and amount of transactions involving the Iranian airline to estimate the net
revenue and net profit we obtained during the three months and year ended December 31, 2021. Both the number of
transactions and our estimated net revenue and net profits for these periods are de minimis.
Michael Miebach
/s/Michael Miebach
February 11, 2022
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
I have reviewed this annual report on Form 10-K of Mastercard Incorporated;
Date:
By:
/s/ Sachin Mehra
Sachin Mehra
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of Mastercard Incorporated (the "Company") on Form 10-K for the period
ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I,
Michael Miebach, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of my knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
February 11, 2022
Mastercard Holdings LP
United Kingdom
Mastercard AP Financing Pte. Ltd.
Chief Financial Officer
(Principal Financial Officer)
/s/ SANDRA ARKELL
Sandra Arkell
Corporate Controller
(Principal Accounting Officer)
/s/ CANDIDO BRACHER
Mastercard Financing Solutions LLC
Director
/s/ RICHARD K. DAVIS
Richard K. Davis
Director
/s/ STEVEN J. FREIBERG
Steven J. Freiberg
Director
By:
t
Date: February 11, 2022
By:
Date: February 11, 2022
/s/ JULIUS GENACHOWSKI
Julius Genachowski
Director
/s/ CHOON PHONG GOH
Choon Phong Goh
Sachin Mehra
/s/ SACHIN MEHRA
President and Chief Executive Officer; Director
(Principal Executive Officer)
Michael Miebach
By:
(Registrant)
/s/ MICHAEL MIEBACH
Michael Miebach
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
Date:
February 11, 2022
By:
Date: February 11, 2022
By:
Date:
Director
February 11, 2022
Date:
February 11, 2022
By:
Date:
February 11, 2022
By:
Date: February 11, 2022
By:
122 MASTERCARD 2021 FORM 10-K
/s/ MICHAEL MIEBACH
By:
By:
Candido Bracher
Merit E. Janow
José Octavio Reyes Lagunes
Director
/s/ GABRIELLE SULZBERGER
Gabrielle Sulzberger
Director
/s/ JACKSON TAI
Jackson Tai
Director
/s/ LANCE UGGLA
Lance Uggla
Director
/s/ JOSÉ OCTAVIO REYES LAGUNES
SIGNATURES
123
LIST OF SUBSIDIARIES OF MASTERCARD INCORPORATED
Exhibit 21
/s/ MERIT E. JANOW
Name
Global Mastercard Holdings LP
Mastercard A&M Investment Holdings, LLC
Mastercard Asia/Pacific Pte. Ltd.
Mastercard/Europay U.K. Limited
Mastercard Europe SA
MASTERCARD 2021 FORM 10-K
Director
The following is a list of subsidiaries of Mastercard Incorporated as of December 31, 2021, omitting subsidiaries which,
considered in the aggregate, would not constitute a significant subsidiary:
/s/ RIMA QURESHI
Rima Qureshi
Chairman of the Board; Director
By:
Date: February 11, 2022
By:
By:
Date: February 11, 2022
Date:
February 11, 2022
By:
By:
Date: February 11, 2022
Date:
Date: February 11, 2022
Youngme Moon
Director
Oki Matsumoto
Director
/s/ YOUNGME MOON
Date: February 11, 2022
By:
By:
February 11, 2022
/s/ OKI MATSUMOTO
•
We face a number of competitors both within and outside of the global payments industry and compete in all categories of payment,
including paper-based payments and all forms of electronic payments. Among electronic payments, we face the following
competition:
Competition
ITEM 1. BUSINESS
PARTI
MASTERCARD 2021 FORM 10-K 19
We own a number of valuable trademarks that are essential to our business, including Mastercard, Maestro and Cirrus, through one
or more affiliates. We also own numerous other trademarks covering various brands, programs and services offered by us to
support our payment programs. Trademark and service mark registrations are generally valid indefinitely as long as they are used
and/or properly maintained. Through license agreements with our customers, we authorize the use of our trademarks on a royalty-
free basis in connection with our customers' issuing and merchant acquiring businesses. In addition, we own a number of patents
and patent applications relating to payment solutions, transaction processing, smart cards, contactless, mobile, biometrics, Al,
security systems, blockchain and other technologies, which are important to our business operations. These patents expire at
varying times depending on the jurisdiction and filing date.
Working with trusted partners. We select partners and service providers who share our principled-approach to protecting data
Addressing data bias. We ensure our use of advanced analytics, including Al and Machine Learning, utilizes diverse data sets to
create fair and inclusive solutions that reflect individual, group and societal interests
We generate revenue primarily from assessing our customers based on GDV on the products that carry our brands, from the fees we
charge to our customers for providing transaction processing and from other payment-related products and services. Our net
revenues are classified into five categories: domestic assessments, cross-border volume fees, transaction processing, other revenues
and rebates and incentives (contra-revenue).
Revenue Sources
Advancing positive social impact. We utilize our data sets to create innovative solutions to societal challenges, promoting
inclusive financial, social, climate, health and education growth
Being transparent and providing control. We explain how we use personal information and give individuals' access and control
over how their data is used and shared
Practicing data minimization. We collect and retain only the data that is needed for a given product or service, and limit the
amount and type of personal information shared with third parties
•
•
Intellectual Property
•
globally recognized and trusted brands
.
.
20 MASTERCARD 2021 FORM 10-K
global payments network with world-class operating performance
•
highly adaptable global acceptance network built over more than 50 years which can reach a variety of parties enabling
payments
.
.
Mastercard plays a valuable role as a trusted intermediary in a complex system, creating value for individual stakeholders and the
payments ecosystem overall. Our competitive advantages include our:
Value-Added Service Providers and Adjacent Network Capabilities Players. We face competition from companies that provide
alternatives to our value-added products and services, including information services and consulting firms that provide
consulting services and insights to financial institutions, merchants and governments and technology companies that provide
cyber and fraud solutions, as well as companies that compete against us as providers of loyalty and program management
solutions. We also face competition from companies that provide alternatives to our open banking and digital identity solutions.
Regulatory initiatives could also lead to increased competition in this space.
Digital Currencies. Stablecoins and floating cryptocurrencies may become more popular as they are increasingly viewed as
providing immediacy, 24/7 accessibility, immutability and efficiency. Such currencies are starting to be accepted by person-to-
merchant ("P2M") players (such as Square). These currencies are also introducing into the payments ecosystem an emerging set
of providers referred to as crypto natives, who have the ability to disrupt traditional financial markets. The increased
prominence of digital currencies could compete with our products and services.
National (Government-Backed) Networks. Governments have been increasingly creating regional payments structures, such as
the newly established European Payments Initiative ("EPI"). Backed by numerous Eurozone banks and acquirers, EPI is aimed at
creating a unified pan-European payments system, offering card, digital wallet and person-to-person ("P2P") payment solutions
for consumers and merchants. EPI is being positioned as an alternative to existing international payment solutions and schemes
such as ours. In addition to regional networks, more than 80 national governments are exploring the use of central bank digital
currencies ("CBDCs").
Alternative Payments Systems and New Entrants. As the global payments industry becomes more complex, we face increasing
competition from alternative payments systems and emerging payments providers. Many of these providers, who in many
circumstances can also be our partners or customers, have developed payments systems focused on online activity in e-
commerce and mobile channels (in some cases, expanding to other channels), and may process payments using in-house account
transfers, real-time account-based payments networks or global or local networks. Examples include digital wallet providers
(such as Paytm, PayPal, Alipay and Amazon), point of sale financing/buy-now-pay-later providers (such as Klarna), mobile
operator services, mobile phone-based money transfer and microfinancing services (such as M-PESA) and handset
manufacturers. We also compete with merchants and governments.
Real-time Account-based Payments Systems. We face competition in the real-time account-based payments space from other
companies that provide infrastructure, applications and services to support these payment solutions.
Debit and Local Networks. We compete with ATM and point of sale debit networks in various countries. In addition, in many
countries outside of the United States, local debit brands serve as the main domestic brands, while our brands are used mostly to
enable cross-border transactions (typically representing a small portion of overall transaction volume). Certain jurisdictions have
also created domestic card schemes focused mostly on debit. In addition, several governments are promoting, or considering
promoting, local networks for domestic switching. See "Risk Factors" in Part I, Item 1A for a more detailed discussion of the risks
related to payments system regulation and government actions that may prevent us from competing effectively.
General Purpose Payments Networks. We compete worldwide with payments networks such as Visa, American Express, JCB,
China UnionPay and Discover, among others. These competitors tend to offer a range of card-based payment products. Some
competitors have more market share than we do in certain jurisdictions. Some also have different business models that may
provide an advantage in pricing, regulatory compliance burdens or otherwise. Globally, financial institutions may issue both
Mastercard and Visa-branded payment products, and we compete with Visa for business on the basis of individual portfolios or
programs. In addition, a number of our customers issue American Express, China UnionPay and/or Discover-branded payment
cards in a manner consistent with a four-party system. We continue to face intense competitive pressure on the prices we
charge our issuers and acquirers, and we seek to enter into business agreements with them through which we offer incentives
and other support to issue and promote our payment products.
•
•
See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Revenue" in Part II, Item 7 and Note 3,
Revenue for more detail about our revenue, GDV, processed transactions and our other payment-related products and services.
Data
Using Mastercard Send, we partner with digital messaging and payment platforms to enable consumers to send and receive
money directly within applications. We partner with central banks, fintechs and financial institutions to help governments and
nonprofits more efficiently enable, as applicable, distribution of social and economic assistance and business-to-consumer
("B2C") disbursements.
•
We offer platforms that apply our payment capabilities to support and capture new payment flows beyond cards.
Disbursements and Remittances. We offer applications that enable consumers, businesses, governments and merchants to send
and receive money domestically and across borders with greater speed and ease.
New Payment Flows
2 Prepaid includes both consumer and commercial prepaid.
1 Excludes Maestro and Cirrus cards and volume generated by those cards.
11 %
111
11 %
25 %
867
Commercial Credit and Debit
13 %
1,509
51 %
22 %
3,953
Consumer Debit and Prepaid
9%
968
38 %
Mastercard Cross-Border Services enables a wide range of payment flows and use cases to customers, including trade payments,
remittances and disbursements. These flows are enabled via a distribution network with a single point of access that allows
financial institutions, fintechs and digital partners to send and receive money globally through multiple channels, including bank
accounts, mobile wallets, cards and cash payouts.
B2B Payments. We continue to focus on developing solutions to address ways that businesses move money, building on our point
of sale capabilities to capture B2B payments. We offer B2B solutions globally that optimize customer choice, enabling payments
through card, ACH and real-time payment rails. Mastercard Track BPS, our two-sided open-loop commercial service platform, is
aimed at improving the way businesses pay and get paid by simplifying and automating payments between suppliers and buyers. It
provides a single connection enabling access to multiple payment rails, providing greater control, richer data and working capital
optimization capabilities to enhance B2B transactions for both buyers and suppliers. Track BPS leverages multiple payment options,
including both real-time payments and batch ACH, as well as our core network.
Consumer Bill Payments.
•
Our Digital First Card program enables customers to offer their cardholders a fully digital payment experience with an
optional physical card, meeting cardholder expectations of immediacy, safety and convenience during card application,
authentication and instant card access, securing purchases (whether contactless, in-store, in-app or via the web) and
managing alerts, controls and benefits
Our Click to Pay checkout experience is designed to provide consumers the same convenience and security in a digital
environment that they have when paying in a store, make it easier for merchants to implement secure digital payments and
provide issuers with improved fraud detection and prevention capability. This experience is based on the EMV Secure
Remote Commerce industry standard that enables a faster, more secure checkout experience across web and mobile sites,
mobile apps and connected devices
During 2021, we announced Mastercard
Installments, our new open loop solution to
deliver buy-now-pay-later installments
capabilities at scale. The solution connects
lenders with merchants across our
acceptance network to provide buy-now-
pay-later options for consumers. The
program is expected to launch in 2022.
During 2021, we announced the expansion
of several programs that enabled consumers
to either use their cards to purchase
cryptocurrencies or to convert their
cryptocurrencies back into fiat currencies at
their respective financial institutions.
Key 2021 Developments
•
•
Our contactless payment solutions help deliver a simple and intuitive
way to pay, as well as health and safety benefits when consumers are
looking for low-touch options
Delivering better digital experiences everywhere.
technologies and security protocols to develop solutions to make digital
shopping and selling experiences, such as on smartphones and other
connected devices, simpler, faster and safer for both consumers and
merchants. We also offer products that make it easier for merchants to
accept payments and expand their customer base.
We are using our
18 %
°
°
•
•
Our innovation capabilities and our technology provide resiliency, scalability
and flexibility in how we serve customers. They enable broader reach to scale
digital payment services across multiple channels, including mobile devices.
Our technology standards, services and governance model help us to serve as
the connection that allows financial institutions, fintechs and technology
companies to interoperate and enable consumers, businesses, governments
and merchants to engage through digital channels.
Innovation and Technology
ITEM 1. BUSINESS
PARTI
MASTERCARD 2021 FORM 10-K 13
Our bill pay solutions, which include Bill Pay Exchange, provide an open, Application Programming Interface ("API") based bill pay
network that leverages real-time messaging to connect consumers with billers and merchants through the home banking
channel. We also provide real-time bill pay solutions as well as clearing and instant payment services. Our solutions enable
enhanced biller setup and expanded bill presentment. They facilitate payment choice using multiple payment rails (including
real-time account-based payments) and deliver immediate payment confirmation, providing an experience that benefits
consumers, financial institutions and billers.
We offer applications including those that make it easier for consumers and small businesses to present, view, manage and pay
their bills through their online or mobile banking apps. Payments can be made in a variety of ways, using cards, real-time
payments or batch ACH payments through a digital interface, providing a convenient, secure and paperless means to manage
household bills in one place.
°
Our Digital Doors program helps small businesses establish and protect an online presence, including accepting digital
payments
2,899
Consumer Credit
•
ITEM 1. BUSINESS
PART I
MASTERCARD 2021 FORM 10-K 11
Operating Standards. We define the operational, technical and financial policies to which network participants are required to
adhere
Safety and Security. We establish the core principles, including ensuring consumer protections and integrity, so participants feel
confident to transact on the network
Participant Onboarding. We ensure the capability of new customers to use our network and define the roles and responsibilities
for their operations once on the network
.
.
Our Franchise. We manage an ecosystem of stakeholders that participate in our network and payments platforms. Our franchise
creates and sustains a comprehensive series of value exchanges across our ecosystem. We ensure a balanced ecosystem where all
participants benefit from the availability, innovation, safety and security of our network. We achieve this through the following key
activities:
As another feature of our multi-layered approach to protect the global payments ecosystem, we work with issuers, acquirers,
merchants, governments and payments industry associations to develop and put in place technical standards (such as EMV
standards for chips and smart payment cards) for safe and secure transactions and we provide solutions and products that are
designed to ensure safety and security for the global payments ecosystem. We discuss specific cyber and intelligence solutions that
we offer to our customers in "Our Value-Added Services".
Payments System Security. We have a multi-layered approach to protect the global payments ecosystem. As part of this approach,
we have a robust program to protect our network from cyber and information security threats. Our network and platforms
incorporate multiple layers of protection, providing greater resiliency and best-in-class security protection. Our programs are
assessed by third parties and incorporate benchmarking and other data from peer companies and consultants. We engage in many
efforts to mitigate information security challenges, including maintaining an information security program, an enterprise resilience
program and insurance coverage, as well as regularly testing our systems to address potential vulnerabilities. Through the combined
efforts of our Security Operations Centers, Fusion Centers and the Mastercard Intelligence Center, we work with experts across the
organization (as well as through other sources such as public-private partnerships) to monitor and respond quickly to a range of
cyber and physical threats.
Security and Franchise
We discuss below under "Our Payment Products and Applications" the ways in which we apply our real-time account-based and
account to account payment capabilities to capture new payment flows.
Account to Account. We enable consumers, businesses, governments and merchants to send and receive money directly from
account to account. We apply these capabilities to help these stakeholders with various disbursements and remittances.
ACH Batch and Real-Time Account-Based Payments Infrastructure and Applications. We offer ACH batch and real-time account-
based payments capabilities, enabling payments for ACH transactions between bank accounts in real-time. These capabilities
provide consumers and businesses the ability to make instant (faster) payments while providing enhanced data and messaging
capabilities. We build, implement, enhance and operate real-time clearing and settlement infrastructure, payment platforms and
direct debit systems for jurisdictions globally. As of December 31, 2021, we either operated or were implementing real-time
payments infrastructure in 12 of the top 50 markets as measured by GDP. We also apply our real-time payments capabilities to new
payment flows, such as consumer bill payments using our real-time bill pay solutions.
Additional Payment Capabilities
Core Network Architecture. Our core network features a globally integrated structure that provides scale for our issuers, enabling
them to expand into regional and global markets. It is based largely on a distributed (peer-to-peer) architecture that enables the
network to adapt to the needs of each transaction. The network accomplishes this by performing intelligent routing and applying
multiple value-added services (such as fraud scoring, tokenization services, etc.) to appropriate transactions in real time. This
architecture enables us to connect all parties regardless of where or how the transaction is occurring. It has 24-hour a day
availability and world-class response time.
We guarantee the settlement of many of the transactions from issuers to acquirers to ensure the integrity of our core network. We
refer to the amount of this guarantee as our settlement exposure. We do not, however, guarantee payments to merchants by their
acquirers or the availability of unspent prepaid account holder account balances.
to accept, our products and services across country borders. We also provide switched transaction services to customers where
the merchant country and the country of issuance are the same ("domestic transactions"). We switch over 60% of all
transactions for Mastercard and Maestro-branded cards, including nearly all cross-border transactions.
PART I
ITEM 1. BUSINESS
•
Responsible Stewardship. We establish performance standards to support ecosystem growth and optimization and establish
proactive monitoring to ensure participant performance
Issue Resolution. We operate a framework to enable the resolution of disputes for both customers and consumers
Our Payment Products and Applications
2020
(in millions)
% of Total GDV
Growth (Local)
(in billions)
Percentage
Increase from
December 31,
As of December 31, 2021
Cards
GDV
Year Ended December 31, 2021
Mastercard-branded Programs 1,2
$
The following chart provides gross dollar volume ("GDV") and number of cards featuring our brands in 2021 for select programs and
solutions:
12 MASTERCARD 2021 FORM 10-K
Prepaid. Prepaid accounts are a type of electronic payment that enables consumers to pay in advance whether or not they
previously had a bank account or a credit history. These accounts can be tailored to meet specific program, customer or consumer
needs, such as paying bills, sending person-to-person payments or withdrawing cash from an ATM. Our focus ranges from digital
accounts (such as fintech and gig economy platforms) to business programs such as employee payroll, health savings accounts and
solutions for small business owners. Our prepaid programs also offer opportunities in the private and public sectors to drive
financial inclusion of previously unbanked individuals through social security payments, unemployment benefits and salary cards.
We also provide prepaid program management services, primarily outside of the United States, that provide processing and end-to-
end services on behalf of issuers or distributor partners such as airlines, foreign exchange bureaus and travel agents.
Commercial Credit and Debit. We offer commercial credit and debit payment products and solutions that meet the payment needs
of large corporations, midsize companies, small businesses and government entities. Our solutions streamline procurement and
payment processes, manage information and expenses (such as travel and entertainment) and reduce administrative costs. Our
point of sale offerings include small business (debit and credit), travel and entertainment, purchasing cards and fleet cards. Our
SmartData platform provides expense management and reporting capabilities. Our virtual card offerings, supported by our
Mastercard In ControlTM platform, generate virtual account numbers which provide businesses with enhanced controls, more
security and better data.
Consumer Credit. We offer a number of products that enable issuers to
provide consumers with credit, allowing them to defer payment. These
programs are designed to meet the needs of our customers around the
world and address standard, premium and affluent consumer segments.
Consumer Debit. We support a range of payment products and solutions that allow our customers to provide consumers with
convenient access to funds in deposit and other accounts. Our debit and deposit access programs can be used to make purchases
and to obtain cash in bank branches, at ATMs and, in some cases, at the point of sale. Our branded debit programs consist of
Mastercard (including standard, premium and affluent offerings), Maestro (the only PIN-based solution that operates globally) and
Cirrus (our primary global cash access solution).
We use our data assets, infrastructure and platforms to create a range of products and services for our customers, including the
majority of our value-added services, which help reduce fraud, increase security, provide actionable insights to our customers to
assist in their decision making and enable our customers to increase their engagement with consumers. We do all this while
incorporating our data principles in how we design, implement and deliver those solutions. Our Privacy by Design and Data by
Design processes have been developed to ensure we embed privacy, security and data controls in all of our products and services,
keeping a clear focus on protecting customers' and individuals' data. We do this in a number of ways:
providing consumers choice, empowering them
to make and receive payments in the ways that
best meet their daily needs
delivering better, seamless consumer
experiences
We enable our customers to benefit consumers by:
making electronic payments more convenient,
secure and efficient
How We Benefit Consumers
Core Payment Products
We provide a wide variety of integrated products and services that
support payment products that customers can offer to consumers and
merchants. These offerings facilitate transactions across our multi-rail
payments network and platforms among account holders, merchants,
financial institutions, digital partners, businesses, governments and other
organizations in markets globally.
PART I
ITEM 1. BUSINESS
Securing more transactions. We are leveraging tokenization, biometrics and machine learning technologies in our push to
secure every transaction. These efforts include driving EMV-level security and benefits through all our payment channels.
Simplifying access to, and integration of, our digital assets. Our Mastercard Developer platform makes it easy for customers
and partners to leverage our many digital assets and services. By providing a single access point with tools and capabilities to
find what we believe are some of the best-in-class APIs across a broad range of Mastercard services, we enable easy integration
of our services into new and existing solutions.
protecting consumers and all other participants
in a transaction, as well as consumer data
providing loyalty rewards
14 MASTERCARD 2021 FORM 10-K
•
.
•
.
•
Develop and retain talent. Our efforts to develop and retain our employees include:
Attract talent. Leveraging the strength of our brand, we attract talent through acquisitions, workforce planning and recruitment
that incorporates a variety of sources.
ITEM 1. BUSINESS
PARTI
MASTERCARD 2021 FORM 10-K 17
build on our DEI efforts to support our employees
. develop and retain an agile workforce that is able to compete in a fast-paced, digitally native and innovative environment and
. attract talent with the key skills needed
Specifically, to enable our business strategy effectively, our aim is to:
Management reviews our people strategy and culture, as well as related risks, with our Human Resources and Compensation
Committee on a quarterly basis, and annually with our Board of Directors. Additionally, our Board of Directors and our Board
committees are tasked with overseeing other human capital management matters on a regular basis, such as ensuring processes are
in place for maintaining an ethical corporate culture, overseeing key diversity initiatives, policies and practices, and monitoring
governance trends in areas such as human rights. Our ability to attract, retain and engage top talent and build a culture centered
around decency, with an overall focus on diversity, equity and inclusion ("DEI"), is critical to our business strategy.
We continue to support our employees during the ongoing global COVID-19 pandemic. We have extended a variety of global COVID-
related employee benefits through 2022, including flexible hybrid working arrangements and additional paid time off due to illness,
to get vaccinated, or to tend to childcare or eldercare-related demands. Our focus remains on the safety and well-being of our
employees while maintaining health and safety protocols at each office location.
We provide more detailed information regarding our employees, including additional workforce demographics such as gender and
racial/ethnic representation, in our Sustainability Report, our Proxy Statement, our Global Inclusion Report and our U.S.
Consolidated EEO-1 Report, all of which are located on our website.
As of December 31, 2021, we employed approximately 24,000 persons globally. Our employee base is predominantly full-time and
approximately 65% were employed outside of the United States in more than 80 countries around the world. We also had
approximately 3,900 contractors which we used to supplement our employee base in order to meet specific needs. Our voluntary
workforce turnover (rolling 12-month attrition) was 11% as of December 31, 2021. The total cost of our workforce for the year
ended December 31, 2021 was $4.5 billion, which primarily consists of compensation, benefits and other personnel- and contractor-
related costs.
Our People
We acquired Ekata, Inc., a leader in
digital identity verification solutions,
broadening our fraud prevention and
digital identity verification programs by
adding Ekata's identity verification data,
machine learning technology and global
experience.
Key 2021 Developments
•
We enable digital identity solutions, which provide smooth digital experiences
and strengthen and secure digital payments across individuals, devices and
accounts. Our digital identity capabilities focus on the identity of people, devices
and transactions. They embody privacy by design principles and are consent-
centric. Our solutions include device intelligence and behavioral biometrics (to
determine whether the user is genuine or a fraudulent device), document
proofing, IP intelligence, biometrics, transaction fraud data (from which we
derive insights that can be used to significantly improve the global approval rate
of transactions), location, identity attributes and payment authorization.
.
Succession planning for key roles, including talent and leadership programs across various levels. These programs embed our
culture principles, include diverse populations and aim to develop talent and managerial skills through personalized coaching and
group executive development
Identifying and experimenting with future technologies, start-ups and trends. Through Mastercard Foundry (formerly known as
Mastercard Labs), we continue to bring customers and partners access to thought leadership, innovation methodologies, new
technologies and relevant early-stage fintech players.
Our family of well-known brands includes Mastercard, Maestro and Cirrus. We manage and promote our brands and brand
identities (including our sonic brand identity) through advertising, promotions and sponsorships, as well as digital, mobile and social
media initiatives, in order to increase people's preference for our brands and usage of our products. We sponsor a variety of
sporting, entertainment and charity-related marketing properties to align with consumer segments important to us and our
customers. Our advertising plays an important role in building brand visibility, preference and overall usage among account holders
globally. Our "Priceless®" advertising campaign, which has run in more than 50 languages and in more than 120 countries
worldwide, promotes Mastercard usage benefits and acceptance, markets Mastercard payment products and solutions and provides
Mastercard with a consistent, recognizable message that supports our brand around the globe.
PARTI
ITEM 1. BUSINESS
Brand
18 MASTERCARD 2021 FORM 10-K
We expect to provide additional updates in 2022 on our diversity, equity and inclusion efforts, including the executive compensation
modifier, in our upcoming Sustainability Report, Proxy Statement and Global Inclusion Report, all of which will be located on our
website.
We introduced a modifier to our 2021 executive compensation plan that includes quantitative goals for gender pay and other key
environmental, social and governance ("ESG") items
We remain committed to our "In Solidarity" initiative through alignment of our DEI plans, introduction of new training programs
and partnerships with historically Black colleges and universities ("HBCUs") and other schools with diverse talent
We have developed regional and functional action plans to identify priorities and actions that will help us make more progress
for DEI, including appropriate balance and inclusion in gender and racial representation
We monitor our recruitment, development, succession and retention practices with a focus on gender, race (in the U.S.) and
generational mix of our employee population
•
•
•
•
Diversity, equity and inclusion underpin everything we do:
Support for charitable contributions of our employees' time and money. We support employee charitable donations with
matching Company gifts of up to $15,000 per employee annually and permit full-time employees to use five paid days per year
for eligible volunteer work
Contributions to employees' financial well-being as they plan for retirement. All employees globally are entitled to receive a
matching Company contribution of $1.67 for every $1 contributed to a 401(k) or other retirement plan on the first 6% of base
pay
Holistic physical, mental, professional and other benefits to our employees and their families to provide support when and where
they need it
A competitive compensation approach under which eligible employees across multiple job levels can receive long-term incentive
equity awards
Mentorship programs that give mentees tools and resources to help build and enhance their skills, inspire personal growth,
overcome dilemmas, foster inclusion and support well-being
Learning opportunities, such as Learning Academies that support our corporate business strategy and priorities and offer
programs aligned to regional priorities
An annual cycle that is focused on objective setting, performance assessment, talent evaluation, skill development, opportunities
and career progression
Digital Identity
A culture of high ethical business practices and compliance standards, grounded in honesty, decency, trust and personal
accountability. It is driven by "tone at the top," reinforced with regular training, fostered in a speak-up environment, and
measured by periodic employee surveys and other metrics that are designed to enable our Board of Directors to gauge the
health of our culture
PARTI
ITEM 1. BUSINESS
We acquired CipherTrace, a leading
digital currency intelligence platform
that can map and trace blockchain-
based transactions between entities,
providing greater transparency and
helping manage regulatory and
compliance obligations.
Key 2021 Developments
•
The "Identify" layer allows us to help banks and merchants verify the authenticity
of consumers during the payment process using various biometric technologies,
including fingerprint, face and iris scanning, and behavioral user data assessment
technology to verify online purchases on mobile devices, as well as a card with
biometric technology built in.
•
•
As part of the security we bring to the payments ecosystem, we offer integrated
products and services to prevent, detect and respond to fraud and cyber-attacks and
to ensure the safety of transactions made using Mastercard products. We do this
using a multi-layered safety and security strategy:
Cyber and Intelligence Solutions
B
ITEM 1. BUSINESS
PARTI
enable connectivity and access for a fragmented and diverse set of parties
enable our customers to strengthen their engagement with their own end-users
provide actionable insights to our customers to assist in their decision making
•
.
instill trust in the ecosystem to allow parties to transact and operate with confidence
•
Our services encompass a wide-ranging portfolio of value-added and differentiating capabilities that:
We offer an open banking platform that enables data providers and third parties, on a permissioned basis, to reliably access,
securely transmit and confidently manage consumer data to improve the customer experience. Our platform enables consumers to
have choice of financial services, providing them the ability to access, control and benefit from the use of their data, as well as an
improved payment experience. Our platform is also used to serve the needs of the lending market, including through streamlining
loan application processes and improving credit decisioning, thereby driving further financial inclusion. The network connections
that underpin this platform leverage our data principles (including data usage guardrails, consumer protection and consent
management), as well as API technology.
Our Value-Added Services
We became the first company to
announce the retirement of legacy
magnetic stripe technology enabling
us to focus on technologies, such as
chip and contactless, which provide
increased security.
The "Detect" layer spots fraudulent behavior and cyber-attacks and takes action to stop these activities once detected. Our
offerings in this space include alerts when accounts are exposed to data breaches or security incidents, fraud scoring technology
that scans billions of dollars of money flows each day while increasing approvals and reducing false declines, and network-level
monitoring on a global scale to help detect the occurrence of widespread fraud attacks when the customer (or their processor)
may be unable to detect or defend against them.
The "Prevent" layer is designed to protect against attacks on infrastructure,
devices and data. We have continued to grow global usage of EMV chip and
contactless security technology, helping to reduce fraud. Our solutions include
SafetyNet, which protects financial institutions by helping to stop real-time
attacks that are visible in the network, but not easily detected by financial
institutions.
The "Network" layer extends the services we provide to transactions in the payments ecosystem and across all of our rails,
including decision intelligence and tokenization capabilities, to help secure our customers and transactions on a real-time basis.
Moreover, we use our artificial intelligence ("AI") and data analytics, along with our cyber risk assessment capabilities, to help
financial institutions, merchants, corporations and governments secure their digital assets across each of these five layers.
We have also worked with our customers to provide products to consumers globally with increased confidence through the benefit
of "zero liability", where the consumer bears no responsibility for counterfeit or lost card losses in the event of fraud.
Open Banking
Our Expanded Network Capabilities
16 MASTERCARD 2021 FORM 10-K
Mobile gateways that facilitate transaction routing and processing for mobile-initiated transactions
•
Payment gateways that offer a single interface to provide e-commerce merchants with the ability to process secure online and
in-app payments and offer value-added solutions, including outsourced electronic payments, fraud prevention and alternative
payment options
The "Experience" layer improves the security experience for our stakeholders in areas from the speed of transactions (enhancing
approvals for online and card-on-file payments) to the ability to differentiate legitimate consumers from fraudulent ones. Our
offerings in this space include solutions for consumer alerts and controls and a suite of digital token services. We also offer an e-
commerce fraud and dispute management network that enables merchants to stop delivery when a fraudulent or disputed
transaction is identified, and issuers to refund the cardholder to avoid the chargeback process.
•
We extend our processing capabilities in the payments value chain in various regions and across the globe with an expanded suite of
offerings, including:
Processing and Gateway
We have built a scalable rewards platform that enables issuers to provide consumers with a variety of benefits and services, such as
personalized offers and rewards, access to a global airline lounge network, concierge services, insurance services, emergency card
replacement, emergency cash advances and a 24-hour account holder service center. For merchants, we provide campaigns with
targeted offers and rewards, management services for publishing offers, and accelerated points programs for co-brand and rewards
program members. We also provide a loyalty platform that enables stronger relationships with retailers, restaurants, airlines and
consumer packaged goods companies by creating experiences that drive loyalty and impactful consumer engagement.
Issuer and Merchant Loyalty
Issuer solutions designed to provide customers with a complete processing solution to help them create differentiated products
and services and allow quick deployment of payments portfolios across banking channels
We deliver marketing services, digital implementation and program management with performance-based solutions at every stage
of the consumer lifecycle to assist our customers in implementing actions based on insights and driving adoption and usage. These
services include developing messaging, targeting key groups, launching campaigns and training staff, all of which help our customers
drive engagement and portfolio profitability.
Managed Services
We provide advisory services that help clients make better decisions and improve performance. By observing patterns of payments
behavior based on billions of transactions switched globally, we are able to leverage anonymized and aggregated information to
provide advice based on data. We also utilize our expertise, digital technology, innovation tools, methodologies and processes to
collaborate with, and increasingly drive innovation at, financial institutions, merchants and governments. Through our global
innovation and development arm, Mastercard Foundry, we offer "Launchpad," a five-day app prototyping workshop, as well as other
customized innovation programs such as in-lab usability testing and concept design.
Consulting and Innovation
MASTERCARD 2021 FORM 10-K 15
Our capabilities incorporate payments expertise and analytical and executional skills to create end-to-end solutions which are
increasingly delivered via platforms embedded in our customers' day-to-day operations. We offer business intelligence to monitor
key performance indicators ("KPIs") and benchmark performance through self-service digital platforms, tools, and reports for
financial institutions, merchants and others. We enable clients to better understand consumer behavior and improve segmentation
and targeting by using our anonymized and aggregated data assets, third-party data and Al technologies. Through our Test & Learn
software as a service platform, we can help our customers accurately measure the impact of their decisions and improve them by
leveraging data analytics to conduct disciplined business experiments for in-market tests to drive more profitable decision making.
Insights, Analytics and Test and Learn
ITEM 1. BUSINESS
PARTI
阊
Regional groups of countries are considering, or may consider, efforts to restrict our participation in the switching of regional
transactions.
Such developments prevent us from utilizing our global switching capabilities for domestic or regional customers. In addition, to the
extent a jurisdiction determines us not to be in compliance with regulatory requirements (including those related to data
localization), we have, and may continue to be, subject to resource and time pressures in order to come back into compliance. Our
inability to effect change in, or work with, these jurisdictions could adversely affect our ability to maintain or increase our revenues
and extend our global brand.
Additionally, some jurisdictions have implemented, or may implement, foreign ownership restrictions, which could potentially have
the effect of forcing or inducing the transfer of our technology and proprietary information as a condition of access to their markets.
Such restrictions could adversely impact our ability to compete in these markets.
Privacy, Data and Security
Regulation of privacy, data, security and the digital economy could increase our costs, as well as negatively impact our growth.
We are subject to increasingly complex regulations related to privacy, data and information security in the jurisdictions in which we
do business. These regulations could result in negative impacts to our business. As we continue to develop integrated and
personalized products and services to meet the needs of a changing marketplace, and acquire new companies, we have expanded
our information profile through the collection of additional data from additional sources and across multiple channels. This
expansion has amplified the impact of these regulations on our business. Regulation of privacy, data and information security
requires monitoring of and changes to our data practices in regard to the collection, use, disclosure, storage, transfer and/or security
of personal and sensitive information, as well as increased care in our data management, governance and quality practices. While
we make every effort to comply with all regulatory requirements and we deploy a privacy-by-design and data-by-design approach to
all of our product development, the speed and pace of change may not allow us to meet rapidly evolving expectations. We are also
subject to enhanced compliance and operational requirements in the European Union, and policymakers around the globe are using
these requirements as a reference to adopt new or updated privacy laws that could result in similar or stricter requirements in other
jurisdictions. Some jurisdictions have implemented or are otherwise considering requirements to collect, process and/or store data
within their borders, as well as prohibitions on the transfer of data abroad, leading to technological and operational implications.
Other jurisdictions have adopted or are otherwise considering adopting sector-specific regulations for the payments industry,
including forced data sharing requirements or additional verification requirements, as well as regulations on artificial intelligence and
data governance, that overlap or conflict with, or diverge from, general privacy rules. Failure to comply with these laws, regulations
and requirements could result in fines, sanctions or other penalties, which could materially and adversely affect our results of
operations and overall business, as well as have an impact on our reputation.
PARTI
ITEM 1A. RISK FACTORS
New requirements or changing interpretations of existing requirements in these areas, or the development of new regulatory
schemes related to the digital economy in general, may also increase our costs and/or restrict our ability to leverage data for
innovation. This could impact the products and services we offer and other aspects of our business, such as fraud monitoring, the
need for improved data management, governance and quality practices, the development of information-based products and
solutions, and technology operations. In addition, these requirements may increase the costs to our customers of issuing payment
products, which may, in turn, decrease the number of our payment products that they issue. Moreover, due to account data
compromise events and privacy abuses by other companies, as well as the disclosure of monitoring activities by certain
governmental agencies in combination with the use of artificial intelligence and new technologies, there has been heightened
legislative and regulatory scrutiny around the world that could lead to further regulation and requirements and/or future
enforcement. Those developments have also raised public attention on companies' data practices and have changed consumer and
societal expectations for enhanced privacy and data protection. Any of these developments could materially and adversely affect
our overall business and results of operations.
In addition, fraudulent activity and increasing cyberattacks have encouraged legislative and regulatory intervention, and could
damage our reputation and reduce the use and acceptance of our integrated products and services or increase our compliance costs.
Criminals are using increasingly sophisticated methods to capture consumer personal information to engage in illegal activities such
as counterfeiting or other fraud. As outsourcing and specialization become common in the payments industry, there are more third
parties involved in processing transactions using our payment products. While we are taking measures to make card and digital
payments more secure, increased fraud levels involving our integrated products and services, or misconduct or negligence by third
parties switching or otherwise servicing our integrated products and services, could lead to legislative or regulatory intervention,
such as enhanced security requirements and liabilities, as well as damage to our reputation.
Some jurisdictions have implemented, or are considering, requirements to collect, process and/or store data within their
borders, as well as prohibitions on the transfer of data abroad, leading to technological and operational implications as well as
increased compliance burdens and other costs.
Regulations that directly or indirectly apply to Mastercard as a result of our participation in the global payments industry may
materially and adversely affect our overall business and results of operations.
Other Regulation
MASTERCARD 2021 FORM 10-K 25
Governments in some countries have implemented, or may implement, regulatory requirements that mandate switching of
domestic payments either entirely in that country or by only domestic companies.
•
•
settlement guarantee backed by our strong credit standing
We are subject to regulations that affect the payments industry in the many jurisdictions in which our integrated products and
services are used. Many of our customers are also subject to regulations applicable to banks and other financial institutions that, at
times, consequently affect us. Regulation of the payments industry, including regulations applicable to us and our customers, has
increased significantly in the last several years. See "Business - Government Regulation" in Part I, Item 1 for a detailed description of
such regulation and related legislation. Examples include:
Governments and merchant groups in a number of countries have implemented or are seeking interchange rate reductions through
legislation, competition law, central bank regulation and litigation. See "Business - Government Regulation" in Part I, Item 1 and
Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for more details.
If issuers cannot collect or we are required to reduce interchange rates, issuers may be less willing to participate in our four-party
payments system, or may reduce the benefits offered in connection with the use of our products, reducing the attractiveness of our
products to consumers. These and other impacts could lower transaction volumes, and/or make proprietary three-party networks
or other forms of payment more attractive. Issuers could reduce the benefits associated with our products or choose to charge
higher fees to consumers to attempt to recoup a portion of the costs incurred for their services. In addition, issuers could seek a fee
reduction from us to decrease the expense of their payment programs, particularly if regulation has a disproportionate impact on us
as compared to our competitors in terms of the fees we can charge. This could make our products less desirable to consumers,
reduce the volume of transactions and our profitability, and limit our ability to innovate or offer differentiated products.
24 MASTERCARD 2021 FORM 10-K
PARTI
.
ITEM 1A. RISK FACTORS
Limitations on our ability to restrict merchant surcharging could materially and adversely impact our results of operations.
We have historically implemented policies, referred to as no-surcharge rules, in certain jurisdictions, including the United States, that
prohibit merchants from charging higher prices to consumers who pay using our products instead of other means. Authorities in
several jurisdictions have acted to end or limit the application of these no-surcharge rules (or indicated interest in doing so).
Additionally, we have modified our no-surcharge rules to permit U.S. merchants to surcharge credit cards, subject to certain
limitations. It is possible that over time merchants in some or all merchant categories in these jurisdictions may choose to surcharge
as permitted by the rule change. This could result in consumers viewing our products less favorably and/or using alternative means
of payment instead of electronic products, which could result in a decrease in our overall transaction volumes, and which in turn
could materially and adversely impact our results of operations.
Preferential or Protective Government Actions
Preferential and protective government actions related to domestic payment services could adversely affect our ability to
maintain or increase our revenues.
Governments in some countries have acted, or in the future may act, to provide resources, preferential treatment or other
protection to selected national payment and switching providers, or have created, or may in the future create, their own national
provider. This action may displace us from, prevent us from entering into, or substantially restrict us from participating in, particular
geographies, and may prevent us from competing effectively against those providers. For example:
•
We are devoting substantial resources to defending our right to establish interchange rates in regulatory proceedings, litigation and
legislative activity. The potential outcome of any of these activities could have a more positive or negative impact on us relative to
our competitors. If we are ultimately unsuccessful in defending our ability to establish interchange rates, any resulting legislation,
regulation and/or litigation may have a material adverse impact on our overall business and results of operations. In addition,
regulatory proceedings and litigation could result (and in some cases has resulted) in us being fined and/or having to pay civil
damages, the amount of which could be material.
•
governments, businesses and consumers. There is no certainty that such measures will be sufficient to mitigate the risks posed by
the virus or otherwise be satisfactory to government authorities or voluntary actions taken by the public.
Anti-Money Laundering, Counter Financing of Terrorism, Economic Sanctions and Anti-Corruption - We are subject to AML and
CFT laws and regulations globally. Economic sanctions programs administered by OFAC restrict financial transactions and other
dealings with certain countries and geographies, and persons and entities. We are also subject to anti-corruption laws and
regulations globally, which, among other things, generally prohibit giving or offering payments or anything of value for the
purpose of improperly influencing a business decision or to gain an unfair business advantage.
•
Disintermediation from stakeholders both within and outside of the payments value chain could harm our business.
If we are not able to differentiate ourselves from our competitors, drive value for our customers and/or effectively align our
resources with our goals and objectives, we may not be able to compete effectively against these threats. Our failure to compete
effectively against any of the foregoing competitive threats could materially and adversely affect our overall business and results of
operations.
Our ability to compete may also be affected by regulatory and legislative initiatives, as well as the outcomes of litigation,
competition-related regulatory proceedings and central bank activity and legislative activity.
New entrants against whom we compete have developed alternative payments systems, e-commerce payments systems and
payments systems for mobile devices, as well as physical store locations. A number of these new entrants rely principally on
technology to support their services that provides cost advantages, and as a result may enjoy lower costs than we do, which could
put us at a competitive disadvantage.
Certain of our competitors to our core network operate three-party payments systems with direct connections to both merchants
and consumers and these competitors may derive competitive advantages from their business models. If we continue to attract
more regulatory scrutiny than these competitors because we operate a four-party system, or we are regulated because of the
system we operate in a way in which our competitors are not, we could lose business to these competitors. See "Business -
Competition" in Part I, Item 1.
Our traditional competitors may have substantially greater financial and other resources than we have, may offer a wider range of
programs, services, and payment capabilities than we offer or may use more effective advertising and marketing strategies to
achieve broader brand recognition and merchant acceptance than we have. They may also introduce their own innovative
programs, value-added services and capabilities that adversely impact our growth.
The global payments industry is highly competitive. Our payment programs compete against competitors both within and outside of
the global payments industry and compete in all categories of payment, including paper-based payments and all forms of electronic
payments. We compete against general purpose payments networks, debit and local networks, ACH and real-time account-based
payments systems, alternative payments systems and new entrants (focused on online activity across various channels and
processing payments using in-house capabilities), national networks and digital currencies. We also face competition from
companies that provide alternatives to our value-added services and adjacent network capabilities (including open banking and
digital identity).
Substantial and intense competition worldwide in the global payments industry may materially and adversely affect our overall
business and results of operations.
Competition and Technology
The COVID-19 pandemic has adversely impacted our business, results of operations and financial condition. There are no
comparable recent events which may provide guidance as to the effect of a global pandemic such as COVID-19, and, as a result, the
ultimate impact of this pandemic or a similar health epidemic in the future is highly uncertain and subject to change. The full extent
to which the COVID-19 pandemic, and measures taken in response, further impacts our business, results of operations and financial
condition will depend on future developments, which are uncertain, including, but not limited to, the duration of the pandemic and
its impact on the global economy, including how quickly and to what extent we can continue to progress toward more consistent
economic and operating conditions. Even after the COVID-19 pandemic has subsided, we may continue to experience materially
adverse impacts to our business and our result of operations as a result of its global economic impact, including any recession that
has occurred or may occur in the future.
ITEM 1A. RISK FACTORS
PARTI
MASTERCARD 2021 FORM 10-K 27
The pandemic has caused us to modify our business practices (including employee travel, employee work locations, and working in
remote or hybrid environments). We continue to monitor the effects of the pandemic and may take further actions as required that
are in the best interests of our employees, customers and business partners and which otherwise meet the responses by
The global COVID-19 pandemic 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, and may in the future affect, regions
is impacted by the ongoing global administration of vaccines and the availability of therapeutic 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.
The global COVID-19 pandemic and measures taken in response have adversely impacted our business, results of operations and
financial condition, and may continue to do so depending on future developments, which are uncertain.
Account-based Payments Systems - In the U.K., aspects of our Vocalink business are subject to the U.K. payment system
oversight regime and are directly overseen by the Bank of England.
Issuer and Acquirer Practices Legislation and Regulation - Certain regulations (such as PSD2 in the EEA) may impact various
aspects of our business. For example, PSD2's strong authentication requirement could increase the number of transactions that
consumers abandon if we are unable to secure a frictionless authentication experience under the new standards. An increase in
the rate of abandoned transactions could adversely impact our volumes or other operational metrics.
Increased regulatory focus on us, such as in connection with the matters discussed above, may result in costly compliance burdens
and/or may otherwise increase our costs. Similarly, increased regulatory focus on our customers may cause such customers to
reduce the volume of transactions processed through our systems, or may otherwise impact the competitiveness of our products.
Actions by regulators could influence other organizations around the world to enact or consider adopting similar measures,
26 MASTERCARD 2021 FORM 10-K
PARTI
ITEM 1A. RISK FACTORS
amplifying any potential compliance burden. Additionally, our compliance with new economic sanctions and related laws with
respect to particular jurisdictions or customers could result in a loss of business, which could be significant. Finally, failure to comply
with the laws and regulations discussed above to which we are subject could result in fines, sanctions or other penalties. In
particular, a violation and subsequent judgment or settlement against us, or those with whom we may be associated, under
economic sanctions and AML, CFT, and anti-corruption laws could subject us to substantial monetary penalties, damages, and/or
have a significant reputational impact. Each instance may individually or collectively materially and adversely affect our financial
performance and/or our overall business and results of operations, as well as have an impact on our reputation.
.
We could be subject to adverse changes in tax laws, regulations and interpretations or challenges to our tax positions.
We are subject to tax laws and regulations of the U.S. federal, state and local governments as well as various non-U.S. jurisdictions.
Potential changes in existing tax laws, including future regulatory guidance, may impact our effective income tax rate and tax
payments. There can be no assurance that changes in tax laws or regulations, both within the U.S. and the other jurisdictions in
which we operate, will not materially and adversely affect our effective income tax rate, tax payments, financial condition and
results of operations. Similarly, changes in tax laws and regulations that impact our customers and counterparties or the economy
generally may also impact our financial condition and results of operations.
Litigation
Liabilities we may incur or limitations on our business related to any litigation or litigation settlements could materially and
adversely affect our results of operations.
We are a defendant in a number of civil litigations and regulatory proceedings and investigations, including among others, those
alleging violations of competition and antitrust law and those involving intellectual property claims. See Note 21 (Legal and
Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for more details regarding the allegations
contained in these complaints and the status of these proceedings. In the event we are found liable in any material litigations or
proceedings, particularly in the event we may be found liable in a large class-action lawsuit or on the basis of an antitrust claim
entitling the plaintiff to treble damages or under which we were jointly and severally liable, we could be subject to significant
damages, which could have a material adverse impact on our overall business and results of operations.
Certain limitations have been placed on our business in recent years because of litigation and litigation settlements, such as changes
to our no-surcharge rule in the United States. Any future limitations on our business resulting from litigation or litigation
settlements could impact our relationships with our customers, including reducing the volume of business that we do with them,
which may materially and adversely affect our overall business and results of operations.
Business and Operations
COVID-19
In addition, tax laws and regulations are complex and subject to varying interpretations, and any significant failure to comply with
applicable tax laws and regulations in all relevant jurisdictions could give rise to substantial penalties and liabilities. Any changes in
enacted tax laws, rules or regulatory or judicial interpretations; any adverse outcome in connection with tax audits in any
jurisdiction; or any change in the pronouncements relating to accounting for income taxes could materially and adversely impact our
effective income tax rate, tax payments, financial condition and results of operations.
expertise in real-time account-based payments and open banking
Stakeholder Relationships
development and adoption of innovative products and digital solutions
Item 1A. Risk factors
Legal and Regulatory
Payments Industry Regulation
RISK HIGHLIGHTS
COVID-19
Business and Operations
Preferential or Protective Government
Actions
Competition and Technology
Privacy, Data and Security
Other Regulation
Information Security and Service
Disruptions
Litigation
Global Economic and Political
Environment
Brand and Reputational Impact
Talent and Culture
Acquisitions
Settlement and Third-Party Obligations
Interchange rates are a significant component of the costs that merchants pay in connection with the acceptance of our products.
Although we do not earn revenues from interchange, interchange rates can impact the volume of transactions we see on our
payment products. If interchange rates are too high, merchants may stop accepting our products or route transactions away from
our network. If interchange rates are too low, issuers may stop promoting our integrated products and services, eliminate or reduce
loyalty rewards programs or other account holder benefits (e.g., free checking or low interest rates on balances), or charge fees to
account holders (e.g., annual fees or late payment fees).
As the payments industry continues to develop and change, we face disintermediation and related risks, including:
Increased regulatory, legislative and litigation activity with respect to interchange rates could have an adverse impact on our
business.
Increased regulation and oversight of payments systems, as well as increased exposure to regulation resulting from changes to our
products and services, have resulted and may continue to result in costly compliance burdens or otherwise increase our costs. As a
result, issuers, acquirers and other customers could be less willing to participate in our payments system and/or use our other
products or services, reduce the benefits offered in connection with the use of our products (making our products less desirable to
consumers), reduce the volume of domestic and cross-border transactions or other operational metrics, disintermediate us, impact
our profitability and limit our ability to innovate or offer differentiated products and services, all of which could materially and
adversely impact our financial performance. In addition, any regulation that is enacted related to the type and level of network fees
we charge our customers could also materially and adversely impact our results of operations. Regulators could also require us to
obtain prior approval for changes to our system rules, procedures or operations, or could require customization with regard to such
changes, which could negatively impact us. Such changes could lead to new or different criteria for participation in and access to our
payments system by financial institutions or other customers. Moreover, failure to comply with the laws and regulations to which
we are subject could result in fines, sanctions, civil damages or other penalties, which could materially and adversely affect our
overall business and results of operations, as well as have an impact on our brand and reputation.
The expansion of our products and services as part of our multi-rail strategy have also created the need for us to obtain new types
and increasing numbers of regulatory licenses, resulting in increased supervision and additional compliance burdens distinct from
those imposed on our core network activities. For example, certain of our subsidiaries maintain money transfer licenses to support
certain activities. These licenses typically impose supervisory and examination requirements, as well as capital, safeguarding, risk
management and other business obligations.
may be used, the way we structure and operate our business and the types of consumers and merchants who can obtain or accept
our products or services. New regulations and oversight could also relate to our clearing and settlement activities (including risk
management policies and procedures, collateral requirements, participant default policies and procedures, the ability to complete
timely switching of financial transactions, and capital and financial resource requirements). Several jurisdictions have also inquired
about the network fees we charge to our customers (typically as part of broader market reviews of retail payments). In addition,
several central banks or similar regulatory bodies around the world have increased, or are seeking to increase, their formal oversight
of the electronic payments industry. In several jurisdictions, we have been designated as a "systemically important payment
system", and other regulators are considering designating us as systemically important or in a similar category resulting in
heightened regulatory oversight. These obligations, designations and restrictions may further expand and could conflict with each
other as more jurisdictions impose oversight of payments systems. Moreover, as regulators around the world increasingly look to
replicate similar regulation of payments and other industries, efforts in any one jurisdiction may influence approaches in other
jurisdictions. Similarly, new initiatives within a jurisdiction involving one product may lead to regulation of similar or related
products (for example, debit regulations could lead to regulation of credit products). As a result, the risks to our business created by
any one new law or regulation are magnified by the potential it has to be replicated in other jurisdictions or involve other products
within any particular jurisdiction.
www.sec.gov.
ITEM 1A. RISK FACTORS
MASTERCARD 2021 FORM 10-K 23
Regulators increasingly seek to regulate certain aspects of payments systems such as ours, or establish or expand their authority to
do so. Many jurisdictions have enacted such regulations, establishing, and potentially further expanding, obligations or restrictions
with respect to the types of products and services that we may offer, the countries in which our integrated products and services
Global regulatory and legislative activity directly related to the payments industry may have a material adverse impact on our
overall business and results of operations.
Payments Industry Regulation
Legal and Regulatory
Class A Common Stock and Governance Structure
PARTI
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are
available for review, without charge, on the investor relations section of our corporate website as soon as reasonably practicable
after they are filed with, or furnished to, the U.S. Securities and Exchange Commission (the "SEC"). The information contained on
our corporate website, including, but not limited to, our Sustainability Report, our Global Inclusion Report and our U.S. Consolidated
EEO-1 Report, is not incorporated by reference into this Report. Our filings are also available electronically from the SEC at
Our internet address is www.mastercard.com. From time to time, we may use our corporate website as a channel of distribution of
material company information. Financial and other material information is routinely posted and accessible on the investor relations
section of our corporate website. You can also visit "Investor Alerts" in the investor relations section to enroll your email address to
automatically receive email alerts and other information about Mastercard.
Website and SEC Reports
General. Government regulation impacts key aspects of our business. We are subject to regulations that affect the payments
industry in the many countries in which our integrated products and services are used. We are committed to comply with all
applicable laws and regulations and implement policies, procedures and programs designed to promote compliance. We coordinate
globally while acting locally and leverage our relationships to manage the effects of regulation on us. See "Risk Factors" in Part I,
Item 1A for more detail and examples of the regulation to which we are subject.
Government Regulation
Collectively, the capabilities that we have created organically, and those that we have obtained through acquisitions, continue to
enhance the total proposition we offer our customers. They enable us to partner with many participants in the broader payments
ecosystem and provide choice, security and services to improve the value we provide to our customers.
world class talent and culture, with a focus on inclusion and being a "force for good"
ability to serve a broad array of participants in global payments due to our expanded on-soil presence in individual markets and a
heightened focus on working with governments
.
Payments Oversight and Regulation. Central banks and other regulators in several jurisdictions around the world either have, or are
seeking to establish, formal oversight over the payments industry, as well as authority to regulate certain aspects of the payments
systems in their countries. Such authority has resulted in regulation of various aspects of our business. In the European Union,
Mastercard is subject to systemic importance regulation, which includes various requirements we must meet, including obligations
related to governance and risk management. In the U.K., the Bank of England designated Vocalink, our real-time account-based
payments network platform, as a "specified service provider", and Mastercard Europe as a "recognized payment system", which
includes supervisions and examination requirements. In addition, European Union legislation requires us to separate our scheme
activities (brand, products, franchise and licensing) from our switching activities and other processing in terms of how we go to
market, make decisions and organize our structure. Certain of our subsidiaries are regulated as payments institutions, including as
money transmitters. This regulation subjects us to licensing obligations and regulatory supervision, as well as various business
conduct and risk management requirements.
loyalty solutions that enhance the payments value proposition for issuers and merchants
analytics insights and consulting services that help issuers and merchants optimize their payments and related businesses
safety and security solutions offered on our network, which reduce fraud and increase security for the payments ecosystem
•
.
ITEM 1. BUSINESS
PARTI
•
•
Interchange Fees. Interchange fees that support the function and value of four-party payments systems like ours are being reviewed
or challenged in various jurisdictions around the world via legislation to regulate interchange fees, competition-related regulatory
proceedings, central bank regulation and litigation. Examples include statutes in the United States that cap debit interchange for
certain regulated activities, our settlement with the European Commission resolving its investigation into our interregional
interchange fees and the European Union legislation capping consumer credit and debit interchange fees on payments issued and
acquired within the European Economic Area (the "EEA"). For more detail, see "Risk Factors - Other Regulation" in Part I, Item 1A
and Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8.
Preferential or Protective Government Actions. Some governments have taken action to provide resources, preferential treatment
or other protection to selected domestic payments and processing providers, as well as to create their own national providers. For
example, governments in some countries mandate switching of domestic payments either entirely in that country or by only
domestic companies. In China, we are currently excluded from domestic switching and are seeking market access, which is uncertain
and subject to a number of factors, including receiving regulatory approval. We are in active discussions to explore different
solutions. Some jurisdictions are currently considering adopting or have adopted "data localization" requirements, which mandate
the collection, processing, and/or storage of data within their borders. This is the case, for instance, in India, China, Saudi Arabia and
South Africa. Various forms of data localization requirements or data transfer restrictions are also under consideration in other
countries and jurisdictions, including the European Union.
MASTERCARD 2021 FORM 10-K 21
Mastercard Incorporated was incorporated as a Delaware corporation in May 2001. We conduct our business principally through
our principal operating subsidiary, Mastercard International Incorporated, a Delaware non-stock (or membership) corporation that
was formed in November 1966. For more information about our capital structure, including our Class A common stock (our voting
stock) and Class B common stock (our non-voting stock), see Note 16 (Stockholders' Equity) to the consolidated financial statements
included in Part II, Item 8.
Additional Information
ITEM 1. BUSINESS
PARTI
22 MASTERCARD 2021 FORM 10-K
Additional Regulatory Developments. Various regulatory agencies also continue to examine a wide variety of issues that could
impact us, including evolving laws surrounding marijuana, prepaid payroll cards, virtual currencies, identity theft, account
management guidelines, disclosure rules, security and marketing that would impact our customers directly.
Anti-Money Laundering, Counter Financing of Terrorism, Economic Sanctions and Anti-Corruption. We are subject to anti-money
laundering ("AML") and counter-financing of terrorism ("CFT") laws and regulations globally, including the U.S. Bank Secrecy Act and
the USA PATRIOT Act, as well as the various economic sanctions programs, including those imposed and administered by the U.S.
Office of Foreign Assets Control ("OFAC"). We have implemented a comprehensive AML/CFT program, comprised of policies,
procedures and internal controls, including the designation of a compliance officer, which is designed to prevent our payments
Sustainability. Various jurisdictions are increasingly considering or adopting laws and regulations that would impact us pertaining to
ESG performance, transparency and reporting. Regulations being considered include mandated corporate reporting on sustainability
matters generally (such as the European Union Corporate Sustainability Reporting Directive) as well as in specific areas such as
mandated reporting on climate-related financial disclosures.
Regulation of Internet, Digital Transactions and High-Risk Merchant Categories. Various jurisdictions have enacted or have
proposed regulation related to internet transactions. The legislation applies to payments system participants, including us and our
customers, and is implemented through a federal regulation. We may also be impacted by evolving laws surrounding gambling,
including fantasy sports, as well as certain legally permissible but high-risk merchant categories, such as alcohol, tobacco, firearms
and adult content.
Issuer and Acquirer Practices Legislation and Regulation. Our issuers and acquirers are subject to numerous regulations and
investigations applicable to banks, financial institutions and other licensed entities, impacting us as a consequence. Additionally,
regulations such as the revised Payment Services Directive (commonly referred to as "PSD2") in the EEA require financial institutions
to provide third-party payment processors access to consumer payment accounts, enabling them to route transactions away from
Mastercard products and provide payment initiation and account information services directly to consumers who use our products.
PSD2 also requires a new standard for authentication of transactions, which necessitates additional verification information from
consumers to complete transactions. This may increase the number of transactions that consumers abandon if we are unable to
ensure a frictionless authentication experience under the new standards.
Financial Sector Oversight. We are or may be subject to regulations related to our role in the financial industry and our relationship
with our financial institution customers. In addition, we are or may be subject to regulation by a number of agencies charged with
oversight of, among other things, consumer protection, financial and banking matters. The regulators have supervisory and
independent examination authority as well as enforcement authority that we may be subject to because of the services we provide
to financial institutions that issue and acquire our products.
network from being used to facilitate money laundering and other illicit activity and to address these legal and regulatory
requirements and assist in managing money laundering and terrorist financing risks. The economic sanctions programs administered
by OFAC restrict financial transactions and other dealings with certain countries and geographies (specifically Crimea, Cuba, Iran,
North Korea and Syria) and with persons and entities included in OFAC sanctions lists including its list of Specially Designated
Nationals and Blocked Persons (the “SDN List”). We take measures to prevent transactions that do not comply with OFAC and other
applicable sanctions, including establishing a risk-based compliance program that has policies, procedures and controls designed to
prevent us from having unlawful business dealings with prohibited countries, regions, individuals or entities. As part of this program,
we obligate issuers and acquirers to comply with their local sanctions obligations and the U.S. sanctions programs, including
requiring the screening of account holders and merchants, respectively, against OFAC sanctions lists (including the SDN List). Iran
and Syria have been identified by the U.S. State Department as terrorist-sponsoring states, and we have no offices, subsidiaries or
affiliated entities located in these countries and do not license entities domiciled there. We are also subject to anti-corruption laws
and regulations globally, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, which, among other things,
generally prohibit giving or offering payments or anything of value for the purpose of improperly influencing a business decision or
to gain an unfair business advantage. We have implemented policies, procedures and internal controls to proactively manage
corruption risk.
ITEM 1. BUSINESS
PART I
Privacy, Data and Information Security. Aspects of our operations or business are subject to increasingly complex privacy and data
protection laws in the United States, the European Union and elsewhere around the world. For example, in the United States, we
and our customers are respectively subject to Federal Trade Commission and federal banking agency information safeguarding
requirements under the Gramm-Leach-Bliley Act that require the maintenance of a written, comprehensive information security
program. In the European Union, we are subject to the General Data Protection Regulation (the "GDPR"), which requires a
comprehensive privacy and data protection program to protect the personal and sensitive data of EEA residents. A number of
regulators and policymakers around the globe are using the GDPR as a reference to adopt new or updated privacy and data
protection laws, including in the U.S. (California, Virginia and Colorado), Argentina, Brazil, Canada (Quebec), Chile, China, India,
Indonesia, Kenya and Saudi Arabia. Due to increasing data collection and data flows, numerous data breaches and security incidents
as well as the use of emerging technologies such as artificial intelligence, regulations in this area are constantly evolving with
regulatory and legislative authorities in numerous parts of the world adopting proposals to regulate data and protect information. In
addition, the interpretation and application of these privacy and data protection laws are often uncertain and in a state of flux, thus
requiring constant monitoring for compliance.
.
Geopolitical events and resulting OFAC sanctions, adverse trade policies or other types of government actions could lead
affected jurisdictions to take actions in response that could adversely affect our business.
Industry participants continue to invest in and develop alternative capabilities, such as account to account payments, which
could facilitate P2M transactions that compete with our core payments network.
.
.
Our ability to develop and adopt new services and technologies may be inhibited by industry-wide solutions and standards (such
as those related to EMV, tokenization or other safety and security technologies), and by resistance from customers or merchants
to such changes.
Our ability to develop evolving systems and products may be inhibited by any difficulty we may experience in attracting and
retaining technology experts.
Our ability to adopt these technologies can also be inhibited by intellectual property rights of third parties. We have received,
and we may in the future receive, notices or inquiries from patent holders (for example, other operating companies or non-
practicing entities) suggesting that we may be infringing certain patents or that we need to license the use of their patents to
avoid infringement. Such notices may, among other things, threaten litigation against us or our customers or demand significant
license fees.
We work with fintechs, technology companies (such as digital players and mobile providers) and traditional customers that use
our technology to enhance payment safety and security and to deliver their payment-related products and services quickly and
efficiently to consumers. Our inability to keep pace technologically could negatively impact the willingness of these customers to
work with us, and could encourage them to use their own technology and compete against us.
Regulatory or government requirements could require us to host and deliver certain products and services on-soil in certain
markets, which would require us to alter our technology and delivery model, potentially resulting in additional expenses.
Various central banks are experimenting with digital currencies called Central Bank Digital Currencies (CBDC). CBDCs may be
launched with their own networks to transfer money between participants. Policy and design considerations that governments
adopt could impact the extent of our role in facilitating CBDC-based payment transactions, potentially impacting the transactions
that we may process over our network.
We cannot predict the effect of technological changes on our business, and our future success will depend, in part, on our ability to
anticipate, develop or adapt to technological changes and evolving industry standards. Failure to keep pace with these technological
developments or otherwise bring to market products that reflect these technologies could lead to a decline in the use of our
products, which could have a material adverse impact on our overall business and results of operations.
Operating a real-time account-based payments network presents risks that could materially affect our business.
U.K. regulators have designated Vocalink, our real-time account-based payments network platform, to be a "specified service
provider" and regulators in other countries may in the future expand their regulatory oversight of real-time account-based payments
systems in similar ways. In addition, any prolonged service outage on this network could result in quickly escalating impacts,
including potential intervention by the Bank of England and significant reputational risk to Vocalink and us. For a discussion of the
regulatory risks related to our real-time account-based payments platform, see our risk factor in "Risk Factors - Payments Industry
Regulation" in this Part I, Item 1A. Furthermore, the complexity of this payment technology requires careful management to address
security vulnerabilities that are different from those faced on our core network. Operational difficulties, such as the temporary
unavailability of our services or products, or security breaches on our real-time account-based payments network could cause a loss
of business for these products and services, result in potential liability for us and adversely affect our reputation.
Working with new customers and end users as we expand our multi-rail solutions and integrated products and services can
present operational and onboarding challenges, be costly and result in reputational damage if the new products or services do not
perform as intended.
The payments markets in which we compete are characterized by rapid technological change, new product introductions, evolving
industry standards and changing customer and consumer needs. In order to remain competitive and meet the needs of the
payments markets, we are continually involved in developing complex multi-rail solutions and diversifying our integrated products
and services. These efforts carry the risks associated with any diversification initiative, including cost overruns, delays in delivery and
performance problems. These projects also carry risks associated with working with different types of customers, for example
organizations such as corporations that are not financial institutions and non-governmental organizations ("NGOS"), and end users
other than those we have traditionally worked with. These differences may present new operational challenges in the development
and implementation of our new products or services. These new customers are typically less regulated, and as a result, enhanced
infrastructure and monitoring is required.
Our failure to effectively design and deliver these multi-rail solutions and integrated products and services could make our other
offerings less desirable to customers, or put us at a competitive disadvantage. In addition, if there is a delay in the implementation
of our products or services or if our products or services do not perform as anticipated, or we are unable to adequately anticipate
30 MASTERCARD 2021 FORM 10-K
Parties that process our transactions in certain countries may try to eliminate our position as an intermediary in the payment
process. For example, merchants could switch (and in some cases are switching) transactions directly with issuers. Additionally,
processors could process transactions directly between issuers and acquirers. Large scale consolidation within processors could
result in these processors developing bilateral agreements or in some cases switching the entire transaction on their own
network, thereby disintermediating us.
.
.
Our ability to develop new technologies and reflect technological changes in our payments offerings will require resources, which
may result in additional expenses.
PARTI
ITEM 1A. RISK FACTORS
PARTI
ITEM 1A. RISK FACTORS
•
.
Regulation (such as PSD2 in the EEA) may disintermediate issuers by enabling third-party providers opportunities to route
payment transactions away from our network and products and towards other forms of payment by offering account
information or payment initiation services directly to those who currently use our products. Such regulation may also provide
these processors with the opportunity to commoditize the data that are included in the transactions they are servicing. If our
customers are disintermediated in their business, we could face diminished demand for our integrated products and services.
Although we partner with fintechs and technology companies (such as digital players and mobile providers) that leverage our
technology, platforms and networks to deliver their products, they could develop platforms or networks that disintermediate us
from digital payments and impact our ability to compete in the digital economy. When we do partner with fintechs and
technology companies, we face a heightened risk when those relationships involve sharing Mastercard data. While we share this
data in a controlled manner subject to applicable anonymization and privacy and data standards, without proper oversight we
could give the partner a competitive advantage.
Participants in the payments industry may merge, create joint ventures or form other business combinations that may
strengthen their existing business services or create new payment products and services that compete with our products and
services.
Our failure to compete effectively against any of the foregoing competitive threats could materially and adversely affect our overall
business and results of operations.
Continued intense pricing pressure may materially and adversely affect our overall business and results of operations.
Competitors, customers, fintechs, technology companies, governments and other industry participants may develop products
that compete with or replace value-added products and services we currently provide to support our switched transaction and
payment offerings. These products could replace our own switching and payments offerings or could force us to change our
pricing or practices for these offerings. In addition, governments that develop or encourage the creation of national payments
platforms may promote their platforms in such a way that could put us at a competitive disadvantage in those markets, or
require us to compete differently.
28 MASTERCARD 2021 FORM 10-K
In the future, we may not be able to enter into agreements with our customers if they require terms that we are unable or unwilling
to offer, and we may be required to modify existing agreements in order to maintain relationships and to compete with others in the
industry. Some of our competitors are larger and have greater financial resources than we do and accordingly may be able to charge
lower prices to our customers. In addition, to the extent that we offer discounts or incentives under such agreements, we will need
to further increase transaction volumes or the amount of services provided thereunder in order to benefit incrementally from such
agreements and to increase revenue and profit, and we may not be successful in doing so, particularly in the current regulatory
environment. Our customers also may implement cost reduction initiatives that reduce or eliminate payment product marketing or
increase requests for greater incentives or greater cost stability. These factors could have a material adverse impact on our overall
business and results of operations.
Rapid and significant technological developments and changes could negatively impact our overall business and results of
operations or limit our future growth.
The payments industry is subject to rapid and significant technological changes, which can impact our business in several ways:
Technological changes, including continuing developments of technologies in the areas of smart cards and devices, contactless
and mobile payments, e-commerce, cryptocurrency and block chain technology, machine learning and Al, could result in new
technologies that may be superior to, or render obsolete, the technologies we currently use in our programs and services.
Moreover, these changes could result in new and innovative payment methods and products that could place us at a competitive
disadvantage and that could reduce the use of our products.
.
We rely in part on third parties, including some of our competitors and potential competitors, for the development of and access
to new technologies. The inability of these companies to keep pace with technological developments, or the acquisition of these
companies by competitors, could negatively impact our offerings.
MASTERCARD 2021 FORM 10-K 29
In order to increase transaction volumes, enter new markets and expand our Mastercard-branded cards and enabled products and
services, we seek to enter into business agreements with customers through which we offer incentives, pricing discounts and other
support that promote our products. In order to stay competitive, we may have to increase the amount of these incentives and
pricing discounts. We continue to experience pricing pressure. The demand from our customers for better pricing arrangements
and greater rebates and incentives moderates our growth. We may not be able to continue our expansion strategy to switch
additional transaction volumes or to provide additional services to our customers at levels sufficient to compensate for such lower
fees or increased costs in the future, which could materially and adversely affect our overall business and results of operations. In
addition, increased pressure on prices increases the importance of cost containment and productivity initiatives in areas other than
those relating to customer incentives.
Senior corporate and investment banking roles at
Citigroup
Various executive-level human resources
positions at HSBC Group, Hong Kong (2000-2012)
Various senior human resources positions in
banking and financial services in Australia and
the Middle East
Various leadership positions at Citigroup,
including Country Business Manager, Brazil
Executive Vice President, Human Resources,
Global Products and Solutions (2014-2016)
Senior Vice President, Human Resources,
Global Products and Solutions (2012-2014)
Division President, South Latin America/
Brazil (2008-2013)
President, International (2018-2021)
President, Latin America and Caribbean
region (2013-2018)
Managing director, Alvarez & Marsal
CEO, ABN AMRO
Michael Froman
Previous Business Experience
38 MASTERCARD 2021 FORM 10-K
since April 2018
President, Strategic
Growth
Vice Chairman and
59
Mr. Froman joined the Company in 2018 in
his current role
Various leadership positions at HSBC and Xerox
Corporation
U.S. Trade Representative in the Executive Office
of President Obama (2013-2017)
Senior Vice President, Franchise
Various senior leadership positions at Citigroup,
including CEO, Citilnsurance and COO of
Citigroup's alternative investments business
Development (2011-2013)
Chief People Officer
since July 2016
(2013-2016)
Senior Vice President, Core Merchants
Acceptance (2016-2020)
Executive Vice President, Merchants and
Edward McLaughlin
President, Operations
and Technology
since May 2017
since January 2021
President, North America
President, U.S. Issuers (2020)
45
Linda Kirkpatrick
Previous Mastercard Experience
Age
Current Position
Name
PARTI
EXECUTIVE OFFICERS
Assistant to the President and Deputy National
Security Advisor for International Economic
Policy (2009-2013)
56
Ann Cairns
62
Ajay Bhalla
Previous Mastercard Experience
Age
Current Position
Name
(as of February 11, 2022)
Information about our executive officers
EXECUTIVE OFFICERS
PARTI
MASTERCARD 2021 FORM 10-K 37
40
Not applicable.
Item 4. Mine Safety Disclosures
Refer to Note 13 (Accrued Expenses and Accrued Litigation) and Note 21 (Legal and Regulatory Proceedings) to the consolidated
financial statements included in Part II, Item 8.
Item 3. Legal proceedings
We believe that our facilities are suitable and adequate for the business that we currently conduct. However, we periodically review
our space requirements and may acquire or lease new space to meet the needs of our business and address climate-related impacts,
or consolidate and dispose of facilities that are no longer required.
We own our corporate headquarters, located in Purchase, New York, and our principal technology and operations center, located in
O'Fallon, Missouri. As of December 31, 2021, Mastercard and its subsidiaries owned or leased commercial properties throughout
the U.S. and other countries around the world, consisting of corporate and regional offices, as well as our operations centers.
56
Michael Fraccaro
President, Cyber and
Intelligence Solutions
President, International (2011-2018)
65
Manager, Singapore and Head of Marketing,
Southeast Asia; Vice President
including President, Southeast Asia; Country
Various senior leadership positions,
President, South Asia and Southeast Asia
(2008-2011)
(2011-2013)
President, Digital Gateway Services
since January 2022
Relationships
Client Partnerships and
Vice Chairman, Senior
Gilberto Caldart
since June 2018
Vice Chairman
Vice President, U.S. Region (2008-2011)
since November 2018
President, Enterprise Security Solutions
(2014-2018)
Vice President, Investor Relations
Executive Vice President, Commercial
Products (2015-2018)
Sachin Mehra
Head of Global Public
General Counsel and
53
Rich Verma
since January 2020
Officer
Chief Transformation
Policy
60
since January 2020
Services
President, Data and
Previous Mastercard Experience
President, U.S. Issuers (2016-2019)
56
Raj Seshadri
Age
Kevin Stanton
since April 2021
Craig Vosburg
Chief Product Officer
MASTERCARD 2021 FORM 10-K
40
Vice president, CoreStates Financial Corporation
Senior member-financial services practice, Bain
& Company and A.T. Kearney
(2002-2007)
U.S. Ambassador to India (2014-2017)
Assistant Secretary of State (2009-2011)
Member, Commission on the Prevention of
WMD Proliferation and Terrorism (2008)
National Security Advisor to Senate Majority
Leader, Harry Reid
Vice Chairman & Partner, The Asia Group
(2017-2020)
Vice President, Counsel, Shawmut National
Corporation
Various leadership positions at Citigroup, U.S.
Trust Company and McKinsey & Company, Inc.
Managing Director, Head of iShares U.S. Wealth
Advisory business, BlackRock (2014-2016)
Managing Director, Global Marketing Officer of
iShares, BlackRock, Inc. (2012-2014)
Previous Business Experience
Various senior leadership roles, including
Head of Mastercard Advisors, U.S. and
Canada and Head of Mastercard Advisors,
Southeast Asia, Greater China and South
Asia/Middle East/Africa
President, North America (2016-2020)
Chief Product Officer (2014-2015)
Executive Vice President, U.S. Market
Development (2010-2014)
Executive Vice President of Global Public
Policy and Regulatory Affairs (2020-2021)
Chief Services Officer (2018-2019)
President, Mastercard Advisors (2010-2017)
Various senior leadership roles, including
President, Canada; Senior Vice President,
Strategy and Market Development; and Vice
President, Senior Counsel and North
America Region Counsel
54
since January 2021
Current Position
Name
EXECUTIVE OFFICERS
PARTI
Item 2. Properties
Chief Financial Operations Officer
(2018-2019)
Various senior leadership roles, including
Chief Franchise Development Officer and
Senior Vice President, Bill Payment and
Healthcare
60
since April 2021
Officer
Chief Administrative
54
Tim Murphy
54
January 2021
Executive Officer since
President and Chief
Michael Miebach
since April 2019
Chief Financial Officer
51
Executive Vice President and Business
Financial Officer, North America
(2013-2015)
56 Chief Information Officer (2016-2017)
Chief Emerging Payments Officer
(2010-2015)
Corporate Treasurer (2010-2013)
President (2020)
President, Middle East and Africa
(2010-2015)
MASTERCARD 2021 FORM 10-K 39
Senior Vice President and Chief Innovation and
Marketing Officer, Humana Inc. (2009-2012)
Various management positions at Citigroup,
including Executive Vice President and Chief
Marketing Officer-Citi Global Cards
Executive Vice President-Senior Business and
Chief Transformation Officer, Anthem (formerly,
WellPoint, Inc.) (2012-2013)
since January 2016
Healthcare
and President,
Communications Officer
Chief Marketing and
Raja Rajamannar
Associate, Cleary, Gottlieb, Steen and Hamilton,
New York and London
Various executive positions at Citigroup in
Germany, Austria, U.K. and Turkey
Managing Director, Middle East and North Africa
and Managing Director, Sub-Saharan Africa,
Barclays Bank PLC
Various senior positions at Hess Corporation,
including Vice President and Treasurer
Various senior treasury and finance positions,
General Motors Corporation and GMAC
Co-Founder and CEO, Paytrust, Inc.
Group Vice President, Product and Strategy,
Metavante Corporation
Previous Business Experience
General Counsel (2014-2021)
Chief Product Officer (2009-2014)
Various senior leadership roles, including
President, U.S. Region; Executive Vice
President, Customer Business Planning and
Analysis; and Senior Vice President and
Associate General Counsel
Chief Product Officer (2016-2020)
Not applicable.
Chief Marketing Officer (2013-2015)
As of February 8, 2022, Mastercard Foundation owned 105,091,311 shares of Class A common stock, representing approximately
10.8% of our general voting power. Mastercard Foundation may not sell or otherwise transfer its shares of Class A common stock
prior to May 1, 2027, except to the extent necessary to satisfy its charitable disbursement requirements, for which purpose earlier
sales are permitted and have occurred. Mastercard Foundation is permitted to sell all of its remaining shares after May 1, 2027,
subject to certain conditions. The directors of Mastercard Foundation are required to be independent of us and our customers. The
ownership of Class A common stock by Mastercard Foundation, together with the restrictions on transfer, could discourage or make
more difficult acquisition proposals favored by the other holders of the Class A common stock. In addition, because Mastercard
Foundation is restricted from selling its shares for an extended period of time, it may not have the same interest in short or medium-
term movements in our stock price as, or incentive to approve a corporate action that may be favorable to, our other stockholders.
32 MASTERCARD 2021 FORM 10-K
PARTI
ITEM 1A. RISK FACTORS
Our business significantly depends on the continued success and competitiveness of our issuing and acquiring customers and, in
many jurisdictions, their ability to effectively manage or help manage our brands.
While we work directly with many stakeholders in the payments system, including merchants, governments, fintechs and large
digital companies and other technology companies, we are, and will continue to be, significantly dependent on our relationships
with our issuers and acquirers and their respective relationships with account holders and merchants to support our programs and
services. Furthermore, we depend on our issuing partners and acquirers to continue to innovate to maintain competitiveness in the
market. We do not issue cards or other payment devices, extend credit to account holders or determine the interest rates or other
fees charged to account holders. Each issuer determines these and most other competitive payment program features. In addition,
we do not establish the discount rate that merchants are charged for acceptance, which is the responsibility of our acquiring
customers. As a result, our business significantly depends on the continued success and competitiveness of our issuing and acquiring
customers and the strength of our relationships with them. In turn, our customers' success depends on a variety of factors over
which we have little or no influence, including economic conditions in global financial markets or their disintermediation by
competitors or emerging technologies, as well as regulation. If our customers become financially unstable, we may lose revenue or
we may be exposed to settlement risk. See our risk factor in "Risk Factors - Settlement and Third-Party Obligations" in this Part I,
Item 1A with respect to how we guarantee certain third-party obligations for further discussion.
With the exception of the United States and a select number of other jurisdictions, most in-country (as opposed to cross-border)
transactions conducted using Mastercard, Maestro and Cirrus cards are authorized, cleared and settled by our customers or other
processors. Because we do not provide domestic switching services in these countries and do not, as described above, have direct
relationships with account holders, we depend on our close working relationships with our customers to effectively manage our
brands, and the perception of our payments system, among consumers in these countries. We also rely on these customers to help
manage our brands and perception among regulators and merchants in these countries, alongside our own relationships with them.
From time to time, our customers may take actions that we do not believe to be in the best interests of our payments system
overall, which may materially and adversely impact our business.
Merchants' continued focus on acceptance costs may lead to additional litigation and regulatory proceedings and increase our
incentive program costs, which could materially and adversely affect our profitability.
Merchants are important constituents in our payments system. We rely on both our relationships with them, as well as their
relationships with our issuer and acquirer customers, to continue to expand the acceptance of our integrated products and services.
We also work with merchants to help them enable new sales channels, create better purchase experiences, improve efficiencies,
increase revenues and fight fraud. In the retail industry, there is a set of larger merchants with increasingly global scope and
influence. We believe that these merchants are having a significant impact on all participants in the global payments industry,
including Mastercard. Some large merchants have supported the legal, regulatory and legislative challenges to interchange fees that
Mastercard has been defending, including the U.S. merchant litigations. Some merchants are increasingly asking regulators to
review and potentially regulate our own network fees, in addition to interchange. See our risk factor in "Risk Factors Other
Regulation" in this Part I, Item 1A with respect to payments industry regulation, including interchange fees. The continued focus of
merchants on the costs of accepting various forms of payment, including in connection with the growth of digital payments, may
lead to additional litigation and regulatory proceedings.
-
Certain larger merchants are also able to negotiate incentives from us and pricing concessions from our issuer and acquirer
customers as a condition to accepting our products. We also make payments to certain merchants to incentivize them to create co-
branded payment programs with us. As merchants consolidate and become even larger, we may have to increase the amount of
incentives that we provide to certain merchants, which could materially and adversely affect our results of operations. Competitive
and regulatory pressures on pricing could make it difficult to offset the costs of these incentives. Additionally, if the rate of
merchant acceptance growth slows our business could suffer.
Our work with governments exposes us to unique risks that could have a material impact on our business and results of
operations.
As we increase our work with national, state and local governments, both indirectly through financial institutions and with them
directly as our customers, we may face various risks inherent in associating or contracting directly with governments. These risks
include, but are not limited to, the following:
Governmental entities typically fund projects through appropriated monies. Changes in governmental priorities or other political
developments, including disruptions in governmental operations, could impact approved funding and result in changes in the
scope, or lead to the termination, of the arrangements or contracts we or financial institutions enter into with respect to our
payment products and services.
MASTERCARD 2021 FORM 10-K 33
PARTI
ITEM 1A. RISK FACTORS
Our work with governments subjects us to U.S. and international anti-corruption laws, including the U.S. Foreign Corrupt
Practices Act and the U.K. Bribery Act. A violation and subsequent judgment or settlement under these laws could subject us to
substantial monetary penalties and damages and have a significant reputational impact.
Working or contracting with governments, either directly or via our financial institution customers, can subject us to heightened
reputational risks, including extensive scrutiny and publicity, as well as a potential association with the policies of a government
as a result of a business arrangement with that government. Any negative publicity or negative association with a government
entity, regardless of its accuracy, may adversely affect our reputation.
Settlement and Third-Party Obligations
Our role as guarantor, as well as other contractual obligations, expose us to risk of loss or illiquidity.
Consolidation amongst our customers could materially and adversely affect our overall business and results of operations.
Our customers' industries have undergone substantial, accelerated consolidation in the past. These consolidations have included
customers with a substantial Mastercard portfolio being acquired by institutions with a strong relationship with a competitor. If
significant consolidation among customers were to continue, it could result in the substantial loss of business for us, which could
have a material adverse impact on our business and prospects. In addition, one or more of our customers could seek to merge with,
or acquire, one of our competitors, and any such transaction could also have a material adverse impact on our overall business.
Consolidation could also produce a smaller number of large customers, which could increase their bargaining power and lead to
lower prices and/or more favorable terms for our customers. These developments could materially and adversely affect our results
of operations.
We are a guarantor of certain third-party obligations, including those of certain of our customers. In this capacity, we are exposed to
credit and liquidity risk from these customers and certain service providers. We may incur significant losses in connection with
transaction settlements if a customer fails to fund its daily settlement obligations due to technical problems, liquidity shortfalls,
insolvency or other reasons. Concurrent settlement failures of more than one of our larger customers or of several of our smaller
customers either on a given day or over a condensed period of time may exceed our available resources and could materially and
adversely affect our results of operations.
While we have exclusive, or nearly-exclusive, relationships with certain of our customers to issue payment products, other
customers have similar exclusive, or nearly-exclusive, relationships with our competitors. These relationships may make it difficult
or cost-prohibitive for us to do significant amounts of business with these customers to increase our revenues. In addition, these
customers may be more successful and may grow faster than the customers that primarily issue our payment products, which could
put us at a competitive disadvantage. Furthermore, we earn substantial revenue from customers with nearly-exclusive relationships
with our competitors. Such relationships could provide advantages to the customers to shift business from us to the competitors
with which they are principally aligned. A significant loss of our existing revenue or transaction volumes from these customers could
have a material adverse impact on our business.
In addition, a significant portion of our revenue is concentrated among our five largest customers. Loss of business from any of our
large customers could have a material adverse impact on our overall business and results of operations.
Item 1B. Unresolved staff comments
PARTI
ITEM 1A. RISK FACTORS
risks related to new types of customers, we could face additional regulatory scrutiny, fines, sanctions or other penalties, which could
materially and adversely affect our overall business and results of operations, as well as negatively impact our brand and reputation.
Information Security and Service Disruptions
Information security incidents or account data compromise events could disrupt our business, damage our reputation, increase
our costs and cause losses.
Information security risks for payments and technology companies such as ours have significantly increased in recent years in part
because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial
transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties. These
threats may derive from fraud or malice on the part of our employees or third parties, or may result from human error or accidental
technological failure. These threats include cyber-attacks such as computer viruses, malicious code (including ransomware), phishing
attacks or information security breaches and could lead to the misappropriation of consumer account and other information and
identity theft. The advent of the global COVID-19 pandemic has resulted in a significant rise in these types of threats due to a
significant portion of our workforce working from home in a mostly remote environment.
Our operations rely on the secure processing, transmission and storage of confidential, proprietary and other information and
technology in our computer systems and networks, as well as the systems of our third-party providers. Our customers and other
parties in the payments value chain, as well as account holders, rely on our digital technologies, computer systems, software and
networks to conduct their operations. In addition, to access our integrated products and services, our customers and account
holders increasingly use personal smartphones, tablet PCs and other mobile devices that may be beyond our control. We, like other
financial technology organizations, routinely are subject to cyber-threats and our technologies, systems and networks, as well as the
systems of our third-party providers, have been subject to attempted cyber-attacks. Because of our position in the payments value
chain, we believe that we are likely to continue to be a target of such threats and attacks. Additionally, geopolitical events and
resulting government activity could also lead to information security threats and attacks by affected jurisdictions and their
sympathizers.
To date, we have not experienced any material impact relating to cyber-attacks or other information security breaches. However,
future attacks or breaches could lead to security breaches of the networks, systems (including third-party provider systems) or
devices that our customers use to access our integrated products and services, which in turn could result in the unauthorized
disclosure, release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information (including
account data information) or data security compromises. Such attacks or breaches could also cause service interruptions,
malfunctions or other failures in the physical infrastructure or operations systems that support our businesses and customers (such
as the lack of availability of our value-added services), as well as the operations of our customers or other third parties. In addition,
they could lead to damage to our reputation with our customers and other parties and the market, additional costs to us (such as
repairing systems, adding new personnel or protection technologies or compliance costs), regulatory penalties, financial losses to
both us and our customers and partners and the loss of customers and business opportunities. If such attacks are not detected
immediately, their effect could be compounded.
Despite various mitigation efforts that we undertake, there can be no assurance that we will be immune to these risks and not suffer
material breaches and resulting losses in the future, or that our insurance coverage would be sufficient to cover all losses. Our risk
and exposure to these matters remain heightened because of, among other things, the evolving nature of these threats, our
prominent size and scale and our role in the global payments and technology industries, our plans to continue to implement our
digital and mobile channel strategies and develop additional remote connectivity solutions to serve our customers and account
holders when and how they want to be served, our global presence, our extensive use of third-party vendors and future joint
venture and merger and acquisition opportunities. As a result, information security and the continued development and
enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks
from attack, damage or unauthorized access remain a priority for us. As cyber-threats continue to evolve, we may be required to
expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate
any information security vulnerabilities. Any of the risks described above could materially adversely affect our overall business and
results of operations.
In addition to information security risks for our systems, we also routinely encounter account data compromise events involving
merchants and third-party payment processors that process, store or transmit payment transaction data, which affect millions of
Mastercard, Visa, Discover, American Express and other types of account holders. Further events of this type may subject us to
reputational damage and/or lawsuits involving payment products carrying our brands. Damage to our reputation or that of our
brands resulting from an account data breach of either our systems or the systems of our customers, merchants and other third
parties could decrease the use and acceptance of our integrated products and services. Such events could also slow or reverse the
MASTERCARD 2021 FORM 10-K 31
PARTI
ITEM 1A. RISK FACTORS
trend toward electronic payments. In addition to reputational concerns, the cumulative impact of multiple account data
compromise events could increase the impact of the fraud resulting from such events by, among other things, making it more
difficult to identify consumers. Moreover, while most of the lawsuits resulting from account data breaches do not involve direct
claims against us and while we have releases from many issuers and acquirers, we could still face damage claims, which, if upheld,
could materially and adversely affect our results of operations. Such events could have a material adverse impact on our transaction
volumes, results of operations and prospects for future growth, or increase our costs by leading to additional regulatory burdens
being imposed on us.
Service disruptions that cause us to be unable to process transactions or service our customers could materially affect our overall
business and results of operations.
Our transaction switching systems and other offerings have experienced in limited instances and may continue to experience
interruptions as a result of technology malfunctions, fire, weather events, power outages, telecommunications disruptions,
terrorism, workplace violence, accidents or other catastrophic events (including those related to climate change). Our visibility in
the global payments industry may also put us at greater risk of attack by terrorists, activists, or hackers who intend to disrupt our
facilities and/or systems. Additionally, we rely on third-party service providers for the timely transmission of information across our
global data network. Inadequate infrastructure in lesser-developed markets could also result in service disruptions, which could
impact our ability to do business in those markets. If one of our service providers fails to provide the communications capacity or
services we require, as a result of natural disaster, operational disruptions, terrorism, hacking or any other reason, the failure could
interrupt our services. Although we maintain a enterprise resiliency program to analyze risk, assess potential impacts, and develop
effective response strategies, we cannot ensure that our business would be immune to these risks, because of the intrinsic
importance of our switching systems to our business, any interruption or degradation could adversely affect the perception of the
reliability of products carrying our brands and materially adversely affect our overall business and our results of operations.
Stakeholder Relationships
Losing a significant portion of business from one or more of our largest customers could lead to significant revenue decreases in
the longer term, which could have a material adverse impact on our business and our results of operations.
Many of our customer relationships are not exclusive. Our customers can reassess their future commitments to us subject to the
terms of our contracts, and they separately may develop their own services that compete with ours. Our business agreements with
these customers may not ultimately reduce the risk inherent in our business that customers may terminate their relationships with
us in favor of relationships with our competitors, or for other reasons, or might not meet their contractual obligations to us.
Exclusive/near exclusive relationships certain customers have with our competitors may have a material adverse impact on our
business.
We have significant contractual indemnification obligations with certain customers. Should an event occur that triggers these
obligations, such an event could materially and adversely affect our overall business and result of operations.
.
Global economic, political, financial and societal events or conditions could result in a material and adverse impact on our overall
business and results of operations.
As more players enter the global payments ecosystem, the layers between our brand and consumers and merchants increase. In
order to compete with other powerful consumer brands that are also becoming part of the consumer payment experience, we often
partner with those brands on payment solutions. These brands include large digital companies and other technology companies
who are our customers and use our networks to build their own acceptance brands. In some cases, our brand may not be featured
in the payment solution or may be secondary to other brands. Additionally, as part of our relationships with some issuers, our
payment brand is only included on the back of the card. As a result, our brand may either be invisible to consumers or may not be
the primary brand with which consumers associate the payment experience. This brand invisibility, or any consumer confusion as to
our role in the consumer payment experience, could decrease the value of our brand, which could adversely affect our business.
MASTERCARD 2021 FORM 10-K 35
PARTI
ITEM 1A. RISK FACTORS
Talent and Culture
Global Economic and Political Environment
Our performance largely depends on the talents and efforts of our employees, particularly our key personnel and senior
management. We may be unable to retain or to attract highly qualified employees. The market for key personnel is highly
competitive, particularly in technology and other skill areas significant to our business. Additionally, changes in immigration and
work permit laws and visa regulations and related enforcement have made it difficult for employees to work in, or transfer among,
jurisdictions in which we have operations and could impair our ability to attract and retain qualified employees. Moreover, as a
result of the global COVID-19 pandemic, a significant portion of our workforce is working in either a remote or hybrid environment.
Such environments may continue after the pandemic due to potential resulting trends, and could impact the quality of our corporate
culture, as well as our ability to attract and retain talent. Failure to attract, hire, develop, motivate and retain highly qualified and
diverse employee talent, or to maintain a corporate culture that fosters innovation, creativity and teamwork could harm our overall
business and results of operations.
We rely on key personnel to lead with integrity and decency. To the extent our leaders behave in a manner that is not consistent
with our values, we could experience significant impact to our brand and reputation, as well as to our corporate culture.
Acquisitions
Our efforts to enter into acquisitions, strategic investments or entry into new businesses could be impacted or prevented by
regulatory scrutiny and could otherwise result in issues that could disrupt our business and harm our results of operations or
reputation.
We continue to evaluate our strategic acquisitions of complementary businesses, products or technologies, as well as acquiring
interests in related joint ventures or other entities. As we do so, we face increasing regulatory scrutiny with respect to antitrust and
other considerations that could impact these efforts. We also face competition for acquisition targets due to the nature of the
market for technology companies. As a result, we could be prevented from successfully completing such acquisitions in the future.
If we are not successful in these efforts, we could lose strategic opportunities that are dependent, in part, on inorganic growth.
To the extent we do make these acquisitions, we may not be able to successfully partner with or integrate them, despite original
intentions and focused efforts. In addition, such an integration may divert management's time and resources from our core business
and disrupt our operations. Moreover, we may spend time and money on acquisitions or projects that do not meet our expectations
or increase our revenue. To the extent we pay the purchase price of any acquisition in cash, it would reduce our cash reserves
available to us for other uses, and to the extent the purchase price is paid with our stock, it could be dilutive to our stockholders.
Furthermore, we may not be able to successfully finance the business following the acquisition as a result of costs of operations,
including any litigation risk which may be inherited from the acquisition.
Any acquisition or entry into a new business could subject us to new regulations, both directly as a result of the new business as well
as in the other existing parts of our business, with which we would need to comply. This compliance could increase our costs, and
we could be subject to liability or reputational harm to the extent we cannot meet any such compliance requirements. Additionally,
targets that we acquire may have data practices that do not initially conform to our privacy and data protection standards and data
governance model, which could lead to regulatory scrutiny and reputational harm. Our expansion into new businesses could also
result in unanticipated issues which may be difficult to manage.
Class A Common Stock and Governance Structure
Provisions in our organizational documents and Delaware law could be considered anti-takeover provisions and have an impact
on change-in-control.
Provisions contained in our amended and restated certificate of incorporation and bylaws and Delaware law could be considered
anti-takeover provisions, including provisions that could delay or prevent entirely a merger or acquisition that our stockholders
consider favorable. These provisions may also discourage acquisition proposals or have the effect of delaying or preventing entirely
a change in control, which could harm our stock price. For example, subject to limited exceptions, our amended and restated
certificate of incorporation prohibits any person from beneficially owning more than 15% of any of the Class A common stock or any
other class or series of our stock with general voting power, or more than 15% of our total voting power. In addition:
our stockholders are not entitled to the right to cumulate votes in the election of directors
our stockholders are not entitled to act by written consent
36 MASTERCARD 2021 FORM 10-K
PARTI
ITEM 1A. RISK FACTORS
any representative of a competitor of Mastercard or of Mastercard Foundation is disqualified from service on our board of
directors
Mastercard Foundation's substantial stock ownership, and restrictions on its sales, may impact corporate actions or acquisition
proposals favorable to, or favored by, the other public stockholders.
Lack of visibility of our brand in our products and services, or in the products and services of our partners who use our technology,
may materially and adversely affect our business.
Our brands and their attributes are key assets of our business. The ability to attract consumers to our branded products and retain
them depends upon the external perception of us and our industry. Our business may be affected by actions taken by our
customers, merchants or other organizations that impact the perception of our brands or the payments industry in general. From
time to time, our customers may take actions that we do not believe to be in the best interests of our brands, such as creditor
practices that may be viewed as "predatory". Moreover, adverse developments with respect to our industry or the industries of our
customers or other companies and organizations that use our products and services (including certain legally permissible but high-
risk merchant categories, such as alcohol, tobacco, firearms and adult content) may also, by association, impair our reputation, or
result in greater public, regulatory or legislative scrutiny. We have also been pursuing the use of social media channels at an
increasingly rapid pace. Under some circumstances, our use of social media, or the use of social media by others as a channel for
criticism or other purposes, could also cause rapid, widespread reputational harm to our brands by disseminating rapidly and
globally actual or perceived damaging information about us, our products or merchants or other end users who utilize our products.
To the extent any of our published sustainability metrics are subsequently viewed as inaccurate or we are unable to execute on our
sustainability initiatives, we may be viewed negatively by consumers, investors and other stakeholders concerned about these
matters. Also, as we are headquartered in the United States, a negative perception of the United States could impact the perception
of our company, which could adversely affect our business. Any of the above issues could have a material and adverse effect to our
overall business.
We may not be able to attract, hire and retain a highly qualified and diverse workforce, or maintain our corporate culture, which
could impact our ability to grow effectively.
Brand and Reputational Impact
Adverse economic trends in key countries in which we operate may adversely affect our financial performance. Such impact may
include, but is not limited to, the following:
•
Negative brand perception may materially and adversely affect our overall business.
•
.
Customers mitigating their economic exposure by limiting the issuance of new Mastercard products and requesting greater
incentive or greater cost stability from us
Consumers and businesses lowering spending, which could impact domestic and cross-border spend
Government intervention (including the effect of laws, regulations and/or government investments on or in our financial
institution customers), as well as uncertainty due to changing political regimes in executive, legislative and/or judicial branches of
government, that may have potential negative effects on our business and our relationships with customers or otherwise alter
their strategic direction away from our products
Tightening of credit availability that could impact the ability of participating financial institutions to lend to us under the terms of
our credit facility
Additionally, we switch substantially all cross-border transactions using Mastercard, Maestro and Cirrus-branded cards and generate
a significant amount of revenue from cross-border volume fees and fees related to switched transactions. Revenue from switching
cross-border and currency conversion transactions for our customers fluctuates with the levels and destinations of cross-border
travel and our customers' need for transactions to be converted into their base currency. Cross-border activity has, and may
continue to be, adversely affected by world geopolitical, economic, health, weather and other conditions. These include COVID-19,
as well as the threat of terrorism and separate outbreaks of flu, viruses and other diseases (any of which could result in future
epidemics or pandemics), as well as major environmental and extreme weather events, including those related to climate change.
As governments, investors and other stakeholders face pressure to address climate change and other sustainability matters, these
stakeholders may express new expectations, focus investments and require additional disclosures in ways that cause significant
shifts in commerce and consumption behaviors. The impact of and uncertainty that could result from any of these events or factors
could ultimately decrease cross-border activity. Additionally, any regulation of interregional interchange fees could also negatively
impact our cross-border activity. In each case, decreased cross-border activity could decrease the revenue we receive.
Our operations as a global payments network rely in part on global interoperable standards to help facilitate safe and simple
payments. To the extent geopolitical events result in jurisdictions no longer participating in the creation or adoption of these
standards, or the creation of competing standards, the products and services we offer could be negatively impacted.
Any of these developments could have a material adverse impact on our overall business and results of operations.
.
PARTI
34 MASTERCARD 2021 FORM 10-K
The occurrence of currency fluctuations or exchange controls could have a material adverse impact on our results of operations.
In addition, some of the revenue we generate outside the United States is subject to unpredictable currency fluctuations including
devaluation of currencies where the values of other currencies change relative to the U.S. dollar. If the U.S. dollar strengthens
compared to currencies in which we generate revenue, this revenue may be translated at a materially lower amount than expected.
Furthermore, we may become subject to exchange control regulations that might restrict or prohibit the conversion of our other
revenue currencies into U.S. dollars, such as what we have experienced in Venezuela.
Adverse currency fluctuations and foreign exchange controls could negatively impact our results of operations.
ITEM 1A. RISK FACTORS
During 2021, approximately 68% of our revenue was generated from activities outside the United States. This revenue (and the
related expense) could be transacted in a non-functional currency or valued based on a currency other than the functional currency
of the entity generating the revenues. Resulting exchange gains and losses are included in our net income. Our risk management
activities provide protection with respect to adverse changes in the value of only a limited number of currencies and are based on
estimates of exposures to these currencies.
8.76
38%
$
$
6.37 $
7.94
(21)%
35%
es
(20)%
1,022
1,006
(1)%
(2)%
The following table provides a summary of our key non-GAAP operating results¹, 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:
2021
2020
Year ended December 31,
Increase/(Decrease)
Increase/(Decrease)
8,118
992
$
25%
$
9,664
$
8,081
ՄՌ
10,082
$
Operating income
-%
22%
7,219
7,220 $
$
8,802
$
Operating expenses
(9)%
23%
15,301 $ 16,883
$
$ 18,884
Net revenue
($ in millions, except per share data)
(Decrease)
2021
(16)%
Operating margin
53.4 %
8,687
$
Diluted weighted-average shares outstanding
Diluted earnings per share
Net income
0.8 ppt
(1.7) ppt
16.6 %
17.4 %
15.7 %
(16)%
6,411
20%
$
1,349
$
1,620
$
Effective income tax rate
Income tax expense
(4.4) ppt
0.6 ppt
57.2 %
52.8 %
1,613
2020
7,147
As
Currency-
adjusted neutral
MASTERCARD 2021 FORM 10-K 45
See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
1
Note: Tables may not sum due to rounding.
(16)%
(17)%
30%
49
31%
$
6.43
$
8.40
$
Adjusted diluted earnings per share
(17)%
7.77
PART II
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:
Adjusted
15.7%
GAAP
Effective income
tax rate
up 22%
Operating
expenses
GAAP
- 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.
- 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:
- Switched transactions growth of 25%
- Cross-border volume growth of 32% on a local currency basis
(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:
- Gross dollar volume growth of 21% on a local currency basis
up 22%
up 23%
GAAP
Non-GAAP
Net revenue
(19)%
2019
28%
7,937
7,219
$
(Decrease)
$
8,627
54.3 %
Adjusted operating margin
$
21%
(8)%
22%
($ in millions, except per share data)
$ 16,883
23%
$ 18,884 $ 15,301
Adjusted operating expenses
Net revenue
Currency-
neutral
As
adjusted
(9)%
19%
(1)%
(1)%
6,463
$
8,333
$
Adjusted net income
0.3 ppt
0.2 ppt
(1.8) ppt
(3.7) ppt
(4.0) ppt
1.2 ppt
1.0 ppt
57.2 %
17.0% (1.8) ppt
17.2 %
15.4 %
Adjusted effective income tax rate
53.3 %
29%
2019
20%
2021
100.00
233.41
181.35
153.17
116.49
121.83
100.00
122.18
$ 100.00 $ 147.68 $ 185.07 $ 294.55 $ 353.98 $ 358.07
2020
For the Years Ended December 31,
2018
2019
2017
2016
Base
period
Indexed Returns
42 MASTERCARD 2021 FORM 10-K
2021
S&P 500 Financials
106.26
138.02
of Shares
Purchased
Total Number
Total
December 1-31
operating expenses
November 1-30
October 1-31
140.40
Period
Issuer Purchases of Equity Securities
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.
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.
Dividend Declaration and Policy
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUES PURCHASES OF EQUITY SECURITIES
PART II
186.38
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:
S&P 500
Mastercard
Company/Index
Stock Performance Graph
There is currently no established public trading market for our Class B common stock. There were approximately 240 holders of
record of our non-voting Class B common stock as of February 8, 2022, constituting approximately 0.8% of our total outstanding
equity.
Our Class A common stock trades on the New York Stock Exchange under the symbol "MA". At February 8, 2022, we had 71
stockholders of record for our Class A common stock. We believe that the number of beneficial owners is substantially greater than
the number of record holders because a large portion of our Class A common stock is held in "street name" by brokers.
equity, related
stockholder matters and issuer purchases of equity securities
Item 5. Market for registrant's common
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUES PURCHASES OF EQUITY SECURITIES
PART II
The graph and table below compare the cumulative total stockholder return of Mastercard's Class A common stock, the S&P 500 and
the S&P 500 Financials for the five-year period ended December 31, 2021. The graph assumes a $100 investment in our Class A
common stock and both of the indices and the reinvestment of dividends. Mastercard's Class B common stock is not publicly traded
or listed on any exchange or dealer quotation system.
Item 9B. Other information
Item 9. Changes in and disagreements with accountants on accounting and
financial disclosure
Item 8. Financial statements and supplementary data
Item 7A. Quantitative and qualitative disclosures about market risk
Item 7. Management's discussion and analysis of financial condition and results of
operations
Item 6. Reserved
Item 5. Market for registrant's common equity, related stockholder matters and
issuer purchases of equity securities
PART II
Item 9A. Controls and procedures
Comparison of cumulative five-year total return
$400
$350
Total returns to stockholders for each of the years presented were as follows:
S&P 500 Financials
S&P 500
2021
2020
2019
2018
Mastercard
2017
2016
$0
$50
$100
$150
$200
$250
$300
1,282,075 $
1,126,537
1,312,321
3,720,933
1 %
(29)%
1 %
(36)%
(10)%
(45)%
(1)%
8%
December 31
2020 Quarter ended
June 30 September 30
Increase/(Decrease)
13 %
March 31
Cross-border volume (local currency basis)
Gross dollar volume (local currency basis)
25 %
27 %
25 %
41 %
9%
Switched transactions
(10)%
5 %
4 %
Increase/
Increase/
Year ended December 31,
2020
2021
The following table provides a summary of our key GAAP operating results, as reported:
Financial Results Overview
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.
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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
44 MASTERCARD 2021 FORM 10-K
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
3 %
(29)%
- %
Year ended
December 31,
2020
21 %
32%
2020
53 %
58 %
2
11,926,866,431
12,368,795,391
4,752,404,601
3,720,933
342.86
1,312,321
1 Dollar value of shares that may yet be purchased under the share repurchase programs is as of the end of the period.
336.75
340.52
351.18
1,282,075 $
Dollar Value of
Shares that may yet
be Purchased under
the Plans or
Programs
Programs
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Average Price
Paid per Share
(including
commission cost)
1,126,537
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
(17)%
23 %
33 %
8%
Gross dollar volume (local currency basis)
Cross-border volume (local currency basis)
Switched transactions
Year ended
December 31,
2021
December 31
2021 Quarter ended
June 30
September 30
Increase/(Decrease)
March 31
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:
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
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.
Business Overview
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.
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
PART II
52 %
Non-GAAP
Adjusted operating expenses increased 19% on a currency-neutral basis, which includes
(currency-neutral) 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 19%
**
- %
-
- %
0.1 ppt
ppt
-
- %
-
**
(8)%
(7)%
(0.4) ppt
**
**
**
**
(1)%
0.4 ppt
0.1 ppt
19%
22%
(1)%
(1)%
- ppt
0.2 ppt
(2)%
38 %
(1)%
29%
(1.8) ppt
1.0 ppt
21 %
23 %
1 %
1%
31 %
35 %
(1.7) ppt
0.6 ppt
Currency impact 1
Non-GAAP
Indirect tax matter
Litigation provisions
(Gains) losses on equity investments
-
Reported GAAP
Non-GAAP -currency-neutral
Increase/(Decrease)
The following tables represent the reconciliation of our growth rates reported under GAAP to our non-GAAP growth rates:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
48 MASTERCARD 2021 FORM 10-K
Note: Tables may not sum due to rounding.
**Not applicable
7.77
(0.06)
Year Ended December 31, 2021 as compared to the Year Ended December 31, 2020
1.2 ppt
Reported GAAP
Litigation provisions
22 %
23 %
Diluted
earnings
per share
Net
income
Effective
income tax
rate
Operating
margin
Operating
expenses
(Gains) losses on equity investments
Net
revenue
**Not applicable
Note: Tables may not sum due to rounding.
Non-GAAP -currency-neutral
1
Currency impact
Non-GAAP
Tax act
1
(57)
(1.8) ppt
30%
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.
Key Metrics
See "Non-GAAP Financial Information" for further information on Currency impact.
(16)%
(17)%
0.3 ppt
(3.7) ppt
(1)%
(8)%
1 %
1 %
0.2 ppt
0.3 ppt
― %
1 %
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 Volume² 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 Transactions² 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
Risk of Currency Devaluation
Our foreign exchange risk management activities are discussed further in Note 23 (Derivative and Hedging Instruments) to the
consolidated financial statements included in Part II, Item 8.
We incur foreign currency gains and losses from remeasuring monetary assets and liabilities, including settlement assets and
obligations, that are denominated in a currency other than the functional currency of the entity. To manage this foreign exchange
risk, we may enter into foreign exchange derivative contracts to economically hedge the foreign currency exposure of a portion of
our nonfunctional monetary assets and liabilities. The gains or losses resulting from changes in fair value of these contracts are
intended to reduce the potential effect of the underlying hedged exposure and are recorded net within general and administrative
expenses on the consolidated statement of operations. The impact of this foreign exchange activity, including the related hedging
activities, has not been eliminated in our currency-neutral results.
Foreign Exchange Activity
Through December 31, 2020, our approach to managing transactional currency exposure consisted of hedging a portion of
anticipated revenues impacted by transactional currencies by entering into foreign exchange derivative contracts, and recording the
related changes in fair value in general and administrative expenses on the consolidated statement of operations. During the first
quarter of 2021, we started to formally designate certain newly-executed foreign exchange derivative contracts, which meet the
established accounting criteria, as cash flow hedges. Gains and losses resulting from changes in fair value of these designated
contracts are deferred in accumulated other comprehensive income (loss) and subsequently recognized in the respective component
of net revenue when the underlying forecasted transactions impact earnings.
Our operating results are also impacted by transactional currency. The impact of the transactional currency represents the effect of
converting revenue and expense transactions occurring in a currency other than the functional currency. Changes in currency
exchange rates directly impact the calculation of gross dollar volume ("GDV") and gross euro volume ("GEV"), which are used in the
calculation of our domestic assessments, cross-border volume fees and certain volume-related rebates and incentives. In most non-
European regions, GDV is calculated based on local currency spending volume converted to U.S. dollars using average exchange rates
for the period. In Europe, GEV is calculated based on local currency spending volume converted to euros using average exchange
rates for the period. As a result, certain of our domestic assessments, cross-border volume fees and volume-related rebates and
incentives are impacted by the strengthening or weakening of the U.S. dollar versus non-European local currencies and the
strengthening or weakening of the euro versus other European local currencies. For example, our billing in Australia is in the U.S.
dollar, however, consumer spend in Australia is in the Australian dollar. The currency transactional impact of converting Australian
dollars to our U.S. dollar billing currency will have an impact on the revenue generated. The strengthening or weakening of the U.S.
dollar is evident when GDV growth on a U.S. dollar-converted basis is compared to GDV growth on a local currency basis. In 2021,
GDV on a U.S. dollar-converted basis increased 21.9%, while GDV on a local currency basis increased 20.5% versus 2020. In 2020,
GDV on a U.S. dollar-converted basis decreased 1.9%, while GDV on a local currency basis increased 0.1% versus 2019. Further, the
impact from transactional currency occurs in transaction processing revenue, other revenue and operating expenses when the local
currency of these items is different than the functional currency of the entity.
Our primary revenue functional currencies are the U.S. dollar, euro, Brazilian real and the British pound. Our overall operating
results are impacted by currency translation, which represents the effect of translating operating results where the functional
currency is different than our U.S. dollar reporting currency.
(17)%
Currency Impact
Growth rates are 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. In the fourth quarter of 2021, we began
clearing and settling transactions and volumes on a daily basis.
against information provided by Mastercard's transaction switching systems. All data is subject to revision and amendment by Mastercard or
Mastercard's customers.
1 Data used in the calculation of GDV is provided by Mastercard customers and is subject to verification by Mastercard and partial cross-checking
2
Operating Margin measures how much profit we make on each dollar of sales after our operating costs but before other income
(expense) and income tax expense. Operating margin is calculated by dividing our operating income by net revenue.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
Foreign Currency
(19)%
0.2 ppt
(4.0) ppt
(20)%
(21)%
0.8 ppt
(4.4) ppt
- %
(9)%
per share
**
earnings
Net
income
Effective
income tax
rate
Operating
margin
Operating
expenses
Net
revenue
Increase/(Decrease)
Year Ended December 31, 2020 as compared to the Year Ended December 31, 2019
Diluted
28 %
**
ppt
(1)%
(9)%
1 %
1 %
(0.6) ppt
**
**
-
**
1 %
(0.1) ppt
0.5 ppt
(1)%
**
1 %
1 %
1 %
0.6 %
17.0 % $ 7,937 $
(100)
57.2 % $
per share
Diluted
earnings
Net
income
(expense) tax rate
margin
income
income
Operating
Operating
expenses
Effective
Other
Year ended December 31, 2021
The following tables reconcile our reported financial measures calculated in accordance with GAAP to the respective non-GAAP
adjusted financial measures:
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MASTERCARD 2021 FORM 10-K 47
($ in millions, except per share data)
53.4 % $ 225
15.7 % $
8,687 $
0.1 %
6
0.4 %
(82)
0.07
74
0.1 %
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.
**
(94)
(0.50)
(497)
(0.5)%
(645)
**
8.76
0.5 %
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.
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.
Currency-neutral Growth Rates
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.
•
Gains and Losses on Equity Investments
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:
Non-GAAP Financial Information
We completed debt offerings for an aggregate principal amount of $2.1 billion.
•
46
We repurchased 16.5 million shares of our common stock for $5.9 billion and paid dividends of $1.7 billion.
We completed the acquisitions of businesses for total consideration of $4.7 billion.
•
• We generated net cash flows from operations of $9.5 billion.
Other 2021 financial highlights were as follows:
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.
15.4%
Non-GAAP
(currency-neutral)
•
69
MASTERCARD 2021 FORM 10-K
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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.
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.
•
Tax act
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.
•
PART II
$28 million related to estimated attorneys' fees and litigation settlements with U.K. and Pan-European merchants.
Indirect tax matter
$45 million related to a legal matter associated with our prepaid cards in the U.K., and
о
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:
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.
•
Litigation provisions
Special Items
о
0.07
$ 8,627
54.3 % $ (413)
Diluted
earnings
Net
income
tax rate
income
Effective
Other
income
Operating
margin (expense)
per share
Operating
expenses
6,463 $ 6.43
17.2 % $
53.3 % $ (351)
$ 7,147
0.07
67
(0.1)%
Year ended December 31, 2019
**
Reported GAAP
$
$ 7,219
Non-GAAP
Tax act
**
(0.12)
(124)
(0.2)%
-
(167)
**
(Gains) losses on equity investments
7.94
16.6 % $ 8,118
($ in millions, except per share data)
67
57.2 % $
7,219
**
We are exposed to currency devaluation in certain countries. In addition, we are subject to exchange control regulations that
restrict the conversion of financial assets into U.S. dollars. While these revenues and assets are not material to us on a consolidated
basis, we can be negatively impacted should there be a continued and sustained devaluation of local currencies relative to the U.S.
dollar and/or a continued and sustained deterioration of economic conditions in these countries.
0.5 %
(0.01)
Operating
expenses
Non-GAAP
Litigation provisions
(Gains) losses on equity investments
-
Reported GAAP
Non-GAAP
Operating
margin
Indirect tax matter
**
(Gains) losses on equity investments
8,802
$
Reported GAAP
8,333 $ 8.40
15.4 % $
Litigation provisions
(73)
Year ended December 31, 2020
income
(15)
(0.1)%
(30)
**
**
(321)
52.8 % $
Other
$ 7,220
($ in millions, except per share data)
per share
Diluted
earnings
Net
income
(expense) tax rate
income
Effective
17.4 % $ 6,411 $ 6.37
50 MASTERCARD 2021 FORM 10-K
Adjusted effective
income tax rate
Financial Results
Depreciation and amortization
3%
5%
**
**
20%
6%
2%
― %
25%
11 %
Provision for litigation
**
**
**
**
**
**
**
**
**
**
Total operating expenses
36 % (30)%
(1)%
1 %
%
The table below shows a summary of the cash flows from operating, investing and financing activities:
Cash Flow
Our liquidity and access to capital could also be negatively impacted by the outcome of any of the legal or regulatory proceedings to
which we are a party. For additional discussion of these and other risks facing our business, see Part I, Item 1A - Risk Factors - Legal
and Regulatory Risks and Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II,
Item 8.
however, historical trends may not be an indication of potential future losses. The risk of loss on these guarantees is specific to
individual customers, but may also be driven by regional or global economic conditions, including, but not limited to the health of
the financial institutions in a country or region. See Note 22 (Settlement and Other Risk Management) to the consolidated financial
statements in Part II, Item 8 for a description of these guarantees.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
54 MASTERCARD 2021 FORM 10-K
Our liquidity and access to capital could be negatively impacted by global credit market conditions. We guarantee the settlement of
many of the transactions between our customers. Historically, payments under these guarantees have not been significant;
We believe that our existing cash, cash equivalents and investment securities balances, our cash flow generating capabilities, and our
access to capital resources are sufficient to satisfy our future operating cash needs, capital asset purchases, outstanding
commitments and other liquidity requirements associated with our existing operations and potential obligations which include
litigation provisions and credit and settlement exposure.
Investments include available-for-sale securities and held-to-maturity securities. This amount excludes restricted cash and restricted cash
equivalents of $2.5 billion and $2.3 billion at December 31, 2021 and 2020, respectively.
1
12% (5)%
6.0
4 %
2 %
%
20% 3%
Advertising and marketing
35%
(30)%
**
**
1 %
-
6%
1 %
1 %
7%
2020
2021
2020
2021
2021 2020
2020
2021
Total
Currency
Impact
Acquisitions
Special
Items
2021
Operational
The following table summarizes the drivers of changes in operating expenses:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
MASTERCARD 2021 FORM 10-K
52
62
See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
1
**Not meaningful
Note: Table may not sum due to rounding.
(1)%
For the Years Ended December 31,
Net cash provided by operating activities
2020
11% (1)%
4 % 2 %
― %
22 %
%
Note: Table may not sum due to rounding.
** Not meaningful
1
2
See "Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
Represents the translational and transactional impact of currency.
General and Administrative
General and administrative expenses increased 20%, or 18% on a currency-neutral basis, in 2021 versus the prior year. Current year
results include growth of 6 percentage points from acquisitions and 1 percentage point from Special Items. The remaining increase
was primarily due to higher personnel costs to support our continued investment in our strategic initiatives and increased data
processing costs.
General and administrative
The components of general and administrative expenses were as follows:
Professional fees
Data processing and telecommunications
Foreign exchange activity 1
Other²
Total general and administrative expenses
For the Years Ended December 31,
2021
2020
Increase (Decrease)
2019
2021
2020
($ in millions)
Personnel
Net cash used in investing activities
Net cash used in financing activities
2019
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART II
58 MASTERCARD 2021 FORM 10-K
We are also exposed to interest rate risk related to our fixed-rate debt. To manage this risk, we may enter into interest rate
derivative contracts to hedge a portion of our fixed-rate debt that is exposed to changes in fair value attributable to changes in a
benchmark interest rate. The effect of a hypothetical 100 basis point adverse change in interest rates could result in a fair value loss
of $49 million on our interest rate derivative contracts designated as a fair value hedge of our fixed-rate debt at December 31, 2021,
before considering the offsetting effect of the underlying hedged activity. We did not have similar interest rate derivative contracts
outstanding as of December 31, 2020.
Our available-for-sale debt investments include fixed and variable rate securities that are sensitive to interest rate fluctuations. Our
policy is to invest in high quality securities, while providing adequate liquidity and maintaining diversification to avoid significant
exposure. A hypothetical 100 basis point adverse change in interest rates would not have a material impact to the fair value of our
investments at December 31, 2021 and 2020.
Interest Rate Risk
We are further exposed to foreign exchange rate risk related to translation of our foreign operating results where the functional
currency is different than our U.S. dollar reporting currency. To manage this risk, we may enter into foreign exchange derivative
contracts to hedge a portion of our net investment in foreign subsidiaries. The effect of a hypothetical 10% adverse change in the
value of the U.S. dollar could result in a fair value loss of approximately $165 million on our foreign exchange derivative contracts
designated as a net investment hedge at December 31, 2021, before considering the offsetting effect of the underlying hedged
activity. We did not have similar foreign exchange derivative contracts outstanding as of December 31, 2020.
We are also subject to foreign exchange risk as part of our daily settlement activities. To manage this risk, we enter into short
duration foreign exchange contracts based upon anticipated receipts and disbursements for the respective currency position. This
risk is typically limited to a few days between when a payment transaction takes place and the subsequent settlement with our
customers. The effect of a hypothetical 10% adverse change in the value of the functional currencies could result in a fair value loss
of approximately $1 million and $23 million on our short duration foreign exchange derivative contracts outstanding at
December 31, 2021 and 2020, respectively.
We enter into foreign exchange derivative contracts to manage currency exposure associated with anticipated receipts and
disbursements occurring in a currency other than the functional currency of the entity. We may also enter into foreign currency
derivative contracts to offset possible changes in value of assets and liabilities due to foreign exchange fluctuations. The objective of
these activities is to reduce our exposure to transaction gains and losses resulting from fluctuations of foreign currencies against our
functional currencies, principally the U.S. dollar and euro. The effect of a hypothetical 10% adverse change in the value of the
functional currencies could result in a fair value loss of approximately $70 million and $58 million on our foreign exchange derivative
contracts outstanding at December 31, 2021 and 2020, respectively, before considering the offsetting effect of the underlying
hedged activity.
Foreign Exchange Risk
Market risk is the potential for economic losses to be incurred on market risk sensitive instruments arising from adverse changes in
factors such as interest rates and foreign currency exchange rates. Our exposure to market risk from changes in interest rates and
foreign exchange rates is limited. Management monitors risk exposures on an ongoing basis and establishes and oversees the
implementation of policies governing our funding, investments and use of derivative financial instruments to manage these risks.
Foreign currency and interest rate exposures are managed through our risk management activities, which are discussed further in
Note 23 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part II, Item 8.
Item 8. Financial statements and supplementary data
Item 7A. Quantitative and qualitative disclosures about market
risk
PART II
MASTERCARD 2021 FORM 10-K 57
40
We account for our business combinations using the acquisition method of accounting. The acquisition purchase price, including
contingent consideration, if any, is allocated to the underlying identified, tangible and intangible assets, liabilities assumed and any
non-controlling interest in the acquiree, based on their respective estimated fair values on the acquisition date. Any excess of
purchase price over the fair value of net assets acquired, including identifiable intangible assets, is recorded as goodwill. The
amounts and useful lives assigned to acquisition-related tangible and intangible assets impact the amount and timing of future
amortization expense. We use various valuation techniques to determine fair value, primarily discounted cash flows analysis, relief-
from-royalty and multi-period excess earnings for estimating the value of intangible assets. These valuation techniques included
comparable company multiples, discount rates, growth projections and other assumptions of future business conditions.
Determining the fair value of assets acquired, liabilities assumed, any non-controlling interest in the acquiree and the expected
useful lives, requires management's judgment. The significance of management's estimates and assumptions is relative to the size
of the acquisition. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and
unpredictable.
Business Combinations
Deferred taxes are established on the estimated foreign exchange gains or losses for foreign earnings that are not considered
permanently reinvested, which will be recognized through cumulative translation adjustments as incurred. Ultimately, the working
capital requirements of foreign affiliates will determine the amount of cash to be remitted from respective jurisdictions.
We record tax liabilities for uncertain tax positions taken, or expected to be taken, which may not be sustained or may only be
partially sustained, upon examination by the relevant taxing authorities. We consider all relevant facts and current authorities in the
tax law in assessing whether any benefit resulting from an uncertain tax position is more likely than not to be sustained and, if so,
how current law impacts the amount reflected within these financial statements. If upon examination, we realize a tax benefit
which is not fully sustained or is more favorably sustained, this would decrease or increase earnings in the period. In certain
situations, we will have offsetting tax credits or taxes in other jurisdictions.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.
Significant judgment is required in determining the valuation allowance. In assessing the need for a valuation allowance, we
consider all sources of taxable income, including projected future taxable income, reversing taxable temporary differences and
ongoing tax planning strategies. If it is determined that we are able to realize deferred tax assets in excess of the net carrying value
or to the extent we are unable to realize a deferred tax asset, we would adjust the valuation allowance in the period in which such a
determination is made, with a corresponding increase or decrease to earnings.
In calculating our effective income tax rate, estimates are required regarding the timing and amount of taxable and deductible items
which will adjust the pretax income earned in various tax jurisdictions. Through our interpretation of local tax regulations,
adjustments to pretax income for income earned in various tax jurisdictions are reflected within various tax filings. Although we
believe that our estimates and judgments discussed herein are reasonable, actual results may be materially different than the
estimated amounts.
Income Taxes
We are currently involved in various claims and legal proceedings. We regularly review the status of each significant matter and
assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the
amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the
determination of probability and whether an exposure is reasonably estimable. Our judgments are subjective based on the status of
the legal or regulatory proceedings, the merits of our defenses and consultation with in-house and outside legal counsel. Because of
uncertainties related to these matters, accruals are based only on the best information available at the time. As additional
information becomes available, we reassess the potential liability related to pending claims and litigation and may revise our
estimates. Due to the inherent uncertainties of the legal and regulatory process in the multiple jurisdictions in which we operate,
our judgments may be materially different than the actual outcomes.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Loss Contingencies
Mastercard Incorporated
As of December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019
Management's report on internal control over financial reporting
60 MASTERCARD 2021 FORM 10-K
The management of Mastercard Incorporated ("Mastercard") is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in
accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. As required by Section 404 of the Sarbanes-Oxley
Act of 2002, management has assessed the effectiveness of Mastercard's internal control over financial reporting as of December 31,
2021. In making its assessment, management has utilized the criteria set forth in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management has concluded that, based
on its assessment, Mastercard's internal control over financial reporting was effective as of December 31, 2021. The effectiveness of
Mastercard's internal control over financial reporting as of December 31, 2021 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which appears on the next page.
Management's report on internal control over financial reporting
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART II
MASTERCARD 2021 FORM 10-K 59
69
88
68
66
65
Index to consolidated financial statements
64
61
60
60
Page
Notes to consolidated financial statements
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Consolidated Balance Sheet
Consolidated Statement of Comprehensive Income
Consolidated Statement of Operations
Report of independent registered public accounting firm (PCAOB ID 238)
63
21 %
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
56 MASTERCARD 2021 FORM 10-K
For the Years Ended December 31,
2021
2020
2019
The following table summarizes the annual, per share dividends paid in the years reflected:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
MASTERCARD 2021 FORM 10-K 55
We have historically paid quarterly dividends on our outstanding Class A common stock and Class B common stock. Subject to
legally available funds, we intend to continue to pay a quarterly cash dividend. 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.
Dividends and Share Repurchases
See Note 15 (Debt) to the consolidated financial statements included in Part II, Item 8 for further discussion on our debt, the
Commercial Paper Program and the Credit Facility.
Borrowings under the Commercial Paper Program and the Credit Facility are to be used to provide liquidity for general corporate
purposes, including providing liquidity in the event of one or more settlement failures by our customers. In addition, we may borrow
and repay amounts under these facilities for business continuity purposes. We had no borrowings outstanding under the
Commercial Paper Program or the Credit Facility at December 31, 2021.
As of December 31, 2021, we have a commercial paper program (the "Commercial Paper Program"), under which we are authorized
to issue up to $6 billion in outstanding notes, with maturities up to 397 days from the date of issuance. In conjunction with the
Commercial Paper Program, we have a committed unsecured $6 billion revolving credit facility (the "Credit Facility") which now
expires in November 2026.
In March 2021, we issued $600 million principal amount of notes due March 2031 and $700 million principal amount of notes due
March 2051 and in November 2021, we issued $750 million principal amount of notes due November 2031 (collectively the "2021
USD Notes"). Additionally, during 2021, $650 million of principal related to the 2016 USD Notes was redeemed. Our total debt
outstanding was $13.9 billion at December 31, 2021, with the earliest maturity of €700 million (approximately $793 million as of
December 31, 2021) of principal occurring in December 2022. The proceeds of the 2021 USD Notes due March 2031 are to be used
to fund eligible green and social projects, examples of which are described in the Use of Proceeds section of the Prospectus
Supplement filed on March 4, 2021. All other notes are to be used for general corporate purposes.
(in millions, except per share data)
Debt and Credit Availability
Net cash used in investing activities increased $3.4 billion in 2021 versus the prior year, primarily due to increased acquisition activity
in the current year.
Net cash provided by operating activities increased $2.2 billion in 2021 versus the prior year, primarily due to higher net income
adjusted for non-cash items and the timing of customer incentive payments, partially offset by higher outstanding receivables in the
current period due to increased volumes and timing of settlement with customers.
(5,867)
(2,152)
(6,555)
(1,640)
(1,879)
(5,272)
$ 7,224 $ 8,183
$ 9,463
For the Years Ended December 31,
2021
2020
(in millions)
Net cash used in financing activities increased $4.4 billion in 2021 versus the prior year, primarily due to lower proceeds from debt
issuances, higher repurchases of our Class A common stock and repayment of debt in the current year.
PART II
Cash dividend, per share
Cash dividends paid
1.76 $ 1.60 $ 1.32
$ 1,741 $ 1,605 $ 1,345
We enter into business agreements with certain customers that provide for rebates and incentives when customers meet certain
volume thresholds or other incentives tied to customer performance. We consider various factors in estimating customer
performance, including forecasted transactions, card issuance and card conversion volumes, expected payments and historical
experience with that customer. Rebates and incentives are recorded as a reduction to gross revenue based on these estimates
primarily when volume- and transaction- based revenues are recognized over the contractual term. Differences between actual
results and our estimates are adjusted in the period the customer reports actual performance. If our customers' actual performance
is not consistent with our estimates of their performance, net revenue may be materially different.
Revenue Recognition - Rebates and Incentives
The application of GAAP requires us to make estimates and assumptions about certain items and future events that directly affect
our reported financial condition. Our significant accounting policies, including recent accounting pronouncements, are described in
Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements included in Part II, Item 8.
Critical Accounting Estimates
See Note 16 (Stockholders' Equity) to the consolidated financial statements included in Part II, Item 8 for further discussion.
356.82
$
Average price paid per share in 2021
16.5
Shares repurchased in 2021
11,927
$
$
5,904
$
9,831
$
Dollar-value of shares repurchased in 2021
Remaining authorization at December 31, 2020
per share data)
(in millions, except
Repurchased shares of our common stock are considered treasury stock. In November 2021, December 2020 and December 2019,
our Board of Directors approved share repurchase programs authorizing us to repurchase up to $8.0 billion, $6.0 billion and $8.0
billion, respectively, of our Class A common stock. The program approved in 2021 will become effective after completion of the
share repurchase program approved in 2020. The timing and actual number of additional shares repurchased will depend on a
variety of factors, including cash requirements to meet the operating needs of the business, legal requirements, as well as the share
price and economic and market conditions. The following table summarizes our share repurchase activity of our Class A common
stock through December 31, 2021, under the plans approved in 2020 and 2019:
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. The aggregate amount of this dividend is
estimated to be $479 million.
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. The aggregate amount of this
dividend was $479 million.
Remaining authorization at December 31, 2021
Revenue
$ 8,627 $ 7,147 $ 7,219
**
-%
―%
1%
22%
1
1
Domestic assessments
2020
2021
2020
2021
2020
2021
2020
2021
Total
1 %
Currency Impact 3
Acquisitions
Operational
For the Years Ended December 31,
The following table summarizes the drivers of change in net revenue:
(9)%
-%
(3)%
23 %
(2)%
2
Other revenues
3%
24 %
-%
1%
-%
-%
3%
22%
1,2
23%
1,2
(37)%
33 %
―%
3%
-%
-%
1
(37)%
30%
Cross-border volume fees
1
Transaction processing
15,301 $ 16,883
18,884 $
$
3,512
4,664
Cross-border volume fees
(2)%
23%
6,781
6,656 $
8,158 $
Domestic assessments
($ in millions)
2020
5,606
Increase (Decrease)
2021
For the Years Ended December 31,
2020
2021
The components of net revenue were as follows:
revenue.
Net revenue increased 23%, or 22% on a currency-neutral basis, and includes 2 percentage points of growth from acquisitions.
See Note 3 (Revenue) to the consolidated financial statements included in Part II, Item 8 for a further discussion of how we recognize
Rebates and incentives increased 32%, or 31% on a currency-neutral basis, primarily due to increased volumes and transactions and
new and renewed deals.
Gross revenue increased 26%, or 25% on a currency-neutral basis, which includes growth of 2 percentage points from acquisitions.
The remaining increase was primarily driven by transaction and volume growth and an increase in our Cyber & Intelligence and Data
& Services solutions within other revenue.
Primary drivers of net revenue, versus the prior year, were as follows:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
10.6
2019
2
33%
Transaction processing
Net revenue
3%
32%
(8,097)
(8,315)
(10,961)
Rebates and incentives (contra-revenue)
(5)%
26%
24,980
23,616
(37)%
29,845
14%
32%
4,124
4,717
6,224
Other revenues
3%
24%
8,469
8,731
10,799
Gross revenue
23%
12%
8%
Total operating expenses
Provision for litigation
Depreciation and amortization
Advertising and marketing
General and administrative
($ in millions)
2020
2021
2019
Increase (Decrease)
For the Years Ended December 31,
2021
2020
Special Items
The components of operating expenses were as follows:
Operating Expenses
No individual country, other than the United States, generated more than 10% of net revenue in any such period. A significant
portion of our net revenue is concentrated among our five largest customers. In 2021, the net revenue from these customers was
approximately $4.2 billion, or 23%, of total net revenue. The loss of any of these customers or their significant card programs could
adversely impact our revenue.
3 %
2020
25 %
2021
For the Years Ended
December 31,
Increase/(Decrease)
Switched transactions
(29)%
32 %
(1)%
Operating expenses increased 22% in 2021 versus the prior year. Adjusted operating expenses increased 21%, or 19% on a currency-
neutral basis, versus the prior year. Current year results include growth of approximately 7 percentage points from acquisitions.
Excluding acquisitions, expenses increased 12% primarily due to higher personnel costs to support our continued investment in our
strategic initiatives, increased spending on advertising and marketing and increased data processing costs.
(4)%
1
20%
**
(73)
(176)
- %
22 %
7,219
7,220
8,802
73
94
**
$ 7,087 $ 5,910 $ 5,763
**
25 %
522
580
726
(30)%
36 %
934
(in billions)
7.9 $
6.0
657
895
3 %
11 %
Adjusted operating expenses (excluding Special Items ¹)
20%
2%
Note: Table may not sum due to rounding
(9)%
23 %
(1)%
1%
1%
2%
(9)%
20%
Net revenue
3 %
1 Includes impacts from our key metrics, other non-volume based fees, pricing and mix.
32 %
1%
-%
-%
4%
31%
Rebates and incentives (contra-revenue)
14 %
32 %
(1)%
1%
3%
(2)%
22 %
2 Includes impacts from our cyber and intelligence solution fees, data analytics and consulting fees and other value-added services.
MASTERCARD 2021 FORM 10-K 51
2 %
23 %
23 %
- %
(2)%
21 %
22%
Local
USD
Local
USD
3 Includes the translational and transactional impact of currency and the related impact of our foreign exchange derivative contracts designated as
cash flow hedging instruments.
Increase/(Decrease)
For the Years Ended December 31,
2021
1 Excludes volume generated by Maestro and Cirrus cards.
1
Cross-border volume
Worldwide less United States
1
United States
Mastercard-branded GDV
The following tables provide a summary of the trend in volumes and transactions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
2020
**
$
666
2
Foreign exchange activity includes gains and losses on foreign exchange derivative contracts and the impact of remeasurement of assets and
liabilities denominated in foreign currencies. See Note 23 (Derivative and Hedging Instruments) to the consolidated financial statements
included in Part II, Item 8 for further discussion.
Includes a special item related to a foreign indirect tax matter of $82 million, pre-tax, recorded during 2021. See "Non-GAAP Financial
Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
Advertising and Marketing
Advertising and marketing expenses increased 36%, on both an as reported and currency-neutral basis, in 2021 versus the prior year,
primarily due to an increase in spending on certain marketing campaigns and an increase in advertising and sponsorship spend
driven by the reinstatement of sponsored events as the effects of the pandemic recede.
Depreciation and amortization expenses increased 25%, or 23% on a currency-neutral basis, in 2021 versus the prior year, which
includes growth of 20 percentage points from acquisitions due to the amortization of acquired intangible assets.
Provision for Litigation
In 2021 and 2020, we recorded $94 million and $73 million, respectively, related to various litigation settlements and legal costs.
See Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for further
discussion.
MASTERCARD 2021 FORM 10-K 53
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Income (Expense)
Other income (expense) was favorable $546 million in 2021 versus the prior year, primarily due to higher net gains in the current
period versus the prior period related to unrealized fair market value adjustments on marketable and nonmarketable equity
securities and realized gains on sales of marketable equity securities. Adjusted other income (expense) was unfavorable $62 million
versus the prior year, primarily due to increased interest expense related to our recent debt issuances and a decrease in our
investment income.
The components of other income (expense) were as follows:
Investment Income
Gains (losses) on equity investments, net
Interest expense
Other income (expense), net
Total other income (expense)
(Gains) losses on equity investments
1
1
Special Items
1
Adjusted total other income (expense) 1
**Not meaningful
3%
$ 4,489 $ 3,787 $ 3,537
19%
7%
433
384
447
13%
(14)%
898
756
19%
14%
51
9
32
**
**
1,216
974
1,081
25%
(10)%
$ 7,087 $ 5,910 $ 5,763 20%
Note: Table may not sum due to rounding.
Note: Table may not sum due to rounding.
Depreciation and Amortization
For the Years Ended December 31,
2021
2020
67
(645)
(30)
(167)
**
**
**
**
6
$
(413) $ (351) $
(100)
18%
**
1 See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
Income Taxes
** Not meaningful
Liquidity and Capital Resources
We rely on existing liquidity, cash generated from operations and access to capital to fund our global operations, credit and
settlement exposure, capital expenditures, investments in our business and current and potential obligations. The following table
summarizes the cash, cash equivalents, investments and credit available to us at December 31:
Cash, cash equivalents and investments
Unused line of credit
1
2021
2020
(321)
225
The effective income tax rates for the years ended December 31, 2021 and 2020 were 15.7% and 17.4%, respectively. The adjusted
effective income tax rates for the years ended December 31, 2021 and 2020 were 15.4% and 17.2%, respectively. Both the as
reported and as adjusted effective income tax rates in 2021 were lower than the 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 rates. These benefits were partially offset by a lower discrete tax benefit related to share-based payments in 2021.
See Note 20 (Income Taxes) to the consolidated financial statements included in Part II, Item 8 for further discussion.
**
**
Increase (Decrease)
2019
2021
($ in millions)
$ 11
$ 24 $ 97
(52)%
(75)%
**
**
645
2020
167
30
**
27
70%
5
(224)
(380)
(431)
13%
**
Advertising and marketing
Depreciation and amortization
Provision for litigation
2020
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
$
General and administrative
2021
For the Years Ended December 31,
16,883
(in millions, except per share data)
18,884 $
15,301 $
7,087
5,910
5,763
Operating Expenses:
657
895
2019
Net Revenue
Critical Audit Matters
62 MASTERCARD 2021 FORM 10-K
934
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of
the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
MASTERCARD 2021 FORM 10-K 61
PART II
Consolidated Statement of Operations
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Revenue Recognition - Rebates and Incentives
As described in Notes 1 and 3 to the consolidated financial statements, the Company provides certain customers with rebates and
incentives which totaled $11.0 billion for the year ended December 31, 2021. The Company has business agreements with certain
customers that provide for rebates and incentives that could be either fixed or variable-based. Variable rebates and incentives are
recorded as a reduction of gross revenue primarily when volume- and transaction-based revenues are recognized over the
contractual term. Variable rebates and incentives are calculated based upon estimated customer performance, such as volume
thresholds, and the terms of the related business agreements. As disclosed by management, various factors are considered in
estimating customer performance, including forecasted transactions, card issuance and card conversion volumes, expected
payments and historical experience with that customer.
The principal considerations for our determination that performing procedures relating to rebates and incentives is a critical audit
matter are (i) the significant judgment by management when developing estimates related to rebates and incentives based on
customer performance; and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating
management's estimates related to customer performance, including the reasonableness of the various applicable factors
considered by management in the estimate.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to rebates and
incentives, including controls over evaluating estimated customer performance. These procedures also included, among others,
evaluating the reasonableness of estimated customer performance for a sample of customer agreements, including (i) evaluating the
agreements to identify whether all rebates and incentives are identified and recorded accurately; (ii) testing management's process
for developing estimated customer performance, including evaluating the reasonableness of the various applicable factors
considered by management; and (iii) evaluating estimated customer performance as compared to actual results in the period the
customer reports actual performance.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 11, 2022
We have served as the Company's auditor since 1989.
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the
critical audit matter or on the accounts or disclosures to which it relates.
726
Comprehensive Income
522
11
24
97
645
30
167
(431)
(380)
Diluted weighted-average shares outstanding
(224)
27
225
(321)
67
10,307
7,760
9,731
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on internal control over financial reporting. Our responsibility is to express opinions on the
Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
5
Diluted Earnings per Share
Basic weighted-average shares outstanding
Basic Earnings per Share
94
73
8,802
7,220
7,219
10,082
8,081
9,664
Total operating expenses
Operating income
Other Income (Expense):
Investment income
Gains (losses) on equity investments, net
Interest expense
Other income (expense), net
Total other income (expense)
Income before income taxes
Income tax expense
Net Income
580
Basis for Opinions
126
We have audited the accompanying consolidated balance sheet of Mastercard Incorporated and its subsidiaries (the "Company") as
of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive income, changes in equity
and cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred
to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
(500)
(49)
(133)
(64)
(199)
(133)
(150)
(161)
(650)
Cash proceeds from exercise of stock options
97
1,620
Other financing activities
(15)
69
Net cash used in financing activities
(6,555)
(2,152)
61
(15)
(5,867)
2,724
2,024
Acquisition of redeemable non-controlling interests
Acquisition of non-controlling interest
Contingent consideration paid
Tax withholdings related to share-based payments
(4,436)
(989)
(1,440)
(175)
3,959
33
(5,272)
(1,879)
(4)
(1,640)
(5,904)
(4,473)
(6,497)
(1,741)
(1,605) (1,345)
3
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents
Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period
Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period
(153)
257
840
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Volume-based revenue (domestic assessments and cross-border volume fees) is recorded as revenue in the period it is earned,
which is primarily based on the related volume generated on the cards. Certain volume-based revenue is based upon information
reported by customers. Transaction-based revenue (transaction processing) is primarily based on the number and type of
transactions and is recognized as revenue in the same period in which the related transactions occur. Other payment-related
products and services are recognized as revenue in the period in which the related services are performed or transactions occur. For
services provided to customers where delivery involves the use of a third-party, the Company recognizes revenue on a gross basis if
it acts as the principal, controlling the service to the customer and on a net basis if it acts as the agent, arranging for the service to be
provided.
Mastercard has business agreements with certain customers that provide for rebates and incentives that could be either fixed or
variable-based. Fixed incentives typically represent payments to a customer directly related to entering into an agreement, which
are generally capitalized and amortized over the life of the agreement on a straight-line basis as a reduction of gross revenue.
Variable rebates and incentives are recorded as a reduction of gross revenue primarily when volume- and transaction-based
revenues are recognized over the contractual term. Variable rebates and incentives are calculated based upon estimated customer
performance, such as volume thresholds, and the terms of the related business agreements.
Contract assets include unbilled consideration typically resulting from executed data analytic and consulting services performed for
customers in connection with Mastercard's payments network service arrangements. Collection for these services typically occurs
over the contractual term. Contract assets are included in prepaid expenses and other current assets and other assets on the
consolidated balance sheet.
The Company defers the recognition of revenue when consideration has been received prior to the satisfaction of performance
obligations. As these performance obligations are satisfied, revenue is subsequently recognized. Deferred revenue is primarily
derived from data analytic and consulting services. Deferred revenue is included in other current liabilities and other liabilities on
the consolidated balance sheet.
Business combinations - The Company accounts for business combinations under the acquisition method of accounting. The
Company measures the tangible and intangible identifiable assets acquired, liabilities assumed, any non-controlling interest in the
acquiree and contingent consideration at fair value as of the acquisition date. Acquisition-related costs are expensed as incurred
and are included in general and administrative expenses on the consolidated statement of operations. Any excess purchase price
over the fair value of net assets acquired, including identifiable intangible assets, is recorded as goodwill. Measurement period
adjustments, if any, to the preliminary estimated fair value of the intangibles assets as of the acquisition date are recorded in
goodwill.
Revenue recognition - Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services. Revenue is
primarily generated from assessing customers based on the dollar volume of activity, or gross dollar volume ("GDV"), on the
products that carry the Company's brands, from fees to issuers, acquirers and other stakeholders for providing switching services, as
well as from value-added products and services that are often integrated and sold with the Company's payment offerings.
Goodwill and other intangible assets - Indefinite-lived intangible assets consist of goodwill, which represents the synergies expected
to arise after the acquisition date and the assembled workforce, and customer relationships. Finite-lived intangible assets consist of
capitalized software costs, customer relationships and other intangible assets. Intangible assets with finite useful lives are amortized
over their estimated useful lives, on a straight-line basis, which range from one to twenty years. Capitalized software includes
internal and external costs incurred directly related to the design, development and testing phases of each capitalized software
project.
Impairment of assets - Goodwill and indefinite-lived intangible assets are not amortized but tested annually for impairment at the
reporting unit level in the fourth quarter, or sooner when circumstances indicate an impairment may exist. The impairment
evaluation for goodwill utilizes a qualitative assessment to determine whether it is more likely than not that goodwill is impaired.
The qualitative factors may include, but are not limited to, macroeconomic conditions, industry and market conditions, operating
environment, financial performance and other relevant events. If it is determined that it is more likely than not that goodwill is
impaired, then the Company is required to perform a quantitative goodwill impairment test. If the fair value of the reporting unit
exceeds the carrying value, goodwill is not impaired. If the fair value of the reporting unit is less than its carrying value, then
goodwill is impaired and the excess of the reporting unit's carrying value over the fair value is recognized as an impairment charge.
The impairment test for indefinite-lived intangible assets consists of a qualitative assessment to evaluate relevant events and
circumstances that could affect the significant inputs used to determine the fair value of indefinite-lived intangible assets. If the
qualitative assessment indicates that it is more likely than not that indefinite-lived intangible assets are impaired, then a quantitative
assessment is required.
70 MASTERCARD 2021 FORM 10-K
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Mastercard Incorporated
Opinions on the Financial Statements and Internal Control over Financial Reporting
The valuation methods for goodwill and other intangible assets acquired in business combinations involve assumptions concerning
comparable company multiples, discount rates, growth projections and other assumptions of future business conditions. The
Company uses various valuation techniques to determine fair value, primarily discounted cash flows analysis, relief-from-royalty and
multi-period excess earnings for estimating the fair value of its intangible assets. As the assumptions employed to measure these
assets are based on management's judgment using internal and external data, these fair value determinations are classified in Level
3 of the Valuation Hierarchy (as defined in Fair value subsection below).
Consolidation and basis of presentation - The consolidated financial statements include the accounts of Mastercard and its majority-
owned and controlled entities, including any variable interest entities ("VIES") for which the Company is the primary beneficiary.
Investments in VIES for which the Company is not considered the primary beneficiary are not consolidated and are accounted for as
marketable, equity method or measurement alternative method investments and recorded in other assets on the consolidated
balance sheet. At December 31, 2021 and 2020, there were no significant VIES which required consolidation and the investments
were not considered material to the consolidated financial statements. The Company consolidates acquisitions as of the date on
which the Company has obtained a controlling financial interest. Intercompany transactions and balances have been eliminated in
consolidation. The Company follows accounting principles generally accepted in the United States of America ("GAAP").
Non-controlling interests represent the equity interest not owned by the Company and are recorded for consolidated entities in
which the Company owns less than 100% of the interests. Changes in a parent's ownership interest while the parent retains its
controlling interest are accounted for as equity transactions, and upon loss of control, retained ownership interests are remeasured
at fair value, with any gain or loss recognized in earnings. For 2021, 2020 and 2019, net losses from non-controlling interests were
not material and, as a result, amounts are included on the consolidated statement of operations within other income (expense).
Use of estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during the reporting periods. Future events and their
effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. These financial
statements were prepared using information reasonably available as of December 31, 2021 and through the date of this Report. The
accounting estimates used in the preparation of the Company's consolidated financial statements may change as new events occur,
as more experience is acquired, as additional information is obtained and as the Company's operating environment changes. Actual
results may differ from these estimates.
Significant Accounting Policies
Mastercard is not a financial institution. The Company does 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 the Company's products. In most cases, account holder relationships belong to, and are managed by, the
Company's financial institution customers.
(44)
(2,517)
3,450
632
12,419
8,969
8,337
$
9,902
$ 12,419 $
8,969
The accompanying notes are an integral part of these consolidated financial statements.
68 MASTERCARD 2021 FORM 10-K
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes to consolidated financial statements
Note 1. Summary of Significant Accounting Policies
Organization
Mastercard Incorporated and its consolidated subsidiaries, including Mastercard International Incorporated ("Mastercard
International" and together with Mastercard Incorporated, "Mastercard" or the "Company"), 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. The Company makes
payments easier and more efficient by providing a wide range of payment solutions and services through its family of well-known
and trusted brands, including Mastercard®, MaestroⓇ and CirrusⓇ. The Company operates a multi-rail payments network that
provides choice and flexibility for consumers and merchants. Through its unique and proprietary core global payments network, the
Company switches (authorizes, clears and settles) payment transactions. The Company has additional payment capabilities that
include automated clearing house ("ACH") transactions (both batch and real-time account-based payments). Using these
capabilities, the Company offers integrated payment products and services and captures new payment flows. The Company's 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 Mastercard's principled use of consumer and merchant data.
The Company's franchise model sets the standards and ground-rules that balance value and risk across all stakeholders and allows
for interoperability among them. The Company's payment solutions are designed to ensure safety and security for the global
payments ecosystem.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
1,349
(137)
$
(in millions, except per share data)
Assets
Current assets:
Cash and cash equivalents
Restricted cash for litigation settlement
Investments
Accounts receivable
Settlement assets
2020
Restricted security deposits held for customers
7,421 $
10,113
586
586
473
483
3,006
2,646
$
1,319
2021
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Investment securities available-for-sale, net of income tax effect
Other comprehensive income (loss), net of income tax effect
(1)
(1)
(1)
(1)
MEN
3
December 31,
(1)
(129)
(7)
45
$ 8,558 $ 6,404 $ 8,163
The accompanying notes are an integral part of these consolidated financial statements.
64 MASTERCARD 2021 FORM 10-K
Consolidated Balance Sheet
PART II
2
1,706
1,873
1,696
33,584
Liabilities, Redeemable Non-controlling Interests and Equity
Current liabilities:
Accounts payable
Settlement obligations
Restricted security deposits held for customers
Accrued litigation
Accrued expenses
37,669 $
Current portion of long-term debt
Total current liabilities
Long-term debt
Deferred income taxes
Other liabilities
$
738 $
527
913
Other current liabilities
Total Assets
5,365
6,994
Prepaid expenses and other current assets
2,271
1,883
Total current assets
16,949
19,113
Property, equipment and right-of-use assets, net
1,907
1,902
Deferred income taxes
486
491
Goodwill
7,662
4,960
Other intangible assets, net
3,671
1,753
Other assets
Income tax effect
1,613
Investment securities available-for-sale
(11)
Consolidated Statement of Comprehensive Income
2019
For the Years Ended December 31,
2021
2020
(in millions)
$ 6,411 $ 8,118
Net Income
Other comprehensive income (loss):
$ 8,687
Foreign currency translation adjustments
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Income tax effect
345
10
55
(59)
13
Foreign currency translation adjustments, net of income tax effect
Translation adjustments on net investment hedges
(387)
(442)
286
PART II
89
8,687 $
6,411 $
8,118
$
8.79 $
6.40 $
7.98
988
MASTERCARD 2021 FORM 10-K 63
1,002
$
8.76 $
6.37 $
7.94
992
1,006
1,022
The accompanying notes are an integral part of these consolidated financial statements.
1,017
23
269
(177)
Cash flow hedges, net of income tax effect
9
(144)
11
Defined benefit pension and other postretirement plans
57
(12)
(21)
(1)
Income tax effect
2
3
Reclassification adjustment for defined benefit pension and other postretirement plans
Income tax effect
(2)
(1)
(1)
Defined benefit pension and other postretirement plans, net of income tax effect
41
(14)
(1)
Income tax effect
4
36
Income tax effect
(60)
40
(8)
Translation adjustments on net investment hedges, net of income tax effect
209
Payment of debt
28
Cash flow hedges
6
(189)
14
Income tax effect
(1)
42
(3)
Reclassification adjustment for cash flow hedges
5
(19)
Proceeds from debt, net
657
Purchases of treasury stock
Redeemable non-
controlling interest
adjustments
Other comprehensive
income (loss)
Dividends
----
4,787 (32,205) 33,984
6,411
(673)
5,893
Activity related to
non-controlling
interests
24
21
5,917
- 6,411
------- 73 7
73
---- (7) - (7) - 17
(7)
(1,641)
6,411
1641) (7)
Net income
Balance at December
-(9)
Dividends
207
hive --- 45
Purchases of treasury
stock
Share-based
payments
31, 2019
--- (6,463) -- (6,463)
- 45
(1,408)
(1,408)
(1,408)
(6,463)
8
215
- 215
45
E
(7)
(7)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Balance at December
31, 2020
Net income
Activity related to
non-controlling
interests
Acquisition of non-
PART II
controlling interest
controlling interest
adjustments
Common Stock
Class A Class B
Additional
Paid-In
Capital
Class A
Treasury
Stock
Retained
4,982
Accumulated
Redeemable non-
Stockholders' Equity
Consolidated Statement of Changes in Equity (Continued)
66 MASTERCARD 2021 FORM 10-K
(1,641)
(1,641)
Purchases of treasury
stock
--- (4,459) - - (4,459)
(4,459)
Share-based
payments
195
6
201
- 201
Balance at December
31, 2020
4,982
(36,658) 38,747
(680)
6,391
97
6,488
(9)
Other
Comprehensive
(9)
8,118
Stockholders' Equity
Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,397 and 1,396 shares
issued and 972 and 987 shares outstanding, respectively
Class B common stock, $0.0001 par value; authorized 1,200 shares, 8 shares issued and
outstanding
Additional paid-in-capital
Class A treasury stock, at cost, 425 and 409 shares, respectively
5,061
(42,588)
4,982
(36,658)
Retained earnings
29
45,648
Accumulated other comprehensive income (loss)
(809)
(680)
Mastercard Incorporated Stockholders' Equity
7,312
6,391
Non-controlling interests
Total Equity
38,747
71
7,383
29
Commitments and Contingencies
842
6,642
5,430
792
649
1,364
1,228
13,162
Redeemable Non-controlling Interests
11,847
12,023
395
86
3,591
3,111
30,257
27,067
Total Liabilities
13,109
97
6,488
Total Liabilities, Redeemable Non-controlling Interests and Equity
Additional
Paid-In
Capital
Class A
Treasury
Stock
Other
Retained
Comprehensive
Earnings
Income (Loss)
Mastercard
Incorporated
Non-
Stockholders' Controlling
Equity
Interests
Class A Class B
Total
Equity
$ 4,580
4580
$(25,750) $27,283 $
$25.750) $278 79 ċ
(718) $
5205 $
5,395 $
72 € 541
23 $ 
5,418
8,118
8,118
-
(in millions, except per share data)
Common Stock
Accumulated
income (loss)
$
37,669 $
33,584
The accompanying notes are an integral part of these consolidated financial statements.
MASTERCARD 2021 FORM 10-K 65
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statement of Changes in Equity
Stockholders' Equity
Balance at December
31, 2018
Net income
Activity related to
non-controlling
interests
Redeemable non-
controlling interest
adjustments
Other comprehensive
8 - - - - - -- 1 1
Dividends paid
Earnings Income (Loss)
38,747
Settlement obligations
Accrued expenses
Long-term taxes payable
100
26
(42)
(568)
(1,242)
Accounts payable
477
(114)
1,475
(52)
(37)
2
Net change in other assets and liabilities
Net cash provided by operating activities
Investing Activities
1,355
254
290
177
(86)
(246)
(87)
(2)
(202)
Settlement assets
Prepaid expenses
Accrued litigation and legal settlements
326
390
(444)
(2,087)
(1,552)
(1,661)
(1)
(73)
(662)
Restricted security deposits held for customers
1,288
316
133
9,463
(407)
(339)
(422)
Capitalized software
Purchases of equity investments
(407)
(369)
(306)
Purchases of property and equipment
(228)
(467)
Proceeds from sales of equity investments
186
Acquisition of businesses, net of cash acquired
Settlement of interest rate derivative contracts
Other investing activities
Net cash used in investing activities
Financing Activities
(214)
383
121
296
7,224
8,183
Purchases of investment securities available-for-sale
(389)
(220)
(643)
Purchases of investments held-to-maturity
(294)
(198)
(215)
Proceeds from sales of investment securities available-for-sale
83
361
1,098
Proceeds from maturities of investment securities available-for-sale
291
140
376
Proceeds from maturities of investments held-to-maturity
(397)
(in millions, except per share data)
24
36
payments
Balance at December
31, 2021
----- (129)
(1,781)
(5)
(129)
(129)
(1,781)
Share-based
(1,781)
(5,934)
- 205
$
-
-
$ 5,061 $(42,588) $45,648 $
(809) $
7,312 $
(5,934)
71 $ 7,383
Purchases of treasury
stock
income (loss)
(680)
(36,658)
- - 8,687 -
Mastercard
Incorporated
Non-
Stockholders' Controlling Total
Equity
Interests Equity
6,391
97
6,488
Dividends
8,687 - 8,687
(122)
|
(9)
(122)
(17)
(139)
SE ---- (5) - (5)
Other comprehensive
------- (9)
--- (5,934)
- - 201 4 -- 205
The accompanying notes are an integral part of these consolidated financial statements.
8,687
$ 6,411
$ 8,118
1,371
1,072
1,141
726
580
$
522
(30)
(167)
273
254
250
(69)
73
(7)
(645)
(in millions)
2019
2020
40
MASTERCARD 2021 FORM 10-K 67
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statement of Cash Flows
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of customer and merchant incentives
Depreciation and amortization
(Gains) losses on equity investments, net
Share-based compensation
Deferred income taxes
Other
Changes in operating assets and liabilities:
Accounts receivable
Income taxes receivable
For the Years Ended December 31,
2021
14
1,873
MASTERCARD 2021 FORM 10-K 69
1,696
54
41
14
143
2,071
237
395
2,842
844
$
1,076
11
48
5,222
1,112
1,716
112
15
121
398
15
23
6
253
MASTERCARD 2021 FORM 10-K
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is evaluating and finalizing the purchase accounting for the businesses acquired during 2021. In 2021, the Company
finalized the purchase accounting for businesses acquired during 2020. The estimated and final fair values of the purchase price
allocations in aggregate, as of the acquisition dates, are noted below for the years ended December 31.
Assets:
Cash and cash equivalents
Other current assets
Other intangible assets
Goodwill
$
Other assets
Liabilities:
Other current liabilities
Deferred income taxes
Other liabilities
Total liabilities
Net assets acquired
2021
2020
(in millions)
2019
Total assets
52
12
8
11.7
6.3
7.7
1,614
114
178
19.2
12.0
12.6
199
24
2,071 $
1
237 $
18
7.1
1.0
5.0
395
17.5
9.0
$
122 $
433 $
Weighted-Average Useful Life
(in years)
32
522
46
205
$
4,700 $
1,066 $
1,511
The following table summarizes the identified intangible assets acquired during the years ended December 31:
Developed technologies
Customer relationships
Other
Other intangible assets
2021
2020
2019
2021
2020
2019
Acquisition Date Fair Value
(in millions)
76
9.7
Among the businesses acquired in 2020, the largest acquisition relates to Finicity Corporation ("Finicity"), an open-banking provider,
headquartered in Salt Lake City, Utah. On November 18, 2020, Mastercard acquired 100% equity interest in Finicity for cash
consideration of $809 million. In addition, the Finicity sellers earned additional contingent consideration of $64 million upon
meeting 2021 revenue targets in accordance with terms of the purchase agreement. The additional businesses acquired in 2020 and
the businesses acquired in 2019 were not considered individually material to Mastercard.
On June 9, 2021, Mastercard acquired a 100% equity interest in Ekata, Inc. ("Ekata") for cash consideration of $861 million, based on
an $850 million enterprise value, adjusted for cash and net working capital at closing. The acquisition of Ekata is expected to
broaden the Company's digital identity verification capabilities. The residual value allocated to goodwill is primarily attributable to
the synergies expected to arise after the acquisition date and none of the goodwill is expected to be deductible for local tax
purposes.
Investment securities - The Company classifies investments as available-for-sale or held-to-maturity at the date of acquisition.
• Available-for-sale debt securities:
•
о
Investments in debt securities that are available to meet the Company's current operational needs are classified as current
assets and the securities that are not available for current operational needs are classified as non-current assets on the
consolidated balance sheet.
The debt securities are carried at fair value, with unrealized gains and losses, net of tax, recorded as a separate component
of accumulated other comprehensive income (loss) on the consolidated statement of comprehensive income. Net realized
gains and losses on debt securities are recognized in investment income on the consolidated statement of operations. The
specific identification method is used to determine realized gains and losses.
The Company evaluates its debt securities for impairment on an ongoing basis. When there has been a decline in fair value
of a debt security below the amortized cost basis, the Company recognizes an impairment if: (1) it has the intent to sell the
security; (2) it is more likely than not that it will be required to sell the security before recovery of the amortized cost basis;
or (3) it does not expect to recover the entire amortized cost basis of the security. The credit loss component of the
impairment is recognized as an allowance and recorded in other income (expense), net on the consolidated statement of
operations while the non-credit related loss remains in accumulated other comprehensive income (loss) until realized from
a sale or subsequent impairment.
Held-to-maturity securities:
Time deposits - The Company classifies time deposits with original maturities greater than three months as held-to-
maturity. Held-to-maturity securities that mature within one year are classified as current assets within investments on the
consolidated balance sheet while held-to-maturity securities with maturities of greater than one year are classified as other
assets. Time deposits are carried at amortized cost on the consolidated balance sheet and are intended to be held until
maturity.
22
Certain business combinations involve the potential for future payment of consideration that is
contingent upon the achievement of performance milestones. These liabilities are classified within Level 3 of the Valuation
Hierarchy as the inputs used to measure fair value are unobservable and require management's judgment. The fair value of the
contingent consideration at the acquisition date and subsequent periods is determined utilizing an income approach based on a
Monte Carlo technique and is recorded in other current liabilities and other liabilities on the consolidated balance sheet. Changes to
projected performance milestones of the acquired businesses could result in a higher or lower contingent consideration liability. The
changes in fair value as a result of updated assumptions are recorded in general and administrative expenses on the consolidated
statement of operations.
72
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equity investments - The Company holds equity securities of publicly traded and privately held companies.
.
°
Marketable equity securities - Marketable equity securities are strategic investments in publicly traded companies and are
measured at fair value using quoted prices in their respective active markets with changes recorded through gains (losses) on
equity investments, net on the consolidated statement of operations. Securities that are not for use in current operations are
classified in other assets on the consolidated balance sheet.
Nonmarketable equity investments - The Company's nonmarketable equity investments, which are reported in other assets on
the consolidated balance sheet, include investments in privately held companies without readily determinable market values.
The Company uses discounted cash flows and market assumptions to estimate the fair value of its nonmarketable equity
investments when certain events or circumstances indicate that impairment may exist. The Company's nonmarketable equity
investments are accounted for under the measurement alternative method or equity method.
Measurement alternative method - The Company accounts for investments in common stock or in-substance common stock
under the measurement alternative method of accounting when it does not exercise significant influence, generally when it
holds less than 20% ownership in the entity or when the interest in a limited partnership or limited liability company is less
than 5% and the Company has no significant influence over the operations of the investee. Investments in companies that
Mastercard does not control, but that are not in the form of common stock or in-substance common stock, are also
accounted for under the measurement alternative method of accounting. Measurement alternative investments are
measured at cost, less any impairment and adjusted for changes resulting from observable price changes in orderly
transactions for identical or similar investments of the same issuer. Fair value adjustments, as well as impairments, are
included in gains (losses) on equity investments, net on the consolidated statement of operations.
Equity method - The Company accounts for investments in common stock or in-substance common stock under the equity
method of accounting when it has the ability to exercise significant influence over the operations of the investee, generally
when it holds between 20% and 50% ownership in the entity. The excess of the cost over the underlying net equity of
investments accounted for under the equity method is allocated to identifiable tangible and intangible assets and liabilities
based on fair values at the date of acquisition. The amortization of the excess of the cost over the underlying net equity of
investments and Mastercard's share of net earnings or losses of entities accounted for under the equity method of
accounting is included in other income (expense), net on the consolidated statement of operations.
MASTERCARD 2021 FORM 10-K
In addition, investments in flow-through entities such as limited partnerships and limited liability companies are also
accounted for under the equity method when the Company has the ability to exercise significant influence over the
operations of the investee, generally when the investment ownership percentage is equal to or greater than 5% of the
outstanding ownership interest. The Company's share of net earnings or losses for these investments are included in gains
(losses) on equity investments, net on the consolidated statement of operations.
Contingent consideration
•
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-lived assets, other than goodwill and indefinite-lived intangible assets, are tested for impairment whenever events or
circumstances indicate that their carrying amount may not be recoverable. If the carrying value of the asset cannot be recovered
from estimated future cash flows, undiscounted and without interest, the fair value of the asset is calculated using the present value
of estimated net future cash flows. If the carrying amount of the asset exceeds its fair value, an impairment is recorded.
Impairment charges, if any, are recorded in general and administrative expenses on the consolidated statement of operations.
Litigation - The Company is a party to certain legal and regulatory proceedings with respect to a variety of matters. The Company
evaluates the likelihood of an unfavorable outcome of all legal or regulatory proceedings to which it is a party and accrues a loss
contingency when the loss is probable and reasonably estimable. Loss contingencies are recorded in provision for litigation on the
consolidated statement of operations. These judgments are subjective based on the status of the legal or regulatory proceedings,
the merits of its defenses and consultation with in-house and external legal counsel. Legal costs are expensed as incurred and
recorded in general and administrative expenses on the consolidated statement of operations.
Settlement and other risk management - Mastercard's rules guarantee the settlement of many of the transactions between its
customers. Settlement exposure is the outstanding settlement risk to customers under Mastercard's rules due to the difference in
timing between the payment transaction date and subsequent settlement. While the term and amount of the guarantee are
unlimited, the duration of settlement exposure is short term and typically limited to a few days.
The Company also enters into agreements in the ordinary course of business under which the Company agrees to indemnify third
parties against damages, losses and expenses incurred in connection with legal and other proceedings arising from relationships or
transactions with the Company. As the extent of the Company's obligations under these agreements depends entirely upon the
occurrence of future events, the Company's potential future liability under these agreements is not determinable.
The Company accounts for each of its guarantees by recording the guarantee at its fair value at the inception or modification date
through earnings.
Income taxes - The Company follows an asset and liability based approach in accounting for income taxes as required under GAAP.
Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences
between the financial statement carrying amounts and income tax bases of assets and liabilities. Deferred income taxes are
displayed separately as noncurrent assets and liabilities on the consolidated balance sheet. Valuation allowances are provided
against assets which are not more likely than not to be realized. The Company recognizes all material tax positions, including
uncertain tax positions in which it is more likely than not that the position will be sustained based on its technical merits and if
challenged by the relevant taxing authorities. At each balance sheet date, unresolved uncertain tax positions are reassessed to
determine whether subsequent developments require a change in the amount of recognized tax benefit. The allowance for
uncertain tax positions is recorded in other current and noncurrent liabilities on the consolidated balance sheet. The Company
records interest expense related to income tax matters as interest expense on the consolidated statement of operations. The
Company includes penalties related to income tax matters in the income tax provision.
Cash and cash equivalents - Cash and cash equivalents include certain investments with daily liquidity and with an original maturity
of three months or less from the date of purchase. Cash equivalents are recorded at cost, which approximates fair value.
Restricted cash - The Company classifies cash and cash equivalents as restricted when it is unavailable for withdrawal or use in its
general operations. The Company has the following types of restricted cash and restricted cash equivalents which are included in
the reconciliation of beginning-of-period and end-of-period amounts shown on the consolidated statement of cash flows:
.
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted
prices for identical or similar assets and liabilities in inactive markets and inputs that are observable for the asset or liability
Level 3 - inputs to the valuation methodology are unobservable and cannot be directly corroborated by observable market data
The Company's financial assets and liabilities measured at fair value on a recurring basis include investment securities available for
sale, marketable securities, derivative instruments and deferred compensation. The Company's financial assets and liabilities
measured at fair value on a non-recurring basis include nonmarketable securities, debt and other financial instruments. The
Company's non-financial assets measured at fair value on a non-recurring basis include property, equipment and right-of-use assets,
goodwill and other intangible assets and are subject to fair value adjustments in certain circumstances, such as when there is
evidence of impairment.
.
Restricted cash for litigation settlement - The Company has restricted cash for litigation within a qualified settlement fund related
to the settlement agreement for the U.S. merchant class litigation. The funds continue to be restricted for payments until the
litigation matter is resolved.
Restricted security deposits held for customers The Company requires certain customers to enter into risk mitigation
arrangements, including cash collateral and/or other forms of credit enhancement such as letters of credit and guarantees, for
settlement of their transactions. Certain risk mitigation arrangements for settlement, such as standby letters of credit and bank
guarantees, are not recorded on the consolidated balance sheet. The Company also holds cash deposits and certificates of
deposit from certain customers as collateral for settlement of their transactions, which are recorded as assets on the
consolidated balance sheet. These assets are fully offset by corresponding liabilities included on the consolidated balance sheet.
These security deposits are typically held for the duration of the agreement with the customers.
Other restricted cash balances - The Company has other restricted cash balances which include contractually restricted deposits,
as well as cash balances that are restricted based on the Company's intention with regard to usage. These funds are classified on
the consolidated balance sheet within prepaid expenses and other current assets and other assets.
MASTERCARD 2021 FORM 10-K 71
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value - The Company measures certain financial assets and liabilities at fair value on a recurring basis by estimating the price
that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants.
The Company also measures certain financial and non-financial assets and liabilities at fair value on a non-recurring basis, when a
change in fair value or impairment is evidenced. The Company classifies these recurring and non-recurring fair value measurements
into a three-level hierarchy ("Valuation Hierarchy").
The Valuation Hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement
date. A financial instrument's categorization within the Valuation Hierarchy is based upon the lowest level of input that is significant
to the fair value measurement. The three levels of the Valuation Hierarchy are as follows:
•
•
Derivative and hedging instruments - The Company's derivative financial instruments are recorded as either assets or liabilities on
the balance sheet and measured at fair value. The Company's foreign exchange and interest rate derivative contracts are included in
Level 2 of the Valuation Hierarchy as the fair value of the contracts are based on inputs, which are observable based on broker
quotes for the same or similar instruments. The Company does not enter into derivative instruments for trading or speculative
purposes. For derivatives that are not designated as hedging instruments, realized and unrealized gains and losses from the change
in fair value of the derivatives are recognized in current earnings.
The Company's derivatives that are designated as hedging instruments are required to meet established accounting criteria. In
addition, an effectiveness assessment is required to demonstrate that the derivative is expected to be highly effective at offsetting
changes in fair value or cash flows of the underlying exposure both at inception of the hedging relationship and on an ongoing basis.
The method of assessing hedge effectiveness and measuring hedge results is formally documented at hedge inception and assessed
at least quarterly throughout the designated hedge period.
The Company may designate derivative instruments as cash flow, fair value and net investment hedges, as follows:
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension and other postretirement plans - The Company recognizes the funded status of its single-employer defined benefit pension
plans and postretirement plans as assets or liabilities on its consolidated balance sheet and recognizes changes in the funded status
in the year in which the changes occur through accumulated other comprehensive income (loss). The funded status is measured as
the difference between the fair value of plan assets and the projected benefit obligation at December 31, the measurement date.
Overfunded plans, if any, are aggregated and recorded in other assets, while underfunded plans are aggregated and recorded as
accrued expenses and other liabilities on the consolidated balance sheet.
Net periodic pension and postretirement benefit cost/(income), excluding the service cost component, is recognized in other income
(expense), net on the consolidated statement of operations. These costs include interest cost, expected return on plan assets,
amortization of prior service costs or credits and gains or losses previously recognized as a component of accumulated other
comprehensive income (loss). The service cost component is recognized in general and administrative expenses on the consolidated
statement of operations.
Defined contribution plans - The Company's contributions to defined contribution plans are recorded as employees render service to
the Company. The charge is recorded in general and administrative expenses on the consolidated statement of operations.
Advertising and marketing - Expenses incurred to promote Mastercard's brand, products and services are recognized in advertising
and marketing on the consolidated statement of operations. The timing of recognition is dependent on the type of advertising or
marketing expense.
Foreign currency remeasurement and translation - Monetary assets and liabilities are remeasured to functional currencies using
current exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are recorded at historical exchange
rates. Revenue and expense accounts are remeasured at the weighted-average exchange rate for the period. Resulting exchange
gains and losses related to remeasurement are included in general and administrative expenses on the consolidated statement of
operations.
Where a non-U.S. currency is the functional currency, translation from that functional currency to U.S. dollars is performed for
balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using
a weighted-average exchange rate for the period. Resulting translation adjustments are reported as a component of accumulated
other comprehensive income (loss).
Treasury stock - The Company records the repurchase of shares of its common stock at cost on the trade date of the transaction.
These shares are considered treasury stock, which is a reduction to stockholders' equity. Treasury stock is included in authorized
and issued shares but excluded from outstanding shares.
Share-based payments - The Company measures share-based compensation expense at the grant date, based on the estimated fair
value of the award and uses the straight-line method of attribution, net of estimated forfeitures, for expensing awards over the
requisite employee service period. The Company estimates the fair value of its non-qualified stock option awards ("Options") using a
Black-Scholes valuation model. The fair value of restricted stock units ("RSUs") is determined and fixed on the grant date based on
the Company's stock price, adjusted for the exclusion of dividend equivalents. The Monte Carlo simulation valuation model is used
to determine the grant date fair value of performance stock units ("PSUS") granted. All share-based compensation expenses are
recorded in general and administrative expenses on the consolidated statement of operations.
MASTERCARD 2021 FORM 10-K
Redeemable non-controlling interests - The Company's business combinations may include provisions allowing non-controlling equity
owners the ability to require the Company to purchase additional interests in the subsidiary at their discretion. The interests are
initially recorded at fair value and in subsequent reporting periods are accreted or adjusted to the estimated redemption value. The
adjustments to the redemption value are recorded to retained earnings or additional paid-in capital on the consolidated balance
sheet. The redeemable non-controlling interests are considered temporary and reported outside of permanent equity on the
consolidated balance sheet at the greater of the carrying amount adjusted for the non-controlling interest's share of net income
(loss) or its redemption value.
MASTERCARD 2021 FORM 10-K 75
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting pronouncements not yet adopted
-
Accounting for contract assets and contract liabilities in a business combination In October 2021, the Financial Accounting
Standards Board issued accounting guidance that requires contract assets and contract liabilities (i.e., deferred revenue) acquired in
a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue
from Contracts with Customers. The guidance is effective for periods beginning after December 15, 2022 with early adoption
permitted. The Company will early adopt this guidance effective January 1, 2022 and does not expect the impacts to be material.
Note 2. Acquisitions
In 2021, 2020 and 2019, the Company acquired several businesses for total consideration of $4.7 billion, $1.1 billion and $1.5 billion,
respectively, representing both cash and contingent consideration. These acquisitions align with the Company's strategy to grow,
diversify and build the Company's business. Refer to Note 1 (Summary of Significant Accounting Policies) for the valuation
techniques Mastercard utilizes to fair value the respective components of business combinations and contingent consideration. The
residual value allocated to goodwill is primarily attributable to the synergies expected to arise after the acquisition date and a
majority of the goodwill is not expected to be deductible for local tax purposes.
On March 5, 2021, Mastercard acquired a majority of the Corporate Services business of Nets Denmark A/S ("Nets") for €3.0 billion
(approximately $3.6 billion as of the date of acquisition) in cash consideration based on a €2.85 billion enterprise value, adjusted for
cash and net working capital at closing. The business acquired is primarily comprised of clearing and instant payment services and e-
billing solutions. In relation to this acquisition, the Company's preliminary estimate of net assets acquired primarily relates to
intangible assets, including goodwill of $2.1 billion, of which $0.8 billion is expected to be deductible for local tax purposes. The
goodwill arising from this acquisition is primarily attributable to the synergies expected to arise through geographic, product and
customer expansion, the underlying technology and workforce acquired.
Earnings per share - The Company calculates basic earnings per share ("EPS") by dividing net income by the weighted-average
number of common shares outstanding during the year. Diluted EPS is calculated by dividing net income by the weighted-average
number of common shares outstanding during the year, adjusted for the potentially dilutive effect of stock options and unvested
stock units using the treasury stock method. The Company may be required to calculate EPS using the two-class method as a result
of its redeemable non-controlling interests. If redemption value exceeds the fair value of the redeemable non-controlling interests,
the excess would be a reduction to net income for the EPS calculation.
74
The Company excludes variable lease payments in measuring ROU assets and lease liabilities, other than those that depend on an
index, a rate or are in-substance fixed payments. Lease and nonlease components are generally accounted for separately. When
available, consideration is allocated to the separate lease and nonlease components in a lease contract on a relative standalone price
basis using observable standalone prices.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make
lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the
present value of lease payments over the lease term. In addition, ROU assets include initial direct costs incurred by the lessee as
well as any lease payments made at or before the commencement date, and exclude lease incentives. As most of the Company's
leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the
commencement date in determining the present value of lease payments. The incremental borrowing rate is determined by using
the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a
similar term and in a similar economic environment. Lease terms include options to extend or terminate the lease when it is
reasonably certain that the Company will exercise that option. Leases with a term of one year or less are excluded from ROU assets
and liabilities.
•
Cash flow hedges - Fair value adjustments to derivative instruments are recorded, net of tax, in other comprehensive income
(loss) on the consolidated statement of comprehensive income. Any gains and losses deferred in accumulated other
comprehensive income (loss) are subsequently reclassified to the corresponding line item on the consolidated statement of
operations when the underlying hedged transactions impact earnings. For hedges that are no longer deemed highly effective,
hedge accounting is discontinued prospectively, and any gains and losses remaining in accumulated other comprehensive
income (loss) are reclassified to earnings when the underlying forecasted transaction occurs. If it is probable that the
forecasted transaction will no longer occur, the associated gains or losses in accumulated other comprehensive income (loss)
are reclassified to the corresponding line item on the consolidated statement of operations in current earnings.
MASTERCARD 2021 FORM 10-K 73
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value hedges - Changes in the fair value of derivative instruments are recorded in current-period earnings, along with the
gain or loss on the hedged asset or liability ("hedged item") that is attributable to the hedged risk. All amounts recognized in
earnings are recorded to the corresponding line item on the consolidated statement of operations as the earnings effect of the
hedged item. Hedged items are measured on the consolidated balance sheet at their carrying amount adjusted for any changes
in fair value attributable to the hedged risk (“basis adjustments"). The Company defers the amortization of any basis
adjustments until the end of the derivative instrument's term. If the hedge designation is discontinued for reasons other than
derecognition of the hedged item, the remaining basis adjustments are amortized in accordance with applicable GAAP for the
hedged item.
Net investment hedges - The Company has numerous investments in foreign subsidiaries. The net assets of these subsidiaries
are exposed to volatility in foreign currency exchange rates. The Company may use foreign currency denominated debt and/or
derivative instruments to hedge a portion of its net investment in foreign operations against adverse movements in exchange
rates. The effective portion of the foreign currency gains and losses related to the hedging instruments are reported in
accumulated other comprehensive income (loss) on the consolidated balance sheet as a cumulative translation adjustment
component of equity. Gains and losses in accumulated other comprehensive income (loss) are reclassified to earnings only if
the Company sells or substantially liquidates its net investments in foreign subsidiaries. Amounts excluded from effectiveness
testing of net investment hedges are recognized in earnings over the life of the hedging instrument. The Company evaluates
the effectiveness of the net investment hedge each quarter.
Settlement assets/obligations
-
The Company operates systems for settling payment transactions among participants in the
payments ecosystem in which the Company operates. Settlement is generally completed on a same-day basis, however, in some
circumstances, funds may not settle until subsequent business days. In addition, the Company may receive or post funds in advance
of transactions related to certain payment capabilities over its multi-rail payments network. The Company classifies the balances
arising from these various activities as settlement assets and settlement obligations.
Property, equipment and right-of-use assets - Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the
assets. Depreciation of leasehold improvements and amortization of finance leases is included in depreciation and amortization
expense on the consolidated statement of operations. Operating lease amortization expense is included in general and
administrative expenses on the consolidated statement of operations.
The useful lives of the Company's assets are as follows:
Asset Category
Buildings
Building equipment
Furniture and fixtures and equipment
Leasehold improvements
Right-of-use assets
Estimated Useful Life
30 years
10-15 years
3-5 years
Shorter of life of improvement or lease term
Shorter of life of the asset or lease term
The Company determines if a contract is, or contains, a lease at contract inception. The Company's right-of-use ("ROU") assets are
primarily related to operating leases for office space, automobiles and other equipment. Leases are included in property, equipment
and right-of-use assets, other current liabilities and other liabilities on the consolidated balance sheet.
Mastercard acquired additional businesses in 2021 for consideration of $272 million. These businesses were not considered
individually material to Mastercard.
Proforma information related to these acquisitions was not included because the impact on the Company's consolidated results of
operations was not considered to be material.
PART II
As of December 31, 2021, Mastercard has entered into a definitive agreement to acquire Dynamic Yield LTD. This acquisition is
expected to close in the second quarter of 2022.
355
180
143
1 Revenue recognized from performance obligations satisfied in 2021, 2020 and 2019 was $1.5 billion, $1.1 billion and $994 million, respectively.
The Company's remaining performance periods for its contracts with customers for its payments network services are typically long-
term in nature (generally up to 10 years). As a payments network service provider, the Company provides its customers with
continuous access to its global payments network and stands ready to provide transaction processing and related services over the
contractual term. Consideration is variable as the Company generates volume- and transaction-based revenues from assessing its
customers' current period activity. The Company has elected the optional exemption to not disclose the remaining performance
obligations related to its payments network services. The Company also earns revenues primarily from other value-added services
comprised of both batch and real-time account-based payments services, cyber and intelligence solutions, consulting fees, loyalty
programs, gateway services, processing, and other payment-related products and services. At December 31, 2021, the estimated
MASTERCARD 2021 FORM 10-K 79
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
aggregate consideration allocated to unsatisfied performance obligations for these other value-added services is $1.3 billion, which
is expected to be recognized through 2024. The estimated remaining performance obligations related to these revenues are subject
to change and are affected by several factors, including modifications and terminations and are not expected to be material to any
future annual period.
Note 4. Earnings Per Share
482
The components of basic and diluted EPS for common shares for each of the years ended December 31 were as follows:
Net income
Denominator
Basic weighted-average shares outstanding
Dilutive stock options and stock units
Diluted weighted-average shares outstanding 1
Earnings per Share
Basic
Diluted
2021
Numerator
2020
Other current liabilities
Other liabilities
Deferred revenue
176
171
$
18,884 $ 15,301 $ 16,883
The Company's customers are generally billed weekly, however the frequency is dependent upon the nature of the performance
obligation and the underlying contractual terms. The Company does not typically offer extended payment terms to customers. The
following table sets forth the location of the amounts recognized on the consolidated balance sheet from contracts with customers
at December 31:
Receivables from contracts with customers
Accounts receivable
Contract assets
Prepaid expenses and other current assets
1
Other assets
2020
(in millions)
$
2,829 $
2,505
134
59
487
245
2021
2019
(in millions, except per share data)
$
Cash and cash equivalents
Restricted cash and restricted cash equivalents
Restricted cash for litigation settlement
Restricted security deposits held for customers
Prepaid expenses and other current assets
2021
2020
$
(in millions)
7,421 $
10,113
586
The following table provides a reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents reported on
the consolidated balance sheet that total to the amounts shown on the consolidated statement of cash flows for the years ended
December 31:
586
1,696
22
24
Cash, cash equivalents, restricted cash and restricted cash equivalents
$
9,902 $
12,419
80 MASTERCARD 2021 FORM 10-K
Pending Acquisition
1,873
Note 5. Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
For the years presented, the calculation of diluted EPS excluded a minimal amount of anti-dilutive share-based payment awards.
1
8,687 $
6,411 $
8,118
988
1,002
1,017
4
4
5
992
1,006
1,022
8.79
6.40
7.98
$
8.76
$
$
7.94
Note: Table may not sum due to rounding.
222
10,869
6.37
12,068
о
о
Authorization, which is the process by which a transaction is routed to the issuer for approval. In certain circumstances, such
as when the issuer's systems are unavailable or cannot be contacted, Mastercard or others approve such transactions on
behalf of the issuer in accordance with either the issuer's instructions or applicable rules (also known as "stand-in").
Clearing, which is the determination and exchange of financial transaction information between issuers and acquirers after a
transaction has been successfully conducted at the point of interaction. Transactions are cleared among customers through
Mastercard's central and regional processing systems.
Settlement, which facilitates the exchange of funds between parties.
Connectivity fees are charged to issuers, acquirers and other financial institutions for network access, equipment and the
transmission of authorization and settlement messages. These fees are based on the size of the data being transmitted and the
number of connections to the Company's network.
Other processing fees include issuer and acquirer processing solutions, payment gateways for e-commerce merchants, mobile
gateways for mobile-initiated transactions, and safety and security.
Other revenues consist of value-added products and services that are often sold with the Company's payment service offerings and
are recognized in the period in which the related services are performed or transactions occur. Other revenues include the
following:
•
•
Switched transaction revenue is generated from the following products and services:
•
Cyber and intelligence solutions fees are for products and services offered to prevent, detect and respond to fraud and to ensure
the safety of transactions made primarily on Mastercard products.
Data analytics and consulting fees are for insights, analytics, and test and learn capabilities as well as Mastercard's advisory and
managed services.
Loyalty and rewards solutions fees are charged to issuers for benefits provided directly to consumers with Mastercard-branded
cards, such as access to a global airline lounge network, global and local concierge services, individual insurance coverages,
emergency card replacement, emergency cash advance services and a 24-hour cardholder service center. Loyalty and reward
solution fees also include rewards campaigns and management services.
Program management services provided to prepaid card issuers consist of foreign exchange margin, commissions, load fees and
ATM withdrawal fees paid by cardholders on the sale and encashment of prepaid cards.
•
Batch and real-time account-based payment services relating to ACH transactions and other ACH related services.
•
Other payment-related products and services and platforms, including account and transaction enhancement services, open
banking and digital identity solutions, rules compliance and publications.
78 MASTERCARD 2021 FORM 10-K
•
•
•
.
Note 3. Revenue
9,701
Mastercard's core network involves four participants in addition to the Company: account holders (a person or entity who holds a
card or uses another device enabled for payment), issuers (the account holders' financial institutions), merchants and acquirers (the
merchants' financial institutions). Revenue from contracts with customers is recognized when services are performed in an amount
that reflects the consideration to which the Company expects to be entitled to in exchange for those services. Revenue recognized
from domestic assessments, cross-border volume fees and transaction processing are derived from Mastercard's payments network
services. Revenue is primarily generated by charging fees to issuers, acquirers and other stakeholders for providing switching
services, as well as by assessing customers based primarily on the dollar volume of activity, or GDV, on the products that carry the
Company's brands. Revenue is generally derived from information accumulated by Mastercard's systems or reported by customers.
In addition, the Company generates other revenues from value-added products and services, often integrated and sold with the
Company's payment offerings, that are recognized as revenue in the period in which the related transactions occur or services are
performed.
MASTERCARD 2021 FORM 10-K 77
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The price structure for Mastercard's products and services is dependent on the nature of volumes, types of transactions and type of
products and services offered to customers. Net revenue can be impacted by the following:
• domestic or cross-border transactions
•
•
•
•
geographic region or country in which the transaction occurs
volumes/transactions subject to tiered rates
switched or not switched by the Company
•
amount of rebates and incentives provided to customers
The Company classifies its net revenue into the following five categories:
Domestic assessments are fees charged to issuers and acquirers based primarily on the dollar volume of activity on cards and other
devices that carry the Company's brands where the merchant country and the country of issuance are the same. Revenue from
domestic assessments is recorded as revenue in the period it is earned, which is when the related volume is generated on the cards
or other devices that carry the Company's brands.
Cross-border volume fees are charged to issuers and acquirers based primarily on the dollar volume of activity on cards and other
devices that carry the Company's brands where the merchant country and the country of issuance are different. Revenue from
cross-border volume is recorded as revenue in the period it is earned, which is when the related volume is generated on the cards or
other devices that carry the Company's brands.
Transaction processing revenue is recognized for both domestic and cross-border transactions in the period in which the related
transactions occur. Transaction processing includes the following:
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
amount of usage of the Company's other products or services
The Company's disaggregated net revenue by source and geographic region were as follows for the years ended December 31:
23,616
24,980
Rebates and incentives (contra-revenue)
(10,961)
(8,315)
(8,097)
Net revenue
$
18,884 $
15,301 $ 16,883
Net revenue by geographic region:
International Markets
Other
1
Net revenue
1 Includes revenues managed by corporate functions.
$
6,594 $
Rebates and incentives (contra-revenue) are provided to customers and can be either fixed or variable-based. Fixed incentives
typically represent payments to a customer directly related to entering into an agreement, which are generally capitalized and
amortized over the life of the agreement on a straight-line basis as a reduction of gross revenue. Variable rebates and incentives are
typically tied to customer performance, such as volume thresholds, and are recorded as a reduction of gross revenue primarily when
volume- and transaction-based revenues are recognized over the contractual term.
5,843
5,424
29,845
Gross revenue
North American Markets
4,717
2020
2021
4,124
2019
(in millions)
Revenue by source:
Domestic assessments
Transaction processing
$
8,158 $
6,656 $
Cross-border volume fees
4,664
3,512
6,224
5,606
10,799
8,731
8,469
6,781
Other revenues
Equipment
522
615 $
$
PART II
2020
(in millions)
2021
Property, equipment and right-of-use assets consisted of the following at December 31:
Furniture and fixtures
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Property, Equipment and Right-of-Use Assets
Building, building equipment and land
Leasehold improvements
380
Property, equipment and right-of-use assets
$
(1,390)
MASTERCARD 2021 FORM 10-K 85
(1,614)
3,292
3,521
970
983
371
99
96
1,321
1,907 $
1,456
Less: Accumulated depreciation and amortization
Property, equipment and right-of-use assets, net
Operating lease right-of-use assets
Customer and merchant incentives represent payments made to customers and merchants under business agreements. Payments
directly related to entering into such an agreement are generally deferred and amortized over the life of the agreement.
1,086
6,994 $
92
(in millions)
1,326 $
2020
Total other assets
Other
Income taxes receivable
78
Equity investments
Other assets consisted of the following at December 31:
Total prepaid expenses and other current assets
Other
1,902
Prepaid income taxes
Customer and merchant incentives
Customer and merchant incentives
5,365
853
2,271 $
$
420
717
553
645
1,172
719
1,834
3,798 $
$
(in millions)
2020
2021
1,883
3,220
Depreciation and amortization expense for the above property, equipment and right-of-use assets was $424 million, $400 million
and $336 million for 2021, 2020 and 2019, respectively.
Beginning balance
Balance sheet location
844
4,021
4,960 $
2,842
$
Foreign currency translation
Additions
(140)
(in millions)
2021
The changes in the carrying amount of goodwill for the years ended December 31 were as follows:
Note 11. Goodwill
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
772
2020
$
95
7,662 $
Amount
Prepaid expenses and other current assets consisted of the following at December 31:
Net Carrying
2020
Accumulated
Amortization
Gross Carrying
Amount
Net Carrying
Amount
$
2021
Accumulated
Amortization
Finite-lived intangible assets
The following table sets forth net intangible assets, other than goodwill, at December 31:
Note 12. Other Intangible Assets
The Company performed its annual qualitative assessment of goodwill during the fourth quarter of 2021 and determined a
quantitative assessment was not necessary. The Company concluded that goodwill was not impaired and had no accumulated
impairment losses at December 31, 2021.
Ending balance
4,960
Gross Carrying
Amount
Operating lease ROU assets and operating lease liabilities are recorded on the consolidated balance sheet as follows at
December 31:
(92)
322
Operating lease amortization expense for 2021, 2020 and 2019 was $122 million, $123 million and $99 million, respectively. As of
December 31, 2021 and 2020, the weighted-average remaining lease term of operating leases was 8.8 years and 9.1 years and the
weighted-average discount rate for operating leases was 2.6% and 2.7%, respectively.
726
645
125
127
748
The following table summarizes the maturity of the Company's operating lease liabilities at December 31, 2021 based on lease term:
671 $
(in millions)
2020
2021
Other liabilities
Other current liabilities
Property, equipment and right-of-use assets, net
$
864
Operating Leases
(in millions)
2023
75
83
109
130
145
$
2022
86 MASTERCARD 2021 FORM 10-K
Less: Interest
Total operating lease payments
Thereafter
2026
2025
2024
Present value of operating lease liabilities
Note 9. Prepaid Expenses and Other Assets
Assets
Other Financial Instruments
Corporate securities
Government and agency securities
Municipal securities
Investment securities available-for-
sale 1:
The distribution of the Company's financial instruments measured at fair value on a recurring basis within the Valuation Hierarchy
were as follows:
Financial Instruments - Recurring Measurements
Derivative instruments ²:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MASTERCARD 2021 FORM 10-K 83
The Company classifies its fair value measurements of financial instruments into a three-level hierarchy (the "Valuation Hierarchy").
Financial instruments are categorized for fair value measurement purposes as recurring or non-recurring in nature.
Note 8. Fair Value Measurements
(3)
(2) $
21
PART II
468 $
Foreign exchange contracts
Marketable securities 3:
Equity securities
Total
Markets
Other
Observable
in Active
Quoted
Prices
Significant
Unobservable
Inputs
(Level 3)
Interest rate contracts
Inputs
(Level 2)
Quoted
Prices
Other
Observable
December 31, 2021
Significant
Liabilities
Deferred compensation assets
Deferred compensation plan 4:
in Active
Markets
(Level 1)
(Level 1)
$
$
2020
PART II
696
1,207 $
157
255
539
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
952 $
2020
2021
82 MASTERCARD 2021 FORM 10-K
Total Nonmarketable securities
Equity method
(in millions)
(in millions)
(in millions)
The following table summarizes the total carrying value of the Company's Measurement alternative investments, including
cumulative unrealized gains and losses, at December 31:
(in millions)
$
2021
For the Years Ended December 31,
Downward adjustments (including impairment)
Upward adjustments
Unrealized gains and losses included in the carrying value of the Company's Measurement alternative investments still held as of
December 31, 2021 and 2020, were as follows:
952
2021
(10)
Carrying amount, end of period
Downward adjustments (including impairment)
Upward adjustments
Adjustments:
Initial cost basis
448
514
Certain other financial instruments are carried on the consolidated balance sheet at cost or amortized cost basis, which
approximates fair value due to their short-term, highly liquid nature. These instruments include cash and cash equivalents,
restricted cash, time deposits, accounts receivable, settlement assets, restricted security deposits held for customers, accounts
payable, settlement obligations and other accrued liabilities.
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
9 - - 89 81
100
$ 28
28 $
----
- $
- $ 15 $
- 8
89
8
Deferred compensation liabilities
Deferred compensation plan 5:
Interest rate contracts
Foreign exchange contracts
Derivative instruments ²:
-- 78
$ - $ 15 $
78
- - 81
2
The Company estimates the fair value of its long-term debt based on market quotes. These debt securities are classified as Level 2 of
the Valuation Hierarchy as they are not traded in active markets. At December 31, 2021, the carrying value and fair value of total
long-term debt (including the current portion) was $13.9 billion and $15.3 billion, respectively. At December 31, 2020, the carrying
value and fair value of long-term debt (including the current portion) was $12.7 billion and $14.8 billion, respectively. See Note 15
(Debt) for further details.
Debt
The Company's Nonmarketable securities are recorded at fair value on a non-recurring basis in periods after initial recognition under
the equity method or measurement alternative method. Nonmarketable securities are classified within Level 3 of the Valuation
Hierarchy due to the absence of quoted market prices, the inherent lack of liquidity and unobservable inputs used to measure fair
value that require management's judgment. The Company uses discounted cash flows and market assumptions to estimate the fair
value of its Nonmarketable securities when certain events or circumstances indicate that impairment may exist. See Note 7
(Investments) for further details.
Nonmarketable Securities
Financial Instruments - Non-Recurring Measurements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 The Company's U.S. government securities are classified within Level 1 of the Valuation Hierarchy as the fair values are based on unadjusted
quoted prices for identical assets in active markets. The fair value of the Company's available-for-sale municipal securities, non-U.S. government
and agency securities and corporate securities are based on observable inputs such as quoted prices, benchmark yields and issuer spreads for
similar assets in active markets and are therefore included in Level 2 of the Valuation Hierarchy.
PART II
The deferred compensation liabilities are measured at fair value based on the quoted prices of identical instruments to the investment vehicles
selected by the participants. These are included in other liabilities on the consolidated balance sheet.
5
4 The Company has a nonqualified deferred compensation plan where assets are invested primarily in mutual funds held in a rabbi trust, which is
restricted for payments to participants of the plan. The Company has elected to use the fair value option for these mutual funds, which are
measured using quoted prices of identical instruments in active markets and are included in prepaid expenses and other current assets on the
consolidated balance sheet.
The Company's Marketable securities are publicly held and classified within Level 1 of the Valuation Hierarchy as the fair values are based on
unadjusted quoted prices in their respective active markets.
The Company's foreign exchange and interest rate derivative asset and liability contracts have been classified within Level 2 of the Valuation
Hierarchy as the fair value is based on observable inputs such as broker quotes relating to foreign exchange for similar derivative instruments.
See Note 23 (Derivative and Hedging Instruments) for further details.
3
84 MASTERCARD 2021 FORM 10-K
December 31, 2020
Significant
89 - - 89
476
$
10
es
$ 2 $
2 $
210
$ 10
63
$
-
$
es
Total
(in millions)
35
-- 476
ཋ
26
627 .- - 627
1919
6
6.
8
247
98
- 247
214
214
-
- 214 -
64
38
-
Capitalized software
Postretirement Plan
Other
1
*Not applicable
Measurement alternative
Vocalink Plan
Non-U.S. Plans
Rate of compensation increase
$ (37)
Postretirement Plan
Non-U.S. Plans
Discount rate
obligations
Weighted-average assumptions used to determine end of year benefit
Balance at end of year
Prior service credit
Vocalink Plan
Net actuarial (gain) loss
1
$
2.75 %
0.70 %
1.55 %
0.90 %
1.75 %
945
(4)
es
es
$
-
(2)
22
$
es
13
$
2.50 %
Accumulated other comprehensive income consists of:
$ (38) $ 12 $
(18)
(17)
(7)
43
(6)
2
(4)
9
1
13
14
70
$
$ 531
9
$
4
(12)
$ (62) $ (70)
(4)
(4)
4
4
70
3
(4)
|| ± │6
8 1 2 7 R
62
604
596
23
$ 64
$ 604
1.50 %
3.20 %
Other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31
were as follows:
The service cost component is recognized in general and administrative expenses on the consolidated statement of operations. Net
periodic benefit cost, excluding the service cost component, is recognized in other income (expense) on the consolidated statement
of operations.
4 $ 7 $ 2 $ 2 $ 2
(1)
(1)
(1)
Current year actuarial loss (gain)
3 $
(1)-1---
Net periodic benefit cost
Amortization of prior service credit
2
2
2
$
13
Amortization of prior service credit
Total net periodic benefit cost and other comprehensive loss (income)
$ (47) $ 9 $ 19 $ (3) $ 10 $ 12
$ (50) $ 5 $ 12 $ (5) $ 8 $ 10
12 $ (7) $ 7 $ 9
---21 1
$ (50) $ 5
(in millions)
2019
Total other comprehensive loss (income)
2020
2019
2020
2021
Postretirement Plan
Pension Plans
90 MASTERCARD 2021 FORM 10-K
2021
1.50 %
9
(18) (18)
9
$
(in millions)
2020
2021
Fair value of plan assets
Accumulated benefit obligation
596 $ 604
Projected benefit obligation
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
MASTERCARD 2021 FORM 10-K 89
3.00 %
3.00 %
2.75 %
At December 31, 2021 and 2020, the Company's aggregated Pension Plan assets exceed the benefit obligations. For plans where the
benefit obligations exceeded plan assets, the projected benefit obligation was $116 million and $112 million, the accumulated
benefit obligation was $115 million and $111 million and plan assets were $104 million and $97 million at December 31, 2021 and
2020, respectively. Information on the Pension Plans were as follows as of December 31:
(19)
592
688
$ 14 $ 13 $ 11$ 1$ 1$1
Postretirement Plan
2020 2019
2021
2019
(in millions)
2020
2021
601
Pension Plans
Expected return on plan assets
Interest cost
Service cost
Components of net periodic benefit cost recorded in earnings were as follows for the Plans for each of the years ended
December 31:
For the year ended December 31, 2021, the Company's projected benefit obligation related to its Pension Plans decreased $8
million, primarily attributable to actuarial gains related to higher discount rate assumptions. For the year ended December 31, 2020,
the Company's projected benefit obligation related to its Pension Plans increased $73 million, primarily attributable to actuarial
losses related to lower discount rate assumptions.
617
Amortization of actuarial loss
Customer relationships
($ in millions)
2021
Customer and merchant incentives
Accrued expenses consisted of the following at December 31:
Note 13. Accrued Expenses and Accrued Litigation
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
52
Personnel costs
87
3,505
1,996
347
355
378
429
MASTERCARD 2021 FORM 10-K
(in millions)
$
Income and other taxes
Total accrued expenses
6,642 $
$
497
595
208
337
Other
727
3,998
4,730 $
$
(in millions)
2020
2021
980
5,430
Total
2025
(1,489)
3,063
3,505
3
(41)
421
1,574
1,150
2,276 $
743
44
1,641 $
1,843
21
(1,288) $
(429)
(38)
(1,755)
5,260
Total
2,929 $
2,272
59
(1,126) $
(322)
2026 and thereafter
Indefinite-lived intangible assets
Total
2024
2023
2022
Amortization on the assets above amounted to $424 million, $303 million and $285 million in 2021, 2020 and 2019, respectively.
The following table sets forth the estimated future amortization expense on finite-lived intangible assets on the consolidated
balance sheet at December 31, 2021 for the years ending December 31:
The increase in the gross carrying amount of amortized intangible assets in 2021 was primarily related to businesses acquired in
2021 and software additions. See Note 2 (Acquisitions) for further details. Certain intangible assets are denominated in foreign
currencies. As such, the change in intangible assets includes a component attributable to foreign currency translation. Based on the
qualitative assessment performed in 2021, it was determined that the Company's indefinite-lived intangible assets were not
impaired.
1,753
Customer relationships
(1,489) $
179
179
166
3,671 $
(1,755) $
166
5,426 $
$
3,242 $
2020
Customer and merchant incentives represent amounts to be paid to customers under business agreements. As of December 31,
2021 and 2020, long-term customer and merchant incentives included in other liabilities were $1,835 million and $1,215 million,
respectively.
Note 14. Pension, Postretirement and Savings Plans
$ 13
92
(15)
1
22
(13)
(59)
$ 105 $ 28 $ (3) $ (4)
Other liabilities, long-term
Other liabilities, short-term
Noncurrent assets
Amounts recognized on the consolidated balance sheet consist of:
Funded status at end of year
Fair value of plan assets at end of year
$ 28 $ - $ -
Foreign currency translation
(66)
(11)
2020
2021
Postretirement Plan
Pension Plans
13
$
$ (62) $ (70)
es
$
es
617
688
22
22
92
As of December 31, 2021 and 2020, the Company's provision for litigation was $840 million and $842 million, respectively. These
amounts are not included in the accrued expenses table above and are separately reported as accrued litigation on the consolidated
balance sheet. See Note 21 (Legal and Regulatory Proceedings) for additional information regarding the Company's accrued
litigation.
5
Transfers in
Interest cost
Service cost
Benefit obligation at beginning of year
Change in benefit obligation
The Company uses a December 31 measurement date for the Pension Plans and its Postretirement Plan (collectively the "Plans").
The Company recognizes the funded status of its Plans, measured as the difference between the fair value of the plan assets and the
projected benefit obligation, on the consolidated balance sheet. The following table sets forth the Plans' funded status, key
assumptions and amounts recognized on the Company's consolidated balance sheet at December 31:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Actuarial (gain) loss
PART II
The Company maintains a postretirement plan providing health coverage and life insurance benefits for substantially all of its U.S.
employees hired before July 1, 2007 (the "Postretirement Plan").
The Company sponsors pension and postretirement plans for certain non-U.S. employees (the "non-U.S. Plans") that cover various
benefits specific to their country of employment. Additionally, Vocalink has a defined benefit pension plan (the "Vocalink Plan")
which was permanently closed to new entrants and future accruals as of July 21, 2013, however, plan participants' obligations are
adjusted for future salary changes. The Company has agreed to make contributions of £15 million (approximately $20 million as of
December 31, 2021) annually until September 2022. The term "Pension Plans" includes the non-U.S. Plans and the Vocalink Plan.
Defined Benefit and Other Postretirement Plans
The Company sponsors defined contribution retirement plans. The primary plan is the Mastercard Savings Plan, a 401(k) plan for
substantially all of the Company's U.S. employees, which is subject to the provisions of the Employee Retirement Income Security
Act of 1974, as amended. In addition, the Company has several defined contribution plans outside of the U.S. The Company's total
expense for its defined contribution plans was $175 million, $150 million and $127 million in 2021, 2020 and 2019, respectively.
Defined Contribution Plans
The Company and certain of its subsidiaries maintain various pension and other postretirement plans that cover substantially all
employees worldwide.
88 MASTERCARD 2021 FORM 10-K
4
Benefits paid
Foreign currency translation
(18)
(17)
Benefits paid
34
32
Employer contributions
Transfers in
56
Actual gain on plan assets
518
617
Fair value of plan assets at beginning of year
Change in plan assets
Benefit obligation at end of year
63
The following table sets forth the components of the Company's Nonmarketable securities at December 31:
2021
1,834
46
205
The Company's investments on the consolidated balance sheet include both available-for-sale and held-to-maturity debt securities
(see Investments section below). The Company classifies its investments in equity securities of publicly traded and privately held
companies within other assets on the consolidated balance sheet (see Equity Investments section below).
Investments
Investments on the consolidated balance sheet consisted of the following at December 31:
Available-for-sale securities
1
2
Held-to-maturity securities
Total investments
2021
2020
$
(in millions)
314 $
321
159
162
Amortized Unrealized Unrealized
December 31, 2020
December 31, 2021
Gross
Gross
Total
Corporate securities
522
Government and agency
securities
The major classes of the Company's available-for-sale investment securities and their respective amortized cost basis and fair values
were as follows:
Available-for-Sale Securities
2 The cost of these securities approximates fair value.
1 See Available-for-Sale Securities section below for further detail.
483
473 $
Municipal securities
1,662
1,106
4,969
Fair value of liabilities assumed related to acquisitions
Fair value of assets acquired, net of cash acquired
Accrued property, equipment and right-of-use assets
Dividends declared but not yet paid
Non-cash investing and financing activities
Cash paid for legal settlements
Note 7. Investments
Cash paid for interest
2020
The following table includes supplemental cash flow disclosures for each of the years ended December 31:
Note 6. Supplemental Cash Flows
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
1 Recorded in gains (losses) on equity investments, net on the consolidated statement of operations.
2 Includes translational impact of currency and $227 million of transfers between equity investment categories due to changes to the existence of
readily determinable fair values.
Cash paid for income taxes, net of refunds
Cost
2021
(in millions)
154
15
403
439
479
668
2019
149
199
311
399
1,644
1,820 $ 1,349 $
$
98
Gain
468
Fair Value
(in millions)
Marketable securities
(in millions)
Balance at
December 31,
2021
Other
2
Changes in
Fair Value
$
Sales
Balance at
December 31,
2020
The following table is a summary of the activity related to the Company's equity investments:
Included in other assets on the consolidated balance sheet are equity investments with readily determinable fair values
("Marketable securities") and equity investments without readily determinable fair values ("Nonmarketable securities"). Marketable
securities are equity interests in publicly traded companies and are measured using unadjusted quoted prices in their respective
active markets. Nonmarketable securities that do not qualify for equity method accounting are measured at cost, less any
impairment and adjusted for changes resulting from observable price changes in orderly transactions for the identical or similar
investments of the same issuer ("Measurement alternative").
Equity Investments
Investment income on the consolidated statement of operations primarily consists of interest income generated from cash, cash
equivalents, time deposits and available-for-sale investment securities, as well as realized gains and losses on the Company's
available-for-sale investment securities. The realized gains and losses from the sales of available-for-sale securities for 2021, 2020
and 2019 were not material.
314
Purchases
314 $
476 $
696
91 $
(25) $
Loss
645 $
(186) $
228 $
1,172 $
(165) $
$
627
1,207
(250)
554
(21)
228
225 $
Total equity investments
182
Nonmarketable securities
132
1
246
214
214
64
98
98
10
10
$ 2 $ - $ - $ 2 $
Fair Value
Gross
Unrealized
Loss
182
Gross
Unrealized
Gain
Amortized
Cost
247
314
64
$ - $ - $ 31
132 $
$
(in millions)
Fair Value
Amortized
Cost
Due within 1 year
The maturity distribution based on the contractual terms of the Company's available-for-sale investment securities at December 31,
2021 was as follows:
Due after 1 year through 5 years
Total
PART II
MASTERCARD 2021 FORM 10-K 81
The Company's corporate and municipal available-for-sale investment securities held at December 31, 2021 and 2020, primarily
carried a credit rating of A- or better. Corporate securities are comprised of commercial paper and corporate bonds. Municipal
securities are comprised of state tax-exempt bonds and are diversified across states and sectors. Government and agency securities
include U.S. government bonds, U.S. government sponsored agency bonds and foreign government bonds which are denominated in
the national currency of the issuing country. Unrealized gains and losses are recorded as a separate component of other
comprehensive income (loss) on the consolidated statement of comprehensive income.
320 $
$ 1$ - $ 321
314 $
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MASTERCARD 2023 FORM 10-K
Our Business
Our core payment network links issuers and acquirers around the globe to facilitate the switching of transactions, permitting account
holders to use our products at over 100 million acceptance locations worldwide. This network facilitates an efficient, safe and secure
means for making and receiving payments, a convenient, quick and secure payment method for consumers to access their funds and
a channel for businesses to receive insight through information that is derived from our network. We enable transactions for our
customers through our core payment network in more than 150 currencies and in more than 210 countries and territories.
Payment Network
We enable a wide variety of payments capabilities (including products and value-added services and solutions) over our multi-rail
network among account holders, merchants, financial institutions, businesses, governments and others, offering our customers one
partner for their payment needs.
Our Multi-Rail Network and Payments Capabilities
ITEM 1. BUSINESS
Technology. Our technology provides resiliency, scalability and flexibility in how we serve customers. It enables broader reach to
scale digital payment services to multiple channels. Our technology standards, services and governance model help us to serve as
the connection that allows financial institutions, financial technology companies (fintechs) and others to interoperate and enable
consumers, businesses, governments and merchants to engage through digital channels.
MASTERCARD 2023 FORM 10-K 9
-
Doing Well by Doing Good. Sustainable impact is fundamental to our business strategy. We leverage our employees, technology,
resources, partnerships and expertise to address social, economic and environmental challenges, while at the same time creating
markets for future growth and driving long-term value for stockholders. Our environmental, social and governance ("ESG") priorities
are expressed through three pillars - People, Prosperity, Planet and all of the work we do is grounded in strong governance
principles. For more information, please reference our most recently published Environmental, Social and Governance Report and
Proxy Statement (each located on our website).
Franchise. We manage an ecosystem of stakeholders who participate in our global payments network. Our franchise model creates
and sustains a comprehensive series of value exchanges across our ecosystem. We provide a balanced ecosystem where all
participants benefit from the availability, innovation and safety and security of our network. Our franchise model enables the scale
of our network and provides a single governance structure for its operation. This structure has the potential to be extended to new
opportunities.
PART I
ITEM 1. BUSINESS
Data. We create a range of products and services for our customers using our data assets, infrastructure, platforms and expertise
while following our data and tech responsibility principles in how we design, implement and deliver those solutions. Our Privacy by
Design, Data by Design and Artificial Intelligence ("AI") Governance processes are designed to ensure we embed multiple layers of
privacy, data protection and information security controls in all of our products and services, keeping a clear focus on protecting
customers' and individuals' data and privacy.
Payment Network Transactions. Our core payment network supports what is often referred to as a "four-party" payments network
and includes the following participants: 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).
PART I
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.
In a typical transaction, an account holder purchases goods or services from a merchant using one of our payment products. After
the transaction is authorized by the issuer, the issuer pays the acquirer an amount equal to the value of the transaction, minus the
interchange fee (described below) and other applicable fees, and then posts the transaction to the account holder's account. The
acquirer pays the amount of the purchase, net of a discount (referred to as the "merchant discount" rate), to the merchant.
CORE PAYMENT NETWORK
Certain relationships and related transactions, and director independence
Item 14. Principal accountant fees and services
8
PART IV
•
Account Holder
Issuer
DOO
The following graphic depicts a typical transaction on our core payment network and our role in that transaction, which includes
payments ecosystem security, value-added services and the enablement of digital payments:
100
Cyber and Intelligence Solutions
Data and Services Solutions
Processing and Gateway
Value-Added Services
Payments Ecosystem Security
Authorization | Clearing | Settlement
Switching
Merchant
Acquirer
Enabling Digital Payments
121
121
issues related to our relationships with our stakeholders (including loss of substantial business from significant customers,
competitor relationships with our customers, consolidation amongst our customers, merchants' continued focus on acceptance
costs and unique risks from our work with governments)
Exhibits and financial statement schedules
.
the challenges relating to rapid technological developments and changes
•
•
•
.
.
•
the challenges relating to operating a real-time account-based payments system and to working with new customers and end
users
the impact of information security incidents, account data breaches or service disruptions
the impact of global economic, political, financial and societal events and conditions, including adverse currency fluctuations and
foreign exchange controls
reputational impact, including impact related to brand perception and lack of visibility of our brands in products and services
the impact of environmental, social and governance matters and related stakeholder reaction
119
the impact of competition in the global payments industry (including disintermediation and pricing pressure)
.
potential or incurred liability and limitations on business related to any litigation or litigation settlements
•
Item 16.
Form 10-K summary
MASTERCARD 2023 FORM 10-K 3
In this Report on Form 10-K ("Report"), references to the "Company," "Mastercard," "we," "us" or "our" refer to the business
conducted by Mastercard Incorporated and its consolidated subsidiaries, including our operating subsidiary, Mastercard International
Incorporated, and to the Mastercard brand.
Forward-Looking Statements
This Report contains forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. All statements other than statements of historical facts may be forward-looking statements. When used in this Report,
the words "believe", "expect", "could", "may", "would", "will", "trend" and similar words are intended to identify forward-looking
statements. Examples of forward-looking statements include, but are not limited to, statements that relate to the Company's future
prospects, developments and business strategies.
Many factors and uncertainties relating to our operations and business environment, all of which are difficult to predict and many of
which are outside of our control, influence whether any forward-looking statements can or will be achieved. Any one of those
factors could cause our actual results to differ materially from those expressed or implied in writing in any forward-looking
statements made by Mastercard or on its behalf, including, but not limited to, the following factors:
Item 15.
.
•
•
regulation related to the payments industry (including regulatory, legislative and litigation activity with respect to interchange
rates and surcharging)
the impact of preferential or protective government actions
regulation of privacy, data, Al, information security and the digital economy
regulation that directly or indirectly applies to us based on our participation in the global payments industry (including anti-
money laundering, countering the financing of terrorism, economic sanctions and anti-corruption, account-based payments
systems, and issuer and acquirer practices regulation)
the impact of changes in tax laws, as well as regulations and interpretations of such laws or challenges to our tax positions
.
119 Item 13.
Large accelerated filer ☑
119
☑
Yes ☐ No ☑
The aggregate market value of the registrant's Class A common stock, par value $0.0001 per share, held by non-affiliates (using the New York Stock Exchange
closing price as of June 30, 2023, the last business day of the registrant's most recently completed second fiscal quarter) was approximately $328.8 billion.
There is currently no established public trading market for the registrant's Class B common stock, par value $0.0001 per share. As of February 8, 2024, there
were 925,723,131 shares outstanding of the registrant's Class A common stock, par value $0.0001 per share and 7,168,369 shares outstanding of the registrant's
Class B common stock, par value $0.0001 per share.
Portions of the registrant's definitive proxy statement for the 2024 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
MASTERCARD INCORPORATED FISCAL YEAR 2023 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
☑
6
Business
27
Item 1A. Risk factors
41
Item 1B.
Unresolved staff comments
41
Item 1.
Item 1C.
[Χ
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Yes ☐
No ☑
Yes ☑
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Yes ☑
No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company"
in Rule 12b-2 of the Exchange Act. (Check One):
Non-accelerated filer ☐ (do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
ㅁㅁㅁ
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements.
the inability to attract and retain a highly qualified and diverse workforce, or maintain our corporate culture
Item 12. Security ownership of certain beneficial owners and management and related
stockholder matters
Cybersecurity
Item 2.
63
65
Item 8.
Financial statements and supplementary data
116
116
117
Item 7.
Item 9B.
Item 9. Changes in and disagreements with accountants on accounting and financial disclosure
Item 9A. Controls and procedures
Item 10. Directors, executive officers and corporate governance
PART III
119
119
Item 11.
Executive compensation
Other information
43
49
Item 6.
Properties
43
Item 3.
Legal proceedings
43
Item 4.
Mine safety disclosures
Reserved
44
Market for registrant's common equity, related stockholder matters and issuer
purchases of equity securities
Management's discussion and analysis of financial condition and results of operations
Item 7A. Quantitative and qualitative disclosures about market risk
PART II
47
Item 5.
48
Information about our executive officers
•
Each of our priorities supports and builds upon each other and are fundamentally interdependent:
•
Our key priorities
new areas
for the future
Build
and geographies
into new customers
Diversify
Grow
our core
Our strategy
Each of our priorities supports and builds upon each other and are fundamentally interdependent.
embrace new network opportunities to enable open banking, digital identity and other adjacent network capabilities
•
• extend our services to enhance transactions and drive customer value
expand in payments for consumers, businesses and governments
•
Our strategy centers on growing our core payments network, diversifying our customers and geographies and building new
capabilities through a combination of organic and inorganic strategic initiatives. We are executing on this strategy through a focus
on three key priorities:
Expand in
payments
Extend our
services
Embrace new
networks
Powering our success
Driving growth in consumer payments with a focus on accelerating digitization, growing acceptance and pursuing an expanded
set of use cases, including through partnerships
•
.
Expand in payments. We focus on expanding upon our core payments network to enable payment flows for consumers, businesses,
governments and others, which provides them with choice and flexibility to transact across multiple payment rails (including cards,
real-time payments, account-based transactions, crypto and others), while ensuring that all payments are safe, secure and seamless.
We do so by:
Our Key Strategic Priorities
ITEM 1. BUSINESS
PARTI
Our Strategy
MASTERCARD 2023 FORM 10-K 7
Franchise
मिली
Technology
Data
Brand
People
心心
Doing well by
doing good
For a full discussion of our results of operations, see "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item II, Part 7.
Prepaid includes both consumer and commercial prepaid.
2
(in millions)
% of Total GDV
Growth (Local)
(in billions)
1,2
Mastercard-branded Programs
% Increase
from December
31, 2022
As of December 31, 2023
Year Ended December 31, 2023
GDV
The following chart provides gross dollar volume ("GDV") and number of cards featuring our brands in 2023 for select programs and
solutions:
PART I
ITEM 1. BUSINESS
MASTERCARD 2023 FORM 10-K
6
Non-GAAP results (including growth rates) exclude the impact of gains and losses on equity investments, Special Items and/or foreign currency.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Results Overview" in Part II, Item 7 for
the reconciliation to the most direct comparable GAAP financial measures.
Cards
Capturing new payment flows by expanding our multi-rail capabilities and applications to penetrate key flows such as
commercial point-of-sale transactions, business-to-business ("B2B") accounts payable flows, disbursements and remittances and
consumer bill payments
Consumer Credit
Commercial Credit and Debit
1 Excludes Maestro and Cirrus cards and volume generated by those cards.
15 %
140
13 %
13 %
12 %
1,780
Consumer Debit and Prepaid
49 %
4,437
1,148
4 %
1,024
38 %
12 %
3,445
$
12 %
issues related to acquisition integration, strategic investments and entry into new businesses
Leaning into new payment innovations including acceptance growth accelerators such as Tap on Phone, cloud commerce and
contactless, as well as developing solutions that support digital currencies and blockchain applications
•
For a full discussion of our business, please see page 10.
Our Performance
The following are our key financial and operational highlights for 2023, including growth rates over the prior year:
Net revenue
$25.1B
up 13%
Adjusted net revenue
$25.1B
up 13%
$11.2B
in capital returned
to stockholders
Gross dollar volume
(growth on a local currency basis)
GAAP
Net income
Mastercard is a technology company in the global payments industry. We connect consumers, financial institutions, merchants,
governments, digital partners, businesses and other organizations worldwide by enabling electronic payments and making those
payment transactions safe, simple, smart and accessible. 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, merchants and our customers.
Through our unique and proprietary core global payments network, we switch (authorize, clear and settle) payment transactions.
We have additional payments capabilities that include automated clearing house ("ACH") transactions (both batch and real-time
account-based payments). Using these capabilities, we offer payment products and services and capture new payment flows. Our
value-added services include, among others, cyber and intelligence solutions designed to allow all parties to transact securely, easily
and with confidence, as well as other services that provide proprietary insights, drawing on our principled and responsible use of
secure consumer and merchant data. Our investments in new networks, such as open banking solutions and digital identity
capabilities, support and strengthen our payments and services solutions. Each of our capabilities support and build upon each
other and are fundamentally interdependent. For our core global payments network, our franchise model sets the standards and
ground-rules that balance value and risk across all stakeholders and allows for interoperability among them. We employ a multi-
layered approach to help protect the global payments ecosystem in which we operate.
Overview
Item 1. Business
ITEM 1. BUSINESS
•
exposure to loss or illiquidity due to our role as guarantor as well as other contractual obligations and discretionary actions we
may take
issues related to our Class A common stock and corporate governance structure
Please see "Risk Factors" in Part I, Item 1A for a complete discussion of these risk factors. We caution you that the important factors
referenced above may not contain all of the factors that are important to you. Our forward-looking statements speak only as of the
date of this Report or as of the date they are made, and we undertake no obligation to update our forward-looking statements.
4
MASTERCARD 2023 FORM 10-K
PART I
$11.2B
Item 1. Business
Item 1B. Unresolved staff comments
Item 1C. Cybersecurity
Item 2. Properties
Item 3. Legal proceedings
Item 4. Mine safety disclosures
Information about our executive officers
PARTI
Item 1A. Risk factors
1
up 13%
Non-GAAP (currency-neutral)
Brand. Our brands and brand identities serve as a differentiator for our business, representing our values and enabling us to
accelerate growth in new areas.
People. Our success is driven by the skills, experience, integrity and mindset of our people. We attract, develop and retain top
talent from diverse backgrounds and industries, in alignment with our strategic priorities. Our winning culture is guided by the
Mastercard Way, which outlines the behaviors we expect from employees to deliver for our customers and one another. We foster
a working environment grounded in decency, respect, equity and inclusion, where people have opportunities to perform purpose-
driven work that impacts communities, customers and co-workers on a global scale.
These priorities are supported by six key drivers:
New network opportunities strengthen our digital payments value proposition, including improved authentication with digital
identity, and new opportunities to develop and embed services in our expanding product offerings
Powering Our Success
Services improve the security, efficiency and intelligence of payments, improve portfolio performance, differentiate our
offerings, strengthen our customer relationships and support our open banking and digital identity networks
Payments provide data and distribution to drive scale and differentiation in services and enable the development and adoption
of new network capabilities
.
143.2B
No ☐
Applying our open banking solutions to help institutions and individuals exchange consumer-permissioned data securely and
easily by enabling the reliable access, transmission and management of consumer data (including for opening new accounts,
securing loans, increasing credit scores and enabling consumer choice in money movement and personal finance management)
•
•
Embrace new network opportunities. We are building and managing new adjacent network capabilities to power commerce and
payments, creating new opportunities to develop and embed services. We do so by:
Supporting and strengthening new network capabilities, including expanding services associated with digital identities and
deploying our expertise in open banking and open data
Expanding services to new segments and use cases to address the needs of a larger set of customers, including financial
institutions, merchants, governments, digital players and others, while expanding our geographic reach
Enhancing the value of payments by making payments safe, secure, intelligent and seamless
Enabling digital identity solutions to instill trust in the digital world and help ensure that payments across consumers,
businesses, devices and virtual entities are efficient, safe and secure
Extend our services. Our services drive value for our customers and the broader payments ecosystem. These services include cyber
and intelligence solutions, insights and analytics, consulting, marketing, loyalty, processing and payment gateway solutions for e-
commerce merchants. As we drive value, our services generate revenue while helping to accelerate our overall financial
performance by supporting revenue growth in payments and new network opportunities. We extend our services by:
up 24%
$9.0T
Adjusted net income
$11.6B
up 12%
$9.0B Repurchased shares
$2.2B
Dividends paid
Cross-border volume growth
(on a local currency basis)
up 12%
Diluted EPS
up 16%
Adjusted diluted EPS
$12.26
up 15%
$12.0B
cash flows
from operations
Switched transactions
$11.83
Yes ☑
1
Interchange Fees. Interchange fees reflect the value merchants receive from accepting our products and play a key role in
balancing the costs and benefits that consumers and merchants derive. Generally, interchange fees are collected from acquirers
and paid to issuers to reimburse the issuers for a portion of the costs incurred. These costs are incurred by issuers in providing
services that benefit all participants in the system, including acquirers and merchants, whose participation in the network
enables increased sales to their existing and new customers, efficiencies in the delivery of existing and new products, guaranteed
payments and improved customer experience. We (or, alternatively, financial institutions) establish "default interchange fees"
that apply when there are no other established settlement terms in place between an issuer and an acquirer. We administer the
collection and remittance of interchange fees through the settlement process.
Purchase, NY
2000 Purchase Street
(State or other jurisdiction of
incorporation or organization)
(Exact name of registrant as specified in its charter)
Delaware
Mastercard Incorporated
Commission file number: 001-32877
to
For the transition period from
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Or
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
Form 10-K
SECURITIES AND EXCHANGE COMMISSION
UNITED STATES
☑
10 MASTERCARD 2023 FORM 10-K
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
up 14%
(Address of principal executive offices)
(914) 249-2000
Washington, D.C. 20549
(IRS Employer
Identification Number)
Securities registered pursuant to Section 12(g) of the Act:
New York Stock Exchange
13-4172551
Class B common stock, par value $0.0001 per share
New York Stock Exchange
New York Stock Exchange
Name of each exchange of which registered
MA30
MA29A
MA27
New York Stock Exchange
Trading Symbol
2.5% Notes due 2030
1.0% Notes due 2029
2.1% Notes due 2027
10577
(Zip Code)
Class A Common Stock, par value $0.0001 per share
(Registrant's telephone number, including area code)
MA
Title of each class
Securities registered pursuant to Section 12(b) of the Act:
2025
2026
2027
2028
Thereafter
Note 13. Accrued Expenses and Accrued Litigation
Accrued expenses consisted of the following at December 31:
Customer incentives
Personnel costs
Income and other taxes
2024
Other
Total
Amortization on the finite-lived intangible assets above amounted to $457 million, $414 million and $424 million in 2023, 2022 and
2021, respectively. The following table sets forth the estimated future amortization expense on finite-lived intangible assets on the
consolidated balance sheet at December 31, 2023 for the years ending December 31:
156
5,819 $
PART II
Total accrued expenses
3,703
Customer relationships
Total
$
162
6,295 $
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2,209) $
156
(1,960) $
3,859
1 Includes technology acquired in business combinations.
The increase in the gross carrying amount of finite-lived intangible assets in 2023 was primarily related to software additions to
support the continued growth of the Company. Certain intangible assets are denominated in foreign currencies. As such, the
change in intangible assets includes a component attributable to foreign currency translation. Based on the qualitative assessment
performed in 2023, it was determined that the Company's indefinite-lived intangible assets were not impaired.
MASTERCARD 2023 FORM 10-K 91
162
4,086 $
(in millions)
600
532
92 MASTERCARD 2023 FORM 10-K
The Company maintains a postretirement plan providing health coverage and life insurance benefits for substantially all of its U.S.
employees hired before July 1, 2007 (the "Postretirement Plan").
The Company sponsors pension and postretirement plans for certain non-U.S. employees (the "non-U.S. Plans") that cover various
benefits specific to their country of employment. Additionally, Vocalink has a defined benefit pension plan (the "Vocalink Plan")
which was permanently closed to new entrants and future accruals as of July 21, 2013, however, plan participants' obligations are
adjusted for future salary changes. The term "Pension Plans" includes the non-U.S. Plans and the Vocalink Plan.
The Company sponsors defined contribution retirement plans. The primary plan is the Mastercard Savings Plan, a 401(k) plan for
substantially all of the Company's U.S. employees, which is subject to the provisions of the Employee Retirement Income Security
Act of 1974, as amended. In addition, the Company has several defined contribution plans outside of the U.S. The Company's total
expense for its defined contribution plans was $253 million, $204 million and $175 million in 2023, 2022 and 2021, respectively.
Defined Benefit and Other Postretirement Plans
Defined Contribution Plans
The Company and certain of its subsidiaries maintain various pension and other postretirement plans that cover substantially all
employees worldwide.
Note 14. Pension, Postretirement and Savings Plans
As of December 31, 2023 and 2022, the Company's provision for litigation was $723 million and $1,094 million, respectively. These
amounts are separately reported as accrued litigation on the consolidated balance sheet. The decrease during 2023 is primarily due
to a $600 million decrease in the Company's provision for litigation and corresponding restricted cash after a settlement became
final in August 2023. This decrease was partially offset by the provisions for other litigation. See Note 21 (Legal and Regulatory
Proceedings) for additional information regarding the Company's accrued litigation.
Customer incentives represent amounts to be paid to customers under business agreements. As of December 31, 2023 and 2022,
long-term customer incentives included in other liabilities were $2,777 million and $2,293 million, respectively.
7,801
8,517 $
$
17
554
507
279
1,322
1,258
5,600
6,219 $
$
(in millions)
2022
2023
3,924
$
1,546
387
434
518
486
1,640
Capitalized software
(1,402) $
(521)
(37)
(1,960)
Additions
Beginning balance
2022
2023
The changes in the carrying amount of goodwill for the years ended December 31 were as follows:
775
$
(109)
884
325
70
Note 11. Goodwill
Present value of operating lease liabilities
Total operating lease payments
Foreign currency translation
Thereafter
Less: Interest
87
110
129
163
$
2027
2026
2025
2024
Operating Leases
(in millions)
The following table summarizes the maturity of the Company's operating lease liabilities at December 31, 2023 based on lease term:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
2028
(in millions)
7,522 $
7,662
46
3,448 $
2,161
54
5,663
2,387 $
1,524
13
3,924
(1,530) $
(641)
(38)
(2,209)
6,133
51
3,917 $
2,165
(in millions)
Amount
Net Carrying
2022
Accumulated
Amortization
Gross Carrying
Amount
Net Carrying
Amount
2023
Accumulated
Amortization
Gross Carrying
Amount
Indefinite-lived intangible assets
Total
Other
200
92
(340)
$
7,660 $
7,522
2,046
Ending balance
Note 12. Other Intangible Assets
The following table sets forth net intangible assets, other than goodwill, at December 31:
Finite-lived intangible assets
PART II
1
Customer relationships
The Company performed its annual qualitative assessment of goodwill during the fourth quarter of 2023 and determined a
quantitative assessment was not necessary. The Company concluded that goodwill was not impaired and had no accumulated
impairment losses at December 31, 2023.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12
Change in benefit obligation
0.2
1.8
(25.7)
7.8
(0.5)
972.1
0.5
1.2
(16.5)
8.3
(in millions)
986.9
Outstanding Shares
Class A
Class B
Balance at December 31, 2023
Conversion of Class B to Class A common stock
(0.2)
Share-based payments
Balance at December 31, 2022
Conversion of Class B to Class A common stock
Share-based payments
Purchases of treasury stock
Balance at December 31, 2021
Conversion of Class B to Class A common stock
Share-based payments
Purchases of treasury stock
Balance at December 31, 2020
The following table presents the changes in the Company's outstanding Class A and Class B common stock:
In connection and simultaneously with its 2006 initial public offering (the "IPO"), the Company issued and donated 135 million newly
authorized shares of Class A common stock to Mastercard Foundation. Mastercard Foundation is a private charitable foundation
incorporated in Canada that is controlled by directors who are independent of the Company and its principal customers. Historically,
Mastercard Foundation had been restricted from selling or otherwise transferring its shares of Class A common stock prior to May 1,
2027, except to the extent necessary to satisfy its charitable disbursement requirements. In July 2023, pursuant to an application in
consultation with the Company, Mastercard Foundation received court approval to advance that date to January 1, 2024. As a
result, Mastercard Foundation is now permitted to sell all or part of its remaining shares, subject to certain conditions. Mastercard
Foundation would do so pursuant to an orderly and structured plan to diversify its Mastercard shares over a seven-year period,
while remaining a long-term Mastercard stockholder and retaining a significant holding of Mastercard shares in its portfolio.
Common Stock Activity
29 $ 38
$
430
Purchases of treasury stock
449
948.4
(23.8)
100 MASTERCARD 2023 FORM 10-K
As of December 31, 2023, the remaining authorization under the share repurchase programs approved by the Company's Board of
Directors was $14.1 billion.
1 The dollar-value of shares repurchased does not include a 1% excise tax that became effective January 1, 2023. The incremental tax is recorded
in treasury stock on the consolidated balance sheet and is payable annually beginning in 2024.
356.82
340.60 $
379.49 $
$
Average price paid per share
16.5
25.7
23.8
Shares repurchased
5,904
8,753 $
7.6
8,000
11,000 $
9,032 $
1
Dollar-value of shares repurchased ¹
$
Board authorization
(In millions, except per share data)
2021
2022
2023
7.2
927.3
(0.4)
0.4
2.3
9,000 $
(69)
22
Foreign currency translation
(16)
(16)
6
(156)
(15)
2
2
9
18
1
1
14
62
$
(16)
$ 43
$ 392
($ in millions)
2022
2023
2022
2023
Postretirement Plan
Pension Plans
Transfers in
Benefits paid
Actuarial (gain) loss
Interest cost
Service cost
Benefit obligation at beginning of year
$ 596
(6)
(6)
8
5
5
Transfers in
(6)
(6)
(16)
(16)
Benefits paid
6
6
25
16
Employer contributions
(203)
(8)
Actual gain/(loss) on plan assets
688
5
1
19
(58)
420
392
The Company uses a December 31 measurement date for the Pension Plans and its Postretirement Plan (collectively the "Plans").
The Company recognizes the funded status of its Plans, measured as the difference between the fair value of the plan assets and the
projected benefit obligation, on the consolidated balance sheet. The following table sets forth the Plans' funded status, key
assumptions and amounts recognized on the Company's consolidated balance sheet at December 31:
46
43
Foreign currency translation
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
430
46
The Company's Board of Directors have approved share repurchase programs of its Class A Common Stock authorizing the Company
to repurchase shares. The following table summarizes the Company's share repurchase authorizations of its Class A common stock
for the years ended December 31:
34
$ (43)
2024
2025
2026
2027
2028
2029 2033
96 MASTERCARD 2023 FORM 10-K
$
Pension Plans
Postretirement Plan
(in millions)
35 $
3
18
3
16
4
22
4
22
4
133
20
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Debt
Debt consisted of the following at December 31:
The following table summarizes expected benefit payments (as of December 31, 2023) through 2033 for the Pension Plans and the
Postretirement Plan, including those payments expected to be paid from the Company's general assets. Actual benefit payments
may differ from expected benefit payments.
2023
Investments at NAV include mutual funds (comprised primarily of credit investments) and other investments (comprised primarily of real estate
investments) and are valued using the net asset value provided by the administrator as a practical expedient, and therefore these investments
are not included in the valuation hierarchy. These investments have quarterly redemption frequencies with redemption notice periods ranging
from 60 to 90 days.
4
233
106
128
- 234
3
Insurance contracts
124
124
114
- 114
Total
$
167 $
233 $
$ 400
$
149
242 $ - $ 391
Investments at Net Asset Value ("NAV") 4
Total Plan Assets
49
$ 449
1 Cash and cash equivalents are valued at quoted market prices, which represent the net asset value of the shares held by the Plans.
39
$ 430
2 Certain mutual funds are valued at quoted market prices, which represent the value of the shares held by the Plans, and are therefore included in
Level 1. Certain other mutual funds are valued at unit values provided by investment managers, which are based on the fair value of the
underlying investments utilizing public information, independent external valuation from third-party services or third-party advisors, and are
therefore included in Level 2.
3
Insurance contracts are valued at unit values provided by investment managers, which are based on the fair value of the underlying investments
utilizing public information, independent external valuation from third-party services or third-party advisors.
2022
Effective
Interest Rate
(in millions)
1,500
3.430 %
3.850 % Senior Notes due March 2050
1,500
1,500
3.896 %
2019 USD Notes
2.950 % Senior Notes due June 2029
1,000
1,000
3.030 %
3.650 % Senior Notes due June 2049
2.000 % Senior Notes due March 2025
1,000
1,000
3.689 %
750
750
2.147 %
2018 USD Notes
3.500 % Senior Notes due February 2028
3.950 % Senior Notes due February 2048
500
500
3.598 %
500
500
3.990 %
2016 USD Notes
1,500
3.350 % Senior Notes due March 2030
3.420 %
1,000
Senior Notes
2023 USD Notes
4.875 % Senior Notes due March 2028
4.850 % Senior Notes due March 2033
$
750 $
$ - 5.003 %
750
4.923 %
1
2022 EUR Notes
1.000 % Senior Notes due February 2029
830
800
109
1.138 %
2.000 % Senior Notes due November 2031
1.900% Senior Notes due March 2031
2.950 % Senior Notes due March 2051
750
750
2.112 %
600
600
1.981 %
700
700
3.013 %
2020 USD Notes
3.300% Senior Notes due March 2027
1,000
2021 USD Notes
2.950 % Senior Notes due November 2026
124
$ 43
Assumptions
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Weighted-average assumptions used to determine net periodic benefit cost were as follows for the years ended December 31:
2023
Pension Plans
2022
2021
2023
Postretirement Plan
2022
2021
Discount rate
Non-U.S. Plans
Vocalink Plan
Postretirement Plan
Expected return on plan assets
Non-U.S. Plans
Vocalink Plan
Rate of compensation increase
Non-U.S. Plans
Vocalink Plan
Postretirement Plan
* Not applicable
3.80 %
4.80 %
0.90 % 0.70 %
1.75 % 1.55 %
*
*
*
$ 11 § 61 $ (50) § 7 $ (15) $ (5)
*
$
$
-
(1)
---
-
(1)
(1)
(1)
$14$7$3$2$2$2
The service cost component is recognized in general and administrative expenses on the consolidated statement of operations. Net
periodic benefit cost, excluding the service cost component, is recognized in other income (expense) on the consolidated statement
of operations.
Other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31
were as follows:
Current year actuarial loss (gain)
Amortization of prior service credit
Total other comprehensive loss (income)
Total net periodic benefit cost and other comprehensive loss (income)
94 MASTERCARD 2023 FORM 10-K
Pension Plans
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2023
2022
2021
2023
Postretirement Plan
2022
2021
(in millions)
(50) $ 6 $ (16) $ (7)
$ 11 $ 61 $
$ - $ — $
— $ 1 $ 1 $ 2
5.50 %
2.75 % 2.50 %
1.80 % 1.60 %
December 31, 2022
Significant
Significant
Unobservable
Quoted
Prices in
Active
Markets
Inputs
(Level 1)
(Level 2)
Inputs
(Level 3)
Fair
Markets
Other
Observable
Inputs
Inputs
Fair
Value
(Level 1)
(Level 2)
(Level 3)
Value
(in millions)
Cash and cash equivalents¹
$ 43
$
$
$ 43 $ 43
$
$
Significant
Unobservable
December 31, 2023
The following table sets forth by level within the Valuation Hierarchy, the Pension Plans' assets at fair value:
Significant
Other
Observable
1.60 %
*
5.25 % 2.30% 3.20%
1.50 % 1.50 %
2.70 % 3.20 %
1.50 %
2.75 %
*
*
*
*
3.00 % 3.00 % 3.00 %
The Company's discount rate assumptions are based on yield curves derived from high quality corporate bonds, which are matched
to the expected cash flows of each respective plan. The expected return on plan assets assumptions are derived using the current
and expected asset allocations of the Pension Plans' assets and considering historical as well as expected returns on various classes
of plan assets. The rates of compensation increases are determined by the Company, based upon its long-term plans for such
increases.
The following additional assumptions were used at December 31 in accounting for the Postretirement Plan:
Healthcare cost trend rate assumed for next year
Mutual funds
Ultimate trend rate
Assets
2023
2022
7.00 %
5.00 %
6.50 %
5.00 %
8
6
Plan assets are managed taking into account the timing and amount of future benefit payments. The Vocalink Plan assets are
managed with the following target asset allocations: cash and cash equivalents 13%, U.K. government securities 35%, fixed income
34%, equity 7% and real estate 11%. For the non-U.S. Plans, the assets are concentrated primarily in insurance contracts.
The Valuation Hierarchy of the Pension Plans' assets is determined using a consistent application of the categorization
measurements for the Company's financial instruments. See Note 1 (Summary of Significant Accounting Policies) for additional
information.
MASTERCARD 2023 FORM 10-K 95
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quoted
Prices in
Active
Year that the rate reaches the ultimate trend rate
750
750
3.044 %
18
$ 14 $ 12 $ 14 $ 1 $ 1 $ 1
Postretirement Plan
2021
2022
2023
2021
(in millions)
2022
2023
Pension Plans
Amortization of actuarial loss
Expected return on plan assets
Interest cost
Service cost
Components of net periodic benefit cost recorded in earnings were as follows for the Plans for each of the years ended
December 31:
For the year ended December 31, 2023, the Company's projected benefit obligation related to its Pension Plans increased $28
million, primarily attributable to foreign currency translation. For the year ended December 31, 2022, the Company's projected
benefit obligation related to its Pension Plans decreased $204 million, primarily attributable to actuarial gains related to higher
discount rate assumptions.
449
430
388
419
420 $ 392
$
(in millions)
2022
2023
Fair value of plan assets
Accumulated benefit obligation
Projected benefit obligation
9
At December 31, 2023 and 2022, the Company's aggregated Pension Plan assets exceeded the benefit obligations. For plans where
the benefit obligations exceeded plan assets, the projected benefit obligation, the accumulated benefit obligation and plan assets
were not material at December 31, 2023 and 2022, respectively. Information on the Pension Plans were as follows as of
December 31:
9
2
2,231 $
1,968 $
1,781
Equity ownership and voting power of the Company's shares were allocated as follows as of December 31:
Public Investors (Class A stockholders)
Mastercard Foundation (Class A stockholders)
Principal or Affiliate Customers (Class B stockholders)
Class B Common Stock Conversions
2023
2022
Equity
Ownership
88.8%
10.4 %
0.8 %
General
Voting Power
89.5 %
10.5 %
- %
Equity
Ownership
General
Voting Power
88.5 %
10.7 %
89.3 %
10.7 %
0.8%
- %
Shares of Class B common stock are convertible on a one-for-one basis into shares of Class A common stock. Entities eligible to hold
Mastercard's Class B common stock are defined in the Company's amended and restated certificate of incorporation (generally the
Company's principal or affiliate customers), and they are restricted from retaining ownership of shares of Class A common stock.
Class B stockholders are required to subsequently sell or otherwise transfer any shares of Class A common stock received pursuant
to such a conversion.
MASTERCARD 2023 FORM 10-K 99
PART II
-
Net periodic benefit cost
Amortization of prior service credit
2
2
(18) (14) (19)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
MASTERCARD 2023 FORM 10-K 93
Balance at end of year
Prior service credit
Net actuarial (gain) loss
$ (8) $ (14)
$ 38 $ (46) $ (43)
(40)
|ཀྱེཧྥུ
(43)
(6)
es
$
$ 29
(9)
§ 38 5 44 $ (3) $ (3)
-
Դ
$
$
es
Accumulated other comprehensive income consists of:
Net amounts recognized on the consolidated balance sheet
Other liabilities, long-term
Other liabilities, short-term
Noncurrent assets
Amounts recognized on the consolidated balance sheet consist of:
Funded status at end of year
Fair value of plan assets at end of year
Weighted-average assumptions used to determine end of year benefit
obligations
Discount rate
Non-U.S. Plans
Vocalink Plan
3.00 %
3.00 %
*
2.70 %
1.50 %
1.50 %
2.75 %
5.50 %
5.00 %
3.80 %
4.80 %
4.20 %
5.15 %
(1)
$ (15)
(8)
$
1.81
24
35
$
-
1
1
23
$
*Not applicable
Postretirement Plan
Vocalink Plan
Non-U.S. Plans
Rate of compensation increase
Postretirement Plan
$
2.04 $
(in millions, except per share data)
2.37 $
$
Less: Unamortized discount and debt issuance costs
Less: Cumulative hedge accounting fair value adjustments 5
(109)
(111)
(79)
(105)
Total debt outstanding
6
Less: Short-term debt
15,681
14,023
(1,337)
14,344 $
(274)
13,749
Long-term debt
1 €750 million euro-denominated debt issued in February 2022.
2 €950 million euro-denominated debt remaining of the €1.650 billion issued in December 2015.
3
INR28.1 billion Indian rupee-denominated loan issued in July 2023.
4 INR22.7 billion Indian rupee-denominated loan issued in July 2022.
5
6
The Company has an interest rate swap which is accounted for as a fair value hedge. See Note 23 (Derivative and Hedging Instruments) for
additional information.
The 2014 USD Notes due April 2024 and the INR Term Loan due July 2024 are classified as short-term debt, net of unamortized discount and debt
issuance costs, on the consolidated balance sheet as of December 31, 2023. The 2022 INR Term Loan due July 2023 was classified as short-term
debt, net of unamortized issuance costs, on the consolidated balance sheet as of December 31, 2022.
MASTERCARD 2023 FORM 10-K 97
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14,239
15,869
9.090 %
275
3.800 % Senior Notes due November 2046
600
600
3.893 %
2
2015 EUR Notes
2.100% Senior Notes due December 2027
2.500 % Senior Notes due December 2030
885
854
2.189 %
166
160
2.562 %
Scheduled annual maturities of the principal portion of long-term debt outstanding at December 31, 2023 are summarized below.
2014 USD Notes
1,000
1,000
3.484 %
Other Debt
3
2023 INR Term Loan
9.430% Term Loan due July 2024
338
9.780 %
4
2022 INR Term Loan
8.640 % Term Loan due July 2023
|
3.375 % Senior Notes due April 2024
$ (46)
2024
2026
Classes of Capital Stock
Mastercard's amended and restated certificate of incorporation authorizes the following classes of capital stock:
Authorized
Shares
Par Value
Class
Per Share
A
$0.0001
(in millions)
3,000
Dividend and Voting Rights
One vote per share
Dividend rights
B
$0.0001
1,200 Non-voting
Dividend rights
Preferred
$0.0001
300
No shares issued or outstanding at December 31, 2023 and 2022. Dividend and voting
rights are to be determined by the Board of Directors of the Company upon issuance.
Dividends
The Company declared a quarterly cash dividend on its Class A and Class B Common Stock during each of the four quarters of 2023,
2022 and 2021. The total per share dividends declared during the years ended December 31 is summarized below:
Dividends declared per share
Total dividends declared
Ownership and Governance Structure
2023
2022
2021
Note 16. Stockholders' Equity
Borrowings under the Commercial Paper Program and the Credit Facility are to be used to provide liquidity for general corporate
purposes, including providing liquidity in the event of one or more settlement failures by the Company's customers. The Company
may borrow and repay amounts under the Commercial Paper Program and Credit Facility for business continuity purposes. The
Company had no borrowings under the Credit Facility or the Commercial Paper Program at December 31, 2023 and 2022.
on prevailing market interest rates plus applicable margins that fluctuate based on the Company's credit rating. The Credit Facility
contains customary representations, warranties, affirmative and negative covenants, events of default and indemnification
provisions. The Company was in compliance in all material respects with the covenants of the Credit Facility at December 31, 2023
and 2022.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2027
2028
Thereafter
Total
(in millions)
$
1,338
750
750
1,885
1,250
9,896
$ 15,869
2025
Senior Notes
In February 2022, the Company issued €750 million ($830 million and $800 million as of December 31, 2023 and 2022, respectively)
principal amount of notes due February 2029 (the "2022 EUR Notes"). The net proceeds from the issuance of the 2022 EUR Notes,
after deducting the original issue discount, underwriting discount and offering expenses, were €743 million ($843 million as of the
date of settlement).
In March 2021, the Company issued $600 million principal amount of notes due March 2031 and $700 million principal amount of
notes due March 2051. In November 2021, the Company also issued $750 million principal amount of notes due November 2031.
The two issuances in 2021 are collectively referred to as the "2021 USD Notes". The net proceeds from the issuance of the 2021 USD
Notes, after deducting the original issue discount, underwriting discount and offering expenses, were $2.024 billion.
The Senior Notes described above are not subject to any financial covenants and may be redeemed in whole, or in part, at the
Company's option at any time for a specified make-whole amount. These notes are senior unsecured obligations and would rank
equally with any future unsecured and unsubordinated indebtedness.
Indian Rupee (“INR”) Term Loan
In July 2022, the Company entered into an unsecured INR22.7 billion term loan originally due July 2023 (the "2022 INR Term Loan").
The net proceeds of the 2022 INR Term Loan, after deducting issuance costs, were INR22.6 billion ($284 million as of the date of
settlement).
In April 2023, the Company entered into an additional unsecured INR4.97 billion term loan, also originally due July 2023 (the "April
2023 INR Term Loan"). The stated interest rate and effective interest rate were 9.480% and 9.705%, respectively. The net proceeds
of the April 2023 INR Term Loan, after deducting issuance costs, were INR4.96 billion ($61 million as of the date of settlement).
In July 2023, the Company modified and combined the 2022 INR Term Loan and April 2023 INR Term Loan (the "2023 INR Term
Loan"), increasing the total unsecured loans to INR28.1 billion ($342 million as of the date of settlement). The 2023 INR Term Loan is
due July 2024.
The Company obtained the INR Term Loans to serve as economic hedges to offset possible changes in the value of INR-denominated
monetary assets due to foreign exchange fluctuations. The INR Term Loans are not subject to any financial covenants and they may
be repaid in whole at the Company's option at any time for a specified make-whole amount.
Commercial Paper Program and Credit Facility
As of December 31, 2023, the Company has a commercial paper program (the "Commercial Paper Program") under which the
Company is authorized to issue up to $8 billion in unsecured commercial paper notes with maturities of up to 397 days from the date
of issuance. The Commercial Paper Program is available in U.S. dollars.
In conjunction with the Commercial Paper Program, the Company has a committed five-year unsecured $8 billion revolving credit
facility (the "Credit Facility"). The Credit Facility, which previously was set to expire on November 10, 2027, was extended and now
expires on November 8, 2028. Borrowings under the Credit Facility are available in U.S. dollars and/or euros. The facility fee under
the Credit Facility is determined according to the Company's credit rating and is payable on the average daily commitment,
regardless of usage, per annum. In addition to the facility fee, interest rates on borrowings under the Credit Facility would be based
98 MASTERCARD 2023 FORM 10-K
PART II
In March 2023, the Company issued $750 million principal amount of notes due March 2028 and $750 million principal amount of
notes due March 2033 (collectively the "2023 USD Notes"). The net proceeds from the issuance of the 2023 USD Notes, after
deducting the original issue discount, underwriting discount and offering expenses, were $1.489 billion.
Mastercard Foundation
3)
(2.9)%
(in millions, except weighted-
$
average fair value)
460 $ 295 $
273
99
61
57
95
49
36
2021
487
169
RSUs
Weighted-average grant-date fair value of awards granted
350
340
358
Total grant-date fair value of awards vested
235
305
202
231
561
2022
Options
0.1
$
386
Outstanding at December 31, 2023
0.6 $
365 $
271
PSUs expected to vest at December 31, 2023
0.6 $
365 $
Total intrinsic value of Options exercised
266
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Since 2013, PSUs containing performance and market conditions have been issued. Performance measures used to determine the
actual number of shares that vest after three years include net revenue growth, EPS growth and relative total shareholder return
("TSR"). Relative TSR is considered a market condition, while net revenue and EPS growth are considered performance conditions.
The Monte Carlo simulation valuation model is used to determine the grant-date fair value.
Compensation expense for PSUs is recognized over the requisite service period, or the date the individual becomes eligible to retire
but not less than seven months, if it is probable that the performance target will be achieved and subsequently adjusted if the
probability assessment changes. As of December 31, 2023, there was $34 million of total unrecognized compensation cost related to
non-vested PSUs. The cost is expected to be recognized over a weighted-average period of 1.6 years.
Additional Information
The following table includes additional share-based payment information for each of the years ended December 31:
2023
Share-based compensation expense: Options, RSUs and PSUs
Income tax benefit recognized for equity awards
Income tax benefit realized related to Options exercised
MASTERCARD 2023 FORM 10-K 103
Other
518
112
(in millions)
2022
2023
Total
losses
and capital
Net operating
carryforward 1 $
tax credit
U.S. foreign
$
(in millions)
Gross
Deferred
Tax Assets
Changes
to Related
Balance at
December
31, 2021
Gross
Deferred
Tax Assets
Change/
(Release)
Balance at
December
31, 2020
Changes
to Related
The changes in the Company's valuation allowance on deferred tax assets were as follows:
Net Deferred Tax Assets
Total Deferred Tax Liabilities
Change/
(Release)
132
863 $
335
186
211
1,830
2,044
(114)
(758)
155
156
65
158
697
186
182
52
277
274
635
156
149
43
47
316
(123)
Other items
296
Converted
1 The 2022 activity resulted in a full release of the valuation allowance associated with the U.S. foreign tax credit carryforward due to final U.S. tax
regulations published in 2022. The 2023 activity resulted in the establishment of the valuation allowance associated with the U.S. foreign tax
credit carryforward due to foreign tax legislation enacted in Brazil and the Notice released by Treasury.
758
320 $ 324 $
123
(3)
12
114
114 $
23 $ (324) $
$
415
2
(6) $
353 $
$
9
23
82
(6)
11
77
308 $ 327 $ 635
$
68 $
$ (333) $
Capital losses are included within other items in the deferred tax assets section of the components of the Deferred Taxes table above.
PART II
23
388
$ 360 $
414
$
2021
2022
(in millions)
2023
Includes immaterial translational impact of currency.
Ending balance
MASTERCARD 2023 FORM 10-K 107
Expired statute of limitations
Prior year tax positions¹
Reductions:
Prior year tax positions¹
Current year tax positions
Additions:
Beginning balance
1
A reconciliation of the beginning and ending balance for the Company's unrecognized tax benefits for the years ended December 31,
is as follows:
The recognition of foreign tax credits is dependent upon the realization of future foreign source income in the appropriate foreign
tax credit basket in accordance with U.S. federal income tax law. The recognition of the net operating and capital losses is
dependent on the timing and character of future taxable income in the applicable jurisdictions. As of December 31, 2023, the
Company had a foreign tax credit carryforward and tax effected net operating loss carryforwards of $635 million and $149 million,
respectively. The foreign tax credits begin to expire in 2029 and the majority of the net operating losses can be carried forward
indefinitely.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Settlements with tax authorities
(0.1) $
333 $
276 $
2.1 $
344 $
913
RSUs expected to vest at December 31, 2023
The fair value of each RSU is the closing stock price on the New York Stock Exchange of the Company's Class A common stock on the
date of grant, adjusted for the exclusion of dividend equivalents. Upon vesting, a portion of the RSU award may be withheld to
satisfy the minimum statutory withholding taxes. The remaining RSUs will be settled in shares of the Company's Class A common
stock after the vesting period. As of December 31, 2023, there was $372 million of total unrecognized compensation cost related to
non-vested RSUs. The cost is expected to be recognized over a weighted-average period of 1.7 years.
Performance Stock Units
PSUs vest after three years and are subject to a mandatory one-year post-vest hold, during which they are eligible for dividend
equivalents. A participant's unvested awards are forfeited upon termination of employment. In the event of termination due to job
elimination (as defined by the Company), however, a participant will retain a pro-rata portion of the unvested awards for services
performed through the date of termination. In the event a participant terminates employment due to disability or retirement more
than seven months after receiving the award, the participant retains all of their awards without providing additional service to the
Company.
The following table summarizes the Company's PSU activity for the year ended December 31, 2023:
Weighted-
Units
(in millions)
945
Average
Grant-Date
Fair Value
Intrinsic
Value
(in millions)
Outstanding at January 1, 2023
Granted
0.4
$
352
0.2 $
365
Aggregate
57 $
344 $
343
Balance at
December
31, 2023
Change/
(Release)
Gross
Deferred
Tax Assets
Changes
to Related
Balance at
December
31, 2022
758
986 $
$
1,072
1,058
2.2 $
135
58
138
1.8
$
335
1.2
350
(0.7) $
331
(0.1) $
79
Total intrinsic value of RSUS converted into shares of Class A common stock
253
420
39
0.3 %
111
0.9 %
63
0.6 %
Foreign-derived intangible income deduction
(144)
(1.1)%
(129)
U.S. tax expense on foreign operations
(1.1)%
(0.7)%
U.S. tax benefits
- %
- %
(132)
(1.3)%
Windfall benefit
(88)
(0.6)%
(68)
(69)
(0.6)%
- %
(333)
21.0 %
2,464
21.0 %
2,164
21.0 %
State tax effect, net of federal benefit
82
0.6 %
72
0.6 %
(2.8)%
60
Foreign tax effect
(393)
Right-of-use lease assets
(347)
(3.0)%
(283)
(2.7)%
Valuation allowance - U.S. foreign tax credit
327
2.4 %
0.6 %
2,864
(67)
Other, net
In connection with the expansion of the Company's operations in the Asia Pacific, Middle East and Africa region, the Company's
subsidiary in Singapore, Mastercard Asia Pacific Pte. Ltd. ("MAPPL") received an incentive grant from the Singapore Ministry of
Finance in 2010. The incentive had provided MAPPL with, among other benefits, a reduced income tax rate for the 10-year period
commencing January 1, 2010 on taxable income in excess of a base amount. The Company continued to explore business
opportunities in this region, resulting in an expansion of the incentives being granted by the Ministry of Finance, including a further
reduction to the income tax rate on taxable income in excess of a revised fixed base amount commencing July 1, 2011 and
continuing through December 31, 2025. Without the incentive grant, MAPPL would have been subject to the statutory income tax
rate on its earnings. For 2023, 2022 and 2021, the impact of the incentive grant received from the Ministry of Finance resulted in a
reduction of MAPPL's income tax liability of $571 million, or $0.60 per diluted share, $454 million, or $0.47 per diluted share, and
$300 million, or $0.30 per diluted share, respectively.
Indefinite Reinvestment
As of December 31, 2023 the Company does not accrue taxes on $3.6 billion of foreign earnings which remain permanently
reinvested outside the U.S. The Company expects that taxes associated with any future repatriation of these earnings are
immaterial.
106 MASTERCARD 2023 FORM 10-K
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred Taxes
Deferred tax assets and liabilities represent the expected future tax consequences of temporary differences between the carrying
amounts and the tax basis of assets and liabilities. The components of deferred tax assets and liabilities at December 31 were as
follows:
Deferred Tax Assets
Accrued liabilities
Singapore Income Tax Rate
Compensation and benefits
Net operating losses
U.S. foreign tax credits
Property and equipment
Intangible assets
Lease liabilities
Other items
Less: Valuation allowance
Total Deferred Tax Assets
Deferred Tax Liabilities
Prepaid expenses and other accruals
State taxes and other credits
(0.7)%
a discrete tax expense related to an unfavorable court ruling in 2022
the recognition of U.S. tax benefits in 2021 (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.
(243)
(1.8)%
32
0.3%
(116)
(1.1)%
Income tax expense
Note: Table may not sum due to rounding.
$
2,444
a discrete tax benefit in 2021 related to the remeasurement of the Company's net deferred tax asset in the U.K. due to an
enacted tax rate change in 2021
17.9 % $
15.4% $
1,620
15.7 %
The effective income tax rates for the years ended December 31, 2023, 2022 and 2021 were 17.9%, 15.4% and 15.7%, respectively.
The effective income tax rate for 2023 was higher than the effective income tax rate for 2022, primarily due to changes in the
valuation allowance associated with the deferred tax asset related to U.S. foreign tax credits. In 2022, the Company recognized a
discrete tax benefit of $333 million to release the valuation allowance resulting from U.S. tax regulations published in the first
MASTERCARD 2023 FORM 10-K 105
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
quarter of 2022 (the "2022 Regulations"). In 2023, the treatment of foreign taxes paid under the 2022 Regulations changed due to
foreign tax legislation enacted in Brazil and Notice 2023-55 (the "Notice"), released by the U.S. Department of Treasury ("Treasury").
Therefore, the Company recognized a total $327 million discrete tax expense in 2023 to establish the valuation allowance. The
discrete tax expense recognized in 2023 was partially offset by the Company's ability to claim more U.S. foreign tax credits generated
in 2022 and 2023 due to the Notice released by Treasury.
The effective income tax rate for 2022 was lower than the effective income tax rate for 2021, primarily due to a discrete tax benefit
in the first quarter of 2022 related to final U.S. tax regulations published in 2022. These regulations resulted in a valuation allowance
release of $333 million associated with the U.S. foreign tax credit carryforward deferred tax asset. The regulations limited the
Company's ability to generate foreign tax credits starting in 2022 for certain foreign taxes paid, resulting in additional U.S. tax
expense. Additionally, a more favorable geographic mix of earnings in 2022 contributed to the lower effective tax rate. The lower
effective income tax rate in 2022 was partially offset by:
•
1,802
Federal statutory tax
10,307
$
327
171
1
$
2,243
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20. Income Taxes
Components of Income and Income Tax Expense
United States
Foreign
442
The domestic and foreign components of income before income taxes for the years ended December 31 were as follows:
$
4,506 $
9,133
2022
(in millions)
4,228 $
7,504
2021
4,261
6,046
Income before income taxes
$ 13,639 $ 11,732 $ 10,307
The total income tax provision for the years ended December 31 is comprised of the following components:
2023
2023
2022
(in millions)
634
(in millions)
$
360
PSUs
Weighted-average grant-date fair value of awards granted
365
335
385
Total grant-date fair value of awards vested
12
20
Total intrinsic value of PSUs converted into shares of Class A common stock
668
14
Note 19. Commitments
At December 31, 2023, the Company had the following future minimum payments due under noncancelable agreements, primarily
related to sponsorships to promote the Mastercard brand and licensing arrangements. The Company has accrued $21 million of
these future payments as of December 31, 2023.
2024
2025
2026
2027
2028
Thereafter
Total
104 MASTERCARD 2023 FORM 10-K
32
2021
Current
Federal
50
(35)
(237)
(651)
(70)
2,444 $ 1,802 $ 1,620
Effective Income Tax Rate
A reconciliation of the effective income tax rate to the U.S. federal statutory income tax rate for the years ended December 31, is as
follows:
2023
2022
(39)
2021
Percent
Amount
Percent
Amount
Percent
($ in millions)
$
11,732
Income before income taxes
$ 13,639
Amount
(4)
(40)
(18)
991
$ 1,024 $
663
State and local
127
133
51
Foreign
1,563
1,296
976
2,681
2,453
1,690
Deferred
Federal
State and local
Foreign
Income tax expense
$
(180)
(661)
(31)
22
17
17
16
Exercised
Forfeited
Gains on equity investments
Outstanding at December 31, 2023
Exercisable at December 31, 2023
Options vested and expected to vest at December 31, 2023
Weighted-
Weighted-
Average
Average
Exercise
Remaining Aggregate
Contractual
Intrinsic
Options
(in millions)
Price
Term
Granted
Value
Outstanding at January 1, 2023
The risk-free rate of return was based on the U.S. Treasury yield curve in effect on the date of grant. The expected term and the
expected volatility were based on historical Mastercard information. The expected dividend yields were based on the Company's
expected annual dividend rate on the date of grant.
2022
2021
4.2 %
6.00
29.5 %
1.6 %
6.00
24.6 %
0.9 %
6.00
26.1 %
0.6%
0.6 %
0.5 %
$ 123.22
$ 86.92
$ 91.70
Weighted-average fair value per Option granted
The following table summarizes the Company's option activity for the year ended December 31, 2023:
(in years)
(in millions)
4.7 $
632
As of December 31, 2023, there was $16 million of total unrecognized compensation cost related to non-vested Options. The cost is
expected to be recognized over a weighted-average period of 1.6 years.
102
MASTERCARD 2023 FORM 10-K
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Units
For RSUs granted on or after March 1, 2022, the awards generally vest ratably over three years. For RSUs granted on or after March
1, 2020 but before March 1, 2022, the awards generally vest ratably over four years. A participant's unvested awards are forfeited
upon termination of employment. In the event of termination due to job elimination (as defined by the Company), however, a
participant will retain a pro-rata portion of the unvested awards for services performed through the date of termination. In the
event a participant terminates employment due to disability or retirement more than seven months after receiving the award, the
participant retains all of their awards without providing additional service to the Company. Compensation expense is recognized
over the shorter of the vesting periods stated in the LTIP or the date the individual becomes eligible to retire but not less than seven
months.
The following table summarizes the Company's RSU activity for the year ended December 31, 2023:
Outstanding at January 1, 2023
Granted
Converted
Forfeited
Outstanding at December 31, 2023
Weighted-
Average
Grant-Date
5.0 $
217
3.0 $
581
173
0.3 $
354
(1.9) $
124
(0.1) $
338
2023
0.0 $
3.0 $
217
5.0 $
632
2.4 $
184
4.2 $
283
Expected dividend yield
Expected volatility
Expected term (in years)
Translation adjustments on net investment hedges
December 31,
2021
Increase /
(Decrease)
Reclassifications
December 31,
2022
$
(739) $
(in millions)
(675) $
$ - $ (1,414)
2
34
275
309
Cash flow hedges
3
Foreign currency translation adjustments 1
(1,099)
26 $
128 $
-
5
(118)
4
Defined benefit pension and other postretirement plans"
(11)
(13)
Foreign exchange contracts
(1)
Investment securities available-for-sale
(6)
5
(1)
Accumulated other comprehensive income (loss)
$
(1,253) $
(25)
Aggregate
4
Interest rate contracts
3
4
During 2023, the decrease in the accumulated other comprehensive loss related to foreign currency translation adjustments was driven primarily
by the appreciation of the euro and British pound against the U.S. dollar. During 2022, the increase in the accumulated other comprehensive loss
related to foreign currency translation adjustments was driven primarily by the depreciation of the euro and British pound against the U.S. dollar.
During 2023, the decrease in the accumulated other comprehensive income related to the net investment hedges was driven by the appreciation
of the euro against the U.S. dollar. During 2022, the increase in the accumulated other comprehensive income related to the net investment
hedges was driven by the depreciation of the euro against the U.S. dollar. See Note 23 (Derivative and Hedging Instruments) for additional
information.
Certain foreign exchange derivative contracts are designated as cash flow hedging instruments. Gains and losses resulting from changes in the
fair value of these contracts are deferred in accumulated other comprehensive income (loss) and subsequently reclassified to the consolidated
statement of operations when the underlying hedged transactions impact earnings. See Note 23 (Derivative and Hedging Instruments) for
additional information.
During 2023, the increase in the accumulated other comprehensive loss related to the Plans was driven primarily by a net actuarial loss within
the Pension Plans. During 2022, the increase in the accumulated other comprehensive loss related to the Plans was driven primarily by a net
actuarial loss within the Pension Plans. See Note 14 (Pension, Postretirement and Savings Plans) for additional information.
Note 18. Share-Based Payments
In May 2006, the Company granted the following awards under the Mastercard Incorporated 2006 Long Term Incentive Plan, which
was amended and restated as of June 22, 2021 (the "LTIP"). The LTIP is a stockholder-approved plan that permits the grant of
various types of equity awards to employees. The Company has granted Options, RSUs and PSUs under the LTIP. The Company uses
the straight-line method of attribution for expensing all equity awards. Compensation expense is recorded net of estimated
forfeitures, with estimates adjusted as appropriate.
MASTERCARD 2023 FORM 10-K 101
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There are approximately 116 million shares of Class A common stock authorized for equity awards under the LTIP. Although the LTIP
permits the issuance of shares of Class B common stock, no such shares have been authorized for issuance. Shares issued as a result
of Option exercises and the conversions of RSUs and PSUs were funded primarily with the issuance of new shares of Class A common
stock.
Stock Options
Options expire ten years from the date of grant and vest ratably over three years for awards granted on or after March 1, 2022. For
awards granted before March 1, 2022, they vest ratably over four years. For Options granted, a participant's unvested awards are
forfeited upon termination. In the event a participant terminates employment due to disability or retirement more than seven
months after receiving the award, however, the participant retains all of their awards without providing additional service to the
Company. Retirement eligibility is dependent upon age and years of service. Compensation expense is recognized over the vesting
period as stated in the LTIP.
The fair value of each Option is estimated on the date of grant using a Black-Scholes option pricing model. The following table
presents the weighted-average assumptions used in the valuation and the resulting weighted-average fair value per Option granted
for the years ended December 31:
Risk-free rate of return
2
1
(1,253)
(9) $
(128)
-5
Defined benefit pension and other postretirement plans “
Investment securities available-for-sale
4
21
(31)
(1)
1
Accumulated other comprehensive income (loss)
(5)
(435) $
(13)
(8)
(123)
(1)
(11)
(6)
(809) $
Intrinsic
Expired
Fair Value
(8)
Foreign exchange contracts
3
-181
(128)
309
(31)
- $ (1,119)
(1,414) $
$
(in millions)
2023
December 31,
Reclassifications
295 $
$
Increase/
(Decrease)
22
(17)
In April 2023, the Serbian Competition Commission issued a Statement of Objections ("SO") against Mastercard. The SO covers
historic domestic interchange fees from 2013 to 2018. The SO seeks monetary fines and costs but no business practices changes.
Australia. In May 2022, the Australian Competition & Consumer Commission ("ACCC") filed a complaint targeting certain
agreements entered into by Mastercard and certain Australian merchants related to Mastercard's debit program. The ACCC alleges
that by entering into such agreements, Mastercard engaged in conduct with the purpose of substantially lessening competition in
the supply of debit card acceptance services. The ACCC seeks both declaratory relief and monetary fines and costs. A hearing on
liability issues has been scheduled for March 2025.
Mastercard has been named as a defendant in a proposed consumer collective action filed in Portugal on behalf of Portuguese
consumers. The complaint, which seeks to leverage the 2019 resolution of the European Commission's investigation of Mastercard's
central acquiring rules and interregional interchange fees, claims damages of approximately €0.4 billion (approximately $0.4 billion
as of December 31, 2023) for interchange fees that were allegedly passed on to consumers by Portuguese merchants for a period of
approximately 20 years. Mastercard has submitted a statement of defense that disputes both liability and damages.
In September 2016, a proposed collective action was filed in the United Kingdom on behalf of U.K. consumers seeking damages for
intra-EEA and domestic U.K. interchange fees that were allegedly passed on to consumers by merchants between 1992 and 2008.
The complaint, which seeks to leverage the European Commission's 2007 decision on intra-EEA interchange fees, claims damages in
an amount that exceeds £10 billion (approximately $13 billion as of December 31, 2023). Following various hearings since July 2017
regarding collective action and scope, in August 2021, the trial court issued a decision in which it granted class certification to the
plaintiffs but narrowed the scope of the class. Since January 2023, the trial court has held hearings on various issues, including
whether any causal connection existed between the levels of Mastercard's intra-EEA interchange fees and U.K. domestic interchange
fees and regarding Mastercard's request to narrow the number of years of damages sought by the plaintiffs on statute of limitations
grounds.
In a separate matter, Mastercard and Visa were served with a proposed collective action complaint in the U.K. on behalf of
merchants seeking damages for commercial card transactions in both the U.K. and the European Union. In June 2023, the court
denied the plaintiffs' collective action application. In December 2023, the plaintiffs filed a revised application claiming damages
against Mastercard in excess of £1 billion (approximately $1.3 billion as of December 31, 2023) and the court has scheduled a
hearing on this application for April 2024.
Mastercard continues to litigate with the remaining U.K. and Pan-European Merchant claimants and it has submitted statements of
defense disputing liability and damages claims. A number of those matters are now progressing with motion practice and discovery.
A hearing involving multiple merchant cases is scheduled for February 2024 concerning certain liability issues with respect to
merchant claims for damages related to post-Interchange Fee Regulation consumer interchange fees as well as commercial and
inter-regional interchange fees.
Europe. Since May 2012, a number of United Kingdom ("U.K.") merchants filed claims or threatened litigation against Mastercard
seeking damages for excessive costs paid for acceptance of Mastercard credit and debit cards arising out of alleged anti-competitive
conduct with respect to, among other things, Mastercard's cross-border interchange fees and its U.K. and Ireland domestic
interchange fees (the "U.K. Merchant claimants"). In addition, Mastercard, has faced similar filed or threatened litigation by
merchants with respect to interchange rates in other countries in Europe (the "Pan-European Merchant claimants"). Mastercard has
resolved a substantial amount of these damages claims through settlement or judgment. During 2023, Mastercard incurred charges
of $195 million as a result of settlements with a number of U.K. and Pan-European merchants. During 2022, Mastercard incurred
charges of $223 million as a result of settlements (both final and agreements in principle) with a number of U.K. merchants. During
2021, Mastercard incurred charges of $94 million to reflect both the litigation settlements and estimated attorneys' fees with a
number of U.K. and Pan-European merchants. Following these settlements, approximately £1 billion (approximately $1.3 billion as
of December 31, 2023) of unresolved damages claims remain.
22
2023, Mastercard had no balance remaining in a qualified cash settlement fund related to the Damages Class litigation. As of
December 31, 2022, the Company had $589 million in a qualified cash settlement fund classified as restricted cash on its
consolidated balance sheet. During 2023, Mastercard recorded additional accruals of $344 million as a result of changes in the
estimate with respect to the claims of merchants who opted out of the Damages Class litigation. The liability as of December 31,
2023 for the opt-out merchants represents Mastercard's best estimate of its probable liabilities in these matters and does not
represent an estimate of a loss, if any, if the matters were litigated to a final outcome. Mastercard cannot estimate the potential
liability if that were to occur.
PART II
MASTERCARD 2023 FORM 10-K 109
As of December 31, 2023 and 2022, Mastercard had accrued a liability of $596 million and $894 million, respectively, for the U.S.
MDL Litigation Cases. During 2023, Mastercard reduced both the accrued liability and restricted cash for litigation settlement by
$600 million, including accrued interest, as the Damages Class settlement became final in August 2023. As such, as of December 31,
Separately, settlement negotiations with the Rules Relief Class are ongoing. Briefing on summary judgment motions in the Rules
Relief Class and opt-out merchant cases was completed in December 2020. In September 2021, the district court granted the Rules
Relief Class's motion for class certification. In January 2024, the district court denied certain of the defendants' motions for
summary judgment and the parties are awaiting decisions on the remaining motions.
In September 2018, the parties to the Damages Class litigation entered into a class settlement agreement to resolve the Damages
Class claims, with merchants representing slightly more than 25% of the Damages Class interchange volume ultimately choosing to
opt out of the settlement. The district court granted final approval of the Damages Class settlement in December 2019, which was
upheld by the appellate court in March 2023 and became final in August 2023 pursuant to the terms of the agreement. Mastercard
has commenced settlement negotiations with a number of the opt-out merchants and has reached settlements and/or agreements
in principle to settle a number of these claims.
Interest rate contracts
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
110 MASTERCARD 2023 FORM 10-K
December 31,
2022
Translation adjustments on net investment hedges 2
As of December 31, 2023, the amount of unrecognized tax benefit was $431 million. This amount, if recognized, would reduce
income tax expense by $378 million.
360
414 $
431 $
(3)
(6)
The Company is subject to tax in the U.S., Belgium, Singapore, the United Kingdom and various other foreign jurisdictions, as well as
state and local jurisdictions. Uncertain tax positions are reviewed on an ongoing basis and are adjusted after considering facts and
circumstances, including progress of tax audits, developments in case law and closing of statutes of limitation. Within the next
twelve months, the Company believes that the resolution of certain federal, foreign and state and local examinations is reasonably
possible and that a change in estimate, reducing unrecognized tax benefits, may occur. While such a change may be significant, it is
not possible to provide a range of the potential change until the examinations progress further or the related statutes of limitation
expire. The Company has effectively settled its U.S. federal income tax obligations through 2014. With limited exception, the
Company is no longer subject to state and local or foreign examinations by tax authorities for years before 2014.
(15)
(13)
(31)
(14)
(7)
4
65
(15)
Cash flow hedges
Note 21. Legal and Regulatory Proceedings
108 MASTERCARD 2023 FORM 10-K
Foreign currency translation adjustments ¹
1
The changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, for the years ended
December 31, 2023 and 2022 were as follows:
Note 17. Accumulated Other Comprehensive Income (Loss)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
Mastercard is a party to legal and regulatory proceedings with respect to a variety of matters in the ordinary course of business.
Some of these proceedings are based on complex claims involving substantial uncertainties and unascertainable damages.
Accordingly, it is not possible to determine the probability of loss or estimate damages, and therefore, Mastercard has not
established liabilities for any of these proceedings, except as discussed below. When the Company determines that a loss is both
probable and reasonably estimable, Mastercard records a liability and discloses the amount of the liability if it is material. When a
material loss contingency is only reasonably possible, Mastercard does not record a liability, but instead discloses the nature and the
amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Unless otherwise stated below
with respect to these matters, Mastercard cannot provide an estimate of the possible loss or range of loss based on one or more of
the following reasons: (1) actual or potential plaintiffs have not claimed an amount of monetary damages or the amounts are
unsupportable or exaggerated, (2) the matters are in early stages, (3) there is uncertainty as to the outcome of pending appeals or
motions, (4) there are significant factual issues to be resolved, (5) the proceedings involve multiple defendants or potential
defendants whose share of any potential financial responsibility has yet to be determined and/or (6) there are novel legal issues
presented. Furthermore, except as identified with respect to the matters below, Mastercard does not believe that the outcome of
any individual existing legal or regulatory proceeding to which it is a party will have a material adverse effect on its results of
operations, financial condition and overall business. However, an adverse judgment or other outcome or settlement with respect to
any proceedings discussed below could result in fines or payments by Mastercard and/or could require Mastercard to change its
business practices. In addition, an adverse outcome in a regulatory proceeding could lead to the filing of civil damage claims and
possibly result in significant damage awards. Any of these events could have a material adverse effect on Mastercard's results of
operations, financial condition and overall business.
In October 2012, the parties entered into a definitive settlement agreement with respect to the U.S. MDL Litigation Cases (including
with respect to the claims related to the IPO) and the defendants separately entered into a settlement agreement with the individual
merchant plaintiffs. The settlements included cash payments that were apportioned among the defendants pursuant to the
omnibus judgment sharing and settlement sharing agreement described above. Mastercard also agreed to provide class members
with a short-term reduction in default credit interchange rates and to modify certain of its business practices, including its no
surcharge rule. The court granted final approval of the settlement in December 2013. Following an appeal by objectors and as a
result of a reversal by the U.S. Court of Appeals for the Second Circuit, the district court divided the merchants' claims into two
separate classes - monetary damages claims (the "Damages Class") and claims seeking changes to business practices (the "Rules
Relief Class"). The court appointed separate counsel for each class.
In July 2006, the group of purported merchant class plaintiffs filed a supplemental complaint alleging that Mastercard's initial public
offering of its Class A Common Stock in May 2006 (the "IPO") and certain purported agreements entered into between Mastercard
and financial institutions in connection with the IPO: (1) violate U.S. antitrust laws and (2) constituted a fraudulent conveyance
because the financial institutions allegedly attempted to release, without adequate consideration, Mastercard's right to assess them
for Mastercard's litigation liabilities. The class plaintiffs sought treble damages and injunctive relief including, but not limited to, an
order reversing and unwinding the IPO.
United States. In June 2005, the first of a series of complaints were filed on behalf of merchants (the majority of the complaints
were styled as class actions, although a few complaints were filed on behalf of individual merchant plaintiffs) against Mastercard
International, Visa U.S.A., Inc., Visa International Service Association and a number of financial institutions. Taken together, the
claims in the complaints were generally brought under both Sections 1 and 2 of the Sherman Act, which prohibit monopolization and
attempts or conspiracies to monopolize a particular industry, and some of these complaints contain unfair competition law claims
under state law. The complaints allege, among other things, that Mastercard, Visa, and certain financial institutions conspired to set
the price of interchange fees, enacted point-of-sale acceptance rules (including the "no surcharge" rule) in violation of antitrust laws
and engaged in unlawful tying and bundling of certain products and services, resulting in merchants paying excessive costs for the
acceptance of Mastercard and Visa credit and debit cards. The cases were consolidated for pre-trial proceedings in the U.S. District
Court for the Eastern District of New York in MDL No. 1720 (the "U.S. MDL Litigation Cases"). The plaintiffs filed a consolidated class
action complaint seeking treble damages.
Mastercard's interchange fees and other practices are subject to regulatory, legal review and/or challenges in a number of
jurisdictions, including the proceedings described below. When taken as a whole, the resulting decisions, regulations and legislation
with respect to interchange fees and acceptance practices may have a material adverse effect on the Company's prospects for future
growth and its overall results of operations and financial condition.
Interchange Litigation and Regulatory Proceedings
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
In February 2011, Mastercard and Mastercard International entered into each of: (1) an omnibus judgment sharing and settlement
sharing agreement with Visa Inc., Visa U.S.A. Inc. and Visa International Service Association and a number of financial institutions;
and (2) a Mastercard settlement and judgment sharing agreement with a number of financial institutions. The agreements provide
for the apportionment of certain costs and liabilities which Mastercard, the Visa parties and the financial institutions may incur,
jointly and/or severally, in the event of an adverse judgment or settlement of one or all of the U.S. MDL Litigation Cases. Among a
number of scenarios addressed by the agreements, in the event of a global settlement involving the Visa parties, the financial
institutions and Mastercard, Mastercard would pay 12% of the monetary portion of the settlement. In the event of a settlement
involving only Mastercard and the financial institutions with respect to their issuance of Mastercard cards, Mastercard would pay
36% of the monetary portion of such settlement.
Units
(in millions)
Goodwill and intangible assets
Value
(in millions)
Notional
Derivative Derivative
Assets Liabilities
Derivatives designated as hedging instruments
Foreign exchange contracts in a cash flow hedge 1
Interest rate contracts in a fair value hedge ²
$ 1,006 $
2 $
2
1,000
25 $
79
642 $
1,000
105
Notional
Foreign exchange contracts in a net investment hedge ¹
Derivatives not designated as hedging instruments
1
1,814
103
4
Foreign exchange contracts
1
Total derivative assets/liabilities
$ 4 $ 15
In 2015 and 2022, the Company designated its €1,650 million and €750 million euro-denominated debt, respectively, as hedges of a
portion of its net investment in its European operations. In 2022, €700 million of the 2015 euro-denominated debt matured and was
de-designated as a net investment hedge. In 2023, the Company de-designated an aggregate notional amount of €2,825 million
foreign exchange derivative contracts and €109 million of the euro-denominated debt as net investment hedges to effectively
manage changes in its net investment exposures in foreign subsidiaries. The Company accounts for the de-designated foreign
exchange derivative contracts as economic hedges as of the de-designation date. The foreign currency transaction gains and losses
on the euro-denominated debt that is not designated as a hedging instrument for accounting purposes are recorded in general and
administrative expenses on the consolidated statement of operations, net as of the de-designation date. The de-designated foreign
exchange derivative contracts and euro-denominated debt will serve as economic hedges to offset possible changes in monetary
assets due to foreign exchange fluctuations.
MASTERCARD 2023 FORM 10-K 113
PART II
Officer
X
November 28,
2023
Communications
Adoption
Chief Marketing and
Raja Rajamannar,
Executive Officer
November 2,
2023
Adoption
Michael Miebach,
President and Chief
Number of Securities to
be Sold
Non-Rule
10b5-1
The following table summarizes the fair value of the Company's derivative financial instruments and the related notional amounts:
The Company may also enter into foreign exchange derivative contracts to serve as economic hedges, such as to offset possible
changes in the value of monetary assets and liabilities due to foreign exchange fluctuations, without designating these derivative
contracts as hedging instruments. In addition, the Company is subject to foreign exchange risk as part of its daily settlement
activities. This risk is typically limited to a few days between when a payment transaction takes place and the subsequent
settlement with customers. To manage this risk, the Company may enter into short duration foreign exchange derivative contracts
based upon anticipated receipts and disbursements for the respective currency position. The objective of these activities is to
reduce the Company's exposure to volatility arising from gains and losses resulting from fluctuations of foreign currencies against its
functional currencies. Gains and losses resulting from changes in fair value of these contracts are recorded in general and
administrative expenses on the consolidated statement of operations, net, along with the foreign currency gains and losses on
monetary assets and liabilities.
Non-designated Derivatives
As of December 31, 2023 and 2022, the Company had net foreign currency gains of $181 million and $309 million, after tax,
respectively, in accumulated other comprehensive income (loss) associated with this hedging activity.
As of December 31, 2023 and 2022, the Company had €1.6 billion and €1.7 billion euro-denominated debt outstanding designated as
hedges of a portion of its net investment in its European operations, respectively. During 2023, 2022 and 2021 the Company
recorded a pre-tax net foreign currency loss of $67 million, gain of $176 million and gain of $155 million, respectively, in other
comprehensive income (loss).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5,424
$ 7,430 $
79
23,552 shares of Class A
Common Stock
underlying employee
stock options
2023
2022
2021
(in millions)
es es
$ (41) $
1
es es
$
6
Net revenue
$
(29) $
16 $
1
Interest expense
$
(6) $
(6) $ (6)
Year ended December 31,
Location of Gain
(Loss) Reclassified
from AOCI into
Earnings
(in millions)
2021
521
1
2
183 $ 3,977 $ 108 $ 126
1 Foreign exchange derivative assets and liabilities are included within prepaid expenses and other current assets and other current liabilities,
respectively, on the consolidated balance sheet.
2
Interest rate derivative liabilities are included within other current liabilities and other liabilities on the consolidated balance sheet.
The pre-tax gain (loss) related to the Company's derivative financial instruments designated as hedging instruments are as follows:
Gain (Loss) Recognized in OCI
34
36 $
Year ended December 31,
Derivative financial instruments in a
cash flow hedge relationship:
Foreign exchange contracts
Interest rate contracts
Derivative financial instruments in a
net investment hedge relationship:
Foreign exchange contracts
2023
2022
Gain (Loss) Reclassified from AOCI
(i) 48,112 shares of Class
A Common Stock
underlying employee
stock options and (ii)
12,000 shares of Class A
Common Stock
Expiration
The earlier of (i) the date
when all securities under
plan are exercised and sold
and (ii) November 15, 2024
Revenue by geographic market is based on the location of the Company's customer that issued the card, the location of the
merchant acquirer where the card is being used or the location of the customer receiving services. Revenue generated in the U.S.
was approximately 30% of net revenue in 2023, 33% in 2022 and 32% in 2021. No individual country, other than the U.S., generated
more than 10% of net revenue in those periods. Mastercard did not have any individual customer that generated greater than 10%
of net revenue in 2023, 2022 or 2021.
The following table reflects the geographical location of the Company's property, equipment and right-of-use assets, net, as of
December 31:
United States
Other countries
Total
2023
2022
2021
(in millions)
Mastercard has concluded it has one reportable operating segment, "Payment Solutions." Mastercard's Chief Executive Officer has
been identified as the chief operating decision-maker. All of the Company's activities are interrelated, and each activity is dependent
upon and supportive of the other. Accordingly, all significant operating decisions are based upon analysis of Mastercard at the
consolidated level.
$
$
2,061 $
1,123 $
883
2,006 $
1,117
790
1,907
MASTERCARD 2023 FORM 10-K 115
PART II
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Item 9. Changes in and disagreements with accountants on
accounting and financial disclosure
1,027 $
1,034
Not applicable.
Note 24. Segment Reporting
(10)
December 31, 2023
December 31, 2022
$ (98) $
177 $
114
The Company estimates that the pre-tax amount of the net deferred loss on cash flow hedges recorded in accumulated other
comprehensive income (loss) at December 31, 2023 that will be reclassified into the consolidated statement of operations within the
next 12 months is not material. The term of the foreign exchange derivative contracts designated in hedging relationships are
generally less than 18 months.
114 MASTERCARD 2023 FORM 10-K
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's derivative financial instruments are subject to both market and counterparty credit risk. Market risk is the potential
for economic losses to be incurred on market risk sensitive instruments arising from adverse changes in market factors such as
foreign currency exchange rates, interest rates and other related variables. Counterparty credit risk is the risk of loss due to failure
of the counterparty to perform its obligations in accordance with contractual terms. The Company's derivative contracts are subject
to enforceable master netting arrangements, which contain various netting and setoff provisions. However, the Company has
elected to present derivative assets and liabilities on a gross basis on the consolidated balance sheet. To mitigate counterparty
credit risk, the Company enters into derivative contracts with a diversified group of selected financial institutions based upon their
credit ratings and other factors. Generally, the Company does not obtain collateral related to derivatives because of the high credit
ratings of the counterparties.
The amount of gain (loss) recognized on the consolidated statement of operations for non-designated derivative contracts is
summarized below:
Foreign exchange contracts
General and administrative
Year ended December 31,
2023
2022
(in millions)
2021
$
42 $
21 $
Derivatives not designated as hedging instruments:
Derivative
Assets
Item 9A. Controls and procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) are designed to ensure that information required to be disclosed in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of
the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated
to management, including our President and Chief Executive Officer and our Chief Financial Officer, to allow timely decisions
regarding disclosure. The President and Chief Executive Officer and the Chief Financial Officer, with assistance from other members
of management, have reviewed the effectiveness of our disclosure controls and procedures as of December 31, 2023 and, based on
their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.
Item 11. Executive compensation
The aforementioned information in the Proxy Statement is incorporated by reference into this Report.
Information regarding our executive officers is included in section "Information about our executive officers" in Part I of this Report.
Additional information required by this Item with respect to our directors and executive officers, code of ethics, procedures for
recommending nominees, audit committee, audit committee financial experts and compliance with Section 16(a) of the Exchange
Act will appear in our definitive proxy statement to be filed with the SEC and delivered to stockholders in connection with our 2024
annual meeting of stockholders (the "Proxy Statement”).
Item 10. Directors, executive officers and corporate governance
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Item 14. Principal accountant fees and services
independence
Item 13. Certain relationships and related transactions, and director
The information required by this Item with respect to executive officer and director compensation will appear in the Proxy
Statement and is incorporated by reference into this Report.
Item 12. Security ownership of certain beneficial owners and management and
related stockholder matters
Item 10. Directors, executive officers and corporate governance
PART III
MASTERCARD 2023 FORM 10-K 117
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, we hereby incorporate by reference
herein the disclosure contained in Exhibit 99.1 of this Report.
Other Information
2 Not intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).
Intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).
1
The earlier of (i) the date
when all securities under
plan are exercised and sold
and (ii) November 28, 2024
Item 11. Executive compensation
Evaluation of Disclosure Controls and Procedures
Item 12. Security ownership of certain beneficial owners and
management and related stockholder matters
Item 13. Certain relationships and related transactions, and
director independence
Internal Control over Financial Reporting
In addition, Mastercard Incorporated's management assessed the effectiveness of Mastercard's internal control over financial
reporting as of December 31, 2023. Management's report on internal control over financial reporting is included in Part II, Item 8.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the consolidated financial statements
included in this Annual Report on Form 10-K and, as part of their audit, has issued their report, included herein, on the effectiveness
of our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There was no change in Mastercard's internal control over financial reporting that occurred during the three months ended
December 31, 2023 that has materially affected, or is reasonably likely to materially affect, Mastercard's internal control over
financial reporting.
116 MASTERCARD 2023 FORM 10-K
PART II
ITEM 9B. OTHER INFORMATION
Item 9B. Other information
Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements
The information required by this Item with respect to security ownership of certain beneficial owners and management equity and
compensation plans will appear in the Proxy Statement and is incorporated by reference into this Report.
Derivative
Liabilities
(in millions)
Action
Item 16. Form 10-K summary
Item 15. Exhibits and financial statement schedules
PART IV
119
MASTERCARD 2023 FORM 10-K
The information required by this Item with respect to auditors' services and fees will appear in the Proxy Statement and is
incorporated by reference into this Report.
Item 14. Principal accountant fees and services
The information required by this Item with respect to transactions with related persons, the review, approval or ratification of such
transactions and director independence will appear in the Proxy Statement and is incorporated by reference into this Report.
Plans
During the three months ended December 31, 2023, certain of our officers and directors adopted or terminated trading
arrangements for the sale of shares of our common stock as follows:
$
Net Investment Hedges
The Company's estimated settlement exposure was as follows at December 31:
As part of its policies, Mastercard requires certain customers that do not meet the Company's risk standards to enter into risk
mitigation arrangements, including cash collateral and/or forms of credit enhancement such as letters of credit and guarantees. This
requirement is based on a review of the individual risk circumstances for each customer. Mastercard monitors its credit risk
portfolio and the adequacy of its risk mitigation arrangements on a regular basis. Additionally, from time to time, the Company
reviews its risk management methodology and standards. As such, the amounts of estimated settlement exposure are revised as
necessary.
Gross settlement exposure is estimated using the average daily payment volume during the three months prior to period end
multiplied by the estimated number of days of exposure. The Company has global risk management policies and procedures, which
include risk standards, to provide a framework for managing the Company's settlement risk and exposure. In the event of failed
settlement by a customer, Mastercard may pursue one or more remedies available under the Company's rules to recover potential
losses. Historically, the Company has experienced a low level of losses from customer settlement failures.
Mastercard's rules guarantee the settlement of many of the payment network transactions between its customers ("settlement
risk"). Settlement exposure is the settlement risk to customers under Mastercard's rules due to the difference in timing between the
payment transaction date and subsequent settlement. For those transactions the Company guarantees, the guarantee will cover the
full amount of the settlement obligation to the extent the settlement obligation is not otherwise satisfied. The duration of the
settlement exposure is short-term and generally limited to a few days.
Note 22. Settlement and Other Risk Management
In March 2023, Mastercard received a Civil Investigative Demand ("CID") from the U.S. Department of Justice Antitrust Division
("DOJ") seeking documents and information regarding a potential violation of Sections 1 or 2 of the Sherman Act. The CID focuses
on Mastercard's U.S. debit program and competition with other payment networks and technologies. Mastercard is cooperating
with the DOJ in connection with the CID.
U.S. Department of Justice Investigation
In June 2020, the U.S. Federal Trade Commission's Bureau of Competition ("FTC") informed Mastercard that it initiated a formal
investigation into compliance with the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act. In
particular, the investigation focused on Mastercard's compliance with the debit routing provisions of the Durbin Amendment. In
December 2022, the FTC voted to issue an administrative complaint and accept a consent agreement with Mastercard. Pursuant to
this agreement, Mastercard agreed to provide primary account numbers (PANS) so that merchants can route tokenized online debit
transactions to alternative networks. The consent agreement does not include any monetary penalty. Following a public comment
period, the FTC finalized the consent agreement in May 2023.
U.S. Federal Trade Commission Investigation
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
Gross settlement exposure
MASTERCARD 2023 FORM 10-K 111
Telephone Consumer Protection Class Action
In March 2016, a proposed U.S. merchant class action complaint was filed in federal court in California alleging that Mastercard, Visa,
American Express and Discover (the "Network Defendants"), EMVCO, and a number of issuing banks (the "Bank Defendants")
engaged in a conspiracy to shift fraud liability for card present transactions from issuing banks to merchants not yet in compliance
with the standards for EMV chip cards in the United States (the "EMV Liability Shift"), in violation of the Sherman Act and California
law. Plaintiffs allege damages equal to the value of all chargebacks for which class members became liable as a result of the EMV
Liability Shift on October 1, 2015. The plaintiffs seek treble damages, attorney's fees and costs and an injunction against future
violations of governing law, and the defendants filed a motion to dismiss. In September 2016, the district court denied the Network
Defendants' motion to dismiss the complaint, but granted such a motion for EMVCO and the Bank Defendants. In May 2017, the
district court transferred the case to New York so that discovery could be coordinated with the U.S. MDL Litigation Cases described
above. In August 2020, the district court issued an order granting the plaintiffs' request for class certification and in January 2021,
the Network Defendants' request for permission to appeal that decision was denied. The plaintiffs have submitted expert reports
that allege aggregate damages in excess of $1 billion against the four Network Defendants. The Network Defendants have
submitted expert reports rebutting both liability and damages and all briefs on summary judgment have been submitted.
U.S. Liability Shift Litigation
Europe. Mastercard was named as a defendant in an action brought by Euronet 360 Finance Limited, Euronet Polska Spolka z.o.o.
and Euronet Services spol. s.r.o. ("Euronet") alleging that certain rules affecting ATM access fees in Poland, the Czech Republic and
Greece by Visa and Mastercard, and certain of their subsidiaries, breach various competition laws. Euronet sought damages, costs
and injunctive relief to prevent the defendants from enforcing these rules. The matter was resolved via a settlement in October
2023.
In January 2012, the plaintiffs in the ATM Operators Complaint and the ATM Consumer Complaints filed amended class action
complaints that largely mirror their prior complaints. In September 2019, the plaintiffs filed with the district court their motions for
class certification in which the plaintiffs, in aggregate, allege over $1 billion in damages against all of the defendants. In August 2021,
the trial court issued an order granting the plaintiffs' request for class certification. In July 2023, the D.C. Circuit Court affirmed the
district court order granting class certification. In January 2024, the defendants requested that the U.S. Supreme Court hear the
defendants' appeal of the certification decision.
Subsequently, multiple related complaints were filed in the U.S. District Court for the District of Columbia alleging both federal
antitrust and multiple state unfair competition, consumer protection and common law claims against Mastercard and Visa on behalf
of putative classes of users of ATM services (the "ATM Consumer Complaints"). The claims in these actions largely mirror the
allegations made in the ATM Operators Complaint, although these complaints seek damages on behalf of consumers of ATM services
who pay allegedly inflated ATM fees at both bank and non-bank ATM operators as a result of the defendants' ATM rules. Plaintiffs
seek both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the alleged
violations and their costs of suit, including attorneys' fees.
United States. In October 2011, a trade association of independent Automated Teller Machine ("ATM") operators and 13
independent ATM operators filed a complaint styled as a class action lawsuit in the U.S. District Court for the District of Columbia
against both Mastercard and Visa (the "ATM Operators Complaint"). Plaintiffs seek to represent a class of non-bank operators of
ATM terminals that operate in the United States with the discretion to determine the price of the ATM access fee for the terminals
they operate. Plaintiffs allege that Mastercard and Visa have violated Section 1 of the Sherman Act by imposing rules that require
ATM operators to charge non-discriminatory ATM surcharges for transactions processed over Mastercard's and Visa's respective
networks that are not greater than the surcharge for transactions over other networks accepted at the same ATM. Plaintiffs seek
both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the alleged violations and
their costs of suit, including attorneys' fees.
ATM Non-Discrimination Rule Surcharge Complaints
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
The Company may use foreign currency denominated debt and/or foreign exchange derivative contracts to hedge a portion of its net
investment in foreign subsidiaries against adverse movements in exchange rates. The effective portion of the net investment hedge
is recorded as a currency translation adjustment in accumulated other comprehensive income (loss). Forward points are excluded
from the effectiveness assessment and are recognized in general and administrative expenses on the consolidated statement of
operations over the hedge period. The amounts recognized in earnings related to forward points for 2023, 2022 and 2021 were not
material.
Mastercard is a defendant in a Telephone Consumer Protection Act ("TCPA") class action pending in Florida. The plaintiffs are
individuals and businesses who allege that approximately 381,000 unsolicited faxes were sent to them advertising a Mastercard co-
brand card issued by First Arkansas Bank ("FAB"). The TCPA provides for uncapped statutory damages of $500 per fax. Mastercard
has asserted various defenses to the claims, and has notified FAB of an indemnity claim that it has (which FAB has disputed). In
December 2019, the Federal Communications Commission ("FCC") issued a declaratory ruling clarifying that the TCPA does not apply
to faxes sent to online fax services that are received online via email. In December 2021, the trial court granted plaintiffs' request
for class certification, but narrowed the scope of the class to stand alone fax recipients only. Mastercard's request to appeal that
decision was denied. Briefing on plaintiffs' motion to amend the class definition and Mastercard's cross-motion to decertify the
stand alone fax recipient class was completed in April 2023.
1
Date
Net settlement exposure
In 2021, the Company entered into an interest rate swap designated as a fair value hedge related to $1.0 billion of the 3.850% Senior
Notes due March 2050. In effect, the interest rate swap synthetically converts the fixed interest rate on this debt to a variable
interest rate based on the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap Rate. The net impact to interest
expense for the years ended December 31, 2023, 2022 and 2021 was not material.
Risk mitigation arrangements applied to settlement exposure
The Company may enter into interest rate derivative contracts, including interest rate swaps, to manage the effects of interest rate
movements on the fair value of the Company's fixed-rate debt and designate such derivatives as hedging instruments in a fair value
hedging relationship. Changes in fair value of these contracts and changes in fair value of fixed-rate debt attributable to changes in
the hedged benchmark interest rate generally offset each other and are recorded in interest expense on the consolidated statement
of operations. Gains and losses related to the net settlements of interest rate swaps are also recorded in interest expense on the
consolidated statement of operations. The periodic cash settlements are included in operating activities on the consolidated
statement of cash flows.
Fair Value Hedges
Cash Flow Hedges
The Company monitors and manages its foreign currency and interest rate exposures as part of its overall risk management program
which focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of
these markets may have on its operating results. A primary objective of the Company's risk management strategies is to reduce the
financial impact that may arise from volatility in foreign currency exchange rates principally through the use of both foreign
exchange derivative contracts and foreign currency denominated debt. In addition, the Company may enter into interest rate
derivative contracts to manage the effects of interest rate movements on the Company's aggregate liability portfolio, including
potential future debt issuances. The Company does not enter into derivatives for speculative purposes.
Note 23. Derivative and Hedging Instruments
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
MASTERCARD 2023 FORM 10-K
112
Mastercard also provides guarantees to customers and certain other counterparties indemnifying them from losses stemming from
failures of third parties to perform duties. This includes guarantees of Mastercard-branded travelers cheques issued, but not yet
cashed of $340 million and $342 million at December 31, 2023 and 2022, respectively, of which the Company has risk mitigation
arrangements for $272 million and $273 million at December 31, 2023 and 2022, respectively. In addition, the Company enters into
agreements in the ordinary course of business under which the Company agrees to indemnify third parties against damages, losses
and expenses incurred in connection with legal and other proceedings arising from relationships or transactions with the Company.
Certain indemnifications do not provide a stated maximum exposure. As the extent of the Company's obligations under these
agreements depends entirely upon the occurrence of future events, the Company's potential future liability under these agreements
is not determinable. Historically, payments made by the Company under these types of contractual arrangements have not been
material.
The Company may enter into foreign exchange derivative contracts, including forwards and options, to manage the impact of foreign
currency variability on anticipated revenues and expenses, which fluctuate based on currencies other than the functional currency of
the entity. The objective of these hedging activities is to reduce the effect of movement in foreign exchange rates for a portion of
revenues and expenses forecasted to occur. As these contracts are designated as cash flow hedging instruments, gains and losses
resulting from changes in fair value of these contracts are deferred in accumulated other comprehensive income (loss) and are
subsequently reclassified to the consolidated statement of operations when the underlying hedged transactions impact earnings.
In addition, the Company may enter into interest rate derivative contracts to manage the effects of interest rate movements on the
Company's aggregate liability portfolio, including potential future debt issuances, and designate such derivatives as hedging
instruments in a cash flow hedging relationship. Gains and losses resulting from changes in fair value of these contracts are deferred
in accumulated other comprehensive income (loss) and are subsequently reclassified as an adjustment to interest expense over the
respective terms of the hedged debt issuances. As of December 31, 2023, a cumulative loss of $118 million, after tax, remains in
accumulated other comprehensive income (loss) associated with these contracts and will be reclassified as an adjustment to interest
expense over the respective terms of the 2020 USD Notes due in March 2030 and March 2050.
55,661
1 The Company corrected its estimated net settlement exposure as of December 31, 2022. The correction was not material to the net settlement
exposures previously reported and had no impact to any of the Company's financial statement line items.
1
2022
(in millions)
75,023 $
$
(12,167)
(9,224)
Rule
10b5-11
62,856 $
64,885
2023
Item 15. Exhibits and financial statement schedules
10.15
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS
PART IV
10.13
10.14
10.20
10.17
10.18
10.19
10.21
Mastercard Incorporated 2006 Long Term Incentive Plan, amended and restated effective June 22, 2021
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed July 29, 2021 (File
No. 001-32877)).
Form of Restricted Stock Unit Agreement for awards under 2006 Long Term Incentive Plan (effective for awards
granted on and subsequent to March 1, 2023) (incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q filed April 27, 2023 (File No. 001-32877)).
Form of Stock Option Agreement for awards under 2006 Long Term Incentive Plan (effective for awards granted on
and subsequent to March 1, 2023) (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q filed April 27, 2023 (File No. 001-32877)).
(a) The following documents are filed as part of this Report:
10.16
1
EXHIBIT INDEX
2
4.2
4.1
3.2
3.1
Exhibit Description
Exhibit number
Exhibit index
Form of Performance Stock Unit Agreement for awards under 2006 Long Term Incentive Plan (effective for awards
granted on and subsequent to March 1, 2023) (incorporated by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q filed April 27, 2023 (File No. 001-32877)).
MASTERCARD 2023 FORM 10-K 121
None.
Item 16. Form 10-K summary
Refer to the Exhibit Index included herein.
The following exhibits are filed as part of this Report or, where indicated, were previously filed and are hereby
incorporated by reference:
None.
Consolidated Financial Statement Schedules
See Index to Consolidated Financial Statements in Part II, Item 8.
3
Consolidated Financial Statements
Form of Mastercard Incorporated Long Term Incentive Plan Non-Competition and Non-Solicitation Agreement for
named executive officers (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K
filed February 16, 2012 (File No. 001-32877)).
10.21.2
Amended and Restated Mastercard International Incorporated Change in Control Severance Plan, amended and
restated as of October 17, 2023 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q filed October 26, 2023 (File No. 001-32877)).
Amendment to Omnibus Agreement Regarding Interchange Litigation Judgment Sharing and Settlement Sharing,
dated as of August 25, 2014, by and among Mastercard Incorporated, Mastercard International Incorporated, Visa
Inc., Visa U.S.A Inc., Visa International Service Association and Mastercard's customer banks that are parties thereto
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed October 30, 2014
(File No. 001-32877)).
Second Amendment to Omnibus Agreement Regarding Interchange Litigation Judgment Sharing and Settlement
Sharing, dated as of October 22, 2015, by and among Mastercard Incorporated, Mastercard International
Incorporated, Visa Inc., Visa U.S.A Inc., Visa International Service Association and Mastercard's customer banks that
are parties thereto (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed
October 29, 2015 (File No. 001-32877)).
Mastercard Settlement and Judgment Sharing Agreement, dated as of February 7, 2011, by and among Mastercard
Incorporated, Mastercard International Incorporated and Mastercard's customer banks that are parties thereto
(incorporated by reference to Exhibit 10.34 to Amendment No.1 to the Company's Annual Report on Form 10-K/A
filed on November 23, 2011).
Amendment to Mastercard Settlement and Judgment Sharing Agreement, dated as of August 26, 2014, by and
among Mastercard Incorporated, Mastercard International Incorporated and Mastercard's customer banks that are
parties thereto (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed
October 30, 2014 (File No. 001-32877)).
Second Amendment to Mastercard Settlement and Judgment Sharing Agreement, dated as of October 22, 2015, by
and among Mastercard Incorporated, Mastercard International Incorporated and Mastercard's customer banks that
are parties thereto (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed
October 29, 2015 (File No. 001-32877)).
Superseding and Amended Class Settlement Agreement, dated September 17, 2018, by and among Mastercard
Incorporated and Mastercard International Incorporated; Visa, Inc., Visa U.S.A. Inc. and Visa International Service
Association; the Class Plaintiffs defined therein; and the Customer Banks defined therein (incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K filed September 18, 2018 (File No. 001-32877)).
List of Subsidiaries of Mastercard Incorporated.
Consent of PricewaterhouseCoopers LLP.
32.2*
Certification of Michael Miebach, President and Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Michael Miebach, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Sachin Mehra, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Mastercard Incorporated Executive Officer Incentive Compensation Recovery Policy, effective October 2, 2023.
Disclosure pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012.
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags
are embedded within the Inline XBRL document.
97.1*
99.1*
101.INS
101.SCH*
Certification of Sachin Mehra, Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
31.2*
31.1*
Mastercard Incorporated Employee Stock Purchase Plan, effective as of June 27, 2023 (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed July 27, 2023 (File No. 001-32877)).
2006 Non-Employee Director Equity Compensation Plan, amended and restated effective as of June 22, 2021
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed July 29, 2021 (File
No. 001-32877)).
Form of Deferred Stock Unit Agreement for awards under 2006 Non-Employee Director Equity Compensation Plan,
(effective for awards granted on and subsequent to June 27, 2023) (incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q filed July 27, 2023 (File No. 001-32877)).
Form of Restricted Stock Agreement for awards under 2006 Non-Employee Director Equity Compensation Plan
(effective for awards granted on and subsequent to June 27, 2023) (incorporated by reference to Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q filed July 27, 2023 (File No. 001-32877)).
Form of Indemnification Agreement between Mastercard Incorporated and certain of its directors (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed May 2, 2006 (File No. 000-50250)).
Form of Indemnification Agreement between Mastercard Incorporated and certain of its director nominees
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed May 2, 2006 (File
No. 000-50250)).
Deed of Gift between Mastercard Incorporated and Mastercard Foundation (incorporated by reference to Exhibit
10.28 to Pre-Effective Amendment No. 5 to the Company's Registration Statement on Form S-1 filed May 3, 2006
(File No. 333-128337)).
Settlement Agreement, dated as of June 4, 2003, between Mastercard International Incorporated and Plaintiffs in
the class action litigation entitled In Re Visa Check/MasterMoney Antitrust Litigation (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed August 8, 2003 (File No. 000-50250)).
Stipulation and Agreement of Settlement, dated July 20, 2006, between Mastercard Incorporated, the several
defendants and the plaintiffs in the consolidated federal class action lawsuit titled In re Foreign Currency Conversion
Fee Antitrust Litigation (MDL 1409), and the California state court action titled Schwartz v. Visa Int'l Corp., et al.
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed November 1, 2006
(File No. 001-32877)).
Omnibus Agreement Regarding Interchange Litigation Judgment Sharing and Settlement Sharing, dated as of
February 7, 2011, by and among Mastercard Incorporated, Mastercard International Incorporated, Visa Inc., Visa
U.S.A. Inc., Visa International Service Association and Mastercard's customer banks that are parties thereto
(incorporated by reference to Exhibit 10.33 to Amendment No.1 to the Company's Annual Report on Form 10-K/A
filed on November 23, 2011).
124 MASTERCARD 2023 FORM 10-K
EXHIBIT INDEX
10.21.1
4.3
10.22**
10.22.1
10.22.2
10.23
21*
23.1*
Amended and Restated Mastercard International Incorporated Executive Severance Plan, amended and restated as
of October 17, 2023 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
filed October 26, 2023 (File No. 001-32877)).
4.4
4.16
4.6
Form of Global Note representing the Company's 2.950% Notes due 2051 (included in Officer's Certificate of the
Company, dated as of March 4, 2021) (incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed on March 4, 2021 (File No. 001-32877)).
Form of Global Note representing the Company's 1.900% Notes due 2031 (included in Officer's Certificate of the
Company, dated as of March 4, 2021) (incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed on March 4, 2021 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of March 4, 2021 (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K filed on March 4, 2021 (File No. 001-32877)).
Form of Global Note representing the Company's 3.850% Notes due 2050 (included in Officer's Certificate of the
Company, dated as of March 26, 2020) (incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed on March 26, 2020 (File No. 001-32877)).
Form of Global Note representing the Company's 3.350% Notes due 2030 (included in Officer's Certificate of the
Company, dated as of March 26, 2020) (incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed on March 26, 2020 (File No. 001-32877)).
Form of Global Note representing the Company's 3.300% Notes due 2027 (included in Officer's Certificate of the
Company, dated as of March 26, 2020) (incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed on March 26, 2020 (File No. 001-32877)).
10.4+
Officer's Certificate of the Company, dated as of November 18, 2021 (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K filed on November 18, 2021 (File No. 001-32877)).
10.3+
10.1
4.32
4.31
4.30
4.29
4.28
4.27
10.2+
Form of Global Note representing the Company's 2.000% Notes due 2031 (included in Officer's Certificate of the
Company, dated as of November 18, 2021) (incorporated by reference to Exhibit 4.1 of the Company's Current
Report on Form 8-K filed on November 18, 2021 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of February 22, 2022 (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K filed on February 22, 2022 (File No. 001-32877)).
Form of Global Note representing the Company's 1.000% Notes due 2029 (included in Officer's Certificate of the
Company, dated as of February 22, 2022) (incorporated by reference to Exhibit 4.1 of the Company's Current Report
on Form 8-K filed on February 22, 2022 (File No. 001-32877)).
10.12+
10.11+
10.10+
10.9+
10.8+
10.7+
10.6+
10.5+
EXHIBIT INDEX
MASTERCARD 2023 FORM 10-K 123
Mastercard Incorporated Deferral Plan, as amended and restated effective December 1, 2008 for account balances
established after December 31, 2004 (incorporated by reference to Exhibit 10.25 to the Company's Annual Report on
Form 10-K filed February 19, 2009 (File No. 001-32877)).
Mastercard International Incorporated Restoration Program, as amended and restated January 1, 2007 unless
otherwise provided (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K filed
February 19, 2009 (File No. 001-32877)).
$8,000,000,000 Amended and Restated Credit Agreement, dated as of November 10, 2022, among Mastercard
Incorporated, the several lenders and agents from time to time party thereto, Citibank, N.A., as managing
administrative agent and JPMorgan Chase Bank, N.A. as administrative agent (incorporated by reference to Exhibit
10.1 of the Company's Annual Report on Form 10-K filed on February 14, 2023 (File No. 001-32877)).
Mastercard International Senior Executive Annual Incentive Compensation Plan, as amended and restated effective
June 12, 2023 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed July
27, 2023 (File No. 001-32877)).
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by
reference to Exhibit 4.29 of the Company's Annual Report on Form 10-K filed on February 14, 2023 (File No.
001-32877)).
Form of Global Note representing the Company's 4.850% Notes due 2033 (included in Officer's Certificate of the
Company, dated as of March 9, 2023) (incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed on March 9, 2023 (File No. 001-32877)).
Form of Global Note representing the Company's 4.875% Notes due 2028 (included in Officer's Certificate of the
Company, dated as of March 9, 2023) (incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed on March 9, 2023 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of March 9, 2023 (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K filed on March 9, 2023 (File No. 001-32877)).
4.26
4.25
4.24
4.23
Officer's Certificate of the Company, dated as of December 1, 2015 (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K filed on December 1, 2015 (File No. 001-32877)).
Form of Global Note representing the Company's 3.375% Notes due 2024 (included in Officer's Certificate of the
Company, dated as of March 31, 2014) (incorporated by reference to Exhibit 4.2 of the Company's Current Report on
Form 8-K filed on March 31, 2014 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of March 31, 2014 (incorporated by reference to Exhibit 4.2 of the
Company's Current Report on Form 8-K filed on March 31, 2014 (File No. 001-32877)).
Indenture, dated as of March 31, 2014, between the Company and Deutsche Bank Trust Company Americas, as
trustee (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed on March 31,
2014 (File No. 001-32877)).
Amended and Restated By-Laws of Mastercard Incorporated (incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed December 11, 2023 (File No. 001-32877)).
Amended and Restated Certificate of Incorporation of Mastercard Incorporated (incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K filed June 24, 2022 (File No. 001-32877)).
4.17
XBRL Taxonomy Extension Schema Document
4.15
4.14
4.13
4.12
4.11
4.10
4.9
4.8
4.7
Form of Global Note representing the Company's 2.100% Notes due 2027 (included in Officer's Certificate of the
Company, dated as of December 1, 2015) (incorporated by reference to Exhibit 4.1 of the Company's Current Report
on Form 8-K filed on December 1, 2015 (File No. 001-32877)).
4.5
Form of Global Note representing the Company's 2.500% Notes due 2030 (included in Officer's Certificate of the
Company, dated as of December 1, 2015) (incorporated by reference to Exhibit 4.1 of the Company's Current Report
on Form 8-K filed on December 1, 2015 (File No. 001-32877)).
Form of Global Note representing the Company's 2.950% Notes due 2026 (included in Officer's Certificate of the
Company, dated as of November 21, 2016) (incorporated by reference to Exhibit 4.1 of the Company's Current
Report on Form 8-K filed on November 21, 2016 (File No. 001-32877)).
4.22
4.21
4.20
4.19
Officer's Certificate of the Company, dated as of March 26, 2020 (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K filed on March 26, 2020 (File No. 001-32877)).
4.18
EXHIBIT INDEX
122 MASTERCARD 2023 FORM 10-K
Form of Global Note representing the Company's 2.000% Notes due 2025 (included in Officer's Certificate of the
Company, dated as of December 3, 2019) (incorporated by reference to Exhibit 4.1 of the Company's Current Report
on Form 8-K filed on December 3, 2019 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of December 3, 2019 (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K filed on December 3, 2019 (File No. 001-32877)).
Form of Global Note representing the Company's 3.650% Notes due 2049 (included in Officer's Certificate of the
Company, dated as of May 31, 2019) (incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed on May 31, 2019 (File No. 001-32877)).
Form of Global Note representing the Company's 2.950% Notes due 2029 (included in Officer's Certificate of the
Company, dated as of May 31, 2019) (incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed on May 31, 2019 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of May 31, 2019 (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K filed on May 31, 2019 (File No. 001-32877)).
Form of Global Note representing the Company's 3.95% Notes due 2048 (included in Officer's Certificate of the
Company, dated as of February 26, 2018) (incorporated by reference to Exhibit 4.1 of the Company's Current Report
on Form 8-K filed on February 26, 2018 (File No. 001-32877)).
Form of Global Note representing the Company's 3.5% Notes due 2028 (included in Officer's Certificate of the
Company, dated as of February 26, 2018) (incorporated by reference to Exhibit 4.1 of the Company's Current Report
on Form 8-K filed on February 26, 2018 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of February 26, 2018 (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K filed on February 26, 2018 (File No. 001-32877)).
Form of Global Note representing the Company's 3.800% Notes due 2046 (included in Officer's Certificate of the
Company, dated as of November 21, 2016) (incorporated by reference to Exhibit 4.1 of the Company's Current
Report on Form 8-K filed on November 21, 2016 (File No. 001-32877)).
Officer's Certificate of the Company, dated as of November 21, 2016 (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K filed on November 21, 2016 (File No. 001-32877)).
101.CAL*
MASTERCARD 2023 FORM 10-K 125
101.DEF*
Mastercard AP Financing Pte. Ltd.
Mastercard Asia/Pacific Pte. Ltd.
Mastercard Brasil Soluções de Pagamento Ltda.
Mastercard/Europay U.K. Limited
Mastercard Europe SA
Mastercard Europe Services Limited
Mastercard Financing Solutions LLC
Mastercard A&M Investment Holdings, LLC
Mastercard Holdings LP
Mastercard Payment Gateway Services Limited
Mastercard Payment Gateway Services Group Limited
Mastercard Singapore Holding Pte. Ltd.
Mastercard Technologies, LLC
Mastercard US Holdings LLC
Jurisdiction
United Kingdom
Delaware
Mastercard International Incorporated
Global Mastercard Holdings LP
Name
The following is a list of subsidiaries of Mastercard Incorporated as of December 31, 2023, omitting subsidiaries which,
considered in the aggregate, would not constitute a significant subsidiary:
Director
Date: February 13, 2024
By:
/s/HARIT TALWAR
Date:
February 13, 2024
By:
Harit Talwar
Director
/s/ LANCE UGGLA
Lance Uggla
Director
SIGNATURES
MASTERCARD 2023 FORM 10-K
127
LIST OF SUBSIDIARIES OF MASTERCARD INCORPORATED
Exhibit 21
Singapore
Gabrielle Sulzberger
Singapore
United Kingdom
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
I have reviewed this annual report on Form 10-K of Mastercard Incorporated;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date:
February 13, 2024
By:
/s/Michael Miebach
Michael Miebach
President and Chief Executive Officer
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
1.
I, Michael Miebach, certify that:
EXHIBIT 31.1
Belgium
United Kingdom
Delaware
United Kingdom
Delaware
United Kingdom
United Kingdom
Singapore
Delaware
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-135572;
333-136460; 333-143777; and 333-273483) of Mastercard Incorporated of our report dated February 13, 2024 relating to the
financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
February 13, 2024
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
Brazil
/s/ GABRIELLE SULZBERGER
Director
Rima Qureshi
February 13, 2024
By:
By:
Date:
February 13, 2024
By:
Date:
Date:
February 13, 2024
Date:
February 13, 2024
By:
126 MASTERCARD 2023 FORM 10-K
/s/ MICHAEL MIEBACH
Michael Miebach
President and Chief Executive Officer; Director
(Principal Executive Officer)
By:
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
/s/ MICHAEL MIEBACH
Michael Miebach
President and Chief Executive Officer
(Principal Executive Officer)
(Registrant)
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
101.PRE*
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Management contracts or compensatory plans or arrangements.
+
*
Filed or furnished herewith.
** Exhibit omits certain information that has been filed separately with the U.S. Securities and Exchange Commission and has been granted
confidential treatment.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other
disclosure other than with respect to the terms of the agreements or other documents themselves, and should not be relied upon
for that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents
were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs
as of the date they were made or at any other time.
SIGNATURES
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
MASTERCARD INCORPORATED
Date:
February 13, 2024
By:
/s/ SACHIN MEHRA
Sachin Mehra
Chief Financial Officer
(Principal Financial Officer)
/s/ SANDRA ARKELL
Merit E. Janow
Chairman of the Board; Director
By:
Date: February 13, 2024
Date: February 13, 2024
By:
By:
Date: February 13, 2024
Date:
February 13, 2024
By:
/s/ OKI MATSUMOTO
Oki Matsumoto
Director
/s/ YOUNGME MOON
Youngme Moon
Director
/s/ RIMA QURESHI
/s/ MERIT E. JANOW
XBRL Taxonomy Extension Calculation Linkbase Document
By:
Choon Phong Goh
Sandra Arkell
Corporate Controller
(Principal Accounting Officer)
/s/ CANDIDO BRACHER
Candido Bracher
Director
/s/ RICHARD K. DAVIS
Richard K. Davis
Director
By:
t
Date: February 13, 2024
By:
Date: February 13, 2024
Date: February 13, 2024
/s/ JULIUS GENACHOWSKI
Julius Genachowski
Director
/s/ CHOON PHONG GOH
Director
Date: February 13, 2024
In connection with the Annual Report of Mastercard Incorporated (the "Company") on Form 10-K for the period
ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I,
Sachin Mehra, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of my knowledge:
18 U.S.C. SECTION 1350,
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
February 13, 2024
/s/Michael Miebach
Michael Miebach
President and Chief Executive Officer
CERTIFICATION PURSUANT TO
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
February 13, 2024
/s/ Sachin Mehra
Sachin Mehra
Chief Financial Officer
Section 13(r) Disclosure
EXHIBIT 99.1
Mastercard Incorporated ("Mastercard") has established a risk-based compliance program designed to prevent us from having
business dealings with Iran, as well as other prohibited countries, regions, individuals or entities. This includes obligating
issuers and acquirers to screen account holders and merchants, respectively, against the U.S. Office of Foreign Assets
Control's ("OFAC") sanctions lists, including the List of Specially Designated Nationals (“SDN list”).
We identified through our compliance program that for the period covered by this Report:
acquirers located in the Europe and Eastern Europe/Middle East/Africa regions each acquired transactions over our
network for an Iranian airline
during the three months ended March 31, 2023, an acquirer located in the Asia/Pacific region acquired transactions
over our network for consular services with an Iranian embassy
during the three months ended December 31, 2023, an acquirer located in the Eastern Europe/Middle East/Africa
region acquired transactions over our network for consular services with an Iranian embassy
OFAC regulations and other legal authorities provide exemptions for certain activities involving dealings with Iran. However,
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 requires us to disclose whether we, or any of our
affiliates, have knowingly engaged in certain transactions or dealings involving the Government of Iran or with certain persons
or entities found on the SDN list, regardless of whether these dealings constitute a violation of OFAC regulations.
We do not calculate net revenues or net profits associated with specific merchants (our customers' customers). However, we
used our fee schedule and the aggregate number and amount of transactions involving the above merchants to estimate the
net revenue and net profit we obtained with respect to the period covered by this Report. Both the number of transactions
and our estimated net revenue and net profits for this period are de minimis.
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
In connection with the Annual Report of Mastercard Incorporated (the "Company") on Form 10-K for the period
ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I,
Michael Miebach, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of my knowledge:
I, Sachin Mehra, certify that:
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
1.
I have reviewed this annual report on Form 10-K of Mastercard Incorporated;
EXHIBIT 32.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
EXHIBIT 31.2
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
18 U.S.C. SECTION 1350,
CERTIFICATION PURSUANT TO
Sachin Mehra
/s/ Sachin Mehra
Chief Financial Officer
February 13, 2024
Date:
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
By:
We leverage our technology to help enable payments, services and new networks, enhance our operational strength and enable our
employees to deliver effectively for our customers. Our strategy to "lead through technology" includes the following key areas:
Offering our products to customers around the world:
Enabling our full range of products and services:
.
•
Standardizing and simplifying how we connect with customers to provide them with the tools to manage and expand their
Mastercard relationship
Deploying our cloud-native technology infrastructure to adapt to evolving market conditions and further enhance speed,
resiliency and scalability
.
.
Enhancing payment rails and expanding them across payments and services, including providing seamless customer adoption
across new services and enhancing connectivity to new networks
Further evolving our data infrastructure to unlock incremental value and ensure ongoing compliance with evolving data laws and
regulations
Empowering our employees:
• Improving the speed in which we deliver for our customers through a combination of tools and customer-centric practices
Attracting, developing and retaining top technology talent, as well as strengthening our employees' technology acumen
20 MASTERCARD 2023 FORM 10-K
Technology
.
In 2023, our open banking capabilities
provided connectivity to over 95% of deposit
accounts in the U.S. and approximately 3,000
banks across Europe (directly as well as
through partners).
Advancing positive social impact. Where possible, we utilize our data sets and analytics capabilities to create innovative
solutions to societal challenges, promoting inclusive financial, social, climate, health and education growth
Working with trusted partners. Our processes are designed to ensure we select partners and service providers who share our
principled-approach to protecting data and using Al
Contributions to employees' financial well-being as they plan for retirement. All employees globally are entitled to receive a
matching Mastercard contribution of $1.67 for every $1 contributed to a 401(k) or other retirement plan on the first 6% of base
pay
A competitive compensation approach (subject to periodic reviews) under which eligible employees across multiple job levels
can receive long-term incentive equity awards
These principles address where we are going
as an organization, how we work together
and how we deliver for our customers and
each other.
Move fast
Grow together
Create value
The Mastercard Way is the statement of our
culture. It consists of three principles:
The Mastercard Way
Succession planning for key roles, including talent and leadership programs
across various levels. These programs embed our culture principles, include
diverse populations, aim to develop talent and managerial skills through
personalized coaching and group executive development and leverage
mentorship programs and other learning opportunities
An annual cycle that aligns with our "Mastercard Way" and focuses on
objective setting, performance assessment, talent evaluation, skill
development, opportunities and career progression
•
.
Develop and retain talent. We develop and retain our employees, ensuring we
stay competitive and respond to both changing market dynamics and our
employees' needs while supporting a culture of innovation grounded in decency.
Our efforts include:
Our acquisition activity has also provided a strong source of talent with differentiated skills
Continued expansion and prioritization of well-being offerings for employees, including access to mental, physical and financial
health resources, additional paid time off for dependent care, and support for family planning
We continuously recruit talent by leveraging the strength of our brand and utilizing a variety of sources, channels, and initiatives
in order to support our growth across sectors, markets and emerging industries
•
•
Attract talent.
build on our DEI efforts to enable equal opportunities and empower people
•
develop a high-performing, agile workforce that can collaborate and compete in a fast-paced, innovative environment
•
attract and retain talent with the key skills needed to achieve short-term and long-term goals
•
Specifically, to enable our business strategy effectively, our aim is to:
As of December 31, 2023, we employed approximately 33,400 persons globally. Our employee base is predominantly full-time and
approximately 67% were employed outside of the U.S. in more than 80 countries. We also had approximately 4,600 contractors
which we used to supplement our employee base in order to meet specific needs. Our voluntary workforce turnover (rolling 12-
month attrition) was approximately 5% as of December 31, 2023. The total cost of our workforce for the year ended December 31,
2023 was $6.0 billion, which primarily consists of compensation, benefits and other personnel- and contractor-related costs.
Management reviews our people strategy and culture, as well as related risks, with our Human Resources and Compensation
Committee on a quarterly basis, and annually with our Board of Directors. Additionally, our Board and Board committees are tasked
with overseeing other human capital management matters on a regular basis, such as ensuring processes are in place for
maintaining an ethical corporate culture, overseeing key diversity, equity and inclusion ("DEI") initiatives, policies and practices, and
monitoring governance trends in areas such as human rights. Our ability to attract, develop and retain top talent and build a healthy
culture is critical to our business strategy.
Our People
ITEM 1. BUSINESS
PARTI
•
Flexibility policies and programs to support employees, including a four-week "work from anywhere" policy, meeting-free days
and a hybrid work approach guided by team-based agreements for when teams come together
Supporting of employee charitable donations with matching Mastercard gifts and making a donation for every hour volunteered,
as well as providing five paid days per year for full-time employees for eligible volunteer work
Experience surveys that we periodically run to assess our overall employee engagement areas (with occasional focus on more
targeted topics) and prioritize how we address emerging opportunity areas
Being transparent and providing control. We explain how we use personal information and Al and give individuals access and
control over how their data is used and shared
Practicing data minimization. We practice collecting and retaining only the personal information that is needed for a given
product or service, and limiting the amount and type of personal information shared with third parties
.
•
We create a range of products and services for our customers (including the majority of our value-added services) that use our data
assets, infrastructure, expertise and platforms. These products and services are designed to help reduce fraud, increase security,
provide actionable insights to our customers to assist in their decision-making and enable our customers to increase their
engagement with consumers. We do all this while following our data and tech responsibility principles in how we design, implement
and deliver those solutions. Our Privacy by Design, Data by Design and Al Governance processes are designed to ensure we embed
multiple layers of privacy, data protection and information security controls in all of our products and services, keeping a clear focus
on protecting customers' and individuals' data. We seek to do this in a number of ways:
Data
ITEM 1. BUSINESS
PARTI
MASTERCARD 2023 FORM 10-K 19
Our family of well-known brands includes Mastercard, Maestro and Cirrus. We manage and promote our brands and brand
identities through advertising, promotions and sponsorships, as well as digital, mobile and social media initiatives, in order to
increase people's preference for our brands and usage of our products. We sponsor a variety of sporting, entertainment and charity-
related marketing properties to align with consumer segments important to us and our customers. Our advertising plays an
important role in building brand visibility, preference and overall usage among account holders globally. Our "Priceless®" advertising
campaign, which celebrated its 25th anniversary in 2022 and has run in more than 50 languages and in more than 120 countries
worldwide, promotes Mastercard usage benefits and acceptance, markets Mastercard payment products and solutions and provides
Mastercard with a consistent, recognizable message that supports our brand around the globe.
Brand
The gender pay gap is predominantly due to the fact that we have more men in senior roles, not because men are paid more.
2
1 People of Color are defined as Black or African American, Hispanic or Latino, Asian, American Indian, Alaska Native, Native Hawaiian or other
Pacific Islander, or two or more races. Ethnicity data does not include undeclared.
We expect to provide more detailed information in 2024 regarding our employees, including additional workforce demographics, in
our annual Environmental, Social and Governance Report and Proxy Statement, both of which will be located on our website.
Our employee incentive compensation plan features an ESG modifier for all employees that includes quantitative goals for a
number of ESG items, including gender pay parity.
We remain dedicated to practices designed to ensure there is equal pay for equal work. We have established a framework for
examining pay practices annually, supported by third-party analysis and benchmarked to the external market. We assess
compensation decisions for potential pay disparities by gender (including base, bonus and long-term incentives), among other
categories, and appropriately respond to any disparities that are found
18 MASTERCARD 2023 FORM 10-K
PART I
ITEM 1. BUSINESS
.
A culture of high ethical business practices and compliance standards, grounded in honesty, decency, trust and personal
accountability. It is driven by "tone at the top," reinforced with regular training, fostered in a speak-up environment, and
measured by our periodic employee surveys and other metrics that enable our Board to maintain a pulse on areas of strength
and opportunities for improvement
Diversity, equity and inclusion underpin everything we do, helping us
build a healthy culture, attract talent and drive long-term value for
stockholders:
We have developed regional and functional action plans to identify
priorities and actions that will help us make more progress for DEI,
including appropriate balance and inclusion in gender and racial
representation
Addressing bias in our data and Al. We have implemented governance and processes to help test and mitigate for bias when we
use advanced analytics, including Al and Machine Learning, to create fair and inclusive solutions that reflect individual, group and
societal interests
We remain committed to our "In Solidarity" initiative through
alignment of our DEI plans globally to address local needs and
opportunities, for example through the introduction of new training
programs such as our neurodiversity hiring initiative and new
partnerships with historically Black colleges and universities (HBCUs) in
the U.S.
Workforce Demographics
39% of our global workforce are women
1
44% of our U.S. workforce are people of color
Female employees earned $1.00 for every $1.00
men earned during 2023
In the U.S., employees of color earned $1.00 for
every $1.00 white employees earned during
2023
The median pay for female employees was
96.4% compared to male employees during
20232
•
Digital Identity
MASTERCARD 2023 FORM 10-K 17
•
Key 2023 Developments
•
•
The "Prevent" layer is designed to protect against attacks on
infrastructure, devices and data. We have continued to grow global
usage of EMV chip and contactless security technology, helping to
reduce fraud. Our solutions include Mastercard SafetyNet™, which
protects financial institutions by helping to stop real-time attacks that
are visible in the network, but not easily detected by financial
institutions.
As part of the security we bring to the payments ecosystem, we offer
products and services designed to prevent, detect and respond to fraud
and cyber-attacks and to ensure the safety of transactions made using
Mastercard and non-Mastercard products. We do this using a multi-
layered safety and security strategy:
PARTI
ITEM 1. BUSINESS
Cyber and Intelligence Solutions
B
enable connectivity and access for a fragmented and diverse set of parties
enable our customers to strengthen their engagement with their own end users
provide actionable insights to our customers to assist in their decision making
.
instill trust in the ecosystem to allow parties to transact and operate with confidence
•
In 2023, we launched our Consumer Fraud Risk
solution, which leverages our Al capabilities and
the unique network view of real-time payments to
help banks predict and prevent payment scams.
Our services encompass a wide-ranging portfolio of value-added and differentiating capabilities that:
14 MASTERCARD 2023 FORM 10-K
Simplifying access to, and integration of, our digital assets. Our Mastercard Developer platform makes it easy for customers
and partners to leverage our many digital assets and services. By providing a single access point with tools and capabilities to
find APIs across a broad range of Mastercard services, we enable easy integration of our services into new and existing solutions.
Identifying and experimenting with future technologies, start-ups and trends. Through Mastercard Foundry, we continue to
provide customers and partners access to thought leadership, innovation methodologies, new technologies and relevant early-
stage fintech players.
Helping consumers safely and easily purchase cryptocurrencies and non-fungible tokens ("NFTS") as well as enabling
consumers to spend their converted crypto holdings on Mastercard card offerings and cash out their crypto wallets using
Mastercard Send
Providing identity, cyber and consulting services for market participants (including our identity and biometric solutions,
cybersecurity solutions, crypto analytics, transaction monitoring and anti-money laundering detection capabilities) as well
as engaging with central banks as they design and develop central bank digital currencies
о
о
Creating solutions to support blockchain-based digital currencies. Through a principled approach (including applying prudent
risk management practices and maintaining continuous monitoring of our partners that are active in the digital asset market),
Mastercard is focused on supporting digital currencies by:
Securing more transactions. We leverage tokenization, biometrics and machine learning technologies in our push to secure
every transaction. These efforts include driving EMV-level security and benefits through all our payment channels.
Our Tap on Phone acceptance technology enables businesses of all sizes to accept payments from any contactless card or
mobile wallet directly from their NFC-enabled device, providing a turnkey and cost-effective solution without any additional
hardware required
Our Click to Pay checkout experience is designed to provide consumers the same convenience and security in a digital
environment that they have when paying in a store, make it easier for merchants to implement secure digital payments and
provide issuers with improved fraud detection and prevention capabilities. This experience is based on the EMV Secure
Remote Commerce industry standard that enables a faster, more secure checkout experience across web and mobile sites,
mobile apps and connected devices
Our Mastercard Digital FirstTM program enables customers to offer their cardholders a fully digital payment experience with
an optional physical card, meeting cardholder expectations of immediacy, safety and convenience during card application,
authentication and instant card access, securing purchases (whether contactless, in-store, in-app or via the web) and
managing alerts, controls and benefits
о
°
°
Our Value-Added Services
In 2023, Mastercard SafetyNet prevented more
than $20 billion in fraud globally.
In 2023, we acquired an Al-enabled, cloud-based
solution designed to help stop cyber-attacks
related to malware, ransomware and DDOS
attacks.
The "Identify" layer allows us to help banks and merchants verify the authenticity of consumers during the payment process
using various biometric technologies, including fingerprint, face and iris scanning, and behavioral user data assessment
technology to verify online purchases on mobile devices, as well as a card with biometric technology built in.
In 2023, we partnered with leading financial
institutions to launch a previously-announced
ACH payment solution that uses our open
banking capabilities to enable seamless and
secure consumer bill payments.
Key 2023 Developments
.
We offer an open banking platform that enables data providers and third
parties, on a permissioned basis, to reliably access, securely transmit and
confidently manage consumer and small business data to improve the
customer experience. Our platform enables individuals to have choice of
financial services, providing them the ability to access, control and benefit
from the use of their data, as well as an improved payment experience. Our
platform is also used to serve the needs of the lending market, including
through streamlining loan application processes and improving credit
decisioning, thereby driving further financial inclusion. The network
connections that underpin this platform leverage our data responsibility
principles (including data usage guardrails, consumer protection and consent
management), as well as API technology.
Open Banking
PARTI
ITEM 1. BUSINESS
Our New Network Capabilities
16 MASTERCARD 2023 FORM 10-K
Mobile gateways that facilitate transaction routing and processing for mobile-initiated transactions
•
Payment gateways that offer a single interface to provide e-commerce merchants with the ability to process secure online and
in-app payments and offer value-added solutions, including outsourced electronic payments, fraud prevention and alternative
payment options
Issuer solutions designed to provide customers with a complete processing solution to help them create differentiated products
and services and allow quick deployment of payments portfolios across banking channels
•
•
We extend our processing capabilities in the payments value chain in various regions with an expanded suite of offerings, including:
Processing and Gateway
Issuer and Merchant Loyalty. We have built a scalable rewards platform that enables issuers to provide consumers with
a variety of benefits and services, such as personalized offers and rewards, access to a global airport lounge network, concierge
services, insurance services, emergency card replacement, emergency cash advances and a 24-hour account holder service center.
For merchants, we provide campaigns with targeted offers and rewards, management services for publishing offers, and accelerated
points programs for co-brand and rewards program members. We also provide a loyalty platform that enables stronger
relationships with retailers, restaurants, airlines and consumer packaged goods companies by creating experiences that drive loyalty
and impactful consumer engagement.
The "Detect" layer is designed to both spot and take action to stop fraudulent behavior and cyber-attacks once detected. Our
offerings include alerts when accounts are exposed to data breaches or security incidents, fraud scoring technology that scans
billions of dollars of money flows each day while increasing approvals and reducing false declines, and network-level monitoring
on a global scale to help detect the occurrence of widespread fraud attacks when the customer (or their processor) may be
unable to detect or defend against them.
The "Experience" layer is designed to improve the security experience for our stakeholders in areas from the speed of
transactions (enhancing approvals for online and card-on-file payments) to the ability to differentiate legitimate consumers from
fraudulent ones. Our offerings include solutions for consumer alerts and controls and a suite of digital token services. We also
offer an e-commerce fraud and dispute management network that enables merchants to stop delivery when a fraudulent or
disputed transaction is identified, and issuers to refund the cardholder to avoid the chargeback process.
The "Network" layer extends the services we provide to transactions in the payments ecosystem and across all of our rails,
including decision intelligence and tokenization capabilities, to help secure our customers and transactions on a real-time basis.
Moreover, we use our Al and data analytics, along with our cyber risk assessment capabilities, to help enable financial institutions,
merchants, corporations and governments to secure their digital assets across each of these five layers.
We have also worked with our customers to provide products to consumers globally with increased confidence through the benefit
of "zero liability", where the consumer bears no responsibility for counterfeit or lost card losses in the event of fraud.
MASTERCARD 2023 FORM 10-K 15
PARTI
•
ITEM 1. BUSINESS
Insights and Analytics. Our capabilities incorporate payments expertise
and analytical and executional skills to create end-to-end solutions which are
increasingly delivered via platforms embedded in our customers' day-to-day
operations. We offer business intelligence to monitor key performance indicators
("KPIs") and benchmark performance through self-service digital platforms, tools, and
reports for financial institutions, merchants and others. We enable customers to
better understand consumer behavior and improve segmentation and targeting by
using our anonymized and aggregated data assets, third-party data and Al
technologies. We also help our customers accurately measure the impact of their
decisions and improve them by leveraging data analytics to conduct disciplined
business experiments for in-market tests to drive more profitable decision making.
Key 2023 Developments
In 2023, we built upon our
acquisition of Dynamic Yield TM by
launching Element. This solution is
designed to combine insights from
our data analytics with Dynamic
Yield's personalization experience
to provide more insight-driven,
customized product
recommendations, offers and
content to consumers.
Consulting and Innovation. We provide advisory services that help customers make better decisions and improve
performance. By observing patterns of payments behavior based on billions of transactions switched globally, we are able to
leverage anonymized and aggregated information to provide advice based on data. We also utilize our expertise, digital technology,
innovation tools, methodologies and processes to collaborate with, and increasingly drive innovation at, financial institutions,
merchants and governments. Through our global innovation and development arm, Mastercard Foundry, we offer customized
innovation programs and concept design. We continue to innovate and expand our offerings to help businesses evolve and expand
their growth enterprise-wide. Our services include consulting and innovation offerings dedicated to open banking, open data, crypto
and digital currencies and ESG matters.
Marketing Services. We deliver marketing services, digital implementation and program management with performance-
based solutions at every stage of the consumer lifecycle to assist our customers in implementing actions based on insights and
driving adoption and usage. These services include developing messaging, targeting key groups, launching campaigns and training
staff, all of which help our customers drive engagement and portfolio profitability.
Data and Services Solutions
.
Our contactless payment solutions help deliver a simple and intuitive way to pay
о
providing consumers choice, empowering them
to make and receive payments in the ways that
best meet their daily needs
delivering better, seamless consumer
experiences
We enable our customers to benefit consumers by:
making electronic payments more convenient,
secure and efficient
How We Benefit Consumers
Consumer Payment Products
We provide a wide variety of products and services that support
payment products that customers can offer to consumers and
merchants. These offerings facilitate transactions across our multi-rail
payments network and platforms among account holders, merchants,
financial institutions, digital partners, businesses, governments and other
organizations in markets globally.
Our Payment Products and Applications
Issue Resolution. We operate a framework to address disputes between our network participants
Responsible Stewardship. We set performance standards to support ecosystem optimization and growth and use proactive
monitoring to both ensure participant adherence to operating standards and protect the integrity of the ecosystem
Safety and Security. We establish central principles, including safeguarding consumer protections and integrity, so participants
feel confident to transact on the network
Operating Standards. We define the technical, operational and financial standards that all network participants are required to
uphold
Participant Onboarding. We determine that each new customer meets the necessary prerequisites to use and contribute to our
network by defining clear ecosystem roles and responsibilities for their operations
.
.
Our Franchise. We manage an ecosystem of stakeholders that participate in our global payments network, setting standards and
rules for all participants and aiming to ensure interoperability among them while balancing risk and value across all stakeholders.
Our franchise model achieves this by creating and sustaining a comprehensive series of value exchanges across our ecosystem.
Through our franchise model, we work to ensure a balanced ecosystem where all participants may benefit from the availability,
innovation, safety and security of our network. We achieve this goal through the following key activities:
ITEM 1. BUSINESS
PARTI
Additional Four-Party System Fees. The merchant discount rate is established by the acquirer to cover its costs of both
participating in the four-party system and providing services to merchants. The rate takes into consideration the amount of the
interchange fee which the acquirer generally pays to the issuer. Additionally, acquirers may charge merchants processing and
related fees in addition to the merchant discount rate. Issuers may also charge account holders fees for the transaction,
including, for example, fees for extending revolving credit.
Switched Transactions
•
.
Authorization, Clearing and Settlement. Through our core payment network, we enable the routing of a transaction to the
issuer for its approval, facilitate the exchange of financial transaction information between issuers and acquirers after a
successfully conducted transaction, and settle the transaction by facilitating the exchange of funds between parties via
settlement banks chosen by us and our customers.
Cross-Border and Domestic. Our core payment network switches transactions throughout the world when the merchant country
and country of issuance are different ("cross-border transactions"), providing account holders with the ability to use, and
merchants to accept, our products and services across country borders. We also provide switched transaction services to
customers where the merchant country and the country of issuance are the same ("domestic transactions"). We switch over
65% of all transactions for Mastercard and Maestro-branded cards, including nearly all cross-border transactions.
protecting consumers and all other participants
in a transaction, as well as consumer data
providing loyalty rewards and benefits
We guarantee the settlement of many of the transactions from issuers to acquirers to ensure the integrity of our core payment
network. We refer to the amount of this guarantee as our settlement exposure. We do not, however, guarantee payments to
merchants by their acquirers or the availability of unspent prepaid account holder account balances.
Account-Based Payments Capabilities
We offer ACH batch and real-time account-based payments capabilities, enabling payments for ACH transactions between bank
accounts in real-time. Our real-time account-based payments capabilities provide consumers and businesses the ability to make
instant (faster) payments while providing enhanced data and messaging capabilities. We build, implement, enhance and operate
real-time clearing and settlement infrastructure, payment platforms and direct debit systems for jurisdictions globally. As of
December 31, 2023, we either operated or were implementing real-time payments infrastructure in 13 markets. We also use our
real-time account-based payments capabilities to enable consumers, businesses, governments and merchants to send and receive
money directly from account to account.
We discuss below under “Our Payment Products and Applications" the ways in which we apply our real-time account-based
payments capabilities to capture new payment flows.
Security and Franchise
Payments Ecosystem Security. We employ a multi-layered approach to help protect the global payments ecosystem, including a
robust program designed to protect our network from cyber and information security threats. Our network and platforms
incorporate multiple layers of protection, providing greater resiliency and security protection. Our programs are assessed by third
parties and incorporate benchmarking and other data from peer companies and consultants. We engage in many efforts to mitigate
information security challenges, including maintaining an information security program, an enterprise resilience program and
insurance coverage, as well as regularly testing our systems to address potential vulnerabilities. We work with experts across the
organization (as well as through other sources such as public-private partnerships) to monitor and respond quickly to a range of
cyber and physical threats, including threats and incidents associated with the use of services provided by third-party providers.
As another feature of our multi-layered approach, we work with issuers, acquirers, merchants, governments and payments industry
associations to develop and put in place technical standards (such as EMV standards for chips and smart payment cards) for safe and
secure transactions and we provide solutions and products that are designed to help provide safety and security for the global
payments ecosystem. Our approach includes supporting small businesses by sharing best practices and providing access to free
utilities and services, benefiting both them and the entire payments ecosystem. We discuss specific cyber and intelligence solutions
that we offer to our customers below under "Our Value-Added Services".
MASTERCARD 2023 FORM 10-K 11
Payment Network Architecture. Our core payment network features a globally integrated structure that provides scale for our
issuers, enabling them to expand into regional and global markets. It is based largely on a distributed (peer-to-peer) architecture
that enables the network to adapt to the needs of each transaction. The network accomplishes this by performing intelligent routing
and applying multiple value-added services (such as fraud scoring, tokenization services, etc.) to appropriate transactions in real
time. This architecture enables us to connect all parties regardless of where or how the transaction is occurring. It has 24-hour a
day availability and world-class response time.
PART I
ITEM 1. BUSINESS
Consumer Credit. We offer products that enable issuers to provide
consumers with credit, allowing them to defer payment. These
programs are designed to meet the needs of our customers around the
world and address standard, premium and affluent consumer segments.
Consumer Debit. We support a range of payment products and solutions that allow our customers to provide consumers with
convenient access to funds in deposit and other accounts. Our debit and deposit access programs can be used to make purchases
and to obtain cash from bank branches, at ATMs and, in some cases, at the point of sale. Our branded debit programs consist of
Mastercard (including standard, premium and affluent offerings), Maestro (our PIN-based solution that operates globally) and Cirrus
(our primary global cash access solution).
12 MASTERCARD 2023 FORM 10-K
Delivering better digital experiences everywhere. We use our technologies and security protocols to develop solutions to make
digital shopping and selling experiences, such as on smartphones and other connected devices, simpler, faster and safer for both
consumers and merchants. We also offer products that make it easier for merchants to accept payments and expand their
customer base.
In 2023, we launched our Multi Token Network, a set of
foundational capabilities designed to make transactions
within digital asset and blockchain ecosystems secure,
scalable and interoperable.
In 2023, we marked the tenth anniversary of Mastercard
introducing token standards to the payments industry, and
we reached the milestone of three billion tokens in one
month.
Key 2023 Developments
•
•
Our innovation capabilities and our technology provide
resiliency, scalability and flexibility in how we serve customers
and in turn help them benefit consumers. They enable broader
reach to scale digital payment services across multiple channels.
Our technology standards, services and governance model help
us to serve as the connection that allows financial institutions,
fintechs and technology companies to interoperate and enable
consumers, businesses, governments and merchants to engage
through digital channels.
Payments Innovation
ITEM 1. BUSINESS
PARTI
MASTERCARD 2023 FORM 10-K 13
Consumer Bill Payments. Our solutions enable consumers and small businesses to pay their billers in a seamless and secure way.
Leveraging our merchant acceptance network (which includes many billers), we offer consumers the choice of paying their bills in a
convenient and secure manner using credit, debit or prepaid. We also offer the choice of account-based payments methods. As a
result, these solutions provide an experience that offers flexibility and benefits consumers, financial institutions and billers.
Mastercard Cross-Border Services enables a wide range of payment flows and use cases to customers (including trade payments,
remittances and disbursements). These flows are enabled via a distribution network with a single point of access that allows
financial institutions, fintechs and digital partners to send and receive money globally through multiple channels, including bank
accounts, mobile wallets, cards and cash payouts.
In 2023, our Disbursements
and Remittances capabilities
have the ability to reach
more than 95% of the
world's banked population.
reconciliation data into
suppliers' accounts
receivables systems.
at streamlining how
suppliers receive virtual card
payments by automating
the integration of
In 2023, we launched
Mastercard Receivables
Manager, a solution aimed
New Payment Flows
PARTI
ITEM 1. BUSINESS
We offer platforms, products and applications that apply our multi-rail payment capabilities to capture new payment flows, enabling
us to serve the needs of a significant addressable market.
Commercial Point of Sale. We offer commercial credit, debit and prepaid payment products and solutions that meet the payment
needs of large corporations, midsize companies, small businesses and government entities. Our solutions streamline procurement
and payment processes, manage information and expenses (such as travel and entertainment) and reduce administrative costs. Our
point-of-sale offerings include:
•
Prepaid. Prepaid accounts are a type of electronic payment that enables consumers to pay from pre-funded accounts whether or
not they previously had a bank account or a credit history. These accounts can be tailored to meet specific program, customer or
consumer needs, such as paying bills, sending person-to-person payments or withdrawing cash from an ATM. Our focus ranges from
digital accounts (such as fintech and gig economy platforms) to business programs such as employee payroll, health savings accounts
and solutions for small business owners. Our prepaid programs also offer opportunities in the private and public sectors to drive
financial inclusion of previously unbanked individuals through social security payments, unemployment benefits and salary cards.
.
Small business cards (credit, debit and prepaid) tailored to small and medium businesses.
Commercial travel and entertainment, procurement and fleet cards, consisting mostly of credit cards and associated platforms
for corporations to manage travel and expense, procurement and fleet expenses. Our Mastercard Smart Data™ platform
provides expense management and reporting capabilities.
B2B Accounts Payable. We offer solutions that enable businesses or governments to make
payments to businesses with whom they have a trusted relationship for goods and services.
Our solutions include Virtual Card Number (VCN), which is generated dynamically from a
physical card and leverages the credit limit of the funding account. Our VCN solution may
include the use of Mastercard InControl™, our virtual card platform that allows buyers to pay
suppliers using a one-time use card number that can be set with transaction level controls,
providing unmatched configurability and flexibility.
Additionally, we offer a platform to optimize supplier payment enablement campaigns for
financial institutions, as well as our treasury intelligence platform that provides corporations
with recommendations to improve working capital performance and accelerate spend on cards.
Disbursements and Remittances. We offer applications that enable consumers, businesses,
governments and merchants to send and receive money domestically and across borders with
greater speed and ease, with a payout reach of approximately 10 billion endpoints globally
across multiple channels, and in more than 180 markets and 150 currencies.
Using Mastercard Send™, we partner with digital messaging and payment platforms to
enable consumers to send money directly within applications to other consumers. We
partner with central banks, fintechs and financial institutions to help governments and
nonprofits more efficiently enable, as applicable, distribution of social and economic
assistance and business-to-consumer ("B2C") disbursements across various use cases (such
as wallet funding, cash payouts, gig worker payouts and insurance claims).
Key 2023 Developments
•
We enable digital identity solutions, which provide seamless digital experiences and strengthen and secure digital payments across
individuals, devices and accounts. Our digital identity capabilities focus on the identity of people, devices and transactions. They
embody Privacy by Design principles and are consent-centric. Our solutions include device intelligence and behavioral biometrics (to
determine whether the user is genuine or a fraudulent device), document proofing, IP intelligence, biometrics, transaction fraud
data (from which we derive insights that can be used to significantly improve the global approval rate of transactions), location,
identity attributes and payment authorization.
Mastercard Incorporated was incorporated as a Delaware corporation in May 2001. We conduct our business principally through
our principal operating subsidiary, Mastercard International Incorporated, a Delaware non-stock (or membership) corporation that
was formed in November 1966. For more information about our capital structure, including our Class A common stock (our voting
stock) and Class B common stock (our non-voting stock), see Note 16 (Stockholders' Equity) to the consolidated financial statements
included in Part II, Item 8.
30 MASTERCARD 2023 FORM 10-K
Government Regulation
ITEM 1. BUSINESS
PARTI
MASTERCARD 2023 FORM 10-K 23
Collectively, the capabilities that we have created organically, and those that we have obtained through acquisitions, support and
build upon each other to enhance the total proposition we offer our customers. They enable us to partner with many participants in
the broader payments ecosystem and provide choice, security and services to improve the value we provide to our customers.
Ability to serve a broad array of participants in global payments due to our expanded on-soil
presence in individual markets and a heightened focus on working with governments
Leading-edge technology that advances the quality, speed and diversity of our offerings and
solutions
World class talent and culture guided by the Mastercard Way, with a focus on diversity,
equity and inclusion and "doing well by doing good"
Products and services leveraging our data assets, infrastructure, platforms and expertise
that incorporate our data and tech responsibility principles and reflect our Privacy by
Design, Data by Design and Al Governance processes. These include our safety and security
solutions, analytics insights, consulting and marketing services and loyalty solutions
Globally recognized and trusted brands
Government
engagement
Technology
心心
Talent and culture
Data
As a technology company operating in the global payments industry, we are subject to government regulation that impacts key
aspects of our business. In particular, we are subject to the laws and regulations that affect the payments industry in the many
countries in which our products and services are used. We are committed to complying with all applicable laws and regulations and
implementing policies, procedures and programs designed to promote compliance. We monitor and coordinate globally while acting
locally and establish relationships to assess and manage the effects of regulation on us. See "Risk Factors" in Part I, Item 1A for more
detail and examples of the regulation to which we are subject.
In
Payments Oversight and Regulation. Central banks and other
regulators around the world either have, or are seeking to establish,
formal oversight over participants in the payments industry, as well
as authority to regulate certain aspects of the payments systems in
their countries. Such authority has resulted in regulation of
Mastercard as financial market infrastructure, as well as regulation
related to various aspects of our business (including areas such as
consumer protections and cybersecurity). In the European Union
(the "EU"), Mastercard is subject to systemic importance regulation,
which includes various requirements we must meet, including
obligations related to governance and risk management. In the
U.K., the Bank of England designated Vocalink™, our real-time
account-based payments network platform, as a "specified service
provider", and Mastercard as a “recognized payment system",
which includes supervisions and examination requirements.
addition, EU legislation requires us to separate our scheme activities
(brand, products, franchise and licensing) from our switching
activities and other processing in terms of how we go to market,
make decisions and organize our structure. Examples of other
markets where Mastercard is formally overseen include Australia,
Brazil, India, Mexico and South Africa. Additionally, certain of our
subsidiaries are also regulated as payments institutions, including as
money transmitters. This regulation subjects us to licensing
obligations, regulatory supervision and examinations, as well as
various business conduct and risk management requirements.
Interchange Fees. Interchange fees that support the function and
value of four-party payments systems like ours are being reviewed
or challenged around the world via legislation to regulate
interchange fees, competition-related regulatory proceedings,
central bank regulation and litigation. Examples include statutes in
the U.S. that cap debit interchange for certain regulated activities,
proposed legislation in the U.S. to extend routing mandates to
credit, our settlement with the European Commission (the "EC")
resolving its investigation into our interregional interchange fees
and the EU legislation capping consumer credit and debit
interchange fees on payments issued and acquired within the
European Economic Area (the "EEA"). For more detail, see "Risk
Factors - Other Regulation" in Part I, Item 1A and Note 21 (Legal and
Regulatory Proceedings) to the consolidated financial statements
included in Part II, Item 8.
Key 2023 Developments
ESG. Various jurisdictions have adopted or are increasingly considering adopting laws and regulations impacting our reporting on
ESG governance, strategy, risk management, metrics and targets, and results. Regulations already adopted or being considered
include required corporate reporting and disclosures on specific topics as well as broader ESG matters. Specific topics include
climate (such as the U.K. Streamlined Energy and Carbon Reporting, the EU Corporate Sustainability Reporting Directive, or "EU
CSRD", and the SEC proposed rules related to climate change) and human rights (such as the EU Corporate Sustainability Due
Diligence Directive). Broader ESG matters include other environmental matters, treatment of employees and diversity of workforce
(such as in the EU CSRD).
ITEM 1. BUSINESS
PARTI
MASTERCARD 2023 FORM 10-K 25
Privacy, Data Protection, Al and Information Security. Aspects of our operations or business are subject to increasingly complex
and fragmented privacy, data and information security laws and regulations in the U.S., the EU and elsewhere around the world. For
example, in the U.S., we and our customers are respectively subject to, among other laws and regulations, Federal Trade
Commission and federal banking agency information safeguarding requirements under the Gramm-Leach-Bliley Act ("GLBA") that
require, among other things, the maintenance of a written, comprehensive information security program and, increasingly, a
number of state data and privacy laws. With respect to information security, the U.S. Securities and Exchange Commission (the
"SEC") adopted new disclosure rules that require, among other things, disclosing material cybersecurity incidents in a Current Report
on Form 8-K, generally within four business days of determining an incident is material. In the EU, we are subject to the General
Data Protection Regulation (the "GDPR") and its equivalent in the U.K., which requires, among other things, a comprehensive
privacy, data protection and information security program to protect the personal and sensitive data of EEA residents. Several
regulators and policymakers around the globe use the GDPR as a reference to adopt new or updated privacy, data protection and
information security laws and regulations, although divergences have occurred. Laws and regulations in this area are constantly
evolving due to several factors, including increasing data collection and data flows, numerous data breaches and security incidents,
more sensitive data categories, and emerging technologies such as Al. In addition, the interpretation and application of these
privacy, data protection and information security laws and regulations are often uncertain and in a state of flux, thus requiring
constant monitoring for compliance.
Regulation of Internet, Digital Transactions and High-Risk Merchant Categories. Various jurisdictions have enacted or have
proposed regulation related to internet transactions which applies to payments system participants, including us and our customers.
We may also be impacted by evolving laws surrounding gambling, including fantasy sports, as well as certain legally permissible but
high-risk merchant categories, such as adult content, firearms, alcohol and tobacco.
Issuer and Acquirer Practices Legislation and Regulation. Our issuers and acquirers are subject to numerous regulations and
investigations applicable to banks, financial institutions and other licensed entities, impacting us as a consequence. Additionally,
regulations such as the revised Payment Services Directive (commonly referred to as "PSD2") in the EEA require financial institutions
to provide third-party payment processors access to consumer payment accounts, enabling them to route transactions away from
Mastercard products and provide payment initiation and account information services directly to consumers who use our products.
PSD2 also requires a new standard for authentication of transactions, which necessitates additional verification information from
consumers to complete transactions. This may increase the number of transactions that consumers abandon if we are unable to
ensure a frictionless authentication experience under the new standards.
Brand
Anti-Money Laundering, Countering the Financing of Terrorism, Economic Sanctions and Anti-Corruption. We are subject to anti-
money laundering ("AML") and countering the financing of terrorism ("CFT”) laws and regulations globally, including the U.S. Bank
Secrecy Act and the USA PATRIOT Act, as well as the various economic sanctions programs, including those imposed and
administered by the U.S. Office of Foreign Assets Control ("OFAC"). We have implemented a comprehensive AML/CFT program,
comprised of policies, procedures and internal controls, including the designation of a compliance officer, which is designed to
prevent our payments network from being used to facilitate money laundering and other illicit activity and to address these legal and
regulatory requirements and assist in managing money laundering and terrorist financing risks. The economic sanctions programs
administered by OFAC restrict financial transactions and other dealings with certain countries and geographies (specifically Crimea,
the Donetsk People's Republic and Luhansk People's Republic regions of Ukraine, Cuba, Iran, North Korea and Syria) and with
persons and entities included in OFAC sanctions lists including its list of Specially Designated Nationals and Blocked Persons (the
"SDN List"). We take measures to prevent transactions that do not comply with OFAC and other applicable sanctions, including
establishing a risk-based compliance program that has policies, procedures and controls designed to prevent us from having
unlawful business dealings with prohibited countries, regions, individuals or entities. As part of this program, we obligate issuers and
acquirers to comply with their local sanctions obligations and U.S. and EU sanctions programs. In the U.S., these obligations include
requiring the screening of account holders and merchants, respectively, against OFAC sanctions lists (including the SDN List). Iran
and Syria have been identified by the U.S. State Department as terrorist-sponsoring states, and we have no offices, subsidiaries or
affiliated entities located in these countries and do not license entities domiciled there. We are also subject to anti-corruption laws
and regulations globally, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, which, among other things,
generally prohibit giving or offering payments or anything of value for the purpose of improperly influencing a business decision or
to gain an unfair business advantage. We have implemented policies, procedures and internal controls to proactively manage
corruption risk.
PARTI
24 MASTERCARD 2023 FORM 10-K
Preferential or Protective Government Actions. Some governments have taken action to provide resources, preferential treatment
or other protection to selected domestic payments and processing providers, as well as to create their own national providers. For
example, governments in some countries mandate switching of domestic payments either entirely in that country or by only
domestic companies. Some jurisdictions are currently considering adopting or have adopted "data localization" requirements, which
mandate the collection, storage, and/or other processing of data within their borders. This is the case, for instance, in India, China
and Saudi Arabia. Various forms of data localization requirements or data transfer restrictions are also under consideration in other
countries and jurisdictions, including the EU.
In October 2023, Mastercard was designated by the
Bank of Canada (BOC) as a "prominent payment
system" as it relates to its business in Canada (i.e., a
payment system that is critical for economic activity in
Canada). This designation will result in broad
regulatory oversight by the BoC.
In October 2023, the U.S. Consumer Financial
Protection Bureau (CFPB) proposed a rule requiring
data providers to make covered data available to
consumers and authorized third parties, promoting
industry standard-setting bodies recognized by the
CFPB, and outlining obligations for third parties
accessing data on behalf of consumers (including
limitations on the collection, use and retention of
covered data).
In June 2023, legislation was re-introduced in the U.S.
Senate that would extend routing mandates for
Mastercard and Visa to credit. The bill stipulates that
the top two networks could not be enabled on the
same card, leaving room for regional networks to
serve as second options. The bill proposes to
mandate Mastercard provide authentication,
tokenization or other security technology to
competing networks, whether or not the transaction
is switched by Mastercard.
In October 2023, the U.S. Federal Reserve issued a
proposal that would lower the interchange rate cap
for debit and prepaid transactions in the U.S. by
approximately 28%-30% (based on an average ticket
size of $50), with the cap automatically updating
every two years.
ITEM 1. BUSINESS
Multiple payment and new network capabilities based on our innovation and technology
that enable choice
Establishing rules, standards and bearing of financial risk (including our settlement
guarantee backed by our strong credit standing) that allows for interoperability among all
participants
Highly adaptable and world class global payments network built over more than 50 years
that can reach a variety of parties to enable payments anywhere
We face a number of competitors both within and outside of the global payments industry. We compete in all categories of
payments (including paper-based payments and all forms of electronic payments) as well as in all categories in which we provide
value-added services and solutions:
Competition
We own a number of valuable trademarks that are essential to our business, including Mastercard, Maestro and Cirrus, through one
or more affiliates. We also own numerous other trademarks covering various brands, programs and services offered by us to
support our payment programs. Trademark and service mark registrations are generally valid indefinitely as long as they are used
and/or properly maintained. Through license agreements with our customers, we authorize the use of our trademarks on a royalty-
free basis in connection with our customers' issuing and merchant acquiring businesses. In addition, we own a number of patents
and patent applications relating to payment solutions, transaction processing, smart cards, contactless, mobile, biometrics, Al,
security systems, blockchain and other technologies, which are important to our business operations. These patents expire at
varying times depending on the jurisdiction and filing date.
Intellectual Property
See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Revenue" in Part II, Item 7 and Note 3,
Revenue for more detail about our revenue.
Open banking solutions
Digital identity solutions
•
.
• Processing and gateway
Data and services solutions
•
Cyber and intelligence solutions
•
Within our value-added services and solutions, we generate revenue primarily related to the following:
Within our payment network, revenue is primarily generated from charging fees to our customers based on GDV (which includes
both domestic and cross-border volume) on the cards that carry our brands and for providing switching and other network-related
services.
Mastercard is a payments network service provider that generates revenue from a wide range of payment solutions we provide to
our customers. We classify our net revenues, which includes the impact of rebates and incentives, from contracts with customers
into two categories: (i) payment network and (ii) value-added services and solutions.
• ACH batch and real-time account-based domestic and cross-
border payments and solutions
Additional Regulatory Developments. Various regulatory agencies also continue to examine a wide variety of issues that could
impact us, including evolving laws surrounding buy-now-pay-later, open banking, digital currencies, marijuana, prepaid payroll cards,
identity theft, account management guidelines, disclosure rules and marketing.
•
Debit and Local Networks. We compete with ATM and point-of-sale debit networks. In various countries, local debit brands
serve as the main domestic brands, while our brands are used mostly to enable cross-border transactions (typically representing
a small portion of overall transaction volume). In addition, several governments are promoting, or considering promoting, local
networks for domestic switching. See "Risk Factors" in Part I, Item 1A for a more detailed discussion of the risks related to
payments system regulation and government actions that may prevent us from competing effectively.
Multi-rail
Franchise model
Global network
We play a valuable role as a trusted intermediary in a complex system, creating value for individual stakeholders and the payments
ecosystem overall. Our competitive advantages include:
PARTI
ITEM 1. BUSINESS
22 MASTERCARD 2023 FORM 10-K
22
General Purpose Payments Networks. We compete worldwide with payments networks such as Visa, American Express, JCB,
China UnionPay and Discover, among others. These competitors tend to offer a range of card-based payment products. Some
competitors have more market share than we do in certain jurisdictions. Some also have different business models that may
provide an advantage in pricing, regulatory compliance burdens or otherwise. Globally, financial institutions may issue both
Mastercard- and Visa-branded payment products, and we compete with Visa for business on the basis of individual portfolios or
programs. In addition, a number of our customers issue American Express-, China UnionPay- and/or Discover-branded payment
cards in a manner consistent with a four-party system. We continue to face intense competitive pressure on the prices we
charge our issuers and acquirers, and we seek to enter into business agreements with them through which we offer incentives
and other support to issue and promote our payment products.
Value-Added Service Providers and New Network Capabilities Players. We face competition from companies that provide
alternatives to our value-added services and solutions. These companies include information services and consulting firms that
provide consulting services and insights to financial institutions, merchants and governments, technology companies that
provide cyber and fraud solutions (including Al-based solutions), and companies that compete against us as providers of loyalty
and program management solutions. We also face competition from companies that provide alternatives to our open banking
and digital identity solutions. Regulatory initiatives could also lead to increased competition in this space.
Digital Wallets and other Fintechs. As the global payments industry becomes more complex, we face increasing competition
from fintechs and other emerging payments providers, both for customers and data. Many of these providers, who in many
circumstances can also be our partners or customers, have developed payments systems focused on online activity in e-
commerce and mobile channels (in some cases, expanding to other channels), and may process payments using in-house account
transfers, real-time account-based payments networks or global or local networks, in addition to card. Examples include digital
wallet providers, point-of-sale financing/buy-now-pay-later providers, mobile operator services, mobile phone-based money
transfer and microfinancing services, handset manufacturers, B2B accounts payable and accounts receivable providers.
Government-Backed Networks. Governments have been increasingly creating and expanding local payments structures (such as
the Brazilian Instant Payment System-PIX, FedNow in the U.S. and United Payments Interface (UPI) in India), which are
increasingly being considered as alternatives to traditional domestic payment solutions and schemes such as ours. In particular,
India has recently engaged in a series of efforts to expand the interoperability and cross-border reach of UPI globally. Most
recently, it announced an agreement in 2023 to partner with the United Arab Emirates (UAE) to enable Indian travelers within
the UAE to pay with UPI. In addition to local and regional networks, national governments continue to explore the use of central
bank digital currencies ("CBDCs").
P2M and P2P market share. Also, several industry initiatives are experimenting with the concept of account-based global
schemes, which could lead to a disruption of the clearing and settlement options utilized in various currencies.
•
ITEM 1. BUSINESS
PART I
MASTERCARD 2023 FORM 10-K 21
Real-time Account-based Payments Systems. We face competition in the ACH and real-time account-based payments space
from providers of infrastructure, applications and services. As these real-time account-based propositions mature, we face a
possible increase in competition for our existing domestic person-to-merchant ("P2M") and person-to-person ("P2P") transaction
market share. Similarly, as interlinking of these infrastructures is further explored, they could disrupt our existing cross-border
Digital Currencies. Stablecoins and floating cryptocurrencies may become more popular as they become more regulated and
increasingly viewed as providing immediacy, 24/7 accessibility, immutability and efficiency. Some players, including payment
service providers and payment facilitators, have started to enable merchant acceptance of such currencies in P2M, while some
banks have started experimenting with blockchain B2B payments. Digital currencies and emerging players (such as crypto
natives) have the ability to disrupt traditional financial markets. The increased prominence of digital currencies creates an
opportunity for us but could equally compete with our products and services.
PARTI
Any changes in enacted tax laws, rules, regulatory or judicial interpretations or guidance; any adverse outcome in connection with
tax audits in any jurisdiction; or any changes in the pronouncements relating to accounting for income taxes could materially and
adversely impact our effective income tax rate, tax payments, financial condition and results of operations.
In addition, tax laws and regulations are complex and subject to varying interpretations, and any significant failure to comply with
applicable tax laws and regulations in all relevant jurisdictions could give rise to substantial penalties and liabilities. Jurisdictions
around the globe have also increased tax-related audits, which require time and resources to resolve.
Acquisitions and Strategic
Investments
Settlement and Third-Party
Obligations
Class A Common Stock and Governance Structure
Legal and Regulatory
Payments Industry Regulation
Global regulatory and legislative activity related to the payments industry may have a material adverse impact on our overall
business and results of operations.
Central banks and similar regulatory bodies have increasingly established or further expanded their authority over certain aspects of
payments systems such as ours, including obligations or restrictions with respect to the types of products and services that we may
offer, the countries in which our products and services may be used, the way we structure and operate our business and the types of
consumers and merchants who can obtain or accept our products or services. Similarly, jurisdictions that regulate a particular
product may consider extending their jurisdiction to other products. For example, debit regulations could lead to regulation of credit
products. Moreover, several jurisdictions are demonstrating increased interest about the network fees we charge to our customers
(in some cases as part of broader market reviews of retail payments), which could in the future lead to regulation of our network
fees. In several jurisdictions, we have been designated as a “systemically important payment system", with other regulators
considering similar designations. This type of regulation and oversight is related to switching activities (authorization, clearing and
settlement), and includes policies, procedures and requirements related to risk management, collateral, participant default, timely
switching of financial transactions, and capital and financial resources. Parts of our business have also been deemed as a "specified
service provider" or considered "critical infrastructure". The impact to our business created by any new law, regulation or
designation is magnified by the potential it has to be replicated in, or conflict with, other jurisdictions, or involve other products
within any particular jurisdiction.
Talent and Culture
The expansion of our products and services as part of our multi-rail strategy has also created the need for us to obtain new types and
increasing numbers of regulatory licenses, resulting in increased supervision and additional compliance burdens distinct from those
imposed on our core payment network activities. For example, certain of our subsidiaries maintain money transfer licenses to
support certain activities. These licenses typically impose supervisory and examination requirements, as well as capital,
safeguarding, risk management and other business obligations.
MASTERCARD 2023 FORM 10-K 27
PARTI
ITEM 1A. RISK FACTORS
we charge our customers could also materially and adversely impact our results of operations. Regulators could also require us to
obtain prior approval for changes to our system rules, procedures or operations, or could require customization with regard to such
changes, which could negatively impact us. Moreover, failure to comply with the laws and regulations to which we are subject could
result in fines, sanctions, civil damages or other penalties, which could materially and adversely affect our overall business and
results of operations, as well as have an impact on our brand and reputation.
Increased regulatory, legislative and litigation activity with respect to interchange rates could have an adverse impact on our
business.
Interchange rates are a significant component of the costs that merchants pay in connection with the acceptance of products
associated with our core payment network. Although we do not earn revenues from interchange, interchange rates can impact the
volume of transactions we see on our payment products. If interchange rates are too high, merchants may stop accepting our
products or route transactions away from our network. If interchange rates are too low, issuers may stop promoting our products
and services, eliminate or reduce loyalty rewards programs or other account holder benefits (e.g., free checking or low interest rates
on balances), or charge fees to account holders (e.g., annual fees or late payment fees).
Governments and merchant groups in a number of countries have implemented or are seeking interchange rate reductions through
legislation, regulation and litigation. See "Business - Government Regulation" in Part I, Item 1 and Note 21 (Legal and Regulatory
Proceedings) to the consolidated financial statements included in Part II, Item 8 for more details.
Increased regulation and oversight of payments systems, as well as increased exposure to regulation resulting from changes to our
products and services, have resulted and may continue to result in significant compliance and governance burdens or otherwise
increase our costs. As a result, customers could be less willing to participate in our payments system and/or use our other products
or services, reduce the benefits offered in connection with the use of our products (making our products less desirable to
consumers), reduce the volume of domestic and cross-border transactions or other operational metrics, disintermediate us, impact
our profitability and/or limit our ability to innovate or offer differentiated products and services, all of which could materially and
adversely impact our financial performance. In addition, any regulation that is enacted related to the type and level of network fees
If issuers cannot collect or we are required to reduce interchange rates, issuers may be less willing to participate in our four-party
payments system. Alternatively, they may reduce the benefits associated with our products, choose to charge higher fees to
consumers to attempt to recoup a portion of the costs incurred for their services, or seek a fee reduction from us to decrease the
expense of their payment programs (particularly if regulation has a disproportionate impact on us as compared to our competitors in
terms of the fees we can charge). These and other impacts could make our products less desirable to consumers, limit our ability to
innovate or offer differentiated products, and/or make proprietary three-party networks or other forms of payment more attractive,
ultimately reducing the volume of transactions over our network and our profitability.
Global Economic and Political
Environment
Litigation
Website and SEC Reports
Our internet address is www.mastercard.com. From time to time, we may use our corporate website as a channel of distribution of
material company information. Financial and other material information is routinely posted and accessible on the investor relations
section of our corporate website. You can also visit "Investor Alerts" in the investor relations section to enroll your email address to
automatically receive email alerts and other information about Mastercard.
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are
available for review, without charge, on the investor relations section of our corporate website as soon as reasonably practicable
after they are filed with, or furnished to, the SEC. The information contained on our corporate website, including, but not limited to,
our Environmental, Social and Governance Report and our U.S. Consolidated EEO-1 Report, is not incorporated by reference into this
Report. Our filings are also available electronically from the SEC at www.sec.gov.
26 MASTERCARD 2023 FORM 10-K
Item 1A. Risk factors
Legal and Regulatory
Payments Industry Regulation
Stakeholder Relationships
RISK HIGHLIGHTS
Business and Operations
Brand, Reputational Impact and ESG
Competition and Technology
Preferential or Protective Government
Actions
Information Security and Operational
Resilience
Privacy, Data Protection, Al and
Information Security
Other Regulation
PARTI
ITEM 1A. RISK FACTORS
Revenue Sources
Additional Information
Limitations on our ability to restrict merchant surcharging could materially and adversely impact our results of operations.
We have historically implemented policies, referred to as no-surcharge rules, in certain jurisdictions, including the U.S. and Canada,
that prohibit merchants from charging higher prices to consumers who pay using our products instead of other means. Authorities
in several jurisdictions have acted to end or limit the application of these no-surcharge rules (or indicated interest in doing so).
Additionally, our no-surcharge rules now permit U.S. and Canadian merchants to surcharge credit cards (subject to certain
limitations), which over time could lead merchants in some or all merchant categories in these jurisdictions to choose to surcharge
as permitted. This could result in consumers viewing our products less favorably and/or using alternative means of payment instead
of electronic products, which could result in a decrease in our overall transaction volumes, and which in turn could materially and
adversely impact our results of operations.
New requirements or changing interpretations of existing requirements in these areas, or the development of new regulatory
schemes related to the digital economy in general, may also increase our costs and/or restrict our ability to leverage data or use Al
for innovation. This could impact the products and services we offer and other aspects of our business, such as fraud monitoring,
the need for improved data management, governance and quality practices, the development of information-based products and
solutions, and technology operations. In addition, these requirements may increase the costs to our customers of issuing payment
MASTERCARD 2023 FORM 10-K 29
PARTI
ITEM 1A. RISK FACTORS
products or using information products, which may, in turn, decrease the number of our products that they offer. While we intend
to comply with all regulatory requirements, innovate responsibly and deploy Privacy by Design, Data by Design and Al Governance
approaches to all of our product development, the speed and pace of changes in laws (as well as stakeholder interests) may not
allow us to meet rapidly evolving regulatory and stakeholder expectations. Any of these developments could materially and
adversely affect our overall business and results of operations.
Other Regulation
Regulations that directly or indirectly apply to Mastercard as a result of our participation in the global payments industry may
materially and adversely affect our overall business and results of operations.
Further, as we acquire new companies and develop integrated and personalized products and services to meet the needs of a
changing marketplace, we have expanded our data profile through additional data types and sources, across multiple channels, and
involving new partners. This expansion has amplified the impact of these various laws and regulations on our business. As a result,
we are required to constantly monitor our data practices and potentially change them when necessary or appropriate. We also need
to provide increased care in our data management, governance and quality practices, particularly as it relates to the use of data in
products leveraging Al.
We are subject to regulations that affect the payments industry in the many jurisdictions in which our products and services are
used. Many of our customers are also subject to regulations applicable to banks and other financial institutions that, at times,
consequently affect us. Such regulation has increased significantly in the last several years (as described in "Business - Government
Regulation" in Part I, Item 1). Examples include:
Anti-Money Laundering, Countering the Financing of Terrorism, Economic Sanctions and Anti-Corruption - We are subject to
AML and CFT laws and regulations globally. Economic sanctions programs administered by OFAC restrict financial transactions
and other dealings with certain countries and geographies, and persons and entities. We are also subject to anti-corruption laws
and regulations globally, which, among other things, generally prohibit giving or offering payments or anything of value for the
purpose of improperly influencing a business decision or to gain an unfair business advantage.
Account-based Payments Systems
-
In the U.K., aspects of our Vocalink business are subject to the U.K. payment system
oversight regime and are directly overseen by the Bank of England.
•
Issuer and Acquirer Practices Legislation and Regulation - Certain regulations (such as PSD2 in the EEA) may impact various
aspects of our business. For example, PSD2's strong authentication requirement could increase the number of transactions that
consumers abandon if we are unable to secure a frictionless authentication experience under these standards. An increase in
the rate of abandoned transactions could adversely impact our volumes or other operational metrics.
Increased regulatory focus on us has resulted and may continue to result in significant compliance and governance burdens or
otherwise increase our costs. Similarly, increased regulatory focus on our customers may cause such customers to reduce the
volume of transactions processed through our systems, or may otherwise impact the competitiveness of our products. Actions by
regulators could influence other organizations around the world to enact or consider adopting similar measures, amplifying any
potential compliance burden. Additionally, our compliance with new economic sanctions and related laws with respect to particular
jurisdictions or customers could result in a loss of business, which could be significant. Moreover, while our risk-based compliance
program obligates issuers and acquirers to comply with U.S., EU and local sanctions programs (among other obligations), the failure
of those issuers and acquirers to identify potential non-compliance issues either during or after their customer onboarding processes
could ultimately impact our compliance with economic sanctions and related laws. Finally, failure to comply with the laws and
regulations discussed above to which we are subject could result in fines, sanctions or other penalties. In particular, a violation and
subsequent judgment or settlement against us, or those with whom we may be associated, under economic sanctions and AML, CFT,
and anti-corruption laws could subject us to substantial monetary penalties, damages, and/or have a significant reputational impact.
Each instance may individually or collectively materially and adversely affect our financial performance and/or our overall business
and results of operations, as well as have an impact on our reputation.
We could be subject to adverse changes in tax laws, regulations and interpretations or challenges to our tax positions.
We are subject to tax laws and regulations of the U.S. federal, state and local governments as well as various non-U.S. jurisdictions.
Current and potential future changes in existing tax laws, including regulatory guidance, are continuously being considered and have
been or may be enacted (such as guidelines issued by the Organization for Economic Co-operation and Development (OECD) which
impact how multinational enterprises are taxed on their global profits). These changes have and in the future may continue to have
an impact on our effective income tax rate and tax payments. Similarly, changes in tax laws and regulations that impact our
customers and counterparties, or the economy generally, have impacted and may continue to impact us as well.
•
We are devoting substantial resources to defending our right to establish interchange rates in regulatory proceedings, litigation and
legislative activity. The potential outcome of any of these activities could have a more positive or negative impact on us relative to
our competitors. If we are ultimately unsuccessful in defending our ability to establish interchange rates, any resulting legislation,
regulation and/or litigation may have a material adverse impact on our overall business and results of operations. In addition,
regulatory proceedings and litigation could result (and in some cases has resulted) in us being fined and/or having to pay civil
damages, the amount of which could be material.
We are subject to increasingly complex, fragmented and divergent laws and regulations related to privacy and data protection, data
use and governance, Al and information security in the jurisdictions in which we do business. While policymakers around the globe
look to the EU and the GDPR when adopting new or updated privacy and data protection laws, divergences have occurred and
continue to occur. As a result, new or updated privacy and data protection and information security laws and regulations have led,
and may continue to lead, to similar, stricter or at times conflicting requirements, creating an uncertain regulatory environment. For
example, some jurisdictions have implemented or are otherwise considering requirements to collect, store and/or process data
within their borders, as well as prohibitions on the transfer of data abroad, leading to technological and operational implications.
Other jurisdictions have adopted or are otherwise considering adopting sector-specific regulations for the payments industry and
other industries in which we participate, including forced data sharing requirements or additional verification requirements. In
addition, laws and regulations on Al, data governance and credit decisioning may overlap or conflict with, or diverge from, general
privacy rules. Overall, these myriad laws and regulations may require us to modify our data processing practices and policies, incur
substantial compliance-related costs and expenses, and otherwise suffer adverse impacts on our business. Failure to comply with
any of these laws, regulations and requirements could result in fines, sanctions or other enforcement actions or penalties, which
could materially and adversely affect our results of operations and overall business, as well as have an impact on our reputation.
As a user and deployer of Al technology, we are also subject to increasing and evolving laws and regulations related to Al governance
and new applications of existing laws and regulations to Al. How our use and deployment of Al will be regulated remains uncertain
given the uncertainty that exists as to how Al technology will develop. In addition, the use of Al creates or amplifies risks that are
challenging to fully prevent or mitigate. In particular, Al algorithms may generate inaccurate, unintended, unfair or discriminatory
outcomes, which may not be easily detectable or explainable, and may inadvertently breach intellectual property, privacy or other
rights, as well as confidential information. Our implementation of robust Al governance and risk management frameworks aimed at
complying with emerging laws and regulations may not be sufficient protection against these emerging risks.
Privacy, Data Protection, Al and Information Security
Preferential or Protective Government Actions
Preferential and protective government actions related to domestic payment services could adversely affect our ability to
maintain or increase our revenues.
Governments in some countries have acted, or in the future may act, to provide resources, preferential treatment or other
protection to selected national payment and switching providers, or have created, or may in the future create, their own national
provider. This action may displace us from, prevent us from entering into, or substantially restrict us from participating in, particular
geographies, and may prevent us from competing effectively against those providers. For example:
•
•
Governments in some countries have implemented, or may implement, regulatory requirements that mandate switching of
domestic payments either entirely in that country or by only domestic companies.
Some jurisdictions have implemented, or are considering, requirements to collect, store and/or process data within their
borders, as well as prohibitions on the transfer of data abroad, leading to technological and operational implications as well as
increased compliance burdens and other costs.
Regulation and enforcement of privacy, data, Al, information security and the digital economy could increase our costs and lead
to legal claims and fines, as well as negatively impact our growth and reputation.
28
PARTI
ITEM 1A. RISK FACTORS
•
.
Geopolitical events (such as Russia's invasion of Ukraine) and resulting OFAC sanctions, adverse trade policies, enforcement of
U.S. laws related to countering the financing of terrorism, economic sanctions and anti-corruption, or other types of government
actions could lead affected or other jurisdictions to take actions in response that could adversely affect our business. Moreover,
given our decision to suspend business operations in Russia, other separate jurisdictions may decide to begin to or increase their
focus on growing local payment networks and other solutions.
Regional groups of countries are considering, or may consider, efforts to restrict our switching of regional transactions.
Governments have been increasingly creating and expanding local payments structures (such as the Brazilian Instant Payment
System-PIX, FedNow in the U.S. and UPI in India), which are increasingly being considered as alternatives to traditional domestic
payment solutions and schemes such as ours.
Such developments prevent us from utilizing our global switching capabilities for domestic or regional customers. In addition, to the
extent a jurisdiction determines us not to be in compliance with regulatory requirements (including those related to data
localization), we have been, and may again in the future be, subject to resource and time pressures in order to come back into
compliance. Our inability to effect change in, or work with, these jurisdictions could adversely affect our ability to maintain or
increase our revenues and extend our global brand.
Additionally, some jurisdictions have implemented, or may implement, foreign ownership restrictions, which could potentially have
the effect of forcing or inducing the transfer of our technology and proprietary information as a condition of access to their markets.
Such restrictions could adversely impact our ability to compete in these markets.
MASTERCARD 2023 FORM 10-K
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
PARTI
•
Our role as guarantor, as well as other contractual obligations and discretionary actions, expose us to risk of loss or illiquidity.
We are a guarantor of certain third-party obligations, including those of certain of our customers and service providers. In this
capacity, we are exposed to credit and liquidity risk. We may incur significant losses in connection with transaction settlements if a
customer fails to fund its daily settlement obligations due to technical problems, liquidity shortfalls, insolvency or other reasons. The
recent increased speed of bank failures as recently seen in the U.S. could increase the potential for such losses. Concurrent
settlement failures of more than one of our larger customers or of several smaller customers either on a given day or over a
condensed period of time may exceed our available resources. Additionally, certain non-guaranteed transactions as well as
chargebacks to acquirers in the event of acquirer default could result in elevated brand risk and the potential for financial loss.
These impacts could materially and adversely affect our results of operations.
Customers mitigating their economic exposure by limiting the issuance of new Mastercard products and requesting greater
incentive or greater cost stability from us
Consumers and businesses lowering spending, which could impact domestic and cross-border spend
Debt limit and budgetary discussions in the U.S. has affected, and could further affect, the U.S. credit rating, impacting consumer
confidence and spending
Government intervention (including the effect of laws, regulations and/or government investments on or in our financial
institution customers), as well as uncertainty due to changing political regimes in executive, legislative and/or judicial branches of
government, that may have potential negative effects on our business and our relationships with customers or otherwise alter
their strategic direction away from our products
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Tightening of credit availability that could impact the ability of participating financial institutions to lend to us under the terms of
our credit facility
Cross-border transactions. We switch substantially all cross-border transactions using Mastercard, Maestro and Cirrus-branded
cards and generate a significant amount of revenue from cross-border volume fees and fees related to switched transactions.
Revenue from switching cross-border and currency conversion transactions for our customers fluctuates with the levels and
destinations of cross-border travel and our customers' need for transactions to be converted into their base currency. Cross-border
activity has, and may continue to be, adversely affected by world geopolitical, economic, health, weather and other conditions.
These include or have included:
•
•
the global COVID-19 pandemic (and the potential of any post-pandemic global economic impact) and potential separate
outbreaks of flu, viruses and other diseases (any of which could result in future epidemics or pandemics)
current and potential future geopolitical conflicts, as well as expansion into regional or global conflicts, and the resulting impacts
to our business (this includes Russia's invasion of Ukraine and the actions taken by the U.S., the EU, other governments and
Mastercard in response)
the threat of terrorism and major environmental and extreme weather events (including those related to climate change)
Russia's invasion of Ukraine. In addition to the cross-border impacts described above, our compliance with sanctions and our
decision to suspend our business operations in Russia has led, and could further lead, to other legal ramifications and operational
challenges, including fines, the nationalization of our subsidiary and any resulting impacts, and/or lawsuits.
.
Standards. Our operations as a global payments network rely in part on global interoperable standards to help facilitate safe and
simple payments. To the extent geopolitical events result in jurisdictions no longer participating in the creation or adoption of these
standards, or the creation of competing standards, the products and services we offer could be negatively impacted.
•
Global economic, political, financial and societal events or conditions could result in a material and adverse impact on our overall
business and results of operations.
Our business significantly depends on the continued success and competitiveness of our issuing and acquiring customers and, in
many jurisdictions, their ability to effectively manage or help manage our brands.
While we work directly with many stakeholders in the payments system (including merchants, governments, fintechs and large
digital companies and other technology companies), we are, and will continue to be, significantly dependent on our relationships
with our issuers and acquirers and their respective relationships with account holders and merchants to support our programs and
services. Furthermore, we depend on our issuing partners and acquirers to continue to innovate to maintain competitiveness in the
market. We do not issue cards or other payment devices, extend credit to account holders or determine the interest rates or other
fees charged to account holders. Each issuer determines these and most other competitive payment program features. In addition,
we do not establish the discount rate that merchants are charged for acceptance, which is the responsibility of our acquiring
customers. As a result, our business significantly depends on the continued success and competitiveness of our issuing and acquiring
customers and the strength of our relationships with them. In turn, our customers' success depends on a variety of factors over
which we have little or no influence, including economic conditions in global financial markets or their disintermediation by
competitors or emerging technologies, as well as regulation. If our customers become financially unstable, we may lose revenue or
we may be exposed to settlement risk. See "Risk Factors - Settlement and Third-Party Obligations" in this Part I, Item 1A with
respect to how we guarantee certain third-party obligations.
With the exception of the U.S. and a select number of other jurisdictions, most in-country (as opposed to cross-border) transactions
conducted using cards with our brands are switched by our customers or other processors. Because we do not provide domestic
switching services in these countries or have direct relationships with account holders, we depend on our close working relationships
with our customers to effectively manage our brands, and the perception of our payments system, among consumers in these
countries. We also rely on these customers to help manage our brands and perception among regulators and merchants in these
countries, alongside our own relationships with them. From time to time, our customers may take actions that we do not believe to
be in the best interests of our payments system overall, which may materially and adversely impact our business.
36 MASTERCARD 2023 FORM 10-K
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Merchants' continued focus on acceptance costs may lead to additional litigation and regulatory proceedings and increase our
incentive program costs, which could materially and adversely affect our profitability.
Merchants are important constituents in our payments system. We rely on both our relationships with them, as well as their
relationships with our issuer and acquirer customers, to continue to expand the acceptance of our products and services. We also
work with merchants to help them enable new sales channels, create better purchase experiences, improve efficiencies, increase
revenues and fight fraud. In the retail industry, we believe a set of larger merchants with increasingly global scope and influence are
having a significant impact on all participants in the global payments industry, including Mastercard. Some large merchants have
supported the legal, regulatory and legislative challenges to interchange fees that Mastercard has been defending, including the U.S.
merchant litigations. Some merchants are increasingly asking regulators to review and potentially regulate our own network fees, in
addition to interchange. See "Risk Factors - Payments Industry Regulation" in this Part I, Item 1A. The continued focus of merchants
on the costs of accepting various forms of payment (including digital) may lead to additional litigation and regulatory proceedings.
Certain larger merchants are also able to negotiate incentives from us and pricing concessions from our issuer and acquirer
customers as a condition to accepting our products. We also make payments to certain merchants to incentivize them to create co-
branded payment programs with us. As merchants consolidate and become even larger, we may have to increase the amount of
incentives that we provide to certain merchants, which could materially and adversely affect our results of operations. Competitive
and regulatory pressures on pricing could make it difficult to offset the costs of these incentives. Additionally, if the rate of
merchant acceptance growth slows, our business could suffer.
Our work with governments exposes us to unique risks that could have a material impact on our business and results of
operations.
As we increase our work with national, state and local governments, both indirectly through financial institutions and with them
directly as our customers, we may face various risks inherent in associating or contracting directly with governments. These risks
include, but are not limited to, the following:
•
.
Governmental entities typically fund projects through appropriated monies. Changes in governmental priorities or other political
developments, including disruptions in governmental operations, could impact approved funding and result in changes in the
scope, or lead to the termination, of the arrangements or contracts we or financial institutions enter into with respect to our
payment products and services.
Our work with governments is heavily regulated, subjecting us to additional potential exposure under U.S. and international anti-
corruption laws (including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act), as well as compliance with various
procurement and other laws, regulations, standards and contract terms. Any violation and subsequent judgment or settlement
related to the above could subject us to substantial monetary penalties and damages and have a significant reputational impact.
Moreover, as a government contractor, we are subject to a government's right to conduct audits and investigations into both our
contract performance and our compliance with applicable laws, regulations and contract terms. Any adverse finding could
subject us to civil or criminal penalties, sanctions, or suspension or disbarment.
Working or contracting with governments, either directly or via our financial institution customers, can subject us to heightened
reputational risks, including extensive scrutiny and publicity, as well as a potential association with the policies of a government
as a result of a business arrangement with that government. Any negative publicity or negative association with a government
entity, regardless of its accuracy, may adversely affect our reputation.
Global Economic and Political Environment
Adverse economic trends. Adverse economic trends in key countries in which we operate may adversely affect our financial
performance. Such impact may include, but is not limited to, the following:
Consolidation amongst our customers could materially and adversely affect our overall business and results of operations.
Our customers' industries have undergone substantial, accelerated consolidation in the past. These consolidations have included
customers with a substantial Mastercard portfolio being acquired by institutions with a strong relationship with a competitor.
Potential future consolidation could occur as a result of bank failures, similar to those that occurred in the U.S. during 2023. If
significant consolidation among customers were to continue, it could result in the substantial loss of business for us, which could
have a material adverse impact on our business and prospects. In addition, one or more of our customers could seek to merge with,
or acquire, one of our competitors, and any such transaction could also have a material adverse impact on our overall business.
Consolidation could also produce a smaller number of large customers, which could increase their bargaining power and lead to
lower prices and/or more favorable terms for our customers. These developments could materially and adversely affect our results
of operations.
Factors such as those discussed above have adversely impacted our business, results of operations and financial condition, and any
of these developments potentially could have a material adverse impact on our overall business and results of operations.
Adverse currency fluctuations and foreign exchange controls could negatively impact our results of operations.
During 2023, approximately 70% of our revenue was generated from activities outside the U.S. This revenue (and the related
expense) could be transacted in a non-functional currency or valued based on a currency other than the functional currency of the
entity generating the revenues. Resulting exchange gains and losses are included in our net income. Our risk management activities
provide protection with respect to adverse changes in the value of only a limited number of currencies and are based on estimates
of exposures to these currencies.
The occurrence of currency fluctuations or exchange controls could have a material adverse impact on our results of operations.
Our performance largely depends on the skills, capabilities and motivation of our employees (including our people leaders), as well
as the environment we create for them to enable them to perform their jobs effectively. While attrition and pace of hiring has
slowed due to economic uncertainty, the market for specialized skill-sets remains highly competitive, particularly in technology and
other areas that are important to the growth of our business. To the extent we are unable to differentiate our value proposition in
the market, effectively develop leaders and build robust succession pipelines, it could impact our ability to deliver for our customers.
To the extent we cannot design our processes and practices to support equitable outcomes, our ability to attract talent may be
significantly impacted and we may experience talent attrition. In addition, escalations in global conflict and a rise in mental health
needs are also impacting the well-being of our people. To the extent we are unable to communicate effectively on these issues and
provide support to our employees, we could experience a significant impact on our business, reputation and culture. Further,
MASTERCARD 2023 FORM 10-K 39
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changes in and enforcement of immigration and work permit laws and visa regulations have made it difficult for employees to work
in, or transfer among, jurisdictions where we operate, potentially impairing our ability to attract and retain talent.
Our flexibility policies and programs (in particular, those related to work arrangements) may impact the well-being and productivity
of our workforce, which in turn could have a negative impact on the quality of our corporate culture and our ability to innovate. To
the extent these policies (including our team-based agreements) do not meet candidate or employee expectations for flexibility, this
could also impact our ability to attract and retain talent.
Failure to attract, hire, develop, motivate and retain highly qualified and diverse employee talent could leave us vulnerable to not
anticipating or identifying emerging customer or market opportunities. We also rely on our people leaders to display integrity and
decency. To the extent our leaders behave in a manner that is not consistent with our values, we could experience significant impact
to our brand and reputation, as well as to our corporate culture.
Any one or more of the above could harm our overall business and results of operations.
Acquisitions and Strategic Investments
Our efforts to enter into acquisitions, strategic investments or new businesses could be impacted or prevented by regulatory
scrutiny and could otherwise result in issues that could disrupt our business and harm our results of operations or reputation.
We continue to evaluate our strategic acquisitions of, and investments in, complementary businesses, products or technologies. As
we do so, we face increasing regulatory scrutiny with respect to antitrust, national security and other considerations that could
impact these efforts. We also face competition for acquisition targets due to the nature of the market for technology companies. As
a result, we could be prevented from successfully completing such acquisitions in the future. If we are not successful in these
efforts, we could lose strategic opportunities that are dependent, in part, on inorganic growth.
To the extent we do make these acquisitions, we may not be able to successfully partner with or integrate them, despite original
intentions and focused efforts. Such an integration also may divert management's time and resources from our core business and
disrupt our operations. Moreover, we have spent, and may continue to spend, time and money on acquisitions or projects that do
not sufficiently meet our expectations (either strategically or financially), which has resulted (and may in the future result) in
divesting from or otherwise exiting these investments or businesses. Additionally, to the extent we pay the purchase price of any
acquisition in cash, it would reduce our cash reserves available to us for other uses, and to the extent the purchase price is paid with
our stock, it could be dilutive to our stockholders. Furthermore, we have inherited and may in the future inherit litigation risk which
has or may increase our post-acquisition costs of operations and/or impact our ability to successfully finance that business.
Any acquisition, investment or entry into a new business could subject us to new regulations, both directly as a result of the new
business as well as in the other existing parts of our business, with which we would need to comply. This compliance could increase
our costs, and we could be subject to liability or reputational harm to the extent we cannot meet any such compliance requirements.
Additionally, targets that we acquire have had, and may in the future have, data practices that do not initially conform to our
privacy, data protection and information security standards and data governance model, which could lead to regulatory scrutiny and
reputational harm. These targets also have resulted in, and may in the future lead to, information security vulnerabilities for us.
Settlement and Third-Party Obligations
We have significant contractual indemnification obligations with certain customers. Should an event occur that triggers these
obligations, such an event could materially and adversely affect our overall business and results of operations.
40 MASTERCARD 2023 FORM 10-K
We may not be able to attract and retain a highly qualified and diverse workforce, or maintain our corporate culture, which could
harm our overall business and results of operations.
In addition, some of the revenue we generate outside the U.S. is subject to unpredictable currency fluctuations including devaluation
of currencies where the values of other currencies change relative to the U.S. dollar. If the U.S. dollar strengthens compared to
currencies in which we generate revenue, this revenue may be translated at a materially lower amount than expected. Furthermore,
we may become subject to exchange control regulations that might restrict or prohibit the conversion into U.S. dollars of our other
revenue currencies and financial assets.
Talent and Culture
In addition, various jurisdictions are increasingly adopting or considering laws and regulations that have or would impact us
pertaining to ESG governance, strategy, risk management and metrics/targets/results. These include required corporate reporting
and disclosures on specific topics (such as climate and human rights) as well as broader matters (such as other environmental
matters, treatment of employees and diversity of workforce). These requirements have, and are likely to continue to, result in
increased compliance costs for our business and supply chain, which may increase our operating costs.
Brand, Reputational Impact and ESG
Negative brand perception may materially and adversely affect our overall business.
Our brands and their attributes are key assets of our business. The ability to attract consumers to our branded products and retain
them depends upon the external perception of us and our industry:
.
Our business may be affected by actions taken by our customers, merchants or other organizations that impact the perception of
our brands or the payments industry in general. From time to time, our customers may take actions that we do not believe to be
in the best interests of our brands, such as creditor practices that may be viewed as "predatory". Moreover, adverse
developments with respect to our industry or the industries of our customers or other companies and organizations that use our
products and services (including certain legally permissible but high-risk merchant categories, such as adult content, firearms,
alcohol and tobacco) may also, by association, impair our reputation, or result in greater public, regulatory or legislative scrutiny,
38 MASTERCARD 2023 FORM 10-K
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•
as well as potential litigation. We may also face similar scrutiny to the extent that we are unable to detect and/or prevent illegal
activities using our payment products or otherwise occurring over our network.
We have been pursuing the use of social media channels at an increasingly rapid pace. Under some circumstances, our use of
social media, or the use of social media by others as a channel for criticism or other purposes, could also cause rapid, widespread
reputational harm to our brands by disseminating rapidly and globally actual or perceived damaging information about us, our
products or merchants or other end users who utilize our products.
We are headquartered in the U.S. As such, a negative perception of the U.S. could impact the perception of our company, which
could adversely affect our business.
Any of the above issues could have a material and adverse effect on our overall business.
Lack of visibility of our brand in our products and services, or in the products and services of our partners who use our technology,
may materially and adversely affect our business.
As more players enter the global payments ecosystem, the layers between our brand and consumers and merchants increase. In
order to compete with other powerful consumer brands that are also becoming part of the consumer payment experience, we often
partner with those brands on payment solutions. These brands include large digital companies and other technology companies
who are our customers and use our networks to build their own acceptance brands. In some cases, our brand may not be featured
in the payment solution or may be secondary to other brands. Additionally, as part of our relationships with some issuers, our
payment brand is only included on the back of the card. As a result, our brand may either be invisible to consumers or may not be
the primary brand with which consumers associate the payment experience. This brand invisibility, or any consumer confusion as to
our role in the consumer payment experience, could decrease the value of our brand, which could adversely affect our business.
ESG matters and related stakeholder reaction may impact our reputation, expose us to legal requirements and liability and/or
have other business impacts, which could adversely affect our overall business and/or results of operations.
Our brand and reputation are associated with our public commitments to various ESG initiatives, including our goals relating to
climate (such as our commitment to achieve net-zero emissions by 2040), financial inclusion, and DEI. Consumers, investors,
employees and other stakeholders are increasingly focused on ESG practices. To the extent any of our ESG disclosures, public
statements and metrics are subsequently viewed as inaccurate, or we are unable to execute on our ESG initiatives, we may be
viewed negatively by stakeholders concerned about these matters. Stakeholders (including those in support of or in opposition to
ESG principles) may also have a negative view of us to the extent we are perceived to have not responded appropriately to their ESG
concerns or take positions that are contrary to their views or expectations.
Moreover, as governments, investors and other stakeholders face pressure to address climate change and other ESG matters, these
stakeholders may express new expectations and focus investments in ways that could cause significant shifts in commerce and
consumption behaviors. The impact of and uncertainty that could result from such shifts could ultimately impact our business.
Any of the above issues could have a material or adverse impact to our overall business and/or results of operations.
While we have exclusive, or nearly-exclusive, relationships with certain of our customers to issue payment products, other
customers have similar exclusive, or nearly-exclusive, relationships with our competitors. These relationships may make it difficult
or cost-prohibitive for us to do significant amounts of business with these customers to increase our revenues. In addition, these
customers may be more successful and may grow faster than the customers that primarily issue our payment products, which could
put us at a competitive disadvantage. Furthermore, we earn substantial revenue from customers with nearly-exclusive relationships
with our competitors. Such relationships could provide advantages to the customers to shift business from us to the competitors
with which they are principally aligned. A significant loss of our existing revenue or transaction volumes from these customers could
have a material adverse impact on our business.
The impact of and uncertainty that could result from any of these events or factors could ultimately decrease cross-border activity.
Additionally, any regulation of interregional interchange fees could also negatively impact our cross-border activity (for example, the
targets announced by the G20 Financial Stability Board related to cross-border payments). In each case, decreased cross-border
activity could decrease the revenue we receive.
In addition, a significant portion of our revenue is concentrated among our five largest customers. Loss of business from any of our
large customers could have a material adverse impact on our overall business and results of operations.
.
.
•
Industry participants continue to invest in and develop alternative capabilities, such as account-based payments, which could
facilitate P2M transactions that compete with both our core payment network and our additional payment capabilities.
Regulation (such as PSD2 in the EEA) may disintermediate issuers by enabling third-party providers opportunities to route
payment transactions away from our network and products and towards other forms of payment by offering account
information or payment initiation services directly to those who currently use our products. Such regulation may also provide
these processors with the opportunity to commoditize the data that are included in the transactions they are servicing. If our
customers are disintermediated in their business, we could face diminished demand for our products and services.
Although we partner with fintechs and technology companies (such as digital players and mobile providers) that leverage our
technology, platforms and networks to deliver their products, they could develop platforms or networks that disintermediate us
from digital payments and impact our ability to compete in the digital economy. These companies may also develop products or
services that compete with our customers within the payments ecosystem and, as a result, could diminish demand for our
products and services. When we do partner with fintechs and technology companies, we face a heightened risk when we share
data as part of those relationships. While we share this data in a controlled manner subject to applicable anonymization and
privacy and data standards, sharing this data without proper oversight could provide partners with a competitive advantage.
Competitors, customers, fintechs, technology companies, governments and other industry participants may develop products
that compete with or replace products and services we currently provide to support our switched transaction and payments
offerings. These products could either replace, or force us to change our pricing or practices, for these offerings. In addition,
governments that develop or encourage the creation of national or international payments platforms may promote their
platforms in such a way that could put us at a competitive disadvantage in those markets, or require us to compete differently.
Participants in the payments industry may merge, create joint ventures or form other business combinations that may
strengthen their existing business services or create new payment products and services that compete with our products and
services.
Our failure to compete effectively against any of the foregoing competitive threats could materially and adversely affect our overall
business and results of operations.
Continued intense pricing pressure may materially and adversely affect our overall business and results of operations.
In order to increase transaction volumes, enter new markets and expand our products and services, we seek to enter into business
agreements with customers through which we offer incentives, pricing discounts and other support that promote our products. In
order to stay competitive, we may have to increase the amount of these incentives and pricing discounts so as to meet customer
demand for better pricing arrangements and greater rebates and incentives, which moderates our growth. Our inability to switch
additional transaction volumes or to provide additional services to our customers at levels sufficient to compensate for such lower
fees or increased costs in the future could materially and adversely affect our overall business and results of operations. In addition,
increased pressure on prices increases the importance of cost containment and productivity initiatives in areas other than those
relating to customer incentives.
In the future, we may not be able to enter into agreements with our customers if they require terms that we are unable or unwilling
to offer, and we may be required to modify existing agreements in order to maintain relationships and to compete with others in the
industry. Some of our competitors are larger with greater financial resources and accordingly may be able to charge lower prices to
our customers. In addition, to the extent that we offer discounts or incentives under such agreements, we will need to further
increase transaction volumes or the amount of services provided in order to benefit from such agreements and to increase revenue
and profit, and we may not be successful in doing so, particularly in the current regulatory environment. Our customers also may
implement cost reduction initiatives that reduce or eliminate payment product marketing or increase requests for greater incentives
or greater cost stability. These factors could have a material adverse impact on our overall business and results of operations.
Additionally, we face pricing pressure related to real-time account-based payment schemes and cross-border payments (including
the increased use of domestic real-time account-based payment schemes offering increasingly lower or subsidized pricing for P2M
transactions as well as continued downward pressure on pricing for cross-border payments resulting from competition from real-
time account-based payment schemes and from initiatives to lower the cost of cross-border payments to end users (such as the G20
32 MASTERCARD 2023 FORM 10-K
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ITEM 1A. RISK FACTORS
Roadmap for Enhancing Cross-border Payments)). These factors could have a material adverse impact on our overall business and
results of operations.
Rapid and significant technological developments and changes could negatively impact our overall business and results of
operations or limit our future growth.
.
.
The payments industry is subject to rapid and significant technological changes, which can impact our business in several ways:
Technological changes (including continuing developments of technologies in the areas of smart cards and devices, contactless
and mobile payments, e-commerce, cryptocurrency and blockchain, Al, machine learning, privacy enhancement and
cybersecurity) could result in new technologies that may be superior to, or render obsolete, the technologies we currently use in
our programs and services. Moreover, these changes could result in new and innovative payment methods, products and
services that could place us at a competitive disadvantage and that could reduce the use of our products and services.
As the payments industry continues to develop and change, we face disintermediation and related risks, including:
Parties that process our transactions in certain countries may try to eliminate our position as an intermediary in the payment
process. For example, merchants could switch (and in some cases are switching) transactions directly with issuers. Additionally,
processors could process transactions directly between issuers and acquirers. Large scale consolidation within processors could
result in these processors developing bilateral agreements or in some cases switching the entire transaction on their own
network, thereby disintermediating us.
ITEM 1A. RISK FACTORS
Litigation
Liabilities we may incur or limitations on our business related to any litigation or litigation settlements could materially and
adversely affect our results of operations.
Exclusive/near exclusive relationships certain customers have with our competitors may have a material adverse impact on our
business.
We are a defendant in a number of civil litigations and regulatory proceedings and investigations, including among others, those
alleging violations of competition and antitrust law and those involving intellectual property claims (as described in Note 21 (Legal
and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8). In the event we are found liable in
any material litigations or proceedings (particularly in a large class-action lawsuit or on the basis of an antitrust claim entitling the
plaintiff to treble damages or under which we were jointly and severally liable), we could be subject to significant damages, which
could have a material adverse impact on our overall business and results of operations.
Certain limitations have been placed on our business in recent years because of litigation and litigation settlements, such as changes
to our no-surcharge rule in the U.S. and Canada. Any future limitations on our business resulting from the outcomes of any litigation
or regulatory proceeding, including any changes to our rules or business practices, could impact our relationships with our
customers, including reducing the volume of business that we do with them, which may materially and adversely affect our overall
business and results of operations.
Business and Operations
Competition and Technology
Substantial and intense competition worldwide in the global payments industry may materially and adversely affect our overall
business and results of operations.
The global payments industry is highly competitive. Our payment programs compete against competitors both within and outside of
the global payments industry and compete in all payment categories, including paper-based payments and all forms of electronic
payments. We compete against general purpose payments networks, debit and local networks, ACH and real-time account-based
payments systems, digital wallets and other fintechs (focused on online activity across various channels and processing payments
using in-house capabilities), government-backed networks and digital currencies. We also face competition from companies that
provide alternatives to our value-added services and new adjacent network capabilities (including open banking and digital identity).
Our traditional competitors may have substantially greater financial and other resources than we have, may offer a wider range of
programs, services, and payment capabilities than we offer or may use more effective advertising and marketing strategies to
achieve broader brand recognition and merchant acceptance than we have. They may also introduce their own innovative
programs, value-added services and capabilities that adversely impact our growth.
Certain of our competitors to our core payment network operate three-party payments systems with direct connections to both
merchants and consumers, potentially providing competitive advantages. If we continue to attract more regulatory scrutiny than
these competitors because we operate a four-party system, or we are regulated because of the system we operate in a way in which
our competitors are not, we could lose business to these competitors. See "Business - Competition" in Part I, Item 1.
Certain of our competitors have developed alternative payments systems, e-commerce payments systems and payments systems for
mobile devices, as well as physical store locations. A number of these competitors rely principally on technology to support their
services that provides cost advantages, and as a result may enjoy lower costs than we do. Many of these competitors are also able
to use existing payment networks without being subject to many of the associated costs. Moreover, these competitors also occupy
various roles in the payments ecosystem that enable them to influence payment choice of other participants. Any of these factors
could put us at a competitive disadvantage.
Our ability to compete may also be affected by regulatory and legislative initiatives, as well as the outcomes of litigation,
competition-related regulatory proceedings and both central bank and legislative activity.
If we are not able to differentiate ourselves from our competitors, drive value for our customers and/or effectively align our
resources with our goals and objectives, we may not be able to compete effectively against these threats. Our failure to compete
effectively against any of the foregoing threats could materially and adversely affect our overall business and results of operations.
MASTERCARD 2023 FORM 10-K 31
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Disintermediation from stakeholders both within and outside of the payments value chain could harm our business.
•
•
.
Information security risks for payments and technology companies such as ours have significantly increased in recent years in part
because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial
transactions, and the increased sophistication and activities of organized crime, hackers, “hacktivists", terrorists, nation-states, state-
sponsored actors and other external parties. These threats may derive from fraud or malice on the part of our employees or third
parties, or may result from human error, software bugs, server malfunctions, software or hardware failure or other technological
failure. These threats include cyber-attacks such as computer viruses, denial-of-service attacks, malicious code (including
ransomware), social-engineering attacks (including phishing attacks) or information security breaches and could lead to the
misappropriation or loss of consumer account and other information and identity theft. These types of threats have risen
significantly due to a significant portion of our workforce working in a hybrid environment. These threats also may be further
enhanced in frequency or effectiveness through threat actors' use of Al.
Our operations rely on the secure transmission, storage and other processing of confidential, proprietary, sensitive and personal
information and technology in our computer systems and networks, as well as the systems of our third-party providers. Our
customers and other parties in the payments value chain, as well as account holders, rely on our digital technologies, computer
systems, software and networks to conduct their operations. In addition, to access our products and services, our customers and
account holders increasingly use personal smartphones, tablet PCs and other mobile devices that may be beyond our control. We,
like other financial technology organizations, routinely are subject to cyber-threats and our technologies, systems and networks, as
well as the systems of our third-party providers, have been subject to attempted cyber-attacks. Because of our position in the
payments value chain, we believe that we are likely to continue to be a target of such threats and attacks. Geopolitical events and
resulting government activity could also lead to information security threats and attacks by affected or sympathizing jurisdictions or
other actors, which could put our information and assets at risk, as well as result in network disruption.
To date, we have not experienced any material impact relating to cyber-attacks or other information security breaches. However,
future attacks or breaches could lead to security breaches of the networks, systems (including third-party provider systems) or
devices that our customers use to access our products and services, which in turn could result in the unauthorized disclosure,
release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary, sensitive and personal information (including
account data information) or data security compromises. Such attacks or breaches could also cause service interruptions,
malfunctions or other failures in the physical infrastructure, networks or operations systems that support our business and
customers (such as the lack of availability of our value-added services), as well as the operations of our customers or other third
parties. In addition, they could lead to damage to our reputation with our customers, other stakeholders and the broader payments
ecosystem, additional costs to us (such as repairing systems, adding new personnel or protection technologies or compliance costs),
regulatory penalties, financial losses to both us and our customers and partners and the loss of customers and business
opportunities. These consequences could be further pronounced in jurisdictions in which we are deemed critical national
infrastructure. If such attacks are not detected immediately, or disclosed as required by law, their effect could be compounded.
34 MASTERCARD 2023 FORM 10-K
PARTI
ITEM 1A. RISK FACTORS
In addition to information security risks for our systems and networks, we also routinely encounter account data compromise events
involving merchants and third-party payment processors that process, store or transmit payment transaction data, which affect
millions of Mastercard, Visa, Discover, American Express and other types of account holders. Further events of this type may subject
us to reputational damage and/or lawsuits involving payment products carrying our brands. Damage to our reputation or that of our
brands resulting from an account data breach of either our systems and networks or the systems and networks of our customers,
merchants and other third parties could decrease the use and acceptance of our products and services. Such events could also slow
or reverse the trend toward electronic payments. In addition to reputational concerns, the cumulative impact of multiple account
data compromise events could increase the impact of the fraud resulting from such events by, among other things, making it more
difficult to identify consumers. Moreover, while most of the lawsuits resulting from account data breaches do not involve direct
claims against us and while we have releases from many issuers and acquirers, we could still face damage claims, which, if upheld,
could materially and adversely affect our results of operations. While we offer cyber and intelligence products that are designed to
prevent, detect and respond to fraud and cyber-attacks, there can be no assurance that such security solutions will perform as
expected or address all possible security threats. Real or perceived defects, failures, errors or vulnerabilities in our security
solutions, such as our cyber and intelligence products, could adversely impact our reputation, customer confidence in our solutions
and our business and may subject us to litigation, governmental audits and investigation or other liabilities. Such events could have
a material adverse impact on our transaction volumes, results of operations and prospects for future growth, or increase our costs
by leading to additional regulatory burdens being imposed on us.
In addition, fraudulent activity and increasing cyber-attacks have encouraged legislative and regulatory intervention, and could
damage our reputation and reduce the use and acceptance of our products and services or increase our compliance costs. Criminals
are using increasingly sophisticated methods to capture consumer personal information to engage in illegal activities such as
counterfeiting or other fraud and may see their effectiveness enhanced by the use of Al. As outsourcing and specialization become
common in the payments industry, there are more third parties involved in processing transactions using our payment products.
While we are continuing to take measures to make card and digital payments more secure, increased fraud levels involving our
products and services, or misconduct or negligence by third parties switching or otherwise servicing our products and services, could
lead to legislative or regulatory intervention, such as enhanced security requirements and liabilities, as well as damage to our
reputation. See "Risk Factors - Privacy, Data Protection, Al and Information Security Compliance" in this Part I, Item 1A for more
detail concerning related legal risks and obligations.
Information security incidents or account data compromise events could disrupt our business, damage our reputation, increase
our costs and cause losses.
Despite various mitigation efforts that we undertake, there can be no assurance that we will not suffer material breaches and
resulting losses in the future. While we maintain insurance coverage, such coverage may not be adequate to protect us from such
losses as well as any liabilities or damages with respect to claims alleging compromises of our confidential, proprietary, sensitive or
personal information or our technologies, systems or networks. In addition, we cannot be sure that our existing insurance coverage
will continue to be available on acceptable terms or at all, or that our insurers will not deny coverage as to any future claim. Our risk
and exposure to these matters remain heightened due to, among other things, the evolving nature of these threats, our prominent
role in the global payments ecosystem, our continued implementation of our strategic priorities, our extensive use of third-party
vendors and potential vulnerabilities from previous and future acquisitions, strategic investments or related opportunities. As a
result, information security and the continued development and enhancement of our controls, processes and practices designed to
protect our computer systems, software, data and networks from attack, damage or unauthorized access remain a priority for us.
As cyber-threats continue to evolve, we may be required to expend significant additional resources to continue to modify or
enhance our protective measures or to investigate and remediate any information security vulnerabilities. Any of the risks described
above could materially adversely affect our overall business and results of operations.
Our transaction switching systems and other offerings have experienced in limited instances and may continue to experience
interruptions as a result of technology malfunctions, supply-chain attacks, fire, floods, earthquakes, weather events, power outages,
telecommunications disruptions, terrorism, workplace violence, accidents or other catastrophic events (including those related to
climate change). Our visibility in the global payments industry may also put us at greater risk of attack by terrorists, activists, or
hackers who intend to disrupt our facilities, networks and/or systems. Additionally, we rely on third-party service providers for the
timely transmission of information across our global data network. Inadequate infrastructure in lesser-developed markets could also
result in service disruptions, which could impact our ability to do business in those markets. If one of our service providers fails to
provide the communications capacity or services we require, as a result of natural disaster, operational disruptions, terrorism,
hacking or any other reason, the failure could interrupt our services. Although we maintain an enterprise resiliency program to
analyze risk, assess potential impacts, and develop effective response strategies, we cannot ensure that our business would be
immune to these risks, because of the intrinsic importance of our switching systems to our business, any interruption or degradation
could adversely affect the perception of the reliability of products carrying our brands and materially adversely affect our overall
business and our results of operations.
MASTERCARD 2023 FORM 10-K 35
PARTI
ITEM 1A. RISK FACTORS
Stakeholder Relationships
•
Many of our customer relationships are not exclusive. Our customers can reassess their future commitments to us subject to the
terms of our contracts, and they separately may develop their own services that compete with ours. Our business agreements with
these customers may not ultimately reduce the risk inherent in our business that customers may terminate their relationships with
us in favor of relationships with our competitors, or for other reasons, or might not meet their contractual obligations to us.
Service disruptions that cause us to be unable to process transactions or service our customers could reduce our operational
resilience and materially affect our overall business and results of operations.
Information Security and Operational Resilience
Losing a significant portion of business from one or more of our largest customers could lead to significant revenue decreases in
the longer term, which could have a material adverse impact on our business and our results of operations.
The payments markets in which we compete are characterized by rapid technological change, new product introductions, evolving
industry standards and changing customer and consumer needs. In order to remain competitive and meet the needs of the
payments markets, we are continually involved in developing and implementing complex multi-rail solutions and diversifying our
products and services. These efforts carry the risks associated with any diversification initiative, including cost overruns, delays in
delivery and performance problems. These projects also carry risks associated with working with different types of customers (such
as corporations that are not financial institutions, non-governmental organizations ("NGOS") and new end users). These differences
may present new operational challenges, such as enhanced infrastructure and monitoring for less regulated customers.
Our failure to effectively design and deliver these multi-rail solutions and products and services could make our other offerings less
desirable to these customers, or put us at a competitive disadvantage. In addition, if there is a delay in the implementation of our
products or services (which could include compliance obligations, such as AML and CFT, and licensing requirements for our products
and services that operate under regulatory licenses), if our products or services do not perform as anticipated, or we are unable to
otherwise adequately anticipate risks related to new types of customers, we could face additional regulatory scrutiny, fines,
sanctions or other penalties, which could materially and adversely affect our overall business and results of operations, as well as
negatively impact our brand and reputation.
•
.
We rely in part on third parties (including some of our competitors and potential competitors) for the development of and access
to new technologies. The inability of these companies to keep pace with technological developments, or the acquisition of these
companies by competitors, could negatively impact our offerings.
Our ability to develop and adopt new services and technologies may be inhibited by industry-wide solutions and standards (such
as those related to EMV, tokenization or other safety and security technologies), and by resistance from customers or merchants
to such changes.
Our ability to develop evolving systems and products may be inhibited by any difficulty we may experience in attracting and
retaining employees with technology expertise.
We work with fintechs, technology companies (such as digital players and mobile providers) and traditional customers that use
our technology to enhance payment safety and security and to deliver their payment-related products and services quickly and
efficiently to consumers. Our inability to keep pace technologically could negatively impact the willingness of these customers to
work with us, and could encourage them to use their own technology and compete against us.
Our ability to adopt these technologies can also be inhibited by intellectual property rights of third parties. We have received,
and we may in the future receive, notices or inquiries from patent holders (including operating companies or non-practicing
entities) suggesting that we may be infringing patents or that we need to license the use of their patents to avoid infringement.
Such notices may, among other things, threaten litigation against us or our customers or demand significant license fees.
Our ability to develop new technologies and reflect technological changes in our payments offerings requires resources, which
has resulted in and may further result in additional expenses.
We cannot predict the effect of future technological changes on our business, and our future success will depend, in part, on our
ability to anticipate, develop or adapt to technological changes and evolving industry standards. Failure to keep pace with these
technological developments or otherwise bring to market products that reflect these technologies could lead to a decline in the use
of our products, which could have a material adverse impact on our overall business and results of operations.
Operating a real-time account-based payments network presents risks that could materially affect our business.
U.K. regulators have designated Vocalink, our real-time account-based payments network platform, to be a "specified service
provider" and regulators in other countries may in the future expand their regulatory oversight of real-time account-based payments
systems in similar ways. In addition, any prolonged service outage on this network could result in quickly escalating impacts,
including potential intervention by the Bank of England and significant reputational risk to Vocalink and us. For a discussion of the
regulatory risks related to our real-time account-based payments platform and oversight by regulators, see our risk factor in “Risk
Factors - Payments Industry Regulation" in this Part I, Item 1A. Furthermore, the complexity of this payment technology requires
careful management to address information security vulnerabilities that are different from those faced on our core payment
network. Operational difficulties, such as the temporary unavailability of our services or products, or information security breaches
on our real-time account-based payments network could cause a loss of business for these products and services, result in potential
liability for us and adversely affect our reputation.
MASTERCARD 2023 FORM 10-K 33
PARTI
ITEM 1A. RISK FACTORS
Working with new customers and end users as we expand our multi-rail solutions and products and services can present
operational and onboarding challenges, be costly and result in reputational damage if the new products or services do not
perform as intended.
Regulatory or government requirements have and could continue to require us to host and deliver certain products and services
on-soil in certain markets, requiring us to alter our technology and delivery model, potentially resulting in additional expenses.
Various central banks are experimenting with CBDCs which may be launched with their own networks to transfer money
between participants. Policy and design considerations that governments adopt could impact the extent of our role in facilitating
CBDC-based payment transactions, potentially impacting the transactions that we may process over our network.
Executive Vice President, Merchants and
Various senior leadership positions,
including President, Southeast Asia;
Country Manager, Singapore and Head of
Marketing, Southeast Asia; Vice President
President, North America (2021-2023)
President, U.S. Issuers (2020)
President, South Asia and Southeast Asia
(2008-2011)
Acceptance (2016-2020)
Edward McLaughlin
President and Chief
Technology Officer,
Mastercard Technology
since May 2017
Various leadership positions at HSBC and
Xerox Corporation
Hai Ling
President, Asia Pacific,
Europe, Middle East & Africa
since January 2024
(2011-2013)
Sachin Mehra
Previous Business Experience
President, Digital Gateway Services
Ajay Bhalla
Linda Kirkpatrick
President, Americas
since January 2024
Chief Financial Officer
since April 2019
MASTERCARD 2023 FORM 10-K 43
PART I
EXECUTIVE OFFICERS
Information about our executive officers
(as of February 13, 2024)
Name
Current Position
Age
Previous Mastercard Experience
58
President, Cyber and
President, Enterprise Security Solutions
(2014-2018)
Intelligence Solutions
since November 2018
47
53
Raja Rajamannar
Senior Vice President, Core Merchants
MASTERCARD 2023 FORM 10-K
Name
Current Position
Age
Michael Miebach
56
44
President and Chief
since January 2021
Tim Murphy
56
Chief Administrative Officer
since April 2021
Not applicable.
Executive Officer
Various senior treasury and finance
positions at General Motors Corporation
and GMAC
Treasurer
Various senior positions at Hess
Corporation, including Vice President and
(2013-2016)
Senior Vice President, Franchise
Development (2011-2013)
Vice President, U.S. Region (2008-2011)
Vice President, Investor Relations
Co-President, International Markets
(2022-2023)
Co-President, Asia Pacific (2015-2021)
President, Enterprise Development
(2014-2015)
President, Greater China (2010-2014)
Chief Information Officer (2016-2017)
Chief Emerging Payments Officer
(2010-2015)
Various senior leadership roles, including
Chief Franchise Development Officer and
Senior Vice President, Bill Payment and
Healthcare
53 Chief Financial Operations Officer
(2018-2019)
Executive Vice President, Commercial
Products (2015-2018)
Executive Vice President and Business
Financial Officer, North America
(2013-2015)
Corporate Treasurer (2010-2013)
Various roles at Booz Allen Hamilton and
Bank of America
Group Vice President, Product and
Strategy, Metavante Corporation
Co-Founder and CEO, Paytrust, Inc.
58
Item 4. Mine safety disclosures
Both the as reported and as adjusted operating expenses increase was primarily due to
higher personnel costs and includes 1 percentage point of growth due to acquisitions.
Item 3. Legal proceedings
Item 1B. Unresolved staff comments
Not applicable.
Item 1C. Cybersecurity
Cybersecurity program
As a technology company in the global payments industry entrusted with the safeguarding of sensitive information (including
personal information), cybersecurity risk management is an integral part of our overall enterprise risk management program. A
robust program to protect our network from cyber and information security threats is critical to managing risk effectively. Our
network and platforms incorporate multiple layers of protection, providing greater resiliency and security protection. Our programs
are assessed by third parties and incorporate benchmarking and other data from peer companies and consultants. We engage in
many efforts to mitigate information security challenges, including maintaining an information security program, an enterprise
resilience program and insurance coverage, as well as regularly testing our systems to address potential vulnerabilities. We work
with experts across the organization (as well as through other sources such as public-private partnerships) to monitor and respond
quickly to a range of cyber and physical threats, including threats and incidents associated with the use of services provided by third-
party providers. Our cybersecurity program provides (among other things) a framework for handling cybersecurity threats and
incidents, which includes steps for identifying the nature of a cybersecurity threat (including whether the threat is associated with a
third-party provider), assessing the severity of a cybersecurity threat (including advancing to key members of management where
appropriate for determination of potential materiality) and implementing cybersecurity processes and procedures.
MASTERCARD 2023 FORM 10-K 41
As of February 8, 2024, Mastercard Foundation owned 97,543,508 shares of Class A common stock, representing approximately
10.5% of our general voting power. Historically, Mastercard Foundation had been restricted from selling or otherwise transferring
its shares of Class A common stock prior to May 1, 2027, except to the extent necessary to satisfy its charitable disbursement
requirements, for which purpose earlier sales were permitted and had occurred. In July 2023, pursuant to an application in
consultation with Mastercard, Mastercard Foundation received court approval to advance that date to January 1, 2024. As a result,
Mastercard Foundation is now permitted to sell all or part of its remaining shares, subject to certain conditions. Mastercard
Foundation would do so pursuant to an orderly and structured plan to diversify its Mastercard shares over a seven-year period,
while remaining a long-term Mastercard stockholder and retaining a significant holding of Mastercard shares in its portfolio. The
directors of Mastercard Foundation are required to be independent of us and our customers. The ownership of Class A common
stock by Mastercard Foundation, together with the seven-year diversification plan, could discourage or make more difficult
acquisition proposals favored by the other holders of the Class A common stock. In addition, because Mastercard Foundation
intends to sell its shares over an extended period of time, it may not have the same interest in short or medium-term movements in
our stock price as, or incentive to approve a corporate action that may be favorable to, our other stockholders.
PART I
Program highlights
•
.
•
•
We are committed to the responsible handling of personal information, and we balance our product development activities with
a commitment to transparency and control, fairness and non-discrimination, as well as accountability
ITEM 1C. CYBERSECURITY
Mastercard Foundation's substantial stock ownership, and restrictions on its sales, may impact corporate actions or acquisition
proposals favorable to, or favored by, the other public stockholders.
any representative of a competitor of Mastercard or of Mastercard Foundation is disqualified from service on our board of
directors
our stockholders are not entitled to act by written consent
Chief Marketing and
50 MASTERCARD 2023 FORM 10-K
We completed a debt offering for an aggregate principal amount of $1.5 billion.
.
We repurchased 23.8 million shares of our common stock for $9.0 billion and paid dividends of $2.2 billion.
•
We generated net cash flows from operations of $12.0 billion.
.
PARTI
ITEM 1A. RISK FACTORS
Class A Common Stock and Governance Structure
Provisions in our organizational documents and Delaware law could be considered anti-takeover provisions and have an impact
on change-in-control.
Provisions contained in our amended and restated certificate of incorporation and bylaws and Delaware law could be considered
anti-takeover provisions, including provisions that could delay or prevent entirely a merger or acquisition that our stockholders
consider favorable. These provisions may also discourage acquisition proposals or have the effect of delaying or preventing entirely
a change in control, which could harm our stock price. For example, subject to limited exceptions, our amended and restated
certificate of incorporation prohibits any person from beneficially owning more than 15% of any of the Class A common stock or any
other class or series of our stock with general voting power, or more than 15% of our total voting power. In addition:
•
•
our stockholders are not entitled to the right to cumulate votes in the election of directors
Our multi-layered privacy, data protection and information security programs and practices are designed to ensure the safety,
security and responsible use of the information and data our stakeholders entrust to us
We work with our customers, governments, policymakers and others to help develop and implement standards for safe and
secure transactions, as well as privacy-centric data practices
Our programs are informed by third-party assessments and advice regarding best practices from consultants, peer companies
and advisors
Our programs are designed to align with internationally recognized privacy, data protection and information security standards
and undergo regular certifications and attestations
Data Protection Officer, who reports to the Chief Privacy and Data Responsibility Officer and ensures that we continue to adhere
to the GDPR and local privacy requirements, including by handling privacy requests from individuals and regulators
In order to be appointed to one of the roles described above, we require expertise with cybersecurity or data privacy (as applicable),
as demonstrated by prior work or other cybersecurity or data privacy experience or possession of a cybersecurity or data privacy
degree or certification. The individuals currently serving in these roles each meet the applicable expertise requirements.
42
MASTERCARD 2023 FORM 10-K
PARTI
ITEM 1C. CYBERSECURITY
How management is informed of and monitors incidents
Our management is responsible for identifying, considering and assessing material cybersecurity risks on an ongoing basis,
establishing processes to ensure that such potential cybersecurity risks are monitored, implementing appropriate mitigation
measures and maintaining our cybersecurity programs. Our cybersecurity programs are under the direction of our CSO (in
coordination with our Chief Privacy and Data Responsibility Officer, Chief Data Officer, among others), who receives reports from our
cybersecurity teams and monitors the prevention, detection, mitigation and remediation of cybersecurity incidents. Our
management, including the CSO and our cybersecurity teams, follow a risk-based escalation process to notify the Risk Committee
outside of the regular reporting cycle as appropriate when they identify an emerging risk or material issue.
Reporting to our Board
Given the importance of information security and privacy to our stakeholders, our Board receives an annual report from our CSO to
discuss our program for managing information security risks, including cyber and data security risks. The Risk Committee also
receives periodic briefings on data privacy from the Chief Privacy and Data Responsibility Officer. Our Risk Committee receives
regular reports on our cyber readiness, our risk profile status, our cybersecurity programs, material cybersecurity risks and
mitigation strategies, third-party assessments of our cybersecurity program and other cybersecurity developments. The Risk
Committee chair provides reports to the Board on such topics. In addition, our Board and the Risk Committee also receive
information about these topics as part of regular business and legal and regulatory updates. In addition, we engage directors as part
of cybersecurity and data breach incident simulations.
Despite our efforts to identify and respond to cybersecurity threats, we cannot eliminate all risks from cybersecurity threats, or
provide assurances that we have not experienced an undetected cybersecurity incident. See "Risk Factors - Information Security
and Operational Resilience" in Part I, Item 1A for more information about these and other risks related to information security.
Item 2. Properties
We own our corporate headquarters, located in Purchase, New York, and our principal technology and operations center, located in
O'Fallon, Missouri. As of December 31, 2023, Mastercard and its subsidiaries owned or leased commercial properties throughout
the U.S. and other countries around the world, consisting of corporate and regional offices, as well as our operations centers.
We believe that our facilities are suitable and adequate for the business that we currently conduct. However, we periodically review
our space requirements and may acquire or lease new space to meet the needs of our business and address climate-related impacts,
or consolidate and dispose of facilities that are no longer required.
Chief Data Officer, who oversees our efforts to maintain an ethical, responsible enterprise data program that adheres to our high
standards for data quality, curation and governance while minimizing data risks
Refer to Note 13 (Accrued Expenses and Accrued Litigation) and Note 21 (Legal and Regulatory Proceedings) to the consolidated
financial statements included in Part II, Item 8.
Chief Privacy and Data Responsibility Officer, who establishes and oversees the programs, policies, processes and controls we
have implemented across the organization to ensure compliance with worldwide laws and regulations regarding how we collect,
use, share, store, transfer and otherwise process data and leverage Al, while also managing our relevant engagements with
regulators, policymakers and key stakeholders
.
We continually test our systems to discover and address any potential vulnerabilities
We have processes for evaluating (among other things) the privacy, data protection and information security infrastructure of
our third-party providers (including examining any relevant records), and we seek to manage third-party risk with procedures to
onboard our third-party providers, monitor their activity during our engagement (where possible) and off-board such third-party
service providers at the end of our engagement
We maintain a business continuity program and cyber insurance coverage
Governance and oversight of privacy, data protection and information security
Board and Committee responsibilities
Our Board and Risk Committee have specific oversight responsibilities with respect to cybersecurity and privacy risk:
•
•
Board: Understanding the issues and risks that are central to the company's success, including cybersecurity matters
Risk Committee: Overseeing risks relating to our policies, procedures and strategic approach to information security (inclusive of
cybersecurity), privacy and data protection
In general, the Audit Committee and Risk Committee coordinate to oversee our guidelines and policies with respect to risk
assessment and risk management and our Audit Committee discusses our financial and operational risk exposures and the steps
management has taken to monitor and control such exposures. In this context, the Audit Committee would be informed of a
material cybersecurity incident that could have a potential impact on our financial statements.
Management responsibilities
We have a core group of senior executives who are responsible for assessing and managing risk and implementing policies,
procedures and strategies pertaining to security governance and data privacy. These executives include:
•
.
Chief Security Officer (CSO), who develops and oversees the programs, policies and controls we have implemented across the
organization to reduce and prevent logical and physical risks, including information security and cyber risks to our people,
intellectual property, data and tangible property
Both the as reported and as adjusted effective income tax rates were higher than the
prior year rates primarily due to the release of a $333 million valuation allowance in
2022 and the establishment of a $327 million valuation allowance in 2023, partially
offset by the ability to claim more U.S. foreign tax credits generated in 2022 and 2023.
Communications Officer and
since January 2016
(3)%
992
971
946
Diluted weighted-average shares outstanding
17%
(2)%
16%
$
10.22
$
11.83
$
Diluted earnings per share
8.76
MASTERCARD 2023 FORM 10-K 49
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
$ 25,098
Adjusted net revenue
($ in millions, except per share data)
Currency-
neutral
adjusted
As
Currency-
adjusted neutral
2021
2022
As
2022
Increase/(Decrease)
2023
Increase/(Decrease)
2023
Year ended December 31,
The following table provides a summary of our key non-GAAP operating results¹, 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:
14%
$ 22,200
13%
$
1.8 ppt
0.7 ppt
53.4 %
55.2 %
55.8 %
Operating margin
Income tax expense
22%
$ 10,082
$ 12,264
$ 14,008
Operating income
13%
11%
14%
$
2,444
$
9,930
es
$ 11,195
Net income
(0.4) ppt
2.6 ppt
15.7 %
15.4 %
17.9 %
Effective income tax rate
11%
36%
1,620
$
1,802
8,687
$ 18,884
13%
13%
See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
1
Note: Tables may not sum due to rounding.
34%
27%
15%
Key highlights for 2023 as compared to 2022 were as follows:
15%
$
10.65
$
12.26
$
Adjusted diluted earnings per share
8.40
Net revenue
GAAP
up 13%
18.5%
17.9%
Adjusted effective
income tax rate
Non-GAAP
(currency-neutral)
up 11%
Non-GAAP
operating expenses
Adjusted
Both the as reported and as adjusted net revenue increase was attributable to growth
(currency-neutral) in our payment network and value-added services and solutions.
up 13%
Adjusted net
revenue
Non-GAAP
GAAP
tax rate
Effective income
up 11%
GAAP
Operating
expenses
32%
24%
12%
12%
58.0 %
Adjusted operating margin
14%
11%
11%
10%
8,627
$
9,549
$
10,551
$
Adjusted operating expenses
23%
18%
57.0 %
9,973 $ 8,802
54.3 %
0.9 ppt
8,333
$
$ 10,342
$ 11,607
Adjusted net income
0.5 ppt
0.3 ppt
2.7 ppt
2.8 ppt
15.4 %
15.7 %
18.5 %
Adjusted effective income tax rate
3.4 ppt
2.7 ppt
1.0 ppt
President, Healthcare
$
Operating expenses
$150
$200
$250
Comparison of cumulative five-year total return
The graph and table below compare the cumulative total stockholder return of Mastercard's Class A common stock, the S&P 500 and
the S&P 500 Financials for the five-year period ended December 31, 2023. The graph assumes a $100 investment in our Class A
common stock and both of the indices and the reinvestment of dividends. Mastercard's Class B common stock is not publicly traded
or listed on any exchange or dealer quotation system.
Stock Performance Graph
$100
There is currently no established public trading market for our Class B common stock. There were approximately 226 holders of
record of our non-voting Class B common stock as of February 8, 2024, constituting approximately 0.8% of our total outstanding
equity.
Item 5. Market for registrant's common
common 
equity, related
stockholder matters and issuer purchases of equity securities
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUES PURCHASES OF EQUITY SECURITIES
Item 9B. Other information
Item 9A. Controls and procedures
Item 9. Changes in and disagreements with accountants on accounting and
financial disclosure
Item 8. Financial statements and supplementary data
Our Class A common stock trades on the New York Stock Exchange under the symbol "MA". At February 8, 2024, we had 75
stockholders of record for our Class A common stock. We believe that the number of beneficial owners is substantially greater than
the number of record holders because a large portion of our Class A common stock is held in "street name" by brokers.
$50
$0
2018
Base
period
Indexed Returns
S&P 500 Financials
S&P 500
Mastercard
Company/Index
Total returns to stockholders for each of the years presented were as follows:
S&P 500 Financials
S&P 500 Index
Mastercard
2023
2022
2021
2020
2019
Item 7A. Quantitative and qualitative disclosures about market risk
2018
Item 7. Management's discussion and analysis of financial condition and results of
operations
Item 5. Market for registrant's common equity, related stockholder matters and
issuer purchases of equity securities
Various executive positions at Citigroup in
Managing Director, Middle East and North
Africa and Managing Director, Sub-Saharan
Africa, Barclays Bank PLC
Previous Business Experience
Chief Marketing Officer (2013-2015)
Chief Product Officer (2009-2014)
Various senior leadership roles, including
President, U.S. Region; Executive Vice
President, Customer Business Planning and
Analysis; and Senior Vice President and
Associate General Counsel
General Counsel (2014-2021)
Germany, Austria, U.K. and Turkey
Associate, Cleary, Gottlieb, Steen and
Hamilton, New York and London
President, Middle East and Africa
(2010-2015)
Previous Mastercard Experience
President (2020)
PARTI
EXECUTIVE OFFICERS
Craig Vosburg
Chief Product Officer
since January 2021
since January 2020
President, Data and Services
Raj Seshadri
Chief Product Officer (2016-2020)
62
58 President, U.S. Issuers (2016-2019)
56
PART II
49
MASTERCARD 2023 FORM 10-K 45
Senior member-financial services practice,
Bain & Company and A.T. Kearney
Vice President, CoreStates Financial
Corporation
Various leadership positions at Citigroup,
U.S. Trust Company and McKinsey &
Company, Inc.
Managing Director, Global Marketing
Officer of iShares, BlackRock, Inc.
(2012-2014)
Managing Director, Head of iShares U.S.
Wealth Advisory business, BlackRock
(2014-2016)
President and Chief Marketing Officer-Citi
Global Cards
Citigroup, including Executive Vice
Various management positions at
Executive Vice President-Senior Business
and Chief Transformation Officer, Anthem
(formerly, WellPoint, Inc.) (2012-2013)
Senior Vice President and Chief Innovation
and Marketing Officer, Humana Inc.
(2009-2012)
Various senior leadership roles, including
Head of Mastercard Advisors, U.S. and
Canada and Head of Mastercard Advisors,
Southeast Asia, Greater China and South
Asia/Middle East/Africa
Chief Product Officer (2014-2015)
Executive Vice President, U.S. Market
Development (2010-2014)
President, North America (2016-2020)
ཚ་
Item 6. Reserved
2019
For the Years Ended December 31,
2020
2021
2022
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
PART II
48 MASTERCARD 2023 FORM 10-K
Item 6. [Reserved]
2022, our Board of Directors approved share repurchase programs of our Class A common stock authorizing us to repurchase up to $11.0 billion
and $9.0 billion, respectively.
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, 2022 compared to the
year ended December 31, 2021, please see Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.
1 Dollar value of shares that may yet be purchased under the share repurchase programs is as of the end of the period. In December 2023 and
1,524,802 $ 3,616,096,554
4,213,825,619
1,953,908 $
Dollar Value of
Shares that may yet
be Purchased under
the Plans or
Programs
Programs
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
1,136,667 $ 14,142,393,829
4,615,377
Business Overview
Mastercard is a technology company in the global payments industry. We connect consumers, financial institutions, merchants,
governments, digital partners, businesses and other organizations worldwide by enabling electronic payments and making those
payment transactions safe, simple, smart, and accessible. 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, merchants and our customers.
Through our unique and proprietary core global payments network, we switch (authorize, clear and settle) payment transactions.
We have additional payments capabilities that include automated clearing house ("ACH") transactions (both batch and real-time
account-based payments). Using these capabilities, we offer payment products and services and capture new payment flows. Our
value-added services include, among others, cyber and intelligence solutions designed to allow all parties to transact securely, easily
and with confidence, as well as other services that provide proprietary insights, drawing on our principled and responsible use of
secure consumer and merchant data. Our investments in new networks, such as open banking solutions and digital identity
capabilities, support and strengthen our payments and services solutions. Each of our capabilities support and build upon each
other and are fundamentally interdependent. For our core global payments network, our franchise model sets the standards and
ground-rules that balance value and risk across all stakeholders and allows for interoperability among them. We employ a multi-
layered approach to help protect the global payments ecosystem in which we operate.
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.
18%
13%
$ 22,237 $ 18,884
$ 25,098
Net revenue
(Decrease)
Increase/
2022
2023
Increase/
(Decrease)
2021
2022
(in millions, except per share data)
2023
Year ended December 31,
The following table provides a summary of our key GAAP operating results, as reported:
Financial Results Overview
396.75
4,615,377 $
416.75
1,136,667 $
MASTERCARD 2023 FORM 10-K 47
175.99
156.92
175.40
129.89
132.13
100.00
207.21
164.08
200.37
Other 2023 financial highlights were as follows:
131.49
100.00
$ 100.00 $ 159.16 $ 191.27 $ 193.48 $ 188.34 $ 232.40
2023
PART II
$ 11,090
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUES PURCHASES OF EQUITY SECURITIES
On December 5, 2023, our Board of Directors declared a quarterly cash dividend of $0.66 per share paid on February 9, 2024 to
holders of record on January 9, 2024 of our Class A common stock and Class B common stock. On February 6, 2024, our Board of
Directors declared a quarterly cash dividend of $0.66 per share payable on May 9, 2024 to holders of record on April 9, 2024 of our
Class A common stock and Class B common stock.
392.00
1,524,802 $
388.82
1,953,908 $
of Shares
Purchased
Average Price
Paid per Share
(including
commission cost)
Total Number
Total
December 1 – 31
November 1-30
October 1-31
Period
During the fourth quarter of 2023, we repurchased 4.6 million shares for $1.8 billion at an average price of $396.75 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 2023:
Issuer Purchases of Equity Securities
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.
Dividend Declaration and Policy
155.68
$ 6,022 $ 5,263
We incur foreign currency gains and losses from remeasuring monetary assets and liabilities, including settlement assets and
obligations, that are denominated in a currency other than the functional currency of the entity. To manage this foreign exchange
risk, we may enter into foreign exchange derivative contracts to economically hedge the foreign currency exposure of our
1 See "Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
11 %
10 %
$ 8,627
$ 9,549
$ 10,551
**
**
(176)
(423)
(539)
13%
11 %
8,802
9,973
11,090
**
**
94
356
539
40
MASTERCARD 2023 FORM 10-K 57
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
11%
2022
2023
2023 2022
2022
2023
2022
2023
2022
2023
3 %
Total
Special
Items
For the Years Ended December 31,
Currency
Impact
Acquisitions
Operational
Provision for litigation
Depreciation and amortization
Advertising and marketing
General and administrative
The following table summarizes the drivers of changes in operating expenses:
Drivers of Change
2,3
7%
726
750
Operating Expenses
No individual country, other than the United States, generated more than 10% of net revenue in any such period. A significant
portion of our net revenue is concentrated among our five largest customers. In 2023, the net revenue from these customers was
approximately $5.6 billion, or 22%, of total net revenue. The loss of any of these customers or their significant card programs could
adversely impact our revenue.
See "Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
Includes the translational and transactional impact of currency and the related impact of our foreign exchange derivative contracts designated as
cash flow hedging instruments.
2
1
**Not applicable
Note: Table may not sum due to rounding
18%
13%
Operating expenses increased 11% in 2023 versus the prior year. Adjusted operating expenses increased 10%, or 11% on a currency-
neutral basis, versus the prior year, which includes a 1 percentage point increase from acquisitions. On both an as reported and as
adjusted basis, the increase was primarily due to higher personnel costs to support the continued investment in our business and the
delivery of services to our customers.
-%
(5)%
―%
1%
-%
22%
13%
Net revenue
14 %
18%
**
―%
13 %
The components of operating expenses were as follows:
Advertising and marketing
799
(12)%
5 %
895
789
825
14%
11%
$ 8,078 $ 7,087
$ 8,927
General and administrative
($ in millions)
2021
For the Years Ended December 31,
2023
2022
**Not meaningful
Note: Table may not sum due to rounding.
Adjusted total operating expenses
1
Special Items
Total operating expenses
Provision for litigation
Depreciation and amortization
Increase (Decrease)
2023
2022
**
1 %
%
3%
433
480
495
17%
14%
$ 4,489
2022
2023
Increase (Decrease)
For the Years Ended December 31,
2023
2022
2021
($ in millions)
**Not meaningful
Note: Table may not sum due to rounding.
Total general and administrative expenses
1,3
Other
Foreign exchange activity²
Data processing and telecommunications
Professional fees
Personnel 1
The components of general and administrative expenses were as follows:
11%
1,008
926
898
Advertising and Marketing
The year ended December 31, 2021 includes a Special Item related to a foreign indirect tax matter of $82 million. See "Non-GAAP Financial
Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
Foreign exchange activity includes the impact of remeasurement of assets and liabilities denominated in foreign currencies net of the impact of
gains and losses on foreign exchange derivative contracts. See Note 23 (Derivative and Hedging Instruments) to the consolidated financial
statements included in Part II, Item 8 for further discussion.
3
1 For the year ended December 31, 2022, total general and administrative expenses includes a Special Item for Russia-related impacts of $67
million, of which $35 million is included within Personnel and $32 million is included within Other. See "Non-GAAP Financial Information" for
further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
2
14%
11%
$ 8,078 $ 7,087
$ 8,927
General and administrative expenses increased 11% on an as reported and currency-neutral basis, in 2023 versus the prior year.
Current year results include growth of 1 percentage point from acquisitions. The remaining increase was primarily due to higher
personnel costs resulting from incremental headcount to support the continued investment in our business and the delivery of
services to our customers.
7%
1,216
1,307
1,319
**
(19)%
51
102
83
3%
9%
1%
General and Administrative
2 See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
3 The Special Items driver of change related to provision for litigation is reflected in total operating expenses.
Represents the translational and transactional impact of currency.
**
(4)%
- %
8%
1 %
(1)%
5%
(12)%
5 %
**
**
**
- %
1%
- %
(9)%
4%
14 %
11 %
%
(1)%
(3)%
(4)%
4 %
7%
**
1
**Not applicable/meaningful
Note: Table may not sum due to rounding.
Total operating expenses
13%
3 % 11 %
1 %
(3)%
- %
4 %
3 %
1 %
10%
**
**
**
**
**
**
**
**
**
10 %
Advertising and marketing expenses increased 5%, or 4% on a currency-neutral basis, in 2023 versus the prior year, primarily due to
an increase in spending on sponsorships, partially offset by a decrease in media spending.
(4)%
4%
Year ended December 31,
Other network assessments are primarily charges for licensing, implementation and other franchise fees.
The following table provides a summary of our key metrics related to the payment network.
•
These assessments can also include connectivity services and network access which are based on the volume of data transmitted
and the number of authorization and settlement messages.
Settlement, which facilitates the determination and exchange of funds between parties
Clearing, the determination and exchange of financial transaction information between issuers and acquirers after a
transaction has been successfully conducted at the point of interaction
°
Authorization, the process by which a transaction is routed to the issuer for approval
°
Transaction processing assessments are charges primarily driven by the number of switched transactions on our payment
network. Switching activities include:
•
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
54 MASTERCARD 2023 FORM 10-K
Cross-border assessments are charges based on activity related to cards that carry the Company's brands where the merchant
country and the country of issuance are different. These assessments are primarily driven by the cross-border dollar volume of
activity (e.g., cross-border purchase volume, cross-border cash volume).
Domestic assessments are charges based on activity related to cards that carry the Company's brands where the merchant
country and the country of issuance are the same. These assessments are primarily driven by the domestic dollar volume of
activity (e.g., domestic purchase volume, domestic cash volume) or the number of cards issued.
•
The following provides additional information on our key metrics related to the payment network:
Assessments represent agreed upon standard pricing provided to our customers based on various forms of payment-related activity.
Assessments are used internally by management to monitor operating performance as it allows for comparability and provides
visibility into cardholder trends. Assessments do not represent our net revenue.
Key Metrics related to the Payment Network
2 Starting in the first quarter of 2022, as a result of imposed sanctions and the suspension of our business operations in Russia, we have provided
adjusted growth rates for our key drivers excluding activity from Russian issued cards from the prior periods.
2023
2022
Increase/(Decrease)
Increase/(Decrease)
Transaction processing assessments
53%
42%
28%
27%
4,646
12%
9%
9%
9%
21%
8,064
9,566 $
8,409
Cross-border assessments
Domestic assessments
Currency-
neutral
As
Reported
Currency-
neutral
As reported
($ in millions)
2021
2022
2023
8,794 $
6,597
16%
12%
14%
45%
33%
24%
25%
13%
4%
15%
13%
10%
10%
Mastercard-branded GDV growth adjusted for Russia
6%
12%
6%
12%
10%
Local
USD
Local
USD
Increase/(Decrease)
2022
6%
12,067
1,2
12%
Increase/(Decrease)
2022
2023
For the Years Ended
December 31,
50%
37%
25%
25%
1 Excludes volume generated by Maestro and Cirrus cards.
Switched transactions growth adjusted for Russia
11%
2
1,2
Cross-border volume growth adjusted for Russia
22%
11%
15%
13%
1,2
Worldwide less United States GDV growth adjusted for Russia
18%
10%
Switched transactions growth
1%
10,646
13%
Drivers of Change
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
56 MASTERCARD 2023 FORM 10-K
revenue.
See Note 3 (Revenue) to the consolidated financial statements included in Part II, Item 8 for a further discussion of how we recognize
Net revenue from our value-added services and solutions increased 18%, or 17% on a currency-neutral basis, in 2023 versus 2022.
The increase was driven primarily by the continued growth of (i) our cyber and intelligence solutions, driven by our underlying key
drivers and the scaling of our fraud and security solutions, as well as (ii) our consulting, marketing and loyalty solutions.
Net revenue from our payment network increased 10%, on both an as reported and currency neutral basis, in 2023 versus 2022. The
increase was primarily driven by growth in domestic and cross-border dollar volumes and an increase in the number of switched
transactions, reflecting trends of growth in our key drivers. Net revenue from our payment network includes $15,182 million of
rebates and incentives provided to customers, which increased 22% on both an as reported and currency-neutral basis, in 2023
versus 2022, primarily due to an increase in our key drivers as well as new and renewed deals.
See "Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
For the year ended December 31, 2023, net revenue increased 13% versus the comparable period in 2022. On both an as adjusted
and currency-neutral basis, net revenue increased 13%. The increase in net revenue on both an as reported and as adjusted basis
was attributable to growth in our payment network and value-added services and solutions.
1
**Not meaningful
Note: Table may not sum due to rounding.
18%
13%
18,884
25,098 $ 22,200 $
$
**
**
(37)
1
The following table summarizes the drivers of change in net revenue:
For the Years Ended December 31,
Currency
Impact
2
-%
15%
16%
Value-added services and solutions
10% 20%
-%
―%
-% (6)%
-%
-%
Adjusted net revenue
26%
Payment network
Total
Special Items
2023 2022 2023 2022
2022
2023
2023 2022
2022
2023
Acquisitions
Operational
11%
Special Items
18%
13%
nonfunctional currency monetary assets and liabilities. The gains or losses resulting from the changes in fair value of these contracts
are intended to reduce the potential effect of the underlying hedged exposure and are recorded net within general and
administrative expenses on the consolidated statement of operations. The impact of this foreign exchange activity, along with the
related hedging activities, is included in our currency-neutral results.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
MASTERCARD 2023 FORM 10-K 55
Worldwide less United States
Foreign Exchange Activity
To manage the impact of foreign currency variability on anticipated revenues and expenses, we may enter into foreign exchange
derivative contracts and designate such derivatives as hedging instruments in a cash flow hedging relationship as discussed further in
Note 23 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part II, Item 8.
Our operating results are also impacted by transactional currency. The impact of the transactional currency represents the effect of
converting revenue and expense transactions occurring in a currency other than the functional currency. Changes in currency
exchange rates directly impact the calculation of gross dollar volume ("GDV"), which are used in the calculation of our key metrics
related to domestic assessments and cross-border assessments as well as certain volume-related rebates and incentives. GDV is
calculated based on local currency spending volume converted to U.S. dollars and euros using average exchange rates for the period.
As a result, our key metrics related to domestic assessments and cross-border assessments as well as certain volume-related rebates
and incentives are impacted by the strengthening or weakening of the U.S. dollar and euro versus local currencies. For example, our
billing in Australia is in the U.S. dollar, however, consumer spend in Australia is in the Australian dollar. The transactional currency
impact of converting Australian dollars to our U.S. dollar billing currency will have an impact on the revenue generated. The
strengthening or weakening of the U.S. dollar is evident when GDV growth on a U.S. dollar-converted basis is compared to GDV
growth on a local currency basis. In 2023, GDV on a U.S. dollar-converted basis increased 10.4%, while GDV on a local currency basis
increased 11.9% versus 2022. In 2022, GDV on a U.S. dollar-converted basis increased 5.9%, while GDV on a local currency basis
increased 12.3% versus 2021. Further, the impact from transactional currency occurs in our key metric related to transaction
processing assessments as well as value-added services and solutions revenue and operating expenses when the transacting
currency of these items is different than the functional currency of the entity.
Our primary revenue functional currencies are the U.S. dollar, euro, British pound and the Brazilian real. Our overall operating
results are impacted by currency translation, which represents the effect of translating operating results where the functional
currency is different than our U.S. dollar reporting currency.
Currency Impact
Our foreign exchange risk management activities are discussed further in Note 23 (Derivative and Hedging Instruments) to the
consolidated financial statements included in Part II, Item 8.
Foreign Currency
15%
26%
26%
668
766
963
Other network assessments
23%
18%
13%
14%
9,041
Financial Results
The components of net revenue were as follows:
18,884
22,237
25,098
Total net revenue
14%
18%
6,941
7,879
20%
10%
Net Revenue
11,943
15,824 $
9,274
Value-added services and solutions
$
Payment network
($ in millions)
2022
2023
2021
Increase (Decrease)
For the Years Ended December 31,
2023
2022
14,358 $
Depreciation and Amortization
Depreciation and amortization expenses increased 7%, or 6% on a currency-neutral basis, in 2023 versus the prior year, primarily due
to increased software capitalization to support the continued growth of our business.
58 MASTERCARD 2023 FORM 10-K
**
**
($ in millions, except per share data)
53.4 % $ 225
15.7 % $ 8,687
8.76
**
(645)
(0.5)%
(497)
(0.50)
**
*
(94)
(82)
0.5 %
**
0.1 %
74
0.07
0.4 %
6
$ 18,884 $ 8,802
Diluted
earnings
per share
Net
income
Effective
income
tax rate
**
- %
24
0.02
(387)
15.7 % $ 10,342 $ 10.65
Reported GAAP
(Gains) losses on equity investments
Litigation provisions
Indirect tax matter
0.1 %
Adjusted Non-GAAP
62
52
MASTERCARD 2023 FORM 10-K
Year ended December 31, 2021
Net
revenue
Operating
expenses
Operating
margin
Other
income
(expense)
Note: Tables may not sum due to rounding.
**Not applicable
69
0.07
$ 18,884 $ 8,627
2.6 ppt
13 %
16%
**
**
**
0.1 ppt
(1)%
(1)%
**
0.7 ppt
(1)%
0.1 ppt
1 %
1 %
― %
1 %
(0.1) ppt
-
ppt
― %
― %
0.5 ppt
0.2 %
57.0 % $
11 %
Diluted
earnings
per share
54.3 % $
(413)
15.4 % $ 8,333 $
8.40
PART II
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, 2023 as compared to the Year Ended December 31, 2022
Increase/(Decrease)
Reported GAAP
13 %
-
Litigation provisions
Russia-related impacts
Adjusted Non-GAAP
Currency impact
Adjusted - Non-GAAP - currency-neutral
Net
revenue
Operating
expenses
Operating
margin
Effective
income tax
rate
Net
income
(Gains) losses on equity investments
13 %
$ 22,200 $ 9,549
263
•
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 2021 and the related interest expense. The charge was comprised of general and
administrative expenses of $82 million and other income (expense) of $6 million.
MASTERCARD 2023 FORM 10-K 51
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See Note 7 (Investments) and Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part
II, Item 8 of this Report for further discussion related to certain of our non-GAAP financial measures.
Currency-neutral Growth Rates
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 and are non-GAAP financial measures. 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 the non-GAAP information below and our "Drivers of Change" tables. See "Foreign Currency - Currency Impact"
for further information on our currency impacts and "Financial Results - Net Revenue" and "Financial Results - Operating Expenses"
for our "Drivers of Change" tables.
The following tables reconcile our reported financial measures calculated in accordance with GAAP to the respective adjusted non-
GAAP financial measures:
Reported GAAP
-
(Gains) losses on equity investments
Litigation provisions
Adjusted Non-GAAP
Year ended December 31, 2023
Net
revenue
Operating
expenses
$ 25,098 $ 11,090
Other
Effective
Operating
income
income
margin (expense) tax rate
($ in millions, except per share data)
55.8 % $
(369)
Net
income
Diluted
earnings
per share
During 2022, we recorded a net pre-tax charge of $30 million ($24 million after tax, or $0.02 per diluted share), directly related to
imposed sanctions and the suspension of our business operations in Russia. The net charge was comprised of general and
administrative expenses of $67 million, primarily related to incremental employee-related costs and reserves on uncollectible
balances with certain sanctioned customers. This charge was offset by net benefits of $37 million in net revenue, primarily
related to a reduction in payment network rebates and incentives liabilities as a result of lower estimates of customer
performance for certain customer business agreements due to the suspension of our business operations in Russia.
Indirect tax matter
•
Russia-related impacts
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.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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"). We
also present growth rates adjusted for the impact of currency, which is a non-GAAP financial measure. 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. We excluded these items because management evaluates the underlying operations and performance of the
Company separately from these recurring and nonrecurring items. 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 should not be relied upon as substitutes for measures
calculated in accordance with GAAP.
Our non-GAAP financial measures for the comparable periods exclude the impact of the following:
Gains and Losses on Equity Investments
.
During 2023, 2022 and 2021, we recorded net pre-tax losses of $61 million ($36 million after tax, or $0.04 per diluted share), net
pre-tax losses of $145 million ($126 million after tax, or $0.13 per diluted share) and net pre-tax gains of $645 million
($497 million after tax, or $0.50 per diluted share), respectively. These net gains and losses 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.
Special Items
Litigation provisions
17.9 % $ 11,195 $
.
о
$344 million as a result of changes in the estimate related to the claims of merchants who opted out of the U.S. merchant
class litigation, and
о
$195 million as a result of settlements with a number of U.K. and Pan-European merchants.
•
•
During 2022, we recorded pre-tax charges of $356 million ($263 million after tax, or $0.27 per diluted share) related to litigation
provisions, which included pre-tax charges of:
о
$223 million as a result of settlements (both final and agreements in principle) with a number of U.K. merchants, and
$133 million as a result of a change in estimate related to the claims of merchants who opted out of the U.S. merchant class
litigation.
During 2023, we recorded pre-tax charges of $539 million ($376 million after tax, or $0.40 per diluted share) related to litigation
provisions, which included pre-tax charges of:
11.83
**
**
Reported - GAAP
(Gains) losses on equity investments
Litigation provisions
Russia-related impacts
Adjusted - Non-GAAP
$ 22,237 $ 9,973
**
**
($ in millions, except per share data)
55.2 % $ (532)
earnings
per share
**
145
- %
126
0.13
**
(37)
(356)
(67)
1.6 %
**
0.3 %
15.4 % $ 9,930 $ 10.22
0.27
Net
income
Effective
income
tax rate
**
61
0.1 %
36
0.04
**
(539)
$ 25,098 $ 10,551
2.1 %
58.0 % $
**
Diluted
0.5 %
0.40
(308)
18.5 % $ 11,607 $
12.26
Year ended December 31, 2022
Net
revenue
Operating
expenses
Operating
margin
Other
income
(expense)
376
For the Years Ended December 31,
2023
10 %
2.8 ppt
We rely on existing liquidity, cash generated from operations and access to capital to fund our global operations, credit and
settlement exposure, capital expenditures, investments in our business and current and potential obligations. The following table
summarizes the cash, cash equivalents, investments and credit available to us at December 31:
Liquidity and Capital Resources
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
MASTERCARD 2023 FORM 10-K 59
See Note 20 (Income Taxes) to the consolidated financial statements included in Part II, Item 8 for further discussion.
The Organization for Economic Co-operation and Development ("OECD") Pillar 2 guidelines published to date include transition and
safe harbor rules around the implementation of the Pillar 2 global minimum tax of 15%. Based on current enacted legislation
effective in 2024 and our structure, we do not expect a material impact in 2024. We are monitoring developments and evaluating
the impacts these new rules will have on our future effective income tax rate, tax payments, financial condition and results of
operations.
The effective income tax rates for the years ended December 31, 2023 and 2022 were 17.9% and 15.4%, respectively. The adjusted
effective income tax rates for the years ended December 31, 2023 and 2022 were 18.5% and 15.7%, respectively. Both the as
reported and as adjusted effective income tax rates were higher in 2023, primarily due to changes in the valuation allowance
associated with the deferred tax asset related to U.S. foreign tax credits. In 2022, we recognized a discrete tax benefit of $333
million to release the valuation allowance resulting from U.S. tax regulations published in the first quarter of 2022 (the "2022
Regulations"). In 2023, the treatment of foreign taxes paid under the 2022 Regulations changed due to the foreign tax legislation
enacted in Brazil and Notice 2023-55 (the "Notice"), released by the U.S. Department of Treasury ("Treasury"). Therefore, we
recognized a total $327 million discrete tax expense in 2023 to establish the valuation allowance. The discrete tax expense
recognized in 2023 was partially offset by our ability to claim more U.S. foreign tax credits generated in 2022 and 2023 due to the
Notice released by Treasury.
Income Taxes
1 See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
(6)%
(20)%
(413)
(387) $
(308) $
$
**
**
6
**
*
1
Cash, cash equivalents and investments
Unused line of credit
2023
2022
(9,488)
(1,470) (5,272)
(1,351)
$11,195 $ 9,463
$ 11,980
(in millions)
2021
For the Years Ended December 31,
2023
2022
Net cash used in financing activities
Net cash provided by operating activities
Net cash used in investing activities
(645)
The table below shows a summary of the cash flows from operating, investing and financing activities:
Our liquidity and access to capital could also be negatively impacted by the outcome of any of the legal or regulatory proceedings to
which we are a party. For additional discussion of these and other risks facing our business, see Part I, Item 1A - Risk Factors - Legal
and Regulatory Risks and Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II,
Item 8.
Our liquidity and access to capital could be negatively impacted by global credit market conditions. We guarantee the settlement of
many of the transactions between our customers. Historically, payments under these guarantees have not been significant;
however, historical trends may not be indicative of potential future losses. The risk of loss on these guarantees is specific to
individual customers, but may also be driven by regional or global economic and market conditions, including, but not limited to the
health of the financial institutions in a country or region. See Note 22 (Settlement and Other Risk Management) to the consolidated
financial statements in Part II, Item 8 for a description of these guarantees.
We believe that our existing cash, cash equivalents and investment securities balances, our cash flow generating capabilities, and our
access to capital resources are sufficient to satisfy our future operating cash needs, capital asset purchases, outstanding
commitments and other liquidity requirements associated with our existing operations and potential obligations which include
litigation provisions and credit and settlement exposure.
Investments include available-for-sale securities and held-to-maturity securities. This amount excludes restricted cash and restricted cash
equivalents of $1.9 billion and $2.2 billion at December 31, 2023 and 2022, respectively.
1
8.0
7.4
9.2 $
8.0
$
(in billions)
Cash Flow
145
61
**
2021
($ in millions)
For the Years Ended December 31,
2023
2022
** Not meaningful
Note: Table may not sum due to rounding.
Adjusted total other income (expense) 1
Special Items
1
(Gains) losses on equity investments
1
Increase (Decrease)
2023
Total other income (expense)
Interest expense
Gains (losses) on equity investments, net
Investment income
The components of other income (expense) were as follows:
Other income (expense) decreased $163 million in 2023 versus the prior year, primarily due to an increase in our investment income
and lower mark-to-market losses on our equity investments in 2023, partially offset by increased interest expense related to our
debt portfolio as well as losses on sales of certain assets. Adjusted other income (expense) decreased $79 million versus the prior
year, primarily due to an increase in our investment income, partially offset by increased interest expense related to our debt
portfolio as well as losses on sales of certain assets.
Other Income (Expense)
In 2023, 2022 and 2021, we recorded $539 million, $356 million and $94 million, respectively, related to various legal proceedings.
See "Non-GAAP Financial Information" in this section and Note 21 (Legal and Regulatory Proceedings) to the consolidated financial
statements included in Part II, Item 8 for further discussion.
Provision for Litigation
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
Other income (expense), net
(10,328)
2022
$
(31)%
225
(532)
(369)
**
**
23
(7)
9%
22 %
$ 274
(431)
(575)
**
**
645
(145)
(61)
**
**
$ 11
61
(471)
1.0 ppt
(6,555)
Net cash used in investing activities decreased $0.1 billion in 2023 versus the prior year, primarily due to less cash paid for business
acquisitions in the current year, partially offset by an increase in purchases of investments in time deposits.
Net
income
Diluted
earnings
per share
(0.4) ppt
14 %
17 %
**
**
**
0.5 ppt
8%
9%
**
Litigation provisions
Russia-related impacts
Indirect tax matter
(3)%
1.1 ppt
0.3 ppt
2%
2%
Effective
income tax
rate
Operating
margin
1.8 ppt
13%
18 %
12%
15 %
-
- %
- %
(0.1) ppt
(0.1) ppt
- %
-
- %
- %
13 %
0.9 ppt
2.7 ppt
12 %
15 %
Year Ended December 31, 2022 as compared to the Year Ended December 31, 2021
Increase/(Decrease)
Net
revenue
Operating
expenses
Reported GAAP
(Gains) losses on equity investments
11 %
Net cash provided by operating activities increased $0.8 billion in 2023 versus the prior year, primarily due to higher net income
after adjusting for non-cash items and an increase in restricted security deposits held for customers, partially offset by restricted
cash paid for litigation settlement, higher employee incentives paid and higher customer incentives payments.
(1)%
-
3.4 ppt
0.5 ppt
32 %
34 %
Note: Tables may not sum due to rounding.
** Not applicable
Key Metrics and Drivers
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.
Operating Margin measures how much profit we make on each dollar of sales after our operating costs but before other income
(expense) and income tax expense. Operating margin is calculated by dividing our operating income by net revenue.
Key Drivers
Gross Dollar Volume ("GDV") ¹ measures dollar volume of activity, including both domestic and cross-border volume, 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; "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.
MASTERCARD 2023 FORM 10-K 53
14%
PART II
Cross-border Volume Growth² measures the growth of cross-border dollar volume during the period, on a local currency basis and
U.S. dollar-converted basis, for all Mastercard-branded programs.
Switched Transactions² 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.
1 Data used in the calculation of GDV is provided by Mastercard customers and is subject to verification by Mastercard and partial cross-checking
against information provided by Mastercard's transaction switching systems. All data is subject to revision and amendment by Mastercard or
Mastercard's customers. Starting in the first quarter of 2022, data related to sanctioned Russian banks was not reported to us and therefore
such amounts are not included. Subsequent to the suspension of our business operations in Russia in March 2022, there is no Russian data to be
reported.
2
Growth rates are normalized to eliminate the effects of differing switching and carryover days between periods, as needed. Carryover days are
those where transactions and volumes from days where the Company does not clear and settle are processed.
The following tables provide a summary of the growth trends in our key drivers.
Mastercard-branded GDV growth 1
United States
60 MASTERCARD 2023 FORM 10-K
Net cash used in financing activities decreased $0.8 billion in 2023 versus the prior year, primarily due to lower debt payments and
higher proceeds from debt issuances in the current year, partially offset by higher repurchases of our Class A common stock and
higher dividend payments.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
0.2 ppt
23 %
8%
**
1 %
(0.4) ppt
- ppt
(0.1) ppt
― %
-
%
(1)%
(1)%
Adjusted Non-GAAP
Adjusted - Non-GAAP - currency-neutral
18 %
2.7 ppt
0.3 ppt
24 %
27%
Currency impact
5 %
3 %
0.8 ppt
0.2 ppt
8%
11 %
Cross-border volume growth 1
70 MASTERCARD 2023 FORM 10-K
The accompanying notes are an integral part of these consolidated financial statements.
PART II
$
8,687
9,930 $
11,195 $
$
1,620
1,802
2,444
10,307
11,732
13,639
225
(532)
(369)
23
11.86 $
(7)
10.26 $
944
Consolidated Statement of Comprehensive Income
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART II
59
MASTERCARD 2023 FORM 10-K 69
The accompanying notes are an integral part of these consolidated financial statements.
992
971
946
8.76
10.22 $
11.83 $
$
988
968
8.79
For the Years Ended December 31,
2023
2022
(431)
(575)
Operating income
Total operating expenses
10,082
12,264
14,008
8,802
9,973
11,090
94
356
539
726
750
799
895
Other Income (Expense):
(471)
Investment income
Interest expense
645
(145)
(61)
11
61
274
Diluted weighted-average shares outstanding
Diluted Earnings per Share
Basic weighted-average shares outstanding
Basic Earnings per Share
Net Income
Income tax expense
Income before income taxes
Total other income (expense)
Other income (expense), net
Gains (losses) on equity investments, net
(in millions)
2021
$ 11,195 $ 9,930 $ 8,687
Reclassification adjustment for defined benefit pension and other postretirement plans
Income tax effect
(14)
14
5
Income tax effect
(45)
(18)
Defined benefit pension and other postretirement plans
9
(1)
5
(1)
6
༠Ê༡Ê༠
(7)
(1)
(4)
(1)
Investment securities available-for-sale
$ 11,349 $ 9,486 $ 8,558
ཨིཙུS།བྷུ ཙེE
(6)
25-5
(129)
(5)
(444)
154
1
(1)
65
(32)
(14)
Comprehensive Income
Other comprehensive income (loss), net of income tax effect
Income tax effect
Defined benefit pension and other postretirement plans, net of income tax effect
Cash flow hedges, net of income tax effect
2
(8)
(675)
295
55
37
(33)
(442)
(712)
328
Income tax effect
Translation adjustments on net investment hedges
Foreign currency translation adjustments, net of income tax effect
Income tax effect
Foreign currency translation adjustments
Other comprehensive income (loss):
Net Income
(387)
(165)
353
269
Income tax effect
(10)
35
Reclassification adjustment for cash flow hedges
10
Income tax effect
1
789
(41)
209
275
(128)
Translation adjustments on net investment hedges, net of income tax effect
(60)
(78)
37
Cash flow hedges
825
Investment securities available-for-sale, net of income tax effect
8,078
62 MASTERCARD 2023 FORM 10-K
In calculating our effective income tax rate, estimates are required regarding the timing and amount of taxable and deductible items
which will adjust the pretax income earned in various tax jurisdictions. Through our interpretation of local tax regulations,
adjustments to pretax income for income earned in various tax jurisdictions are reflected within various tax filings. Although we
believe that our estimates and judgments discussed herein are reasonable, actual results may be materially different than the
estimated amounts.
Income Taxes
We are currently involved in various claims and legal proceedings. We regularly review the status of each significant matter and
assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the
amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the
determination of probability and whether an exposure is reasonably estimable. Our judgments are subjective based on the status of
the legal or regulatory proceedings, the merits of our defenses and consultation with in-house and outside legal counsel. Because of
uncertainties related to these matters, accruals are based only on the best information available at the time. As additional
information becomes available, we reassess the potential liability related to pending claims and litigation and may revise our
estimates. Due to the inherent uncertainties of the legal and regulatory process in the multiple jurisdictions in which we operate,
our judgments may be materially different than the actual outcomes.
Loss Contingencies
We enter into business agreements with certain customers that provide for rebates and incentives when customers meet certain
volume thresholds or other incentives tied to customer performance. We consider various factors in estimating customer
performance, including forecasted transactions, card issuance and card conversion volumes, expected payments and historical
experience with that customer. Rebates and incentives are recorded within net revenue based on these estimates primarily when
volume- and transaction- based revenues are recognized over the contractual term. Differences between actual results and our
estimates are adjusted in the period the customer reports actual performance. If our customers' actual performance is not
consistent with our estimates of their performance, net revenue may be materially different.
Revenue Recognition - Rebates and Incentives
The application of GAAP requires us to make estimates and assumptions about certain items and future events that directly affect
our reported financial condition. Our significant accounting policies, including recent accounting pronouncements, are described in
Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements included in Part II, Item 8.
Critical Accounting Estimates
See Note 16 (Stockholders' Equity) to the consolidated financial statements included in Part II, Item 8 for further discussion.
1 The dollar-value of shares repurchased does not include a 1% excise tax that became effective January 1, 2023. The incremental tax is recorded
in treasury stock on the consolidated balance sheet and is payable annually beginning in 2024.
$
379.49
23.8
14,142
PART II
$
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We record tax liabilities for uncertain tax positions taken, or expected to be taken, which may not be sustained or may only be
partially sustained, upon examination by the relevant taxing authorities. We consider all relevant facts and current authorities in the
tax law in assessing whether any benefit resulting from an uncertain tax position is more likely than not to be sustained and, if so,
how current law impacts the amount reflected within these financial statements. If upon examination, we realize a tax benefit
which is not fully sustained or is more favorably sustained, this would generally increase earnings in the period. In certain situations,
we will have offsetting tax credits or taxes in other jurisdictions.
We are also exposed to interest rate risk related to our fixed-rate debt. To manage this risk, we may enter into interest rate
derivative contracts to hedge a portion of our fixed-rate debt that is exposed to changes in fair value attributable to changes in a
benchmark interest rate. The effect of a hypothetical 100 basis point adverse change in interest rates would not have a material
impact to the fair value of our interest rate derivative contracts designated as a fair value hedge of our fixed-rate debt at
December 31, 2023 and 2022, respectively, before considering the offsetting effect of the underlying hedged activity.
Our available-for-sale debt investments include fixed and variable rate securities that are sensitive to interest rate fluctuations. Our
policy is to invest in high quality securities, while providing adequate liquidity and maintaining diversification to avoid significant
exposure. A hypothetical 100 basis point adverse change in interest rates would not have a material impact to the fair value of our
investments at December 31, 2023 and 2022.
Interest Rate Risk
We are further exposed to foreign exchange rate risk related to translation of our net investment in foreign subsidiaries where the
functional currency is different than our U.S. dollar reporting currency. To manage this risk, we may enter into foreign exchange
derivative contracts to hedge a portion of our net investment in foreign subsidiaries. As of December 31, 2023, we did not have any
foreign exchange derivative contracts designated as a net investment hedge. As of December 31, 2022, the effect of a hypothetical
10% adverse change in the value of the U.S. dollar could result in a fair value loss of approximately $203 million on our foreign
exchange derivative contracts designated as a net investment hedge before considering the offsetting effect of the underlying
hedged activity.
We are also subject to foreign exchange risk as part of our daily settlement activities. To manage this risk, we enter into short
duration foreign exchange derivative contracts based upon anticipated receipts and disbursements for the respective currency
position. This risk is typically limited to a few days between when a payment transaction takes place and the subsequent settlement
with our customers. A hypothetical 10% adverse change in the value of the functional currencies would not have a material impact
to the fair value of our short duration foreign exchange derivative contracts outstanding at December 31, 2023 and 2022,
respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II
MASTERCARD 2023 FORM 10-K 63
We enter into foreign exchange derivative contracts to manage currency exposure associated with anticipated receipts and
disbursements occurring in a currency other than the functional currency of the entity. We may also enter into foreign exchange
derivative contracts to offset possible changes in value of assets and liabilities due to foreign exchange fluctuations. The objective of
these activities is to reduce our exposure to transaction gains and losses resulting from fluctuations of foreign currencies against our
functional currencies, principally the U.S. dollar and euro. The effect of a hypothetical 10% adverse change in the value of the
functional currencies could result in a fair value loss of approximately $414 million and $94 million on our foreign exchange
derivative contracts outstanding at December 31, 2023 and 2022, respectively, before considering the offsetting effect of the
underlying hedged activity.
Foreign Exchange Risk
Market risk is the potential for economic losses to be incurred on market risk sensitive instruments arising from adverse changes in
factors such as interest rates and foreign currency exchange rates. Our exposure to market risk from changes in interest rates and
foreign exchange rates is limited. Management monitors risk exposures on an ongoing basis and establishes and oversees the
implementation of policies governing our funding, investments and use of derivative financial instruments to manage these risks.
Foreign currency and interest rate exposures are managed through our risk management activities, which are discussed further in
Note 23 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part II, Item 8.
Item 7A. Quantitative and qualitative disclosures about market
risk
We account for our business combinations using the acquisition method of accounting. The acquisition purchase price, including
contingent consideration, if any, is allocated to the underlying identified, tangible and intangible assets, liabilities assumed and any
non-controlling interest in the acquiree, based on their respective estimated fair values on the acquisition date. Any excess of
purchase price over the fair value of net assets acquired, including identifiable intangible assets, is recorded as goodwill. The
amounts and useful lives assigned to acquisition-related tangible and intangible assets impact the amount and timing of future
amortization expense. We use various valuation techniques to determine fair value, primarily discounted cash flows analysis, relief-
from-royalty and multi-period excess earnings for estimating the value of intangible assets. These valuation techniques include
comparable company multiples, discount rates, growth projections and other assumptions of future business conditions.
Determining the fair value of assets acquired, liabilities assumed, any non-controlling interest in the acquiree and the expected
useful lives, requires management's judgment. The significance of management's estimates and assumptions is relative to the size
of the acquisition. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and
unpredictable.
Business Combinations
Deferred taxes are established on the estimated foreign exchange gains or losses for foreign earnings that are not considered
permanently reinvested, which will be recognized through cumulative translation adjustments as incurred. Ultimately, the working
capital requirements of foreign affiliates will determine the amount of cash to be remitted from respective jurisdictions.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.
Significant judgment is required in determining the valuation allowance. In assessing the need for a valuation allowance, we
consider all sources of taxable income, including projected future taxable income, reversing taxable temporary differences and
ongoing tax planning strategies. If it is determined that we are able to realize deferred tax assets in excess of the net carrying value
or to the extent we are unable to realize a deferred tax asset, we would adjust the valuation allowance in the period in which such a
determination is made, with a corresponding increase or decrease to earnings.
64 MASTERCARD 2023 FORM 10-K
9,032
12,174
$
(in millions, except per share data)
1.96 $ 1.76
2021
2022
For the Years Ended December 31,
2023
The following table summarizes the annual, per share dividends paid in the years reflected:
We have historically paid quarterly dividends on our outstanding Class A common stock and Class B common stock. Subject to
legally available funds, we intend to continue to pay a quarterly cash dividend. 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.
See Note 15 (Debt) to the consolidated financial statements included in Part II, Item 8 for further discussion on our debt, the
Commercial Paper Program and the Credit Facility.
Borrowings under the Commercial Paper Program and the Credit Facility are to be used to provide liquidity for general corporate
purposes, including providing liquidity in the event of one or more settlement failures by our customers. In addition, we may borrow
and repay amounts under these facilities for business continuity purposes. We had no borrowings outstanding under the
Commercial Paper Program or the Credit Facility at December 31, 2023.
As of December 31, 2023, we have a commercial paper program (the "Commercial Paper Program"), under which we are authorized
to issue up to $8 billion in outstanding notes, with maturities up to 397 days from the date of issuance. In conjunction with the
Commercial Paper Program, we have a committed unsecured $8 billion revolving credit facility (the "Credit Facility") which now
expires in November 2028.
Our total debt outstanding was $15.7 billion at December 31, 2023, with the earliest maturity of $1.0 billion of principal occurring in
April 2024.
In March 2023, we issued $750 million principal amount of notes due March 2028 and $750 million principal amount of notes due
March 2033 (collectively the "2023 USD Notes"). The net proceeds from the issuance of the 2023 USD Notes, after deducting the
original issue discount, underwriting discount and offering expenses, were $1.489 billion. In April 2023, we entered into an
additional unsecured INR4.97 billion ($61 million as of the date of settlement) term loan, originally due July 2023 (the "April 2023
INR Term Loan"). In July 2023, we modified and combined the existing 2022 INR Term Loan and April 2023 INR Term Loan (the "2023
INR Term Loan"), increasing the total unsecured loans to INR28.1 billion ($342 million as of the date of settlement). The 2023 INR
Term Loan is due July 2024.
Debt and Credit Availability
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
7,087
2.28
$
$ 2,158 $ 1,903 $
Cash dividend, per share
Cash dividends paid
$
Average price paid per share in 2023
Shares repurchased in 2023
Remaining authorization at December 31, 2023
Dollar-value of shares repurchased in 2023 1
Remaining authorization at December 31, 2022
(in millions, except
per share data)
Repurchased shares of our common stock are considered treasury stock. In December 2023, December 2022 and November 2021,
our Board of Directors approved share repurchase programs of our Class A common stock authorizing us to repurchase up to $11.0
billion, $9.0 billion and $8.0 billion, respectively. The program approved in 2023 will become effective after the completion of the
share repurchase program approved in 2022. The timing and actual number of additional shares repurchased will depend on a
variety of factors, including cash requirements to meet the operating needs of the business, legal requirements, as well as the share
price and economic and market conditions. The following table summarizes our share repurchase authorizations and repurchase
activity of our Class A common stock through December 31, 2023:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
559
61
MASTERCARD 2023 FORM 10-K
On February 6, 2024, our Board of Directors declared a quarterly cash dividend of $0.66 per share payable on May 9, 2024 to holders
of record on April 9, 2024 of our Class A common stock and Class B common stock. The aggregate amount of this dividend is
estimated to be $616 million.
On December 5, 2023, our Board of Directors declared a quarterly cash dividend of $0.66 per share paid on February 9, 2024 to
holders of record on January 9, 2024 of our Class A common stock and Class B common stock. The aggregate amount of this
dividend was $616 million.
1,741
PART II
Dividends and Share Repurchases
Item 8. Financial statements and supplementary data
We have served as the Company's auditor since 1989.
February 13, 2024
New York, New York
/s/ PricewaterhouseCoopers LLP
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to rebates and
incentives, including controls over evaluating estimated customer performance. These procedures also included, among others,
evaluating the reasonableness of estimated customer performance for a sample of customer agreements, including (i) evaluating the
agreements to identify whether all rebates and incentives are identified and recorded accurately; (ii) testing management's process
for developing estimated customer performance, including evaluating the reasonableness of the various applicable factors
considered by management; and (iii) evaluating estimated customer performance as compared to actual results in the period the
customer reports actual performance.
The principal considerations for our determination that performing procedures relating to rebates and incentives is a critical audit
matter are (i) the significant judgment by management when developing estimates related to rebates and incentives based on
customer performance; and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating
management's estimates related to customer performance, including the reasonableness of the various applicable factors
considered by management in the estimate.
As described in Notes 1 and 3 to the consolidated financial statements, the Company provides certain customers with rebates and
incentives which are a portion of total net revenue of $25.1 billion for the year ended December 31, 2023. The Company has
business agreements with certain customers that provide for rebates and incentives within net revenue that could be either fixed or
variable. Variable rebates and incentives are recorded primarily when volume- and transaction-based revenues are recognized over
the contractual term. Variable rebates and incentives are calculated based upon estimated customer performance, such as volume
thresholds, and the terms of the related business agreements. As disclosed by management, various factors are considered in
estimating customer performance, including forecasted transactions, card issuance and card conversion volumes, expected
payments and historical experience with that customer.
Revenue Recognition - Rebates and Incentives
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the
critical audit matter or on the accounts or disclosures to which it relates.
Critical Audit Matters
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART II
MASTERCARD 2023 FORM 10-K 67
40
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
68 MASTERCARD 2023 FORM 10-K
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Consolidated Statement of Operations
Operating Expenses:
8,927
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
18,884
22,237 $
25,098 $
$
(in millions, except per share data)
2022
For the Years Ended December 31,
2023
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART II
Provision for litigation
Advertising and marketing
Depreciation and amortization
General and administrative
Net Revenue
Definition and Limitations of Internal Control over Financial Reporting
2021
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
70
69
67
66
Page
Notes to consolidated financial statements
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Consolidated Balance Sheet
Consolidated Statement of Comprehensive Income
Index to consolidated financial statements
Report of independent registered public accounting firm (PCAOB ID 238)
Mastercard Incorporated
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of
the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
As of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021
Management's report on internal control over financial reporting
71
72
Consolidated Statement of Operations
75
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on internal control over financial reporting. Our responsibility is to express opinions on the
Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
74
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
We have audited the accompanying consolidated balance sheet of Mastercard Incorporated and its subsidiaries (the "Company") as
of December 31, 2023 and 2022, and the related consolidated statements of operations, comprehensive income, changes in equity
and cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred
to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of
December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
To the Board of Directors and Stockholders of Mastercard Incorporated
Report of Independent Registered Public Accounting Firm
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART II
Opinions on the Financial Statements and Internal Control over Financial Reporting
Basis for Opinions
The management of Mastercard Incorporated ("Mastercard") is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in
accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. As required by Section 404 of the Sarbanes-Oxley
Act of 2002, management has assessed the effectiveness of Mastercard's internal control over financial reporting as of December 31,
2023. In making its assessment, management has utilized the criteria set forth in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management has concluded that, based
on its assessment, Mastercard's internal control over financial reporting was effective as of December 31, 2023. The effectiveness of
Mastercard's internal control over financial reporting as of December 31, 2023 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which appears on the next page.
Management's report on internal control over financial reporting
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART II
59
66 MASTERCARD 2023 FORM 10-K
MASTERCARD 2023 FORM 10-K 65
- 9,930
9,930
I
9,930
7,383
Activity related to
7,312
5,061 (42,588) 45,648
interests
Net income
(13)
non-controlling
71
(809)
Dividends
Redeemable non-
(8,773)
(444)
(1,968)
(1,968)
(1,968)
(444)
----- (444)
(13)
payments
Purchases of treasury
stock
income (loss)
Other comprehensive
19 ---(3) - (3) - (3)
adjustments
controlling interest
Share-based
31, 2021
(1,781)
205
(in millions, except per share data)
$ - $ - $ 4,982 $(36,658) $38,747 $ (680) $
--- - 8,687 -
244
6,391 $
8,687
97 $ 6,488
- 8,687
------- (9) (9)
controlling interest
(122)
Redeemable non-
2st - - (5) - (5) -
controlling interest
adjustments
Other comprehensive
income (loss)
Dividends
Purchases of treasury
stock
-(5,934)
(1,781)
- - 201 4 - - 205
payments
Share-based
sury (5,934) -- (5,934
Balance at December
(129)
(129)
(1,781)
(5)
(139)
(17)
(122)
----- (129)
-
(8,773) - - (8,773)
controlling interest
Balance at December
31, 2022
------- (12)
2200 --- (7) - (7)
Other comprehensive
income (loss)
Dividends
Purchases of treasury
stock
Share-based
----- 154
(2,231)
(2,231)
(12)
(7)
154
-- - 11,195 - 11,195 - 11,195
154
(9,088)
608
608
--- (9,088) - - (9,088)
13
payments
_ - _- __595
Balance at December
31, 2023
$ 5,893 $(60,429) $62,564 $ (1,099) $ 6,929 $
The accompanying notes are an integral part of these consolidated financial statements.
46 $ 6,975
MASTERCARD 2023 FORM 10-K 73
non-controlling
interests
PART II
(2,231)
adjustments
Redeemable non-
interests
5,298 (51,354) 53,607
(1,253)
6,298
58
6,356
72 MASTERCARD 2023 FORM 10-K
Consolidated Statement of Changes in Equity (Continued)
Stockholders' Equity
Balance at December
31, 2022
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Accumulated
Common Stock
Class A Class B
Additional
Paid-In
Capital
Class A
Treasury
Stock
non-controlling
Activity related to
Net income
6,356
58
6,298
237 7244.
(1,253)
5,298
(in millions, except per share data)
Non-
Mastercard
Incorporated
Stockholders' Controlling Total
Equity
Interests Equity
Other
Comprehensive
Earnings Income (Loss)
Retained
(51,354) 53,607
Activity related to
Long-term debt
Balance at December
31, 2020
2,061
2,006
Deferred income taxes
1,355
1,151
Goodwill
7,660
7,522
Other intangible assets, net
4,086
3,859
Other assets
8,325
7,580
Property, equipment and right-of-use assets, net
Total Assets
38,724
Liabilities, Redeemable Non-controlling Interests and Equity
Current liabilities:
Accounts payable
Settlement obligations
Restricted security deposits held for customers
Accrued litigation
Accrued expenses
Short-term debt
Other current liabilities
Total current liabilities
Deferred income taxes
Other liabilities
Total Liabilities
42,448 $
16,606
18,961
Total current assets
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheet
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
December 31,
2023
2022
(in millions, except per share data)
Assets
Current assets:
Cash and cash equivalents
Restricted cash for litigation settlement
Restricted security deposits held for customers
Investments
Accounts receivable
$
8,588 $
2,346
2,643
Prepaid expenses and other current assets
1,270
1,233
Settlement assets
Commitments and Contingencies
3,425
400
592
589
1,568
1,845
-
7,008
4,060
Redeemable Non-controlling Interests
$
834 $
Accumulated other comprehensive income (loss)
(1,099)
(1,253)
Mastercard Incorporated Stockholders' Equity
6,929
6,298
Non-controlling interests
46
Total Equity
6,975
58
6,356
Total Liabilities, Redeemable Non-controlling Interests and Equity
$
42,448 $
38,724
The accompanying notes are an integral part of these consolidated financial statements.
MASTERCARD 2023 FORM 10-K 71
Total
Equity
Mastercard
Incorporated
Non-
Stockholders' Controlling
Interests
Equity
Other
Comprehensive
Income (Loss)
Accumulated
Retained
Earnings
53,607
Class A
Treasury
Stock
Additional
Paid-In
Common Stock
Stockholders' Equity
Consolidated Statement of Changes in Equity
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART II
Class A Class B Capital
Net income
62,564
(51,354)
926
1,399
1,111
1,845
1,568
723
1,094
8,517
7,801
1,337
274
1,609
1,397
16,264
14,171
14,344
13,749
5,298
5,893
(60,429)
Class A treasury stock, at cost, 475 and 451 shares, respectively
Additional paid-in-capital
Class B common stock, $0.0001 par value; authorized 1,200 shares, 7 and 8 shares issued
and outstanding, respectively
21
Retained earnings
22
Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,402 and 1,399 shares
issued and 927 and 948 shares outstanding, respectively
Stockholders' Equity
4,034
32,347
4,474
35,451
393
369
22
Consolidated Statement of Cash Flows
о
Net income
9,902
12,419
$ 10,465 $
9,196
$ 9,902
The accompanying notes are an integral part of these consolidated financial statements.
74
MASTERCARD 2023 FORM 10-K
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes to consolidated financial statements
Note 1. Summary of Significant Accounting Policies
Organization
Mastercard Incorporated and its consolidated subsidiaries, including Mastercard International Incorporated ("Mastercard
International" and together with Mastercard Incorporated, "Mastercard" or the "Company"), is a technology company in the global
payments industry. Mastercard connects consumers, financial institutions, merchants, governments, digital partners, businesses and
other organizations worldwide by enabling electronic forms of payment and making those payment transactions safe, simple, smart
and accessible. The Company makes payments easier and more efficient by providing a wide range of payment solutions and
services through its family of well-known and trusted brands, including Mastercard®, MaestroⓇ and CirrusⓇ. The Company operates
a multi-rail payments network that provides choice and flexibility for consumers, merchants and Mastercard customers. Through its
unique and proprietary core global payments network, the Company switches (authorizes, clears and settles) payment transactions.
The Company has additional payments capabilities that include automated clearing house ("ACH") transactions (both batch and real-
time account-based payments). Using these capabilities, the Company offers payment products and services and captures new
payment flows. The Company's value-added services include, among others, cyber and intelligence solutions designed to allow all
parties to transact securely, easily and with confidence, as well as other services that provide proprietary insights, drawing on
Mastercard's principled and responsible use of secure consumer and merchant data. The Company's investments in new networks,
such as open banking solutions and digital identity capabilities, support and strengthen payments and services solutions. Each of the
Company's capabilities support and build upon each other and are fundamentally interdependent. For the core global payments
network, Mastercard's franchise model sets the standards and ground-rules that balance value and risk across all stakeholders and
allows for interoperability among them. The Company employs a multi-layered approach to help protect the global payments
ecosystem in which it operates.
9,196
Mastercard is not a financial institution. The Company does 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 the Company's products. In most cases, account holder relationships belong to, and are managed by, the
Company's financial institution customers.
Consolidation and basis of presentation - The consolidated financial statements include the accounts of Mastercard and its majority-
owned and controlled entities, including any variable interest entities ("VIES") for which the Company is the primary beneficiary.
Investments in VIES for which the Company is not considered the primary beneficiary are not consolidated and are accounted for as
marketable, equity method or measurement alternative method investments and recorded in other assets on the consolidated
balance sheet. At December 31, 2023 and 2022, there were no significant VIES which required consolidation and the investments
were not considered material to the consolidated financial statements. The Company consolidates acquisitions as of the date on
which the Company has obtained a controlling financial interest. Intercompany transactions and balances have been eliminated in
consolidation. Prior period amounts have been reclassified to conform to the 2023 presentation. The reclassifications had no
impact on previously reported total net revenue, operating income or net income. The Company follows accounting principles
generally accepted in the United States of America ("GAAP”).
Non-controlling interests represent the equity interest not owned by the Company and are recorded for consolidated entities in
which the Company owns less than 100% of the interests. Changes in a parent's ownership interest while the parent retains its
controlling interest are accounted for as equity transactions, and upon loss of control, retained ownership interests are remeasured
at fair value, with any gain or loss recognized in earnings. For 2023, 2022 and 2021, net income/(losses) attributable to non-
controlling interests were not material and, as a result, amounts are included on the consolidated statement of operations within
other income (expense).
Use of estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during the reporting periods. Future events and their
effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. These financial
statements were prepared using information reasonably available as of December 31, 2023 and through the date of this Report. The
accounting estimates used in the preparation of the Company's consolidated financial statements may change as new events occur,
as more experience is acquired, as additional information is obtained and as the Company's operating environment changes. Actual
results may differ from these estimates.
MASTERCARD 2023 FORM 10-K 75
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue recognition - Revenue is recognized to depict the transfer of promised services to customers in an amount that reflects the
consideration to which the Company expects to be entitled to in exchange for those services.
Revenue from the Company's payment network is primarily generated by charging fees to customers (issuers, acquirers and other
market participants) for providing switching and other network-related services, as well as by charging fees to customers based
primarily on the gross dollar volume of activity (GDV, which includes both domestic and cross-border volume) on the cards that carry
the Company's brands. Revenue is recognized in the period in which the related transactions and volume occur. Certain volume-
based revenue is determined from information reported by customers.
Revenue from the Company's value-added services and solutions is generated through either fixed or transaction-based fees. These
services and solutions can be integrated and sold with the Company's payment network services or can be sold on a stand-alone
basis. Revenue from the Company's value-added services and solutions is recognized in the period in which the related services and
solutions are performed or transactions occur. For services provided to customers where delivery involves the use of a third-party,
the Company recognizes revenue on a gross basis if it acts as the principal, controlling the service to the customer, or on a net basis
if it acts as the agent, arranging for the service to be provided.
Mastercard has business agreements with certain customers that provide for rebates and incentives within net revenue that could
be either fixed or variable. Fixed incentives typically represent payments to a customer directly related to entering into an
agreement, which are generally capitalized and amortized over the life of the agreement on a straight-line basis. Variable rebates
and incentives are recorded primarily when volume- and transaction-based revenues are recognized over the contractual term.
Variable rebates and incentives are calculated based upon estimated customer performance, such as volume thresholds, and the
terms of the related business agreements.
Certain of the Company's contracts may include options to receive additional value-added services and solutions. The Company
accounts for the option as a distinct performance obligation if the option provides a material right to the customer. Material rights
are incremental to the standard offerings, which a customer would not have received without entering into the contract. If a
material right exists in a contract, revenue allocated to the option is deferred and recognized as revenue when those future products
or services are transferred or when the option expires. The value of the option is based on observable prices in the contract or on a
relative standalone selling price ("SSP") basis. The SSP is the price at which the Company would sell a promised product or service
separately in similar circumstances to similar customers.
Contract assets include unbilled consideration typically resulting from executed value-added services and solutions performed for
customers in connection with Mastercard's payments network service arrangements. Collection for these services typically occurs
over the contractual term. Contract assets are included in prepaid expenses and other current assets and other assets on the
consolidated balance sheet.
The Company defers the recognition of revenue when consideration has been received prior to the satisfaction of performance
obligations. As these performance obligations are satisfied, revenue is subsequently recognized. Deferred revenue primarily relates
to certain value-added services and solutions. Deferred revenue is included in other current liabilities and other liabilities on the
consolidated balance sheet.
Business combinations - The Company accounts for business combinations under the acquisition method of accounting. The
Company measures the tangible and intangible identifiable assets acquired, liabilities assumed, any non-controlling interest in the
acquiree and contingent consideration at fair value as of the acquisition date. Acquisition-related costs are expensed as incurred
and are included in general and administrative expenses on the consolidated statement of operations. Any excess purchase price
over the fair value of net assets acquired, including identifiable intangible assets, is recorded as goodwill. Measurement period
adjustments, if any, to the preliminary estimated fair value of the intangibles assets as of the acquisition date are recorded in
goodwill.
Significant Accounting Policies
Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period
Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period
(2,517)
(706)
(5,904)
(2,158)
(1,903)
(1,741)
1,554
1,123
2,024
(724)
(650)
(4)
(133)
(64)
(89)
(141)
(133)
Cash proceeds from exercise of stock options
Other financing activities
1,269
(153)
(103)
128
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
Net (decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents
(6,555)
Goodwill and other intangible assets - Indefinite-lived intangible assets consist of goodwill and customer relationships. Goodwill
represents the synergies expected to arise after the acquisition date and the assembled workforce. Finite-lived intangible assets
consist of capitalized software costs, other intangible assets acquired in business combinations (including customer relationships and
acquired technology) and other intangible assets. Intangible assets with finite useful lives are amortized over their estimated useful
lives, on a straight-line basis, which range from one to twenty years. Capitalized software includes internal and external costs
incurred directly related to the design, development and testing phases of each capitalized software project.
(10,328)
(15)
(16)
61
90
237
Net cash used in financing activities
(9,488)
The valuation methods for goodwill and other intangible assets acquired in business combinations involve assumptions concerning
comparable company multiples, discount rates, growth projections and other assumptions of future business conditions. The
Company uses various valuation techniques to determine the fair value of its intangible assets, primarily discounted cash flows
analysis, relief-from-royalty and multi-period excess earnings. As the assumptions employed to measure these assets are based on
76
MASTERCARD 2023 FORM 10-K
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investment securities - The Company classifies investments as available-for-sale or held-to-maturity at the date of acquisition.
Available-for-sale debt securities:
•
о
о
Investments in debt securities that are available to meet the Company's current operational needs are classified as current
assets and the securities that are not available for current operational needs are classified as noncurrent assets on the
consolidated balance sheet.
The debt securities are carried at fair value, with unrealized gains and losses, net of tax, recorded as a separate component
of accumulated other comprehensive income (loss) on the consolidated statement of comprehensive income. Net realized
gains and losses on debt securities are recognized in investment income on the consolidated statement of operations. The
specific identification method is used to determine realized gains and losses.
The Company evaluates its debt securities for impairment on an ongoing basis. When there has been a decline in fair value
of a debt security below the amortized cost basis, the Company recognizes an impairment if: (1) it has the intent to sell the
security; (2) it is more likely than not that it will be required to sell the security before recovery of the amortized cost basis;
or (3) it does not expect to recover the entire amortized cost basis of the security. The credit loss component of the
impairment is recognized as an allowance and recorded in other income (expense), net on the consolidated statement of
operations while the non-credit related loss remains in accumulated other comprehensive income (loss) until realized from
a sale or subsequent impairment.
Held-to-maturity securities:
Time deposits The Company classifies time deposits with original maturities greater than three months as held-to-
maturity. Held-to-maturity securities that mature within one year are classified as current assets within investments on the
consolidated balance sheet while held-to-maturity securities with maturities of greater than one year are classified as other
assets. Time deposits are carried at amortized cost on the consolidated balance sheet and are intended to be held until
maturity.
Equity investments - The Company holds equity securities of publicly traded and privately held companies.
Marketable equity securities - Marketable equity securities are strategic investments in publicly traded companies and are
measured at fair value using quoted prices in their respective active markets with changes recorded through gains (losses) on
equity investments, net on the consolidated statement of operations. Marketable equity securities that are expected to be held
as part of the Company's long-term investment strategy are classified in other assets on the consolidated balance sheet.
Nonmarketable equity investments - The Company's nonmarketable equity investments, which are reported in other assets on
the consolidated balance sheet, include investments in privately held companies without readily determinable market values.
The Company uses discounted cash flows and market assumptions to estimate the fair value of its nonmarketable equity
investments when certain events or circumstances indicate that impairment may exist. The Company's nonmarketable equity
investments are accounted for under the measurement alternative method or equity method.
Measurement alternative method - The Company accounts for investments in common stock or in-substance common stock
under the measurement alternative method of accounting when it does not exercise significant influence, generally when it
holds less than 20% ownership in the entity or when the interest in a limited partnership or limited liability company is less
than 5% and the Company has no significant influence over the operations of the investee. Investments in companies that
Mastercard does not control, but that are not in the form of common stock or in-substance common stock, are also
accounted for under the measurement alternative method of accounting. Measurement alternative investments are
measured at cost, less any impairment and adjusted for changes resulting from observable price changes in orderly
transactions for identical or similar investments of the same issuer. Fair value adjustments, as well as impairments, are
included in gains (losses) on equity investments, net on the consolidated statement of operations.
Equity method - The Company accounts for investments in common stock or in-substance common stock under the equity
method of accounting when it has the ability to exercise significant influence over the operations of the investee, generally
when it holds between 20% and 50% ownership in the entity. The excess of the cost over the underlying net equity of
investments accounted for under the equity method is allocated to identifiable tangible and intangible assets and liabilities
based on fair values at the date of acquisition. The amortization of the excess of the cost over the underlying net equity of
investments and Mastercard's share of net earnings or losses of entities accounted for under the equity method of
accounting is included in other income (expense), net on the consolidated statement of operations.
In addition, investments in flow-through entities such as limited partnerships and limited liability companies are also
accounted for under the equity method when the Company has the ability to exercise significant influence over the
operations of the investee, generally when the investment ownership percentage is equal to or greater than 5% of the
MASTERCARD 2023 FORM 10-K 79
PART II
Operating Activities
80 MASTERCARD 2023 FORM 10-K
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make
lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the
present value of lease payments over the lease term. In addition, ROU assets include initial direct costs incurred by the lessee as
well as any lease payments made at or before the commencement date, and exclude lease incentives. As most of the Company's
leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the
The Company determines if a contract is, or contains, a lease at contract inception. The Company's right-of-use (“ROU”) assets are
primarily related to operating leases for office space, automobiles and other equipment. Leases are included in property, equipment
and right-of-use assets, other current liabilities and other liabilities on the consolidated balance sheet.
Property, equipment and right-of-use assets - Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the
assets. Depreciation of leasehold improvements and amortization of finance leases is included in depreciation and amortization
expense on the consolidated statement of operations. Operating lease amortization expense is included in general and
administrative expenses on the consolidated statement of operations.
Net investment hedges - The Company has numerous investments in foreign subsidiaries. The net assets of these subsidiaries
are exposed to volatility in foreign currency exchange rates. The Company may use foreign currency denominated debt and/or
derivative instruments to hedge a portion of its net investment in foreign operations against adverse movements in exchange
rates. The effective portion of the foreign currency gains and losses related to the hedging instruments are reported in
accumulated other comprehensive income (loss) on the consolidated balance sheet as a cumulative translation adjustment
component of equity. Gains and losses in accumulated other comprehensive income (loss) are reclassified to earnings only if
the Company sells or substantially liquidates its net investments in foreign subsidiaries. Amounts excluded from effectiveness
testing of net investment hedges are recognized in earnings over the life of the hedging instrument. The Company evaluates
the effectiveness of the net investment hedge each quarter.
PART II
Fair value hedges - Changes in the fair value of derivative instruments are recorded in current-period earnings, along with the
gain or loss on the hedged asset or liability ("hedged item") that is attributable to the hedged risk. All amounts recognized in
earnings are recorded to the corresponding line item on the consolidated statement of operations as the earnings effect of the
hedged item. Hedged items are measured on the consolidated balance sheet at their carrying amount adjusted for any changes
in fair value attributable to the hedged risk (“basis adjustments"). The Company defers the amortization of any basis
adjustments until the end of the derivative instrument's term. If the hedge designation is discontinued for reasons other than
derecognition of the hedged item, the remaining basis adjustments are amortized in accordance with applicable GAAP for the
hedged item.
•
The Company may designate derivative instruments as cash flow, fair value and net investment hedges, as follows:
The Company's derivatives that are designated as hedging instruments are required to meet established accounting criteria. In
addition, an effectiveness assessment is required to demonstrate that the derivative is expected to be highly effective at offsetting
changes in fair value or cash flows of the underlying exposure both at inception of the hedging relationship and on an ongoing basis.
The method of assessing hedge effectiveness and measuring hedge results is formally documented at hedge inception and assessed
at least quarterly throughout the designated hedge period.
Derivative and hedging instruments - The Company's derivative financial instruments are recorded as either assets or liabilities on
the balance sheet and measured at fair value. The Company's foreign exchange and interest rate derivative contracts are included in
Level 2 of the Valuation Hierarchy as the fair value of the contracts are based on inputs that are observable based on broker quotes
for the same or similar instruments. The Company does not enter into derivative instruments for trading or speculative purposes.
For derivatives that are not designated as hedging instruments, realized and unrealized gains and losses from the change in fair value
of the derivatives are recognized in current earnings.
outstanding ownership interest. The Company's share of net earnings or losses for these investments are included in gains
(losses) on equity investments, net on the consolidated statement of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash flow hedges - Fair value adjustments to derivative instruments are recorded, net of tax, in other comprehensive income
(loss) on the consolidated statement of comprehensive income. Any gains and losses deferred in accumulated other
comprehensive income (loss) are subsequently reclassified to the corresponding line item on the consolidated statement of
operations when the underlying hedged transactions impact earnings. For hedges that are no longer deemed highly effective,
hedge accounting is discontinued prospectively, and any gains and losses remaining in accumulated other comprehensive
income (loss) are reclassified to earnings when the underlying forecasted transaction occurs. If it is probable that the
forecasted transaction will no longer occur, the associated gains or losses in accumulated other comprehensive income (loss)
are reclassified to the corresponding line item on the consolidated statement of operations in current earnings.
(8,753)
78 MASTERCARD 2023 FORM 10-K
-
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
management's judgment using internal and external data, these fair value determinations are classified in Level 3 of the Valuation
Hierarchy (as defined in Fair value subsection below).
Impairment of assets - Goodwill and indefinite-lived intangible assets are not amortized but tested annually for impairment at the
reporting unit level in the fourth quarter, or sooner when circumstances indicate an impairment may exist. The impairment
evaluation for goodwill utilizes a qualitative assessment to determine whether it is more likely than not that goodwill is impaired.
The qualitative factors may include, but are not limited to, macroeconomic conditions, industry and market conditions, operating
environment, financial performance and other relevant events. If it is determined that it is more likely than not that goodwill is
impaired, then the Company is required to perform a quantitative goodwill impairment test. If the fair value of the reporting unit
exceeds the carrying value, goodwill is not impaired. If the fair value of the reporting unit is less than its carrying value, goodwill is
impaired and the excess of the reporting unit's carrying value over the fair value is recognized as an impairment charge.
The impairment test for indefinite-lived intangible assets consists of a qualitative assessment to evaluate relevant events and
circumstances that could affect the significant inputs used to determine the fair value of indefinite-lived intangible assets. If the
qualitative assessment indicates that it is more likely than not that indefinite-lived intangible assets are impaired, then a quantitative
assessment is required. If the fair value of the indefinite-lived intangible asset exceeds the carrying value, the asset is not impaired.
If the fair value of the indefinite-lived intangible asset is less than its carrying value, the asset is impaired and the excess of the
asset's carrying value over the fair value is recognized as an impairment charge.
Long-lived assets, other than goodwill and indefinite-lived intangible assets, are tested for impairment whenever events or
circumstances indicate that their carrying amount may not be recoverable. If the carrying value of the asset cannot be recovered
from estimated future cash flows, undiscounted and without interest, the fair value of the asset is calculated using the present value
of estimated net future cash flows. If the carrying amount of the asset exceeds its fair value, an impairment is recorded.
Impairment charges, if any, are recorded in general and administrative expenses on the consolidated statement of operations.
Litigation The Company is a party to certain legal and regulatory proceedings with respect to a variety of matters. The Company
evaluates the likelihood of an unfavorable outcome of all legal or regulatory proceedings to which it is a party and accrues a loss
contingency when the loss is probable and reasonably estimable. Loss contingencies are recorded in provision for litigation on the
consolidated statement of operations. These judgments are subjective based on the status of the legal or regulatory proceedings,
the merits of its defenses and consultation with in-house and external legal counsel. Legal costs are expensed as incurred and
recorded in general and administrative expenses on the consolidated statement of operations.
Settlement and other risk management - Mastercard's rules guarantee the settlement of many of the payment network transactions
between its customers. Settlement exposure is the outstanding settlement risk to customers under Mastercard's rules due to the
difference in timing between the payment transaction date and subsequent settlement. For those transactions the Company
guarantees, the guarantee will cover the full amount of the settlement obligation to the extent the settlement obligation is not
otherwise satisfied. The duration of the settlement exposure is short-term and generally limited to a few days.
The Company also enters into agreements in the ordinary course of business under which the Company agrees to indemnify third
parties against damages, losses and expenses incurred in connection with legal and other proceedings arising from relationships or
transactions with the Company. As the extent of the Company's obligations under these agreements depends entirely upon the
occurrence of future events, the Company's potential future liability under these agreements is not determinable.
The Company accounts for each of its guarantees by recording the guarantee at its fair value at the inception or modification date
through earnings.
Settlement assets/obligations
-
The Company operates systems for settling payment transactions among participants in the
payments ecosystem in which the Company operates. Settlement is generally completed on a same-day basis. In some
circumstances, however, funds may not settle until subsequent business days. In addition, the Company may receive or post funds
in advance of transactions related to certain payment capabilities over its multi-rail payments network. The Company classifies the
balances arising from these various activities as settlement assets and settlement obligations.
Income taxes - The Company follows an asset and liability based approach in accounting for income taxes as required under GAAP.
Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences
between the financial statement carrying amounts and income tax bases of assets and liabilities. Deferred income taxes are
displayed separately as noncurrent assets and liabilities on the consolidated balance sheet. Valuation allowances are provided
against assets which are not more likely than not to be realized. The Company recognizes all material tax positions, including
uncertain tax positions in which it is more likely than not that the position will be sustained based on its technical merits and if
challenged by the relevant taxing authorities. At each balance sheet date, unresolved uncertain tax positions are reassessed to
determine whether subsequent developments require a change in the amount of recognized tax benefit. The allowance for
uncertain tax positions is recorded in other current and noncurrent liabilities on the consolidated balance sheet. The Company
MASTERCARD 2023 FORM 10-K 77
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
records interest expense related to income tax matters as interest expense on the consolidated statement of operations. The
Company includes penalties related to income tax matters in the income tax provision.
Level 2-inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted
prices for identical or similar assets and liabilities in inactive markets and inputs that are observable for the asset or liability.
Level 3 - inputs to the valuation methodology are unobservable and cannot be directly corroborated by observable market data.
The Company's financial assets and liabilities measured at fair value on a recurring basis include investment securities available-for-
sale, marketable securities, derivative instruments and deferred compensation. The Company's financial assets measured at fair
value on a nonrecurring basis include nonmarketable securities. The Company's non-financial assets measured at fair value on a
nonrecurring basis include property, equipment and right-of-use assets, goodwill and other intangible assets and are subject to fair
value adjustments in certain circumstances, such as when there is evidence of impairment.
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
•
•
.
The Valuation Hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement
date. A financial instrument's categorization within the Valuation Hierarchy is based upon the lowest level of input that is significant
to the fair value measurement. The three levels of the Valuation Hierarchy are as follows:
Contingent consideration Certain business combinations involve the potential for future payment of consideration that is
contingent upon the achievement of performance milestones. These liabilities are classified within Level 3 of the Valuation
Hierarchy as the inputs used to measure fair value are unobservable and require management's judgment. The fair value of the
contingent consideration at the acquisition date and subsequent periods is determined utilizing an income approach based on a
Monte Carlo technique and is recorded in other current liabilities and other liabilities on the consolidated balance sheet. Changes to
projected performance milestones of the acquired businesses could result in a higher or lower contingent consideration liability. The
changes in fair value as a result of updated assumptions are recorded in general and administrative expenses on the consolidated
statement of operations.
Fair value - The Company measures certain financial assets and liabilities at fair value on a recurring basis by estimating the price
that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants.
The Company also measures certain financial and non-financial assets and liabilities at fair value on a nonrecurring basis, when a
change in fair value or impairment is evidenced. The Company classifies these recurring and nonrecurring fair value measurements
into a three-level hierarchy ("Valuation Hierarchy").
Restricted security deposits held for customers The Company requires certain customers to enter into risk mitigation
arrangements, including cash collateral and/or other forms of credit enhancement such as letters of credit and guarantees, for
settlement of their transactions. Certain risk mitigation arrangements for settlement, such as standby letters of credit and bank
guarantees, are not recorded on the consolidated balance sheet. The Company also holds cash deposits and certificates of
deposit from certain customers as collateral for settlement of their transactions, which are recorded as assets on the
consolidated balance sheet. These assets are fully offset by corresponding liabilities included on the consolidated balance sheet.
The amount of these security deposits and the duration held are determined by the risk profile of the individual customer and
the Company's risk management practices.
-
Restricted cash for litigation settlement - The Company had restricted cash for litigation within a qualified settlement fund
related to the settlement agreement for the U.S. merchant class litigation. During 2023, the Company fully reduced its Restricted
cash for litigation settlement balance as the settlement became final in August 2023. Refer to Note 21 (Legal and Regulatory
Proceedings) for further details.
•
•
Cash and cash equivalents - Cash and cash equivalents include certain investments with daily liquidity and with an original maturity
of three months or less from the date of purchase. Cash equivalents are recorded at cost, which approximates fair value.
Restricted cash - The Company classifies cash and cash equivalents as restricted when it is unavailable for withdrawal or use in its
general operations. The Company has the following types of restricted cash and restricted cash equivalents which are included in
the reconciliation of beginning-of-period and end-of-period amounts shown on the consolidated statement of cash flows:
Other restricted cash balances - The Company has other restricted cash balances which include contractually restricted deposits,
as well as cash balances that are restricted based on the Company's intention with regard to usage. These funds are classified on
the consolidated balance sheet within prepaid expenses and other current assets and other assets.
(9,032)
Acquisition of non-
(1,470)
(481)
(397)
(171)
12
(87)
Settlement assets
40
48
390
Prepaid expenses
(2,438)
(2,175)
(2,087)
Accrued litigation and legal settlements
(546)
(375)
(1)
Restricted security deposits held for customers
277
(305)
177
Accounts payable
(99)
190
100
Settlement obligations
282
201
(568)
Accrued expenses
240
36
44
22
(5,272)
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of customer incentives
Depreciation and amortization
(Gains) losses on equity investments, net
Share-based compensation
Deferred income taxes
Other
Changes in operating assets and liabilities:
Accounts receivable
Income taxes receivable
2023
2022
For the Years Ended December 31,
2021
(in millions)
$ 11,195
$ 9,930 $ 8,687
(651)
(236)
273
295
460
(645)
571
145
726
750
799
1,371
1,586
1,622
61
1,188
(69)
Long-term taxes payable
(407)
Capitalized software
Purchases of equity investments
Proceeds from sales of equity investments
Acquisition of businesses, net of cash acquired
Other investing activities
Net cash used in investing activities
Financing Activities
Purchases of treasury stock
Dividends paid
Proceeds from debt, net
Payment of debt
Acquisition of redeemable non-controlling interests
Acquisition of non-controlling interest
Tax withholdings related to share-based payments
(717)
(655)
33
(1,351)
1,355
(3)
(6)
(4,436)
(442)
(313)
7
44
(228)
(88)
(89)
(407)
186
(371)
Contingent consideration paid
296
(300)
Purchases of investment securities available-for-sale
9,463
11,195
(129)
254
(267)
299
Investing Activities
Net cash provided by operating activities
Net change in other assets and liabilities
Purchases of property and equipment
(52)
(121)
645
(389)
11,980
157
265
Purchases of investments held-to-maturity
Proceeds from maturities of investments held-to-maturity
291
191
Proceeds from maturities of investment securities available-for-sale
211
54
87
Proceeds from sales of investment securities available-for-sale
(294)
(239)
(347)
83
992
8.79
$
10.26
11.86 $
$
971
944
946
4
3
2
988
968
8,687
$
$
8.76
32
9,930 $
1,845
-589
Cash, cash equivalents, restricted cash and restricted cash equivalents
Restricted cash and restricted cash equivalents
Restricted cash for litigation settlement 1
Restricted security deposits held for customers
Prepaid expenses and other current assets
Cash and cash equivalents
7,008
(in millions)
8,588 $
$
2022
2023
The following table provides the components of cash, cash equivalents, restricted cash and restricted cash equivalents reported on
the consolidated balance sheet that total to the amounts shown on the consolidated statement of cash flows for the years ended
December 31:
Note 5. Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
1 For the years presented, the calculation of diluted EPS excluded a minimal amount of anti-dilutive share-based payment awards.
11.83 $ 10.22 $
11,195 $
$
(in millions, except per share data)
318
434
459
442
387
118
133
3,213
$
3,851
es
1 Revenue recognized from performance obligations satisfied in 2023 was $2.1 billion.
Other liabilities
Other current liabilities
10,465 $
248
The Company's remaining performance periods for its contracts with customers for its payments network services are typically long-
term in nature (generally up to 10 years). As a payments network service provider, the Company provides its customers with
continuous access to its global payments network and stands ready to provide transaction processing and related services over the
contractual term. Consideration is variable as the Company generates volume- and transaction-based revenues from charging fees
on its customers' current period activity. The Company has elected the optional exemption to not disclose the remaining
performance obligations related to its payments network services. The Company also earns revenue from value-added services and
solutions. At December 31, 2023, the estimated aggregate consideration allocated to unsatisfied performance obligations for these
value-added services and solutions is $1.5 billion, which is expected to be recognized through 2028. The estimated remaining
performance obligations related to these revenues are subject to change and are affected by several factors, including modifications
and terminations and are not expected to be material to any future annual period.
84 MASTERCARD 2023 FORM 10-K
PART II
2021
2022
2023
Note: Table may not sum due to rounding.
Diluted
Basic
Earnings per Share
$
Diluted weighted-average shares outstanding 1
Basic weighted-average shares outstanding
Denominator
Net income
Numerator
The components of basic and diluted EPS for common shares for each of the years ended December 31 were as follows:
Note 4. Earnings Per Share
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dilutive stock options and stock units
1,568
2023
9,196
$
128
306
272
286 $
$
(in millions)
2022
2023
1
Total investments
Available-for-sale securities
Held-to-maturity securities
1
Investments on the consolidated balance sheet consisted of the following at December 31:
Investments
592 $
The Company's investments on the consolidated balance sheet include both available-for-sale and held-to-maturity debt securities
(see Investments section below). The Company's strategic investments in equity securities of publicly traded and privately held
companies are classified within other assets on the consolidated balance sheet (see Equity Investments section below).
400
value.
Gross
Unrealized
Loss
Gross
Unrealized
Gain
Amortized
Cost
Fair Value
(in millions)
Gross
Unrealized
Loss
Amortized Unrealized
Cost
Gain
Gross
2022
1
Total
Corporate securities
Government and agency
securities
The major classes of the Company's available-for-sale investment securities and their respective amortized cost basis and fair values
at December 31 were as follows:
Available-for-Sale Securities
Investment income on the consolidated statement of operations primarily consists of interest income generated from cash, cash
equivalents, held-to-maturity and available-for-sale investment securities, as well as realized gains and losses on the Company's
investment securities. The realized gains and losses from the sales of available-for-sale securities for 2023, 2022 and 2021 were not
material.
Held-to-maturity securities represent investments in time deposits that mature within one year. The cost of these securities approximates fair
Note 7. Investments
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
414
477
2,746 $ 2,506 $
$
(in millions)
2021
2022
2023
Non-cash investing and financing activities
Cash paid for legal settlements
Cash paid for interest
Cash paid for income taxes, net of refunds
The following table includes supplemental cash flow disclosures for each of the years ended December 31:
Note 6. Supplemental Cash Flows
1 During 2023, the Company reduced its Restricted cash for litigation settlement balance by $600 million, including accrued interest, as a
settlement became final in August 2023. See Note 21 (Legal and Regulatory Proceedings) for additional information regarding the Company's
restricted cash for litigation settlement.
1,820
399
929
114
98
MASTERCARD 2023 FORM 10-K 85
522
27
I
Fair value of liabilities assumed related to acquisitions
4,969
341
31
Fair value of assets acquired, net of cash acquired
118
147
Accrued property, equipment and right-of-use assets
479
545
616
Dividends declared but not yet paid
15
Deferred revenue
1,614
Prepaid expenses and other current assets
2,842
200
2,071
125
41
7
253
$
11
(in millions)
2021
2022
Total liabilities
Other liabilities
Deferred income taxes
9
Other current liabilities
15
5,222
2021
2022
The following table summarizes the identified intangible assets acquired during the years ended December 31:
4,700
325 $
$
Net assets acquired
522
27
12
9
398
3
112
15
352
Liabilities:
Total assets
Other assets
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
MASTERCARD 2023 FORM 10-K 81
Redeemable non-controlling interests - The Company's business combinations may include provisions allowing non-controlling equity
owners the ability to require the Company to purchase additional interests in the subsidiary at their discretion. The interests are
initially recorded at fair value and in subsequent reporting periods are accreted or adjusted to the estimated redemption value. The
adjustments to the redemption value are recorded to retained earnings or additional paid-in capital on the consolidated balance
sheet. The redeemable non-controlling interests are considered temporary and reported outside of permanent equity on the
consolidated balance sheet at the greater of the carrying amount adjusted for the non-controlling interest's share of net income
(loss) or its redemption value.
Share-based payments - The Company measures share-based compensation expense at the grant date, based on the estimated fair
value of the award and uses the straight-line method of attribution, net of estimated forfeitures, for expensing awards over the
requisite employee service period. The Company estimates the fair value of its non-qualified stock option awards ("Options") using a
Black-Scholes valuation model. The fair value of restricted stock units ("RSUS") is determined and fixed on the grant date based on
the Company's stock price, adjusted for the exclusion of dividend equivalents. The Monte Carlo simulation valuation model is used
to determine the grant date fair value of performance stock units ("PSUs") granted. All share-based compensation expenses are
recorded in general and administrative expenses on the consolidated statement of operations.
Treasury stock - The Company records the repurchase of shares of its common stock at cost on the trade date of the transaction.
These shares are considered treasury stock, which is a reduction to stockholders' equity. Treasury stock is included in authorized
and issued shares but excluded from outstanding shares.
Where a non-U.S. currency is the functional currency, translation from that functional currency to U.S. dollars is performed for
balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using
a weighted-average exchange rate for the period. Resulting translation adjustments are reported as a component of accumulated
other comprehensive income (loss).
Foreign currency remeasurement and translation - Monetary assets and liabilities in a currency other than the functional currency
are remeasured using current exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are recorded at
historical exchange rates. Revenue and expense accounts are remeasured at the weighted-average exchange rate for the period.
Resulting exchange gains and losses related to remeasurement are included in general and administrative expenses on the
consolidated statement of operations.
Defined contribution plans - The Company's contributions to defined contribution plans are recorded as employees render service to
the Company. The charge is recorded in general and administrative expenses on the consolidated statement of operations.
Advertising and marketing - Expenses incurred to promote Mastercard's brand, products and services are recognized in advertising
and marketing on the consolidated statement of operations. The timing of recognition is dependent on the type of advertising or
marketing expense.
Net periodic pension and postretirement benefit cost/(income), excluding the service cost component, is recognized in other income
(expense), net on the consolidated statement of operations. These costs include interest cost, expected return on plan assets,
amortization of prior service costs or credits and gains or losses previously recognized as a component of accumulated other
comprehensive income (loss). The service cost component is recognized in general and administrative expenses on the consolidated
statement of operations.
Pension and other postretirement plans - The Company recognizes the funded status of its single-employer defined benefit pension
plans and postretirement plans as assets or liabilities on its consolidated balance sheet and recognizes changes in the funded status
in the year in which the changes occur through accumulated other comprehensive income (loss). The funded status is measured as
the difference between the fair value of plan assets and the projected benefit obligation at December 31, the measurement date.
Overfunded plans, if any, are aggregated and recorded in other assets, while underfunded plans are aggregated and recorded as
accrued expenses and other liabilities on the consolidated balance sheet.
The Company excludes variable lease payments in measuring ROU assets and lease liabilities, other than those that depend on an
index, a rate or are in-substance fixed payments. Lease and nonlease components are generally accounted for separately. When
available, consideration is allocated to the separate lease and nonlease components in a lease contract on a relative standalone price
basis using observable standalone prices.
commencement date in determining the present value of lease payments. The incremental borrowing rate is determined by using
the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a
similar term and in a similar economic environment. Lease terms include options to extend or terminate the lease when it is
reasonably certain that the Company will exercise that option. Leases with a term of one year or less are excluded from ROU assets
and liabilities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
Earnings per share - The Company calculates basic earnings per share ("EPS") by dividing net income by the weighted-average
number of common shares outstanding during the year. Diluted EPS is calculated by dividing net income by the weighted-average
number of common shares outstanding during the year, adjusted for the potentially dilutive effect of stock options and unvested
stock units using the treasury stock method. The Company may be required to calculate EPS using the two-class method as a result
of its redeemable non-controlling interests. If redemption value exceeds the fair value of the redeemable non-controlling interests,
the excess would be a reduction to net income for the EPS calculation.
Accounting Pronouncements Not Yet Adopted
Improvements to Reportable Segment Disclosures - In November 2023, the Financial Accounting Standards Board ("FASB") issued
accounting guidance to improve the disclosures about a public entity's reportable segments and address requests from investors for
additional, more detailed information about a reportable segment's expenses. This guidance is effective for fiscal years beginning
after December 15, 2023, and interim periods after December 15, 2024. The Company will adopt this guidance in its Form 10-K for
the year ended December 31, 2024. This guidance is expected to impact the disclosures only with no impact to the results of
operations, financial position or cash flows.
Improvements to Income Tax Disclosures - In December 2023, the FASB issued accounting guidance to enhance the transparency and
decision usefulness of income tax disclosures. The guidance includes improvements to income tax disclosures primarily related to
the rate reconciliation and income taxes paid. This guidance is effective for annual periods beginning after December 15, 2024, with
early adoption permitted. The Company is in the process of evaluating when it will adopt this guidance and the potential effects this
guidance will have on its disclosures.
Goodwill
Other intangible assets
Other current assets
Cash and cash equivalents
Assets:
In 2023, the Company finalized the purchase accounting for the business acquired during 2022. The final fair values of the purchase
price allocations in aggregate, as of the acquisition dates, are noted below for the years ended December 31.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2022
PART II
These acquisitions align with the Company's strategy to grow, diversify and build the Company's business. Refer to Note 1
(Summary of Significant Accounting Policies) for the valuation techniques Mastercard utilizes to fair value the respective
components of business combinations and contingent consideration.
In June 2021, Mastercard acquired a 100% equity interest in Ekata, Inc. ("Ekata") for cash consideration of $861 million, based on an
$850 million enterprise value, adjusted for cash and net working capital at closing. The acquisition of Ekata is expected to broaden
the Company's digital identity verification capabilities. The goodwill arising from this acquisition is primarily attributable to the
synergies expected to arise after the acquisition date and none of the goodwill is expected to be deductible for local tax purposes.
Mastercard acquired additional businesses in 2021 for consideration of $272 million. These businesses were not considered
individually material to Mastercard.
In March 2021, Mastercard acquired a majority of the Corporate Services business of Nets Denmark A/S ("Nets") for €3.0 billion
(approximately $3.6 billion as of the date of acquisition) in cash consideration based on a €2.85 billion enterprise value, adjusted for
cash and net working capital at closing. The business acquired is primarily comprised of clearing and instant payment services and e-
billing solutions. The net assets acquired primarily relate to intangible assets, including goodwill of $2.1 billion, of which $0.8 billion
is expected to be deductible for local tax purposes. The goodwill arising from this acquisition is primarily attributable to the
synergies expected to arise through geographic, product and customer expansion, the underlying technology and workforce
acquired.
In 2021, the Company acquired several businesses for total consideration of $4.7 billion representing both cash and contingent
consideration.
In April 2022, Mastercard acquired a 100% equity interest in Dynamic Yield LTD ("Dynamic Yield") for cash consideration of $325
million. The net assets acquired primarily relate to intangible assets, including goodwill of $200 million that is primarily attributable
to the synergies expected to arise after the acquisition date. None of the goodwill is expected to be deductible for local tax
purposes.
In 2023, the Company did not complete any material business acquisitions.
Note 2. Acquisitions
82 MASTERCARD 2023 FORM 10-K
2021
Acquisition Date Fair Value
(in millions)
22,237 $
25,098 $
$
6,941
7,879
9,274
11,943
15,824 $ 14,358 $
$
(in millions)
2021
2022
2023
1
Net revenue
18,884
$
8,359 $
7,809
Contract assets
Accounts receivable
Receivables from contracts with customers
(in millions)
2022
2023
North American Markets includes the United States and Canada, excluding the U.S. Territories.
The Company's customers are generally billed weekly, with certain billings occurring on a monthly and quarterly basis. The frequency
of billing is dependent upon the nature of the performance obligation and the underlying contractual terms. The Company does not
typically offer extended payment terms to customers. The following table sets forth the location of the amounts recognized on the
consolidated balance sheet from contracts with customers at December 31:
International Markets
18,884
25,098 $
$
12,217
14,428
16,739
6,667
$
22,237 $
Other assets
1
Net revenue by geographic region:
-
24
-
19.2
17.0
Fair Value
11.7
7.8
433
100 $
25
Other intangible assets
Other
Customer relationships
Developed technologies
Weighted-Average Useful Life
(in years)
7.1
$
125 $
2,071
Net revenue
Value-added services and solutions
Payment network
Revenue by category:
The Company generates revenues from value-added services and solutions through either fixed or transaction-based fees. These
services and solutions can be integrated and sold with the Company's payment network services or can be sold on a stand-alone
basis. These services and solutions primarily include cyber and intelligence, data and services, processing and gateway, ACH batch
and real-time account-based payments and solutions, open banking and digital identity. Revenue from these value-added services
and solutions is recognized in the period in which the related services and solutions are performed or transactions occur.
The Company's disaggregated net revenue by category and geographic region were as follows for the years ended December 31:
Value-added services and solutions
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
North American Markets
PART II
Mastercard's payment network involves four participants in addition to the Company: account holders (a person or entity who holds
a card or uses another device enabled for payment), issuers (the account holders' financial institutions), merchants and acquirers
(the merchants' financial institutions). Revenue from the Company's payment network is primarily generated by charging fees to
customers (issuers, acquirers and other market participants) for providing switching and other network-related services, as well as
by charging fees to customers based primarily on the gross dollar volume of activity (GDV, which includes both domestic and cross-
border volume) on the cards that carry the Company's brands. As a payments network service provider, the Company provides its
customers with continuous access to its global payments network and stands ready to provide transaction processing over the
contractual term. Consideration is variable and is recognized as revenue in the period in which volumes and transactions occur.
Payment network
Mastercard is a payments network service provider that generates revenue from a wide range of payment solutions provided to
customers. Revenue from contracts with customers is recognized when services are performed in an amount that reflects the
consideration to which the Company expects to be entitled to in exchange for those services (i.e., fees charged to customers). The
Company disaggregates its net revenue from contracts with customers into two categories: (i) payment network and (ii) value-added
services and solutions. The Company's net revenue categories, payment network and value-added services and solutions, are
recognized net of rebates and incentives provided to customers. Rebates and incentives can be either fixed or variable and are
attributed to the category of revenue to which they pertain.
Note 3. Revenue
Proforma information related to these acquisitions was not included because the impact on the Company's consolidated results of
operations was not considered to be material.
17.5
9.6
MASTERCARD 2023 FORM 10-K 83
$ 86 $ - $ - $
Total equity investments
$
Debt instruments are carried on the consolidated balance sheet at amortized cost. The Company estimates the fair value of its debt
based on either market quotes or observable market data. Debt is classified as Level 2 of the Valuation Hierarchy as it is generally
not traded in active markets. At December 31, 2023, the carrying value and fair value of debt was $15.7 billion and $14.7 billion,
respectively. At December 31, 2022, the carrying value and fair value of debt was $14.0 billion and $12.7 billion, respectively. See
Note 15 (Debt) for further details.
Debt
Financial Instruments - Not Carried at Fair Value
The Company's Nonmarketable securities are recorded at fair value on a nonrecurring basis in periods after initial recognition under
the equity method or measurement alternative method. Nonmarketable securities are classified within Level 3 of the Valuation
Hierarchy due to the absence of quoted market prices, the inherent lack of liquidity and unobservable inputs used to measure fair
value that require management's judgment. The Company uses discounted cash flows and market assumptions to estimate the fair
value of its Nonmarketable securities when certain events or circumstances indicate that impairment may exist. See Note 7
(Investments) for further details.
Nonrecurring Measurements
Nonmarketable Securities
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
MASTERCARD 2023 FORM 10-K
88
5 The deferred compensation liabilities are measured at fair value based on the quoted prices of identical instruments to the investment vehicles
selected by the participants. These are included in other liabilities on the consolidated balance sheet.
The Company has a nonqualified deferred compensation plan where assets are invested primarily in mutual funds held in a rabbi trust, which is
restricted for payments to participants of the plan. The Company has elected to use the fair value option for these mutual funds, which are
measured using quoted prices of identical instruments in active markets and are included in prepaid expenses and other current assets on the
consolidated balance sheet.
The Company's Marketable securities are publicly held and classified within Level 1 of the Valuation Hierarchy as the fair values are based on
unadjusted quoted prices in their respective active markets.
The Company's foreign exchange and interest rate derivative asset and liability contracts have been classified within Level 2 of the Valuation
Hierarchy as the fair value is based on observable inputs such as broker quotes for similar derivative instruments. See Note 23 (Derivative and
Hedging Instruments) for further details.
4
3
Other Financial Instruments
2
Certain other financial instruments are carried on the consolidated balance sheet at cost or amortized cost basis, which
approximates fair value due to their short-term, highly liquid nature. These instruments include cash and cash equivalents,
restricted cash, time deposits, accounts receivable, settlement assets, restricted security deposits held for customers, accounts
payable, settlement obligations and other accrued liabilities.
Prepaid expenses and other current assets consisted of the following at December 31:
Customer incentives
(in millions)
2022
2023
Other assets consisted of the following at December 31:
1,392
954
2,346
2,643 $
$
Total prepaid expenses and other current assets
(in millions)
1,570 $
1,073
Other
$
Customer incentives
2022
2023
Note 9. Prepaid Expenses and Other Assets
1 The Company's U.S. government securities are classified within Level 1 of the Valuation Hierarchy as the fair values are based on unadjusted
quoted prices for identical assets in active markets. The fair value of the Company's available-for-sale non-U.S. government and agency
securities and corporate securities are based on observable inputs such as quoted prices, benchmark yields and issuer spreads for similar assets
in active markets and are therefore included in Level 2 of the Valuation Hierarchy.
Deferred compensation liabilities
91 91 73 -- 73
183
89
54
35
86
506
|
200
53
33
553
Deferred compensation assets
Deferred compensation plan 4:
Marketable securities 3:
Equity securities
Foreign exchange contracts
- 200 - 183
36 - 36 -
108
☐ - 108
Deferred compensation plan 5:
105
21 $-$ $ 21
105
- $
-
$104 $
4 $
- 79
79
Interest rate contracts
Equity investments
104 $
Foreign exchange contracts
Derivative instruments 2:
Liabilities
74 -- 74
93 - - 93
399 - - 399
-- 506
$ - $ 10
Derivative instruments 2:
$
4,578
686 $
142
Other current liabilities
Property, equipment and right-of-use assets, net
Balance sheet location
(in millions)
2022
2023
Operating lease ROU assets and operating lease liabilities are recorded on the consolidated balance sheet as follows at
December 31:
2,006
2,061 $
$
(1,904)
(2,237)
3,910
4,298
679
1,075
140
630
90 MASTERCARD 2023 FORM 10-K
Shorter of life of the asset or lease term
Shorter of life of improvement or lease term
3-5 years
30 years
10 - 15 years
Estimated Useful Life
Right-of-use assets
Leasehold improvements
Equipment and furniture and fixtures
Building equipment
Buildings
Asset Category
The useful lives of the Company's assets are as follows:
Operating lease amortization expense was $141 million, $137 million and $122 million for 2023, 2022 and 2021, respectively. As of
December 31, 2023 and 2022, the weighted-average remaining lease term of operating leases was 8.2 years and 8.4 years and the
weighted-average discount rate for operating leases was 3.3% and 2.5%, respectively.
Other liabilities
633
1,192
376
398
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
MASTERCARD 2023 FORM 10-K 89
Customer incentives represent payments made to customers under business agreements. Payments made directly related to
entering into such an agreement are generally capitalized and amortized over the life of the agreement.
7,580
8,325 $
$
Total other assets
639
643
633
783
Income taxes receivable
Other
1,730
1,729
Note 10. Property, Equipment and Right-of-Use Assets
Property, equipment and right-of-use assets consisted of the following at December 31:
2023
2022
96
90
1,711
1,940
Depreciation and amortization expense for the above property, equipment and right-of-use assets was $482 million, $473 million
and $424 million for 2023, 2022 and 2021, respectively.
Less: Accumulated depreciation and amortization
Property, equipment and right-of-use assets, net
Property, equipment and right-of-use assets
5,170 $
Operating lease right-of-use assets
Furniture and fixtures
Equipment
652
678 $
$
Buildings, building equipment and land
(in millions)
Leasehold improvements
Corporate securities
Government and agency securities
Investment securities available-for-
sale 1:
506
10 $
97 $
$
-
399
1,331
1,730 $
(in millions)
Balance at
December 31,
2023
Other 2
Changes in
Fair Value
Sales
Purchases
Balance at
December 31,
2022
Marketable securities
The following table is a summary of the activity related to the Company's equity investments:
89
Included in other assets on the consolidated balance sheet are equity investments with readily determinable fair values
("Marketable securities") and equity investments without readily determinable fair values ("Nonmarketable securities"). Marketable
securities are equity interests in publicly traded companies and are measured using unadjusted quoted prices in their respective
active markets. Nonmarketable securities that do not qualify for equity method accounting are measured at cost, less any
impairment and adjusted for changes resulting from observable price changes in orderly transactions for the identical or similar
investments of the same issuer ("Measurement alternative").
(44)
5
Measurement alternative
2022
2023
The following table sets forth the components of the Company's Nonmarketable securities at December 31:
Recorded in gains (losses) on equity investments, net on the consolidated statement of operations.
2 Includes translational impact of currency.
1
Nonmarketable securities
1,729
15 $
(61) $
(44) $
$
89
1,223
(158)
Equity Investments
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
278 $
$
286 $
(1) $
1 $
183
(4)
-
89
(2) $
- $
91 $
187
200
(1)
1
200
286 $
- $
(6) $
272
The Company's government and agency securities include U.S. government bonds, U.S. government sponsored agency bonds and
foreign government bonds which are denominated in the national currency of the issuing country. Corporate securities held at
December 31, 2023 and 2022, primarily carried a credit rating of A- or better. Corporate securities are comprised of commercial
paper and corporate bonds. The gross unrealized losses on the available-for-sale securities are primarily driven by changes in
interest rates. For the available-for-sale securities in gross unrealized loss positions, the Company (1) does not intend to sell the
securities, (2) more likely than not, will not be required to sell the securities before recovery of the unrealized losses, and (3) expects
that the contractual principal and interest will be received. Unrealized gains and losses are recorded as a separate component of
other comprehensive income (loss) on the consolidated statement of comprehensive income.
286
$
286
$
117
116
169
(in millions)
1,008 $
170
(in millions)
Fair Value
Amortized
Cost
86 MASTERCARD 2023 FORM 10-K
Due after 1 year through 5 years
Total
Due within 1 year
The maturity distribution based on the contractual terms of the Company's available-for-sale investment securities at December 31,
2023 was as follows:
$
1,087
Equity method
215
Quoted
Prices
in Active
Inputs
Markets
The distribution of the Company's financial instruments measured at fair value on a recurring basis within the Valuation Hierarchy
were as follows:
Recurring Measurements
Financial instruments carried at fair value are categorized for fair value measurement purposes as recurring or nonrecurring in
nature.
Financial Instruments - Carried at Fair Value
The Company's financial instruments are carried at fair value, cost or amortized cost on the consolidated balance sheet. The
Company classifies its fair value measurements of financial instruments into a three-level hierarchy (the "Valuation Hierarchy").
Note 8. Fair Value Measurements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
52
87
MASTERCARD 2023 FORM 10-K
8
December 31, 2023
Significant
Other
Observable
Significant
Unobservable
Inputs
in Active
Assets
(in millions)
Total
(Level 3)
(Level 2)
(Level 1)
Total
(213) $
(Level 3)
(Level 1)
Inputs
Inputs
Markets
Significant
Unobservable
Other
Observable
December 31, 2022
Significant
(Level 2)
86 $
97 $
es
630
553
$
(in millions)
2023
Downward adjustments (including impairment)
Upward adjustments
Cumulative adjustments 1:
Initial cost basis
The following table summarizes the total carrying value of the Company's Measurement alternative investments, including
cumulative unrealized gains and losses through December 31:
1,331
1,223 $
$
Total Nonmarketable securities
244
(175)
$
1,008
Carrying amount, end of period
Unrealized gains (losses), net
Marketable securities:
468
(2)
114 $
(23) $
7 $
(145) $
$
Downward adjustments (including impairment)
$
$
Measurement alternative investments:
(in millions)
2021
2022
2023
The following table summarizes the unrealized gains and losses included in the carrying value of the Company's Measurement
alternative investments and Marketable securities for the years ended December 31:
1 Includes immaterial translational impact of currency.
Upward adjustments
Quoted
Prices