Title of each Class
111
2
FORM 10-K SUMMARY .
ITEM 16.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 15.
PART IV
111
111
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE..
PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 13.
ITEM 14.
111
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
111
EXECUTIVE COMPENSATION
ITEM 11.
ITEM 12.
111
གླུགྷ༥
37
56
58
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE..
110
111
ITEM 9A.
110
ITEM 9B.
110
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
CONTROLS AND PROCEDURES
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.
PART I
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 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.
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.
3
Our Performance
GAAP
Non-GAAP¹
$6.0B
$15.0B Net revenue
20% YOY
$15.0B Net revenue
20% YOY (currency-neutral)
in capital returned
to stockholders
The following are our key financial and operational results for 2018:
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 acquisition integration, strategic investments and entry into new businesses
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:
•
•
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 impact of preferential or protective government actions
regulation of privacy, data protection, security and the digital economy
issues related to our Class A common stock and corporate governance structure
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
the challenges relating to operating a real-time account-based payment system and to working with new
customers and end users
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
reputational impact, including impact related to brand perception
the inability to attract, hire and retain a highly qualified and diverse workforce, or maintain our corporate
culture
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
ITEM 8.
ITEM 9.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 7A.
10577
(Zip Code)
(State or other jurisdiction of
incorporation or organization)
2000 Purchase Street
Purchase, NY
(Address of principal executive offices)
(914) 249-2000
(Registrant's telephone number, including area code)
(IRS Employer
Identification Number)
Name of each exchange on which registered
New York Stock Exchange
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 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, 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):
Large accelerated filer
Non-accelerated filer
☑
☐ (do not check if a smaller reporting company)
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 ☐
ооо о
13-4172551
Mastercard Incorporated
☑
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
(Exact name of registrant as specified in its charter)
Or
For the transition period from
Commission file number: 001-32877
to
☐
mastercard.
Delaware
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
$5.97 14%
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.
PART I
Page
4
19
+2333 m
33
MINE SAFETY DISCLOSURES
PART II
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
34
ITEM 6.
ITEM 7.
SELECTED FINANCIAL DATA
36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
ITEM 5.
Smaller reporting company
Emerging growth company
ITEM 4.
ITEM 3.
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 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.
Portions of the registrant's definitive proxy statement for the 2019 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
MASTERCARD INCORPORATED
FISCAL YEAR 2018 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
LEGAL PROCEEDINGS
ITEM 1.
ITEM 1A.
RISK FACTORS
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
ITEM 2.
PROPERTIES
BUSINESS
Gross dollar volume
YOY (local currency basis)
OTHER INFORMATION
Repurchased
shares
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.
scaling Decision Intelligence™, our fraud scoring technology, to score billions of transactions in real time
every day while increasing approvals and reducing false declines.
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.
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.
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.
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.
continued to extend our investments in Artificial Intelligence ("AI") by:
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:
•
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.
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.
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.
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.
Privacy and Data Protection
• Payments Regulation
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.
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.
•
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.
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.
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.
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:
•
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.
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:
• 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.
•
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.
continued to invest in and test proprietary permission-based Blockchain, with an initial focus on the cross-
border B2B payments space.
6
B
•
•
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:
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
Our Business
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.
•
$4.9B
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.
Switched Transactions
•
9
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.
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.
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.
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.
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
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.
8
→ Account Holder
Enabling Digital Payments
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.
Our Operations and Network
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.
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:
mastercard.
Core Network
Mi
Switching
Clearing
Settlement
Acquirer
Payment System Security
Value-Added Products and Services
Loyalty and Rewards | Analytics Insights and Consulting
Processing | Safety and Security
Merchant
Issuer
Authorization
•
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.
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.
↑ 18%
2
Cross-border volume growth
YOY (local currency basis)
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.
2 Adjusted to normalize for the effects of differing switching days between periods.
3
41% YOY (currency-neutral)
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.
Our Strategy
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.
GROW
Core
DIVERSIFY
Customers & Geographies
•
4
Credit
53% YOY
Adjusted diluted EPS
Recent Business and Legal/Regulatory Developments
73.8B
↑ 17% 2.3
$5.9B
50% YOY
Net income
$6.8B
Cash flow from
operations
Adjusted net income
38% YOY (currency-neutral)
Switched transactions
YOY
$6.2B
$5.60
Diluted EPS
$6.49
Dividends paid
Debit
$1.0B
Commercial
Prepaid
Enabled by Brand, Data, Technology and People
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.
Diversify. We diversify our business by:
•
working with new customers, including governments, merchants, financial technology companies, digital players,
mobile providers and other corporate businesses
scaling our capabilities and business into new geographies, including growing acceptance in markets with limited
electronic payments acceptance today
Consulting, Managed Services
Safety & Security
Loyalty & Processing
New Payment Flows
•
Build. We build our business by:
•
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
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.
.
5
broadening financial inclusion for the unbanked and underbanked
Data Analytics
•
BUILD
New Areas
.
Financial Inclusion
New Markets
Businesses
Governments
.
Digital-Physical Convergence
Acceptance
•
Digital Players
•
•
Local Schemes / Switches
Merchants
•
permits 100% expensing of qualifying fixed assets acquired after September 27, 2017
•
limits the deductibility of interest expense in certain situations and
2017
eliminates the domestic production activities deduction.
Components of Income and Income tax expense
• introduced further limitations on the deductibility of executive compensation
The domestic and foreign components of income before income taxes for the years ended December 31 are as follows:
2018
•
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.
• provides for a 100% dividends received deduction on dividends from foreign affiliates
•
• creates the base erosion anti-abuse tax, or "BEAT"
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"
•
imposed a one-time deemed repatriation tax on accumulated foreign earnings (the "Transition Tax")
•
lowered the corporate income tax rate from 35% to 21%
•
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:
2016
Note 19. Income Taxes
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.
Total..
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”)
United States
Federal..
Income before income taxes
649 $
69
691
2016
2017
(in millions)
2018
Effective Income Tax Rate
Income tax expense
Foreign...
State and local.
Federal.
Deferred
Foreign...
State and local.
Current
The total income tax provision for the years ended December 31 is comprised of the following components:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
98
5,646
6,522
7,204
3,736
1,910
3,482 $
3,040
3,694
(in millions)
$
3,510
Foreign..
676 $
MASTERCARD INCORPORATED
327
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 18. Commitments
25
13
113
92
12
40
40
126
226
97
Weighted-average grant-date fair value of awards granted. .
Total intrinsic value of PSUs converted into shares of Class A
common stock . . .
PSUs:
122
131
194
Total intrinsic value of RSUs converted into shares of Class A
common stock . .
91
86
94
968
112
171
106
Weighted-average grant-date fair value of awards granted..
1,704 $
65
At December 31, 2018, the Company had the following future minimum payments due under non-cancelable agreements:
8
2019.
2021.
9
58
53
99
76
180
75
4
350
72 $
4 $
(in millions)
Licensing &
Other
Operating
Leases
Capital
Leases
Sponsorship,
327
1,375 $
67
121
175
259
426 $
$
Total
Thereafter.
2023.
2022.
2020.
1,074
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
871
(2.0)%
(149)
Other, net..
(0.7)%
(43)
(1.0)%
(72)
Windfall benefit..
2.4 %
157
(0.1)%
(7)
(55)
Remeasurement of deferred taxes..
-
- %
(2.5)%
9.6 %
629
0.3 %
22
Transition Tax. .
(141)
(0.4)%
(27)
(1.5)%
(110)
%
(0.8)%
(82)
Income tax expense
MASTERCARD INCORPORATED
242
100
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
Indefinite Reinvestment
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.
Intra-entity asset transfers
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.
Singapore Income Tax Rate
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.
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 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.
SAB 118
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
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
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.
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.
1
- %
- %
(1.5)%
28.1 %
1,587
40.0 %
2,607
18.7 % $
1,345
$
Foreign tax credits¹
- %
-
2.7 %
2016
Percent
Amount
Percent
Amount
2017
2018
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:
1,587
2,607
(20)
86
(244)
1,345
(12)
(49)
(5)
(2)
1
(11)
(6)
134
(228)
1,607
2,521
1,589
497
752
Amount
36
Percent
$
194
European Commission fine.
(3.3)%
(188)
(5.8)%
(380)
(1.3)%
(92)
Foreign tax effect...
22
0.7 %
43
0.6 %
46
State tax effect, net of federal benefit.
35.0 %
1,976
35.0 %
2,283
21.0 %
1,513
Federal statutory tax. . . .
5,646
$
(in millions, except percentages)
$
6,522
7,204
Income before income taxes
Total intrinsic value of Options exercised
RSUS:
0.4 %
31
11.0%
10.6%
10.8%
Class B Common Stock Conversions
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 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.
Stock Repurchase Programs
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.
93
93
MASTERCARD INCORPORATED
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
December December December December
2018
2017
2016
2015
December
2014
January
Date program became effective
2019
March
2018
April 2017
February
2016
January
2015
Total
Board authorization ..
$
6,500 $
4,000 $ 4,000 $
10.9%
(in millions, except average price data)
4,000 $
Mastercard Foundation (Class A stockholders)...
1.4%
Dividend rights
B
$0.0001
1,200
Preferred
$0.0001
300
Non-voting
Dividend rights
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.
92
22
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Ownership and Governance Structure
Equity ownership and voting power of the Company's shares were allocated as follows as of December 31:
2018
2017
Equity Ownership
General Voting
Power
Equity Ownership
General Voting
Power
Public Investors (Class A stockholders)
88.0%
89.0%
88.0%
89.2%
Principal or Affiliate Customers (Class B stockholders) .
1.1%
-%
-%
One vote per share
3,750 $ 22,250
$
$
I
es
Shares repurchased in 2017.
Average price paid per share in 2017
$
Shares repurchased in 2018..
19.0
$ 131.97 $ 109.16 $
7.2
Average price paid per share in 2018.
$
$ 194.77 $ 171.11 $
31.2
$
21.0
96.15 $
9.1
5.7
89.76 $
36.9
95.18
30.1
$ 125.05
26.2
$
-
$ 188.26
Cumulative shares repurchased through
December 31, 2018 ..
19.0
28.2
Average price paid per share in 2016
Dollar-value of shares repurchased in 2016..
---
6,801
$
-
$
3,004 $
507 $ 3,511
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. $
$
4,000 $
996
$ 4,996
-
$
2,766 $
996 $
-
$
3,762
4,000 $
1,234 $
$
5,234
-
3,699 $
1,234 $
$
4,933
6,500 $
301 $
- $ - $ - $
Shares repurchased in 2016. . .
3,000
$0.0001
Dividend and Voting Rights
2.562%
2.500%
150
€ 1,650
2030
958
916
2.189%
800 2.100%
2027
839
801
1.265%
1.100%
700
€
2022
Annually
December 2015
2015 Euro Notes.
$ 2,000
600
600
3.893%
3.800%
600
2046
750
750
2.950% 3.044%
172
750
180
March 2014
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.
$ 5,834 $ 5,424
(500)
5,424
6,334
(53)
(55)
5,477
6,389
1
Long-term debt..
Less: Current portion¹.
Total debt outstanding
Less: Unamortized discount and debt issuance costs
1,000
1,000
3.484%
500
500
2.178%
500 2.000%
1,000 3.375%
$ 1,500
2024
$
2019
Semi-annually
2014 USD Notes.
2026
650
650
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
Note 14. Debt
Scheduled annual maturities of the principal portion of long-term debt outstanding at December 31, 2018 are summarized below.
2019
2020
2021
2022
2023
Thereafter
Total
(in millions)
$
500
650
801
4,438
6,389
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.
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.
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.
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.
Note 15. Stockholders' Equity
Classes of Capital Stock
Mastercard's amended and restated certificate of incorporation authorizes the following classes of capital stock:
Par Value Per
Class
A
Share
Authorized Shares
(in millions)
Long-term debt consisted of the following at December 31:
Notes
Issuance
Date
Interest Payment
2.236%
2.000%
650
$
2021
Semi-annually
November 2016
2016 USD Notes .
$ 1,000
500
500 $
3.990%
3.950%
(in millions, except percentages)
3.500% 3.598% $
Cumulative average price paid per share.
500
500
2048
Semi-annually
February 2018
2018 USD Notes .
2017
2018
Options:
Interest
Interest
Rate
Effective
Stated
Aggregate
Principal
Amount
Maturity
Date
Terms
2028 $
$
$
Rate
$ 194.77 $ 141.99 $ 99.10 $
$
93
6.4 $
723
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.
Restricted Stock Units
The following table summarizes the Company's RSU activity for the year ended December 31, 2018:
Units
Weighted-Average
Grant-Date Fair Value
Aggregate Intrinsic
Value
(in millions)
(in millions)
Outstanding at January 1, 2018
Granted.
Converted
Forfeited
4.1
$
97
0.9 $
171
(1.1) $
90
(0.2) $
110
Outstanding at December 31, 2018
3.7 $
117
7.6
$
505
5.2
(in millions)
(in years)
(in millions)
Outstanding at January 1, 2018.
8.6
$
77
Granted
0.9 $
173
Exercised
Forfeited/expired
Outstanding at December 31, 2018.
(1.8) $
57
(0.1) $
112
7.6
$
93
6.4
$
726
Exercisable at December 31, 2018.
Options vested and expected to vest at
December 31, 2018..
4.3
$
72
$
Value
702
3.6
120
$
119
0.6
$
119
$
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
2016
Share-based compensation expense: Options, RSUs and PSUs.
Income tax benefit recognized for equity awards..
Income tax benefit realized related to Options exercised
(in millions, except weighted-average fair value)
196
$
41
53
53
176 $
57
36
148
40.4
49
$
RSUS expected to vest at December 31, 2018.
0.6
$
116
$
680
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
96
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
(in millions)
(in millions)
Outstanding at January 1, 2018
0.5
$
105
0.1 $
226
Converted
(0.3) $
99
Other¹
Outstanding at December 31, 2018 ..
PSUs expected to vest at December 31, 2018.
0.3
94
Aggregate Intrinsic
Granted.
Weighted-Average
Exercise Price
Share-based payments
2.8
Conversion of Class B to Class A common stock
2.3
(2.3)
Balance at December 31, 2018. . . . .
1,018.6
11.8
94
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 16. 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, 2018 and 2017 were as follows:
Foreign Currency
Translation
Adjustments
Translation
Adjustments on
Net Investment
Hedge
Defined Benefit
Pension and
Other
Postretirement
Investment
Securities
Available-for-
Plans²
Sale
Accumulated
Other
Comprehensive
Income (Loss)
(in millions)
Balance at December 31, 2016.
$
(949) $
12 $
I
11 $
(26.2)
14.1
128.4
Weighted-Average
Remaining
Contractual Term
40.8
92.03 $ 120.44
The following table presents the changes in the Company's outstanding Class A and Class B common stock for the years ended
December 31:
Outstanding Shares
Class A
Class B
Balance at December 31, 2015.
(in millions)
1,095.0
21.3
Purchases of treasury stock
(36.9)
Share-based payments
2.3
Conversion of Class B to Class A common stock
2.0
(2.0)
Balance at December 31, 2016.
1,062.4
19.3
Purchases of treasury stock
(30.1)
Share-based payments
Conversion of Class B to Class A common stock
5.2
(5.2)
Balance at December 31, 2017..
1,039.7
Purchases of treasury stock
2 $
2.2
Other comprehensive income (loss). .
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Stock Options
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
Expected term (in years)
Expected volatility.
Expected dividend yield..
Weighted-average fair value per Option granted
2018
2017
2016
2.7%
2.0%
95
1.3%
5.00
19.7%
19.3%
23.3%
0.6%
0.8%
0.8%
40.90 $
21.23
18.58
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.
(924)
The following table summarizes the Company's option activity for the year ended December 31, 2018:
Options
6.00
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.
5.00
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.
(153)
14
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).
(1)
427
Balance at December 31, 2017.
(382)
(141)
25
(497)
Other comprehensive income (loss).
(279)
75
Balance at December 31, 2018.
$
1
(66) $
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.
(661) $
Note 17. Share-Based Payments
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)
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.
567
(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.
(1) $
MASTERCARD INCORPORATED
SUMMARY OF QUARTERLY DATA (Unaudited)
733
829 $
2018 Quarter Ended
921 $
$
504
257
572 $
613 $
308
$
2018
March 31
2017
(in millions)
2016
229
June 30
1,825
December 31
1,492
1,569
1,899
108
Net income..
7,282
1,234
2,287
1,936
14,950
3,807 $
3,898 $
3,665 $
3,580 $
$
Operating income
Net revenue
(in millions, except per share data)
2018 Total
September 30
Total.
$ - $
United States
(30)
61
35
(6)
Other current liabilities 1.
Prepaid expenses and other current assets 1
1
Accounts receivable
Balance sheet location
1
(26)
2
968
26
4
25
Options to sell foreign currency..
1,066
899
27 $
Commitments to sell foreign currency
27
Other countries
The derivative contracts are subject to enforceable master netting arrangements, which contain various netting and setoff provisions.
Foreign currency derivative contracts
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:
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 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
Note 23. Segment Reporting
107
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.
The amount of gain (loss) recognized on the consolidated statement of operations for the contracts to purchase and sell foreign
currency is summarized below:
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
(75) $
53 $
$
2016
2017
(in millions)
2018
Year Ended December 31,
General and administrative.
(6)
5,859
1.00 $
1.42 $
1.34 $
1.10 $
$
Diluted earnings per share
1,067
1,057
1,063
1,070
0.21 $
1,078
3.67
0.21 $
1.34 $
1.10 $
1.00 $
$
Basic earnings per share
3,915
Basic weighted-average shares outstanding
227
3.65
1,082
ITEM 9B. OTHER INFORMATION
(1) $
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.
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, 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.
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, 2018 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
Diluted weighted-average shares outstanding
ITEM 9A. CONTROLS AND PROCEDURES
ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
109
Note: Tables may not sum due to rounding.
1,072
1,063
1,068
1,075
Not applicable.
1,430
1,177
1,081
5.60
0.87 $
1.82 $
1,043
1.50 $
1,049
1,057
Diluted weighted-average shares outstanding
1.41 $
Diluted earnings per share.
1,038
1,041
1,037
1,043
1,051
Basic weighted-average shares outstanding
5.63
0.87 $
1.83 $
1.50 $
1,032
1,047
2017 Quarter Ended
March 31
Net income..
6,622
1,522
1,941
1,653
1,506
Operating income
12,497
3,312 $
3,398 $
3,053 $
2,734 $
$
Net revenue
(in millions, except per share data)
2017 Total
December 31
September 30
June 30
Basic earnings per share..
34 $
Intangible assets
Commitments to purchase foreign currency
503 $
349
329
31
18
36
83
97
144
151
48
89
Net Deferred Tax Assets
Total Deferred Tax Liabilities
Other items ..
Previously taxed earnings and profits
Property, plant and equipment
Prepaid expenses and other accruals
125
Deferred Tax Liabilities
1
101
35
23
181
169 $
183 $
2016
2017
(in millions)
2018
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.
Expired statute of limitations..
Ending balance
Prior year tax positions
Prior year tax positions
Reductions:
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
Settlements with tax authorities
22
493
Total Deferred Tax Assets
127
210
158
297 $
Compensation and benefits
Accrued liabilities
Deferred Tax Assets
(in millions)
State taxes and other credits
2017
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
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.
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.
present intention to indefinitely reinvest a portion of its historic undistributed accumulated earnings associated with certain
foreign subsidiaries outside of the U.S.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
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.
2018
832
30
Net operating and capital losses
(91)
(94)
Less: Valuation allowance..
83
80
Other items
7
Previously taxed earnings and profits.
28
170
1
35
Recoverable basis of deconsolidated entities.
48
28
Unrealized gain/loss - 2015 Euro Notes
105
104
Intangible assets
$
21
9
(in millions)
December 31,
2017
December 31,
2018
Collateral held for settlement exposure
Net uncollateralized settlement exposure
Gross settlement exposure
The Company's estimated settlement exposure was as follows:
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 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.
$
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.
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.
Telephone Consumer Protection Class Action
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
105
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.
U.S. Liability Shift Litigation
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.
Note 21. Settlement and Other Risk Management
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.
49,666 $
(4,711)
(4,360)
(in millions)
Estimated Fair
Value
Notional
Estimated Fair
Value
Notional
December 31, 2017
December 31, 2018
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.
47,002
Derivatives
MASTERCARD INCORPORATED
106
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).
Note 22. Foreign Exchange Risk Management
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.
42,642
44,955 $
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
20
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.
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.
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 20. Legal and Regulatory Proceedings
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.
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.
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.
169
183
164 $
102
(15)
(12)
(2)
(4)
(18)
(28)
(1)
(17)
13
(11)
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
MASTERCARD INCORPORATED
Interchange Litigation and Regulatory Proceedings
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
104
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
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.
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.
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.
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.
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.
MASTERCARD INCORPORATED
103
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.
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.
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.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
110
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:
/s/ SILVIO BARZI
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)).
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)).
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)).
10.25
10.24
10.23
10.22
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)).
10.21
10.19
10.18
10.17
10.16+
10.15+
10.14+
10.13+
10.12+
113
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)).
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)).
10.20
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)).
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)).
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)).
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 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*
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)).
23.1*
10.28
10.27.2
10.27.1
10.27**
10.26.2
10.26.1
10.26
114
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)).
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)).
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)).
21*
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).
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)).
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)).
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 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)).
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 2.500% 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)).
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 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)).
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 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)).
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)).
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)).
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)).
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)).
Exhibit Description
4.12
4.11
4.10
4.9
4.8
4.7
4.6
4.5
4.4
4.3
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)).
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)).
112
4.14
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)).
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)).
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)).
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 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)).
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)).
$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+
4.13
10.10+
10.8+
10.7+
10.6+
10.5.1+
10.5+
10.4+
10.3.1+
10.3+
10.2+
10.1*
4.15
10.9+
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)).
By:
By:
Date: February 13, 2019
Date: February 13, 2019
By:
Director
Choon Phong Goh
/s/ CHOON PHONG GOH
By:
J..
Date: February 13, 2019
Date: February 13, 2019
Director
/s/ 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
Corporate Controller
(Principal Accounting Officer)
Sandra Arkell
Julius Genachowski
/s/ SANDRA ARKELL
By:
By:
/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
Date: February 13, 2019
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
/s/ NANCY KARCH
Chief Financial Officer
(Principal Financial Officer)
Martina Hund-Mejean
/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*
XBRL Taxonomy Extension Definition Linkbase Document
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 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.
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.
+
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.
Date: February 13, 2019
President and Chief Executive Officer; Director
(Principal Executive Officer)
/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
By:
Date: February 13, 2019
By:
Date: February 13, 2019
By:
By:
Date: February 13, 2019
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:
President and Chief Executive Officer
(Principal Executive Officer)
/s/ AJAY BANGA
Ajay Banga
(Registrant)
MASTERCARD INCORPORATED
By:
4.2
Jackson Tai
4.1
3.1(a)
3.1(b)
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 25, 2019 (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
Director
(a) The following documents are filed as part of this Report:
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
111
None.
ITEM 16. FORM 10-K SUMMARY
Refer to the Exhibit Index included herein.
EXHIBIT INDEX
None.
2 Consolidated Financial Statement Schedules
See Index to Consolidated Financial Statements in Part II, Item 8.
Consolidated Financial Statements
1
3 The following exhibits are filed as part of this Report or, where indicated, were previously filed and are hereby
incorporated by reference:
Exhibit
Number
Value-Added Products and Services
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.
•
•
12
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
•
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:
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.
11%
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.
•
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:
2 Prepaid includes both consumer and commercial prepaid.
1 Excludes Maestro and Cirrus cards and volume generated by those cards.
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%
13%
8%
15%
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.
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.
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.
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.
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.
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.
via mobile devices. The successful implementation of our loyalty and reward programs is an important part of enabling
these digital purchasing experiences.
Brand
•
•
13
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
•
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").
Leveraging our global innovations capability, we work to digitize payment services across all channels and devices:
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.
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.
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.
Mobile gateways that facilitate transaction routing and processing for mobile-initiated transactions.
1,126
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.
•
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:
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.
Digital Enablement
46%
Commercial Credit and Debit
824
Core Products
CONSULTING
BRAND
ANALYTICS INSIGHTS
心心
Core
Products
SECURITY
SAFETY AND
PROCESSING
0011
0111
0101
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.
want.
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
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.
17%
11
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.
43%
11%
2,520
2,724
657
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.
Consumer Debit and Prepaid
$
Consumer Credit
Mastercard Branded Programs¹
1,2
2017
Percentage
Increase from
December 31,
(in millions)
% of Total GDV
Growth (Local)
(in billions)
As of December 31, 2018
Cards
GDV
Year Ended December 31, 2018
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.
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.
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).
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.
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.
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.
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.
Website and SEC Reports
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.
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
Legal and
Regulatory
We do not experience meaningful 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.
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.
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
Seasonality
Risk Highlights
Business and
Operations
Payments Industry Regulation
20
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.
19
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 Security
Preferential or Protective
Government Actions
Competition and Technology
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
mastercard.
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.
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.
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.
•
•
•
•
We face a number of competitors both within and outside of the global payments industry:
other electronic payments, including ACH payments, wire transfers, electronic benefits transfers and bill payments
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.
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
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
•
• 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.
•
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.
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
•
analytics insights and consulting services dedicated solely to the payments industry
•
safety and security solutions embedded in our networks
•
adoption of innovative products and digital solutions
•
expertise in real-time account-based payments through our Vocalink business
•
global payments network with world-class operating performance
highly adaptable global acceptance network built over 50 years which can reach a variety of parties enabling payments
•
•
globally recognized brands
•
Our competitive advantages include our:
15
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.
contactless, mobile and e-commerce payments, as well as cryptocurrency
30
•
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.
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.
Financial Institution Customers and Other Stakeholder Relationships
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.
27
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.
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.
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.
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.
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.
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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.
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.
Information Security and Service Disruptions
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.
Operating a real-time account-based payment network presents risks that could materially affect our business.
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.
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.
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.
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 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
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.
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 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.
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.
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.
Tightening of credit availability that could impact the ability of participating financial institutions to lend to us under
the terms of our credit facility.
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.
Consumers and businesses lowering spending, which could impact cross-border travel patterns (on which a significant
portion of our revenues is dependent).
Customers mitigating their economic exposure by limiting the issuance of new Mastercard products and requesting
greater incentive or greater cost stability from us.
•
•
•
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:
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.
Global Economic and Political Environment
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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.
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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:
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 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.
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.
•
•
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
•
•
•
•
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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:
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
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.
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.
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.
21
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
Account-based Payment Systems
Regulation of privacy, data protection, security and the digital economy could increase our costs, as well as negatively impact
our growth.
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.
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 are considering, or may consider, regulatory requirements that mandate switching of
domestic payments either entirely in that country or by only domestic companies.
•
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 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.
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.
Privacy, Data Protection and Security
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.
Preferential and protective government actions related to domestic payment services could adversely affect our ability to
maintain or increase our revenues.
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.
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.
The payments industry is subject to rapid and significant technological changes, which can impact our business in several ways:
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.
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.
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.
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.
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.
Litigation
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.
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.
23
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.
Competition and Technology
•
Business and 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:
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.
Substantial and intense competition worldwide in the global payments industry may materially and adversely affect our overall
business and results of operations.
$
S&P 500 Financials.
Mastercard
100.00 $
2017
2016
2015
2014
2013
Company/Index
For the Years Ended December 31,
2018
S&P 500 Index
Base period
Total returns to stockholders for each of the years presented were as follows:
2018
2017
2016
2015
S&P 500 Financials
2014
2013
100.00
$50
$0
Indexed Returns
103.73 $
115.20
Dividend Declaration and Policy
113.44
$100
0.22
0.22
0.25 $
0.25
2017
2018
Dividend per Share
Fourth Quarter
Third Quarter
Second Quarter.
First Quarter
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:
34
150.33
157.22
129.05
115.26
113.69
100.00
S&P 500 Index. .
148.03
170.21
233.56
186.37 $
126.20 $
139.31
118.05 $
$150
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.
$250
Class A Common Stock and Governance Structure
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.
31
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.
Acquisitions, strategic investments or entry into new businesses could disrupt our business and harm our results of operations
or reputation.
Acquisitions
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.
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 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.
Talent and Culture
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.
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 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.
Negative brand perception may materially and adversely affect our overall business.
Brand and Reputational Impact
•
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.
0.25
Tax act
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
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
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.
Stock Performance Graph
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.
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
PART II
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
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.
ITEM 3. LEGAL PROCEEDINGS
33
$200
33
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, 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.
ITEM 2. PROPERTIES
Not applicable.
ITEM 1B. UNRESOLVED STAFF COMMENTS
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.
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
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
•
our stockholders are not entitled to act by written consent
•
32
0.22
Mastercard
0.22
$ 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%
(4.3) ppt
20%
53.0%
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%
$ 3,915
$ 4,059
53.5% (0.5) ppt
(4)%
$14,950 $ 12,497
($ in millions, except per share data)
cases
$237 million related to both the U.S. merchant class litigation and the filed and anticipated opt-out U.S. merchant
➤ $654 million related to a fine issued by the European Commission
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:
Litigation provisions
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").
Non-GAAP Financial Information
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.
We repurchased 26 million shares of our common stock for $4.9 billion and paid dividends of $1.0 billion.
We completed a debt offering for an aggregate principal amount of $1.0 billion.
We generated net cash flows from operations of $6.2 billion.
•
Other financial highlights for 2018 were as follows:
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.
Net revenue
The remaining 8 percentage points of growth was primarily related to our continued investment in strategic initiatives
and higher operating costs.
2 percentage point increase from acquisitions
➤ 3 percentage point increase from the adoption of the new revenue guidance
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:
These increases were partially offset by higher rebates and incentives, which increased 18% both as reported and
on a currency-neutral basis.
Gross dollar volume growth of 14% on a local currency basis
1 Adjusted to normalize for the effects of differing switching days between periods.
Cross-border growth of 18% on a local currency basis¹
Switched transaction growth of 17%, adjusted for the impact of the Venezuela deconsolidation¹
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:
•
0.25
Key highlights for 2018 were as follows:
$ 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.
Increase/
(Decrease)
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.
Diluted earnings per share..
Diluted weighted-average shares outstanding...
$ 5.60 $ 3.65
1,047
$ 4,898
16%
16%
Adjusted operating margin ....
56.2%
54.4%
1.8 ppt
1.8 ppt
54.4%
54.5% (0.1) ppt (0.2) ppt
Adjusted effective income tax
rate
18.5%
26.8% (8.3) ppt
(8.2) ppt
$ 5,693
26.8%
Adjusted net income
$ 6,792
$ 4,906
38%
38%
$ 4,906
$ 4,144
18%
17%
Adjusted diluted earnings per
share...
42%
41%
$ 4.58
$ 3.77
28.1% (1.3) ppt (1.3) ppt
15%
15%
$ 6,540 $ 5,693
53%
$
3.65
$ 3.69
(1)%
1,072
(2)%
1,072
1,101
(3)%
Summary of Non-GAAP Results 1:
Year ended December 31,
Increase/(Decrease)
Year ended December 31,
Increase/(Decrease)
2018
2017
Adjusted operating expenses ...
15%
16%
($ in millions, except per share data)
20% $12,497 $10,776
20%
$14,950 $12,497
$237 million related to litigation settlements with U.K. and Pan-European merchants.
Net revenue
Currency-
As
adjusted
2016
2017
Currency-
neutral
As
adjusted
neutral
21%
21%
3.35
5.60
3.65
3.69
Total equity.
3.10
$ 24,860 $ 21,329 $ 18,675 $ 16,250 $ 15,329
5,834
5,424
5,180
3,268
1,494
3.11
5,418
5,684
6,062
6,824
$
1.08 $
0.91 $
0.79 $
0.67 $
0.49
31
37
5,497
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
3.36
3.67
2018
2017
2016
2015
2014
(in millions, except per share data)
$ 14,950 $ 12,497 $ 10,776 $ 9,667 $ 9,441
7,668
5,875
5,015
4,589
3.70
4,335
Cash dividends declared per share.
6,622
5,761
5,078
5,106
5,859
3,915
4,059
3,808
3,617
5.63
7,282
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
4,415,574
996,945
2,390,996 $
1,027,633
Programs
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
201.20
192.94
197.12
206.39
Average Price
Paid per Share
(including
commission cost)
996,945
4,415,574
Dollar Value of
Shares that may yet
be Purchased under
the Plans or
Programs
2,390,996 $
1,027,633
Total Number
Total.
December 1 – 31
November 1-30
October 1-31
Period
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:
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.
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 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.
of Shares
Purchased
1
695,528,134
492,962,254
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,
2018
2017
Increase/
(Decrease)
2017
2016
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:
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.
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
35
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.
6,800,613,788
Years Ended December 31,
36
15%
18%
8%
14%
10%
19%
10%
19%
16%
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.
14%
Cross-border volume as reported.
Switched transactions as reported..
Switched transactions, normalized¹
1 Adjusted for the deconsolidation of Venezuela subsidiaries.
For the Years Ended December 31,
2018
2017
Growth (Local)
19%
15%
Growth (Local)
13%
17%
3,827
5,174 $ 4,653 $
$
General and administrative
($ in millions)
2017
2018
2016
2017
2018
Increase (Decrease)
Year ended December 31,
The components of operating expenses were as follows:
45
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.
Operating Expenses
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%
11%
Cross-border volume, normalized
For the Years Ended December 31,
2018
Europe.
Latin America
United States.
Cross-border volume 1
Switched transactions
1 Excludes volume generated by Maestro and Cirrus cards.
44
Years Ended December 31,
2018
2017
Growth
Growth
Growth
Growth
(USD)
Canada..
(Local)
Asia Pacific/Middle East/Africa.
The following table provides a summary of the trend in volume and transaction growth:
22%
1%
2%
2%
20%
16%
Net revenue
Note: Table may not sum due to rounding
**Not applicable
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
Represents the foreign currency translational and transactional impact versus the prior year.
3 Includes impact from pricing and other non-volume based fees.
5
*Includes impact of the allocation of revenue to service deliverables, which are recorded in other revenue when services are performed.
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.
Mastercard-branded GDV 1.
(USD)
(Local)
13%
10%
5%
5%
19%
15%
13%
17%
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.
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.
GDV 1
Worldwide as reported
Worldwide as adjusted for EU Regulation.
Europe as reported
Europe as adjusted for EU Regulation
1 Excludes volume generated by Maestro and Cirrus cards.
10%
15%
17%
17%
14%
8%
8%
13%
13%
8%
9%
2017
10%
13%
10%
18%
19%
10%
10%
8%
10%
Advertising and marketing..
1,019
771
337
6%
5%
Data processing and telecommunications.
600
504
420
19%
20%
Foreign exchange activity
(36)
106
34
355
**
Other..
- %
1,001
811
2%
23%
General and administrative expenses
5,174
4,653
3,827
11%
22%
Special Item
**
377
Professional fees
21%
31%
17%
Note: Table may not sum due to rounding.
**Not meaningful
1
See "Non-GAAP Financial Information" for further information on Special Items.
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.
3 Represents contribution to a non-profit entity.
4
Represents the foreign currency translational and transactional impact versus the prior year.
46
46
General and Administrative
The significant components of our general and administrative expenses were as follows:
For the Years Ended December 31,
Percent Increase (Decrease)
2018
2017
2018
2017
2016
($ in millions)
Personnel
$
3,214 $
2,687 $
2,225
20%
2
1 %
(167)
**
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.
48
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
$48 million due to a foregone foreign tax credit benefit on current year repatriations. Excluding the impact of U.S. Tax Reform
and other Special Items, the 2017 adjusted effective income tax rate improved by 1.3 percentage points to 26.8% from 28.1% in
2016 primarily due to a more favorable geographical mix of earnings, partially offset by a lower U.S. foreign tax credit benefit.
The provision for income taxes differs from the amount of income tax determined by applying the U.S. federal statutory income
tax rate of 21% for 2018 and 35.0% for 2017 and 2016 to pretax income for the years ended December 31, as a result of the
following:
For the Years Ended December 31,
2018
Amount
Percent
2017
Amount
Percent
2016
Amount
Percent
($ in millions)
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.
imposed a one-time deemed repatriation tax on accumulated foreign earnings
•
• lowered the corporate income tax rate from 35% to 21%
Adjusted general and administrative
expenses (excluding Special Item)²
$
5,174 $
4,486 $
3,827
15%
17%
Note: Table may not sum due to rounding.
** Not meaningful
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.
2
See "Non-GAAP Financial Information" for further information on Special Items.
The primary drivers of general and administrative expenses in 2018 and 2017, versus the prior year, were as follows:
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.
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.
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.
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.
47
Depreciation and Amortization
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.
Provision for Litigation
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.
Other Income (Expense)
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.
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:
**
907
-%
2%
15%
16%
Note: Table may not sum due to rounding.
**
Not meaningful
1 See "Non-GAAP Financial Information" for further information on Special Items.
The following table summarizes the primary drivers of changes in operating expenses in 2018 and 2017:
For the Years Ended December 31,
1
Operational
Special Items
Acquisitions
Revenue
Standard
4,898
2
2017 2018 2017
2018
2017
2018
Mastercard
Impact Fund 3
2017 2018 2017
Foreign
Currency
4
Total
2018 2017
2018 2017
General and
administrative
11 % 11%
2018
5,693 $
6,540 $
$
698
18%
11%
Depreciation and amortization
459
436
373
5%
17%
Provision for litigation
1,128
15
117
**
**
Total operating expenses
7,668
5,875
5,015
31%
17%
Special Items¹
(1,128)
(182)
(117)
**
**
Adjusted total operating expenses (excluding Special
Items¹)
(4)%
-%
5%
6%
-%
%
5%
17%
Provision for
**
**
**
**
**
**
**
**
-%
**
**
**
**
**
litigation..
Total operating
expenses
8% 10% 16%
1%
2%
6%
3%
-%
**
-%
―%
-%
―% -% 2%
-%
-%
1 %
11%
22%
Advertising and
marketing....
(4)%
9%
-
%
-%
-%
1%
21% -% -%
-%
-%
1 %
18%
11%
Depreciation and
amortization
(5)%
-%
%
-%
10%
17%
1%
-%
Year ended December 31, 2017
2%
**
22 %
21%
(1)%
(4)%
11.9 ppt
(13.4) ppt
Litigation provisions
Venezuela charge
Tax act
(3)%
**
**
Diluted
earnings per
share
Net income
Effective
income tax rate
Operating
margin
(0.5) ppt
17 %
Operating
expenses
Net revenue
16 %
Reported - GAAP
**
Increase/(Decrease)
1.3 ppt
3 %
- ppt
(0.1) ppt
(1)%
(1)%
Foreign currency
1
21 %
18 %
(1.3) ppt
0.2 ppt
(0.1) ppt
16 %
Non-GAAP
(3)%
(2)%
- ppt
(1.0) ppt
3 %
**
3 %
16 %
(1)%
Year Ended December 31, 2017 as compared to the Year Ended December 31, 2016
38 %
3 %
**
(34)%
(33)%
14.2 ppt
**
**
**
26 %
(1.3) ppt
25 %
7.4 ppt
(19)%
**
53 %
50%
(21.3) ppt
(4.3) ppt
31 %
20 %
(1.0) ppt
41 %
(0.2) ppt
(3)%
(8.2) ppt
1.8 ppt
15 %
20 %
Non-GAAP -currency-neutral
- %
- %
0.1 ppt
- ppt
(3)%
- %
Foreign currency
1
42 %
38 %
(8.3) ppt
1.8 ppt
15%
20 %
Non-GAAP
― %
Venezuela charge
1 %
15%
18%
(4,777)
(5,848)
(6,881)
Rebates and incentives (contra-revenue)
18%
19%
15,553
18,345
22%
21,831
17%
17%
2,431
2,853
3,348
Other revenues
20%
19%
5,143
Gross revenue
Income before income taxes
Net revenue
12,497 $
2018
2017
2018
2017
2018
2017
2018
2017
2018
14,950 $
Other
Foreign Currency 2
Revenue
Standard 1
Acquisitions
Volume
For the Years Ended December 31,
The following table summarizes the primary drivers of net revenue growth:
16%
20%
10,776
3
Non-GAAP - currency-neutral.
6,188
Transaction processing
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.
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.
43
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
Impact of Foreign Currency Rates
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 %
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.
7,391
43
For the Years Ended December 31,
17%
19%
3,568
4,174
4,954
Cross-border volume fees.
16%
20%
4,411
The significant components of our net revenue were as follows:
5,130 $
$
Domestic assessments
($ in millions)
2017
2018
Percent Increase (Decrease)
2016
2017
2018
6,138 $
Tax act
Litigation provisions.
Reported -GAAP
-
%
-%
6%
―%
(1)%
1%
2%4
6%4
10%
20%
Cross-border volume
fees
17%
14%
- %
―%
1 %
-%
1 %
16%
―%
14%
Domestic
5,859 $
18.7 % $
($ in millions, except per share data)
48.7%
7,668
$
-
Reported GAAP
share
Net income
assessments ..
Diluted
earnings per
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:
Total
2017
2018
2017
Effective
income tax rate
5.60
― %
19%
9%5
17%
17%
Rebates and
incentives.
10%
10%
- %
-%
16%5
(2)%
(1)%
1%
11 %6
11%
18%
22%
14%
11%
0.5 %
-%
3%
1%
-%
17%
Transaction
processing..
14%
― %
1%
― %
―%
- %
(1)%
1%
4%
19%
20%
Other revenues
**
**
2%
7%
- %
5 %
Litigation provisions..
(1,128)
7.5%
(117)
Litigation provisions.
53.5%
5,015
$
Reported - GAAP
($ in millions, except per share data)
Diluted
earnings per
share
Net income
1.0%
income tax rate
Operating
margin
Operating
expenses
Year ended December 31, 2016
4.58
4,906 $
26.8 % $
54.4%
5,693
$
Effective
Non-GAAP
28.1% $
-%
3.69
Diluted
earnings per
share
Net income
Effective
income tax rate
Operating
expenses
Net revenue
Operating
margin
Increase/(Decrease)
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:
4,059 $
**Not applicable
3.77
4,144 $
28.1% $
54.5%
4,898
$
Non-GAAP
0.08
85
Note: Tables may not sum due to rounding.
0.01
10
%
income tax rate
Effective
Operating
margin
Operating
expenses
6.49
6,792 $
18.5 % $
56.2%
6,540
Net income
$
(0.07)
(75)
0.9%
**
**
Tax act.
0.96
1,008
(1.1)%
Non-GAAP
Diluted
earnings per
share
($ in millions, except per share data)
Reported - GAAP
0.1%
(15)
Litigation provisions.
0.10
108
0.2 %
1.3%
(167)
Venezuela charge..
0.81
873
(13.4)%
**
**
Tax act....
3.65
3,915 $
40.0 % $
53.0%
5,875
$
4 %
$
15%
$
2017
2018
Cash, cash equivalents and investments
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
49
49
See Note 19 (Income Taxes) to the consolidated financial statements included in Part II, Item 8 for further discussion.
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.
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.
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.
$
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.
1,587
40.0 % $
2,607
18.7 % $
1,345
$
Income tax expense
(1.5)%
(82)
(0.8)%
(55)
28.1 %
(2.0)%
(in billions)
8.4 $
4.5
7,204
50
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.
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.
(2,344)
4,637
(1,163)
5,664 $
(1,781)
(4,764)
6,223 $
(506)
(4,966)
$
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
(in millions)
7.8
2017
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. 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).
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.
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.
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.
1
Unused line of credit
3.8
2018
(149)
2016
- %
(3.3)%
(188)
(5.8)%
(380)
(1.3)%
(92)
Foreign tax effect.
0.4 %
22
0.7 %
43
European Commission fine.
0.6 %
State tax effect, net of federal benefit.
35.0 %
1,976
35.0 %
21.0 %
1,513
Federal statutory tax. .
5,646
$
6,522
Other, net...
46
194
2,283
%
(0.7)%
(43)
2.7 %
(1.0)%
(72)
%
2.4 %
157
(0.1)%
(7)
Remeasurement of deferred taxes.
%
Windfall benefit..
629
Foreign tax credits¹
9.6 %
(1.5)%
(0.4)%
(141)
(27)
(2.5)%
Transition Tax. .
22
0.3 %
%
(110)
4
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.
5
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.
6
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.
3
Amounts relate to severance liabilities along with expected funding requirements for defined benefit pension and postretirement plans.
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.
53
Seasonality
We do not experience meaningful seasonality. No individual quarter in 2018, 2017 or 2016 accounted for more than 30% of net
revenue.
Critical Accounting Estimates
2
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 Recognition
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.
1
156
1,479 $
Employee benefits ³
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.
273
72
49
46
106
Transition Tax4
509
47
306
Redeemable non-controlling interests 5.
73
73
Total 6
$
10,691 $
1,164 $
1,576 $
6,472
Loss Contingencies
Commitments to purchase foreign currency
Income Taxes
Estimated Fair
Value
(in millions)
$
Commitments to sell foreign currency.
Options to sell foreign currency
34 $
1,066
25
(1) $
27 $
26
968
(26)
4
27
2
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.
56
Interest Rate Risk
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:
Maturity
62
Notional
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.
Estimated Fair
Value
December 31, 2017
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.
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.
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
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
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.
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 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.
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.
55
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
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.
Foreign Exchange 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 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.
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 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.
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:
December 31, 2018
Notional
279
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:
691
Cash dividend, per share.
Cash dividends paid. . .
2018
2017
Years Ended December 31,
2016
$
$
(in millions, except per share data)
1.00 $ 0.88 $ 0.76
1,044 $ 942 $ 837
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.
51
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.
Fair Market
Value at
December 31,
Board authorization
Remaining authorization at December 31, 2017
Dollar-value of shares repurchased in 2018
Remaining authorization at December 31, 2018
Shares repurchased in 2018.
Average price paid per share in 2018
(in millions, except per share data)
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
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.
11,593
13,797
16,171 $
(in millions)
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:
6,968
5,418
5,497
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.
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.
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.
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.
350
14,500
5,234
2,072
166
2020-2021
(in millions)
650 $
323
2022- 2023
2024 and
thereafter
801 $
288
4,438
1,295
8
4
4
-
676
72
151
126
327
Other obligations 1
Sponsorship, licensing and other 2
500 $
$
6,389 $
2019
$
7,778
4,933
$
6,801
26.2
$
188.26
See Note 15 (Stockholders' Equity) to the consolidated financial statements included in Part II, Item 8 for further discussion.
Off-Balance Sheet Arrangements
We have no off-balance sheet debt, other than lease arrangements and other commitments as presented in the Future Obligations
table that follows.
52
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
Debt.
Interest on debt
Capital leases
Operating leases.
Total
$
2024
8,793
Financial Instrument
$ 338 $ 107 $ 23 $
1
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.
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.
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.
57
$ 365
44
MASTERCARD INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Mastercard Incorporated
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.
Report of Independent Registered Public Accounting Firm. . .
Consolidated Balance Sheet.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-
8
35
23
Corporate securities
Asset-backed securities..
Fixed/Variable Interest
Fixed/Variable Interest
876
212
277
287
76
23
1
Total
$
70
3
1,148 $ 314
24
Consolidated Statement of Operations. .
16
Consolidated Statement of Comprehensive Income.
Notes to Consolidated Financial Statements
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.
Basis for 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.
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.
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).
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.
New York, New York
February 13, 2019
We have served as the Company's auditor since 1989.
60
60
and
there-
/s/ PricewaterhouseCoopers LLP
Opinions on the Financial Statements and Internal Control over Financial Reporting
of Mastercard Incorporated:
To the Board of Directors and Stockholders
58
5
Page
59
60
61
62
63
64
65
66
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
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.
59
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Consolidated Statement of Cash Flows..
59
Consolidated Statement of Changes in Equity.
185
45
Corporate securities
Fixed/Variable Interest
1,043
271
381
28
316
3
1
Asset-backed securities. .
Fixed/Variable Interest
217
8
71
157
Fixed/Variable Interest
Government and agency securities ...
87
2018
2019
2020
2021
2022
2023
after
(in millions)
Municipal securities
Fixed/Variable Interest
15 $
13 $
2 $
es
77
Summary Terms
84
33
2019
2020
2021
2022
after
Municipal securities
Fixed/Variable Interest
17 $
12 $
5 $
$
-
Government and agency securities . . .
93
Fixed/Variable Interest
2018
2017
(in millions)
-
6
Summary Terms
Total
$
1,432 $ 376
$ 454
$ 104
$ 488
Maturity
Fair Market
Value at
December 31,
2023
and
there-
Financial Instrument
$ 9 $ 1
86
29
(20)
167
31
59
12
(1,078)
(445)
(338)
(120)
(8)
(1)
Settlement due from customers
(244)
(317)
(48)
2017
(in millions)
176
(281)
Income taxes receivable
For the Years Ended December 31,
2018
2016
$
5,859
$ 3,915
$ 4,059
1,235
1,001
860
459
437
373
196
149
(10)
5,664
(1,769)
589
520
Long-term taxes payable
(20)
577
Net change in other assets and liabilities
(261)
27
(187)
Net cash provided by operating activities
Investing Activities
6,223
4,637
Purchases of investment securities available-for-sale
Accounts receivable
439
Accrued expenses.
66
394
(1,402)
(1,073)
Accrued litigation and legal settlements.
869
(12)
17
Restricted security deposits held for customers
Prepaid expenses
(6)
96
Accounts payable
101
290
145
Settlement due to customers
849
94
Changes in operating assets and liabilities:
5,684
Venezuela charge
13,797
16,171
1,040
1,432
1,085
1,080
1,375
2,452
1,969
22,364
(497)
29
5,497
366
366
921
829
(20,764)
4,365
(17,021)
19,418
(924)
28
(1,300)
.--- - 3,915 -- 3,915
1
(183)
1
(969)
427
(969)
: 182 (3,747) (3,747)
Adoption of revenue standard
Adoption of intra-entity asset
transfers standard
Net income ..
427
Other
(183)
5,859
(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
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
(1,123)
(4,991)
---(1,123) -
- - - - - (221) - (221)
-----
|
(6)
(6)
Activity related to non-
controlling interests.
...
: --- 5,859
Other comprehensive income
...
Cash dividends declared on
Class A and Class B common
stock, $1.08 per share
Purchases of treasury stock.
Share-based payments.
Conversion of Class B to Class A
common stock
Balance at December 31, 2018
(loss), net of tax
70
7,592
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.
(837)
(942)
(1,044)
(64)
1,972
-
991
(3,511)
(3,762)
(4,933)
(1,163)
(1,781)
(506)
2
(1)
48
(14)
(80)
(51)
(6)
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash
equivalents
(2,344)
(4,764)
(714)
(4,966)
Net cash used in financing activities
(2)
(6)
(4)
Other financing activities
37
57
104
Cash proceeds from exercise of stock options
(47)
(31)
(147)
(91)
456
1,020
929
Proceeds from maturities of investments held-to-maturity
339
500
379
Proceeds from maturities of investment securities available-for-sale
277
304
604
Proceeds from sales of investment securities available-for-sale.
(867)
(1,145)
(509)
Purchases of property, plant and equipment
(330)
(300)
(215)
Tax withholdings related to share-based payments
Tax benefit for share-based payments
Dividends paid
Payment of debt
Proceeds from debt
Purchases of treasury stock
Financing Activities
200
Net cash used in investing activities
Investment in nonmarketable equity investments
(1,175)
Acquisition of businesses, net of cash acquired
(167)
(123)
(174)
Capitalized software
Other investing activities
(50)
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash
equivalents
745
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").
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.
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.
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.
•
•
•
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:
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.
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.
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
The Company accounts for each of its guarantees by recording the guarantee at its fair value at the inception or modification
date through earnings.
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.
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.
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 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.
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.
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.
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.
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.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
-
Contingent consideration
69
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.
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.
Level 3 - inputs to the valuation methodology are unobservable and cannot be directly corroborated by observable
market data.
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.
MASTERCARD INCORPORATED
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.
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.
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.
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.
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.
Organization
Note 1. Summary of Significant Accounting Policies
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8,273
7,592 $
8,337 $
$
7,193
8,273
4,183
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
1,080
(681)
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).
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.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
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
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.
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 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.
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.
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.
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.
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.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
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
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.
| | | |༄ ོ | | སྦེ
(2)
(3,503)
5,418
5,497
Total Liabilities, Redeemable Non-controlling Interests and Equity.
24,860 $
21,329
The accompanying notes are an integral part of these consolidated financial statements.
61
MASTERCARD INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31,
2018
2017
(in millions, except per share data)
2016
Net Revenue
Operating Expenses
Total Equity
General and administrative
29
Non-controlling interests
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.
Retained earnings
Accumulated other comprehensive income (loss)
Total Stockholders' Equity
-
4,580
(25,750)
4,365
(20,764)
27,283
22,364
(718)
5,395
(497)
5,468
23
Advertising and marketing.
14,950 $
12,497 $
7,282
6,622
5,761
Other Income (Expense)
Investment income.
Interest expense
Other income (expense), net
Total other income (expense)
Income before income taxes
Income tax expense
122
56
43
(186)
(154)
Operating income
5,015
5,875
7,668
10,776
5,174
4,653
3,827
907
771
698
Stockholders' Equity
Depreciation and amortization
436
373
Provision for litigation
1,128
15
117
Total operating expenses
459
14
71
71
553
546
1,696
1,849
570
250
Goodwill
Other intangible assets, net
Other assets
Total Assets
2,904
3,035
991
1,120
3,303
5,933
6,682 $
$
Deferred income taxes
MASTERCARD INCORPORATED
CONSOLIDATED BALANCE SHEET
ASSETS
2018
December 31,
2017
(in millions, except per share data)
2,298
Cash and cash equivalents
Investments
Accounts receivable
Settlement due from customers
Restricted security deposits held for customers
Prepaid expenses and other current assets
Total Current Assets
Property, plant and equipment, net
Restricted cash for litigation settlement
(95)
24,860 $
LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY
Deferred income taxes
Other liabilities
Total Liabilities
949
792
11,593
8,793
5,834
5,424
67
106
1,877
19,371
1,438
15,761
Commitments and Contingencies
Redeemable Non-controlling Interests
Long-term debt
Total Current Liabilities
Other current liabilities
500
Accounts payable
537
933
Settlement due to customers
2,189
1,343
Restricted security deposits held for customers
21,329
1,080
Accrued litigation
1,591
709
Accrued expenses
4,747
3,931
Current portion of long-term debt
1,085
- - 179 4 - --183
(14)
(63)
5,638 $
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
Stockholders' Equity
Common Stock
Class A Class B
Additional
Paid-In
Capital
Class A
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
(248)
Non-
Controlling
Interests
427
Other comprehensive income (loss), net of income tax effect.
Comprehensive Income..
(15)
14
Purchases of investments held-to-maturity
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
(221)
Total
Equity
(676) $
34
Conversion of Class B to Class A
common stock
Balance at December 31, 2017
$
4,004
- - -
$ (13,522) $ 16,222 $
-
4,059
- - 4,059
(6)
(6)
(248)
(248)
(863)
(3,503)
(863)
Purchases of treasury stock.
Share-based payments.
stock, $0.91 per share
Class A and Class B common
Cash dividends declared on
$ 6,062
(in millions, except per share data)
Balance at December 31, 2015
Net income..
Activity related to non-
controlling interests.
Other comprehensive income
(loss), net of tax . . . .
Cash dividends declared on
Defined benefit pension and other postretirement plans, net of income tax
effect
Class A and Class B common
stock, $0.79 per share
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
Purchases of treasury stock.
Share-based payments. .
ཁྱི།།
-
(1)
1,067
1,098
5.60
3.65
3.69
Diluted weighted-average shares outstanding
1,047
1,072
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
1,041
Diluted Earnings per Share
Basic weighted-average shares outstanding
3.70
(78)
(100)
(115)
7,204
6,522
5,646
1,345
2017
(in millions)
2,607
Net Income
5,859
3,915
4,059
Basic Earnings per Share ...
5.63
3.67 $
1,587
(2)
2016
$
(21)
83
(22)
Translation adjustments on net investment hedge, net of income tax effect
75
(153)
38
Defined benefit pension and other postretirement plans
(18)
15
2,276
G
(2)
Income tax effect
3
Income tax effect
60
(236)
96
5,859 $
3,915 $
4,059
Other comprehensive income (loss):
Foreign currency translation adjustments.
(319)
565
Net Income
(275)
Foreign currency translation adjustments, net of income tax effect.
40
(279)
2
(11)
567
(286)
Translation adjustments on net investment hedge
Income tax effect
(957)
14,950
7,391
Accounts receivable
1,969 $
44 $
$
- $
2,
2,013
Prepaid expenses and other current assets...
1,040
181
(17)
Assets
1,204
250
(69)
186
367
Other assets
2,298
690
(352)
2,636
933
Deferred income taxes.
(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
(495)
3,931
391
792
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.
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
4,954
76
(in millions)
1,286
Note 2. Acquisitions
537
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(44)
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
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.
(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)
202
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
69
1 The short-term debt assumed through acquisitions was repaid during 2017.
1,571
Note 6. Supplemental Cash Flows
Cash, cash equivalents, restricted cash and restricted cash equivalents.
Other assets
Restricted cash for litigation settlement
Restricted security deposits held for customers.
Prepaid expenses and other current assets.
Restricted cash and restricted cash equivalents
Cash and cash equivalents. .
(in millions)
2015
December 31,
2016
2017
$ 6,682 $ 5,933 $ 6,721 $ 5,747
2018
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.
3.69
$
3.65
5.60 $
$
3.70
3.67 $
5.63 $
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.
553
1,080
22
546
1,085
543
(in millions)
2018
80
14
Fair value of liabilities assumed related to acquisitions.
Fair value of assets acquired, net of cash acquired..
Capital leases and other
Dividends declared but not yet paid
Non-cash investing and financing activities
Cash paid for legal settlements
Cash paid for interest.
Cash paid for income taxes, net of refunds
2016
2017
The following table includes supplemental cash flow disclosures for each of the years ended December 31:
$ 8,337 $ 7,592 $ 8,273 $ 7,193
--15
10
3
28
895
991
541
$
1,101
1,072
1,047
Note 4. Earnings Per Share
MASTERCARD INCORPORATED
79
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.
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.
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.
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.
14,950
$
198
9,441
5,311
¹Includes revenues managed by corporate functions.
Net revenue
1
Other
International Markets
North American Markets..
Net revenue by geographic region:
$
(6,881)
21,831
3,348
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:
Numerator
3
5
6
1,098
1,067
1,041
4,059
3,915 $
5,859 $
$
(in millions, except per share data)
2016
2018
1
Note: Table may not sum due to rounding.
Basic
Diluted
Earnings per Share
Diluted weighted-average shares outstanding
1
Dilutive stock options and stock units..
Basic weighted-average shares outstanding.
Denominator
Net income
2017
1,790 $ 1,893 $ 1,579
80
135
166
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
153
amount of usage of the Company's other products or services
•
amount of rebates and incentives provided to customers
77
7.5
The Company classifies its net revenue into the following five categories:
319
(Years)
$
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
Customer relationships.
Other
Other intangible assets
Acquisition Date
Fair Value
Weighted-Average
Useful Life
(in millions)
$
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.
•
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:
Cross-border volume fees
Transaction processing
Other revenues
Gross revenue
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.
Net revenue
(in millions)
$
6,138
365
│|
1,825
3
30
10
11 5
238
263
340
101
47
260
74
Domestic assessments..
Revenue by source:
Rebates and incentives (contra-revenue).
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.
•
•
Switched transaction revenue is generated from the following products and services:
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").
The following table disaggregates the Company's net revenue by source and geographic region for the year ended December 31,
2018:
Settlement is facilitating 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 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:
•
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.
•
Consulting, data analytic and research fees.
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
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.
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.
•
•
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.
in Active
Markets
(Level 1)
Investment securities available
Municipal securities.
for sale 1:
Assets
MASTERCARD INCORPORATED
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.
Financial Instruments - Recurring Measurements
Note 7. Fair Value and Investment Securities
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other
Observable
Inputs
(Level 2)
The distribution of the Company's financial instruments measured at fair value on a recurring basis within the Valuation Hierarchy
were as follows:
Quoted
Prices
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 $700 million, respectively, of held-to-maturity
securities due within one year. The cost of these securities approximates fair value.
Significant
Unobservable
2018
2017
($ in millions)
46 $
410
9
9
12
8
(7)
(44)
(22)
(12)
71225
61 $
59
(2)
(5)
1
3
2123 |
(4)
(23)
48
438
468
57
61
Benefit obligation at end of year
Change in plan assets
2017
Fair value of plan assets at beginning of year
2018
Pension Plans
3,931
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.
85
88
86
MASTERCARD INCORPORATED
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
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.
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
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
Benefit obligation acquired during the year
Service cost. . .
Interest cost
Actuarial (gain) loss
Benefits paid..
Transfers in .
Foreign currency translation.
Postretirement Plan
427
Fair value of plan assets acquired during the year
ལྐ་
(3)
Other liabilities, long-term
(28)
(41)
(54)
(58)
$
(28) $
(41) $
(57) $
(61)
Accumulated other comprehensive income consists of:
Net actuarial (gain) loss.
$
(5) $
(22) $
(7) $
(5)
Prior service credit.
1
(6
(8)
Balance at end of year.
$
(4) $
(22) $
(13) $
(13)
Weighted-average assumptions used to determine end
(3) $
$
Other liabilities, short-term.
Amounts recognized on the consolidated balance sheet
consist of:
33
Actual (loss) gain on plan assets.
(8)
344
(4)
Employer contributions..
33
23
Benefits paid..
(23)
(12)
Transfers in
2
3
4,747 $
| | | |
4
(4)
Foreign currency translation.
(21)
40
Fair value of plan assets at end of year
410
427
Funded status at end of year .
$
(28) $
(41) $
(57) $
(61)
| | | 5 5
$
388
467
Ending balance.
$
2,904 $
3,035
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 11. Other Intangible Assets
The following table sets forth net intangible assets, other than goodwill, at December 31:
2018
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)
616 $
207
1,572 $
473
143
(133)
Foreign currency translation.
1,136
Property, plant and equipment, net. . .
2018
2017
(in millions)
$
481 $
455
987
841
85
81
215
166
1,768
(888) $
(847)
$
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.
Note 10. Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2017 were as follows:
2018
2017
Beginning balance
$
(in millions)
3,035 $
1,756
Additions
2
(714)
of year benefit obligations
684
259
Note 12. Accrued Expenses and Accrued Litigation
Accrued expenses consisted of the following at December 31:
Customer and merchant incentives
Personnel costs
Advertising.
Income and other taxes.
Other..
Total accrued expenses
(in millions)
$
248
187
127
51
211
$
824
2018
2017
(in millions)
$
3,275 $
2,648
744
613
103
88
158
194
2023 and thereafter.
2022
2021.
2020.
Other.
46
(45)
1
57
(55)
2
Total.
1,999
(1,175)
824
2,102
(1,157)
945
(214)
Indefinite-lived intangible assets
167
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.
Customer relationships.
Discount rate
Non-U.S. Plans..
Vocalink Plan
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:
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%
5.00%
2
5.00%
3
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)
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:
Cash and cash equivalents. . $
Government and agency
securities..
Mutual funds
Insurance contracts
Asset-backed securities
Other..
Total.
December 31, 2018
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
* Not applicable
3.00%
3.00%
3.00%
*
4.00%
4.25%
Expected return on plan assets
Non-U.S. Plans..
3.00%
3.25%
3.25%
*
*
Vocalink Plan
4.75%
4.75%
*
Significant
Unobservable
Inputs
(Level 3)
*
*
Rate of compensation increase
Non-U.S. Plans..
2.60%
2.59%
2.64%
*
*
Vocalink Plan
3.85%
3.95%
*
Postretirement Plan
*
*
*
Quoted
Prices in
Active
Fair Value
22
40
$ 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
2024 - 2028
90
96
Pension Plans
Postretirement Plan
(in millions)
$
14 $
3
10
4
11
4
14
4
13
4
64
20
20
16
2
25
25
Markets
(Level 1)
Other
Observable
Inputs
(Level 2)
December 31, 2017
Significant
Unobservable
Inputs
(Level 3)
Fair Value
(in millions)
22 $ - $ - $
22 $
21 $
$
21
154
30
5 58
Significant
88
21
95
116
184
146
28
174
57 34
57
45
45
34
31
31
88
Less: accumulated depreciation and amortization
*
3.50%
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
2018
2017
2016
2018
2017
2016
(in millions)
Service cost. .
Interest cost
Expected return on plan assets.
Curtailment gain...
Amortization of actuarial loss.
Amortization of prior service credit . . .
Pension settlement charge
Net periodic benefit cost. .
$ 9$ 9 $ 10 $ 1 $ 1 $ 1
12
8
1
(20)
(13)
(1)
2
ཌ ས།||སྱེ
428
430
468
(in millions)
438 $
Postretirement Plan
1.80%
3.10%
1.80%
2.80%
*
*
4.25%
3.50%
Rate of compensation increase
Non-U.S. Plans.
Vocalink Plan
2.60%
4.00%
2.60%
3.85%
*
*
1
Postretirement Plan
*
3.00%
3.00%
* Not applicable
80
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
2018
2017
*
*
2
(2)
$
7 $
1
$ 19 $ (18) $ 11 $ 1$ 8$ 3
88
MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Assumptions
Weighted-average assumptions used to determine net periodic benefit cost were as follows for the years ended December 31:
Discount rate
Pension Plans
Postretirement Plan
2018
2017
2016
2018
2017
2016
Non-U.S. Plans..
Vocalink Plan
Postretirement Plan
1.80%
1.60%
1.85%
2.80%
2.50%
*
*
*
1 $
(22) $
18 $
Total net periodic benefit cost and
other comprehensive loss (income).... $
$
1 $
4 $
10 $
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
Amortization of prior service credit. . . .
Pension settlement charge..
Total other comprehensive loss
(income)...
(2)
Pension Plans
2018
2017
2016
2018
2017
2016
17
$ - $ - $
(22)
(in millions)
- $
1
- $ - $ -
(2)
5
22 1
es
Postretirement Plan
Property, plant and equipment..
Leasehold improvements
Furniture and fixtures
Debt
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.
Nonmarketable Equity Investments
Held-to-Maturity Securities
Financial Instruments - Non-Recurring Measurements
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
81
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.
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
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 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.
4
3
December 31, 2018
Significant
2
(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.
(54) - - (54)
Settlement and Other Guarantee Liabilities
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.
Contingent Consideration
December 31, 2018
Gross
Unrealized
Gain
Amortized
Cost
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:
Amortized Costs and Fair Values - Available-for-Sale Investment Securities
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MASTERCARD INCORPORATED
219
$
(14)
(5)
19
219
$
(in millions)
82
Balance at December 31, 2018
Foreign currency translation
Payments.
Net change in valuation
Balance at December 31, 2017
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:
(30) $ - $ (30)
- $
$ - $ (6) $ - $ (6) $
Deferred compensation liabilities.
65
securities..
Government and agency
$ 17
$ 17 $
$ 15 $
15 $
$
-
$
Total
(in millions)
Significant
Unobservable
Inputs
(Level 3)
Significant
December 31, 2017
Inputs
(Level 2)
Other
Observable
in Active
Markets
(Level 1)
Total
Inputs
(Level 3)
Quoted
Prices
92
Gross
Unrealized
Loss
Corporate securities.
Asset-backed securities
Deferred compensation plan 4:
Foreign currency derivative
liabilities
Derivative instruments 2:
Liabilities
55 - - 55
54 - - 54
- 35 - 35 -6 -6
Deferred compensation assets.
Foreign currency derivative assets
Deferred compensation plan 3:
Derivative instruments 2:
Equity securities
1
70
70
876
876
185
104
81
157
1,043
217
217
1,043
Fair
Value
1,543
December 31, 2017
Gross
Unrealized
Gain
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 $
337
1,434
249
352
298
178
210
77
499
85
464
$
Amortized
Cost
Due after 5 years through 10 years
Total
Available-For-Sale
Amortized
Cost
Fair Value
$
(in millions)
376 $
1,056
1
376
1,055
1
$
1,433 $
1,432
Investment Income
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
Prepaid expenses and other current assets consisted of the following at December 31:
Due after 1 year through 5 years
Prepaid income taxes
Other
Total prepaid expenses and other current assets
83
2018
2017
(in millions)
778 $
51
603
1,432 $
3,303
Customer and merchant incentives
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.
1,043
(2)
1
1,044
217
Asset-backed securities
Corporate securities.
185
185
157
157
Government and agency securities.
$ - $ - $ 17
17 $
15 $
15 $
$
Municipal securities
(in millions)
Fair
Value
2,298
Gross
Unrealized
Loss
875
2
$ - $ - $
876
Note 9. Property, Plant and Equipment
Property, plant and equipment consisted of the following at December 31:
(1)
Building, building equipment and land
Equipment
The maturity distribution based on the contractual terms of the Company's investment securities at December 31, 2018 was as
follows:
Investment Maturities:
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.
(1) $1,149
3 $
Due within 1 year.
1 $
$ 1,433 $
Total.
217
1
1
Equity securities
70
70
(2) $1,432 $ 1,147 $
|
into new customers
DIVERSIFY
our core
GROW
Our Strategy
• 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
•
expand in payments for consumers, businesses and governments
•
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:
and geographies
Our Strategy
Each of our priorities supports and builds upon each other and are fundamentally interdependent.
Our Key Priorities
People
Extend
ITEM 1. BUSINESS
Our Key Strategic Priorities
Doing Well by
Doing Good
Franchise
Technology
Data
Expand
In Payments
Brand
new areas for
BUILD
Powering Our Success
New Networks
Embrace
Our Services
the future
PARTI
Diluted EPS
6
GAAP
Net income
$8.7B
1
up 35%
Non-GAAP (currency-neutral)
Adjusted net income
$8.3B
up 28%
$5.9B Repurchased shares
$1.7B Dividends paid
$8.76
up 38%
Adjusted diluted EPS
$8.40
up 30%
$9.5B
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.
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.
up 25%
1
112.1B
up 32%
MASTERCARD 2021 FORM 10-K
Switched transactions
Cross-border volume growth
(on a local currency basis)
up 21%
$7.7T
(growth on a local currency basis)
Gross dollar volume
cash flows
from operations
<-----
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:
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).
MASTERCARD 2021 FORM 10-K 7
Switching
CORE NETWORK
Acquirer
The following graphic depicts a typical transaction on our core network, and our role in that transaction:
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.
to stockholders
Authorization | Clearing | Settlement
ITEM 1. BUSINESS
MASTERCARD 2021 FORM 10-K 9
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.
Core Network
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.
Our Multi-Rail Network and Payment Capabilities
Our Business
PARTI
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.
Payments System Security
Cyber and Intelligence Solutions | Insights, Analytics and Test
and Learn | Consulting and Innovation | Managed Services
Issuer and Merchant Loyalty | Processing and Gateway
10 MASTERCARD 2021 FORM 10-K
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 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.
•
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. Issuers may also charge account holders fees for the transaction,
including, for example, fees for extending revolving credit.
Value-Added Products and Services
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.
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.
Account Holder
บบบ
Enabling Digital Payments
Merchant
Issuer
•
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.
ITEM 1. BUSINESS
PART I
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:
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
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
.
•
•
•
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
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
•
•
ITEM 1. BUSINESS
PARTI
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:
•
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
MASTERCARD 2021 FORM 10-K
8
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.
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.
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.
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.
These priorities are supported by six key drivers:
Powering Our Success
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
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
Payments provide data and distribution to drive scale and differentiation in services and enable the development and adoption
of new network capabilities
•
.
•
Each of our priorities supports and builds upon each other and are fundamentally interdependent:
Driving growth in consumer purchases with a focus on accelerating digitization, growing acceptance and pursuing an expanded
set of use cases, including through partnerships
in capital returned
PART I
up 22%
PART I
TABLE OF CONTENTS
MASTERCARD INCORPORATED FISCAL YEAR 2021 FORM 10-K ANNUAL REPORT
Portions of the registrant's definitive proxy statement for the 2022 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
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).
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.
6
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.
Smaller reporting company
Emerging growth company
Accelerated filer
Non-accelerated filer ☐ (do not check if a smaller reporting company)
凶
Large accelerated filer
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
No ☐
Yes ☑
☐ ☐ ☐
Item 1.
Business
23
43
Management's discussion and analysis of financial condition and results of operations
Item 7A. Quantitative and qualitative disclosures about market risk
Market for registrant's common equity, related stockholder matters and issuer
purchases of equity securities
Item 5.
42
22
PART II
Information about our executive officers
38
Mine safety disclosures
Item 4.
37
Legal proceedings
Item 3.
37
Properties
Item 2.
37
Item 1B. Unresolved staff comments
37
Item 1A. Risk factors
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).
Item 6.
No ☐
No ☑
13-4172551
(914) 249-2000
(Address of principal executive offices)
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
(IRS Employer
Identification Number)
Commission file number: 001-32877
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
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
UNITED STATES
☑
to
10577
(Zip Code)
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Yes ☐
No ☐
Yes ☑
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.
Class B common stock, par value $0.0001 per share
Securities registered pursuant to Section 12(g) of the Act:
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Name of each exchange of which registered
MA30
MA27
MA22
MA
Trading Symbol
2.5% Notes due 2030
2.1% Notes due 2027
1.1% Notes due 2022
Class A Common Stock, par value $0.0001 per share
Title of each class
Yes ☑
Reserved
44
Item 7.
•
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 and lack of visibility of our brands in products and services
the impact of global economic, political, financial and societal events and conditions, including adverse currency fluctuations and
foreign exchange controls
exposure to loss or illiquidity due to our role as guarantor and other contractual obligations
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
issues related to acquisition integration, strategic investments and entry into new businesses
the challenges relating to rapid technological developments and changes
•
•
•
•
•
•
•
.
the impact of the global COVID-19 pandemic and measures taken in response
the impact of competition in the global payments industry (including disintermediation and pricing pressure)
•
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.
$18.9B
Net revenue
up 23%
$18.9B
Net revenue
The following are our key financial and operational highlights for 2021, including growth rates over the prior year:
Our Performance
For a full discussion of our business, please see page 9.
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.
Overview
Item 1. Business
ITEM 1. BUSINESS
PARTI
Information about our executive officers
Item 4. Mine safety disclosures
Item 3. Legal proceedings
Item 2. Properties
Item 1B. Unresolved staff comments
Item 1A. Risk factors
Item 1. Business
MASTERCARD 2021 FORM 10-K
.
potential or incurred liability and limitations on business related to any litigation or litigation settlements
•
4
Item 13.
114
Item 12. Security ownership of certain beneficial owners and management and related
stockholder matters
114
Executive compensation
Item 11.
114
Directors, executive officers and corporate governance
Item 10.
114
PART III
Changes in and disagreements with accountants on accounting and financial disclosure
Item 9A. Controls and procedures
Item 9B. Other Information
112
112
Item 9.
112
Financial statements and supplementary data
Item 8.
59
58
114
$7.6B
Item 14.
116
the impact of changes in tax laws, as well as regulations and interpretations of such laws or challenges to our tax positions
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)
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
Item 16.
116
Item 15.
PART IV
Certain relationships and related transactions, and director independence
Principal accountant fees and services
Exhibits and financial statement schedules
Assumptions
Total
(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
(1)
mཊེ།
3
(133)
(38)
(1)
2
(638) $
(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)
$
286 $
2 5 | N
(20)
$
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
Expected term (in years)
Expected volatility
Expected dividend yield
Weighted-average fair value per Option granted
2021
2020
2019
0.9 %
6.00
1.0 %
26.1 %
19.3 %
2.6 %
6.00
19.6 %
0.5 %
$ 91.70
0.6 %
Stock Options
Accumulated Other Comprehensive Income (Loss)
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.
Note 18. Share-Based Payments
(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
4
5
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.
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.
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
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.
(1)
(131) $
(680) $
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:
Board authorization
Dollar-value of shares repurchased
Shares repurchased
Average price paid per share
2021
2020
2019
(In millions, except per share data)
8,000 $ 6,000 $
8,000
$
5,904 $
4,473 $
6,497
16.5
972.1
14.3
(0.5)
1.2
Class A
Class B
(in millions)
1,018.6
11.8
(26.4)
3.2
0.6
(0.6)
996.0
11.2
(14.3)
2.3
2.9
(2.9)
986.9
8.3
(16.5)
0.5
26.4
$
356.82 $
(175)
209
34
-
5
Interest rate contracts
4
(133)
)
-
Defined benefit pension and other postretirement plans 5
5
(20)
43
Investment securities available-for-sale
Accumulated Other Comprehensive Income (Loss)
$
$ - $ (739)
(387) $
(352) $
$
312.68 $ 245.89
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
0.6 %
Increase/
(Decrease)
December 31,
2021
(in millions)
1
Foreign currency translation adjustments ¹
Translation adjustments on net investment hedges 2
Cash flow hedges
Foreign exchange contracts
3
Reclassifications
Outstanding Shares
$ 80.92
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.
The following table includes additional share-based payment information for each of the years ended December 31:
2021
Share-based compensation expense: Options, RSUs and PSUs
Income tax benefit recognized for equity awards
Income tax benefit realized related to Options exercised
Options:
Total intrinsic value of Options exercised
2020
2019
(in millions, except weighted-
average fair value)
$
273 $ 254 $
250
57
53
53
36
Additional Information
68
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.
PART II
$
259
0.2 $
385
(0.1) $
226
(0.1) $
231
0.4 $
334 $
128
0.4 $
334 $
128
PSUs expected to vest at December 31, 2021
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.
MASTERCARD 2021 FORM 10-K 99
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
0.4
69
317
2022
2023
2024
2025
2026
Thereafter
100 MASTERCARD 2021 FORM 10-K
(in millions)
$
424
202
114
48
3
1
es
$
792
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.
169
Note 19. Commitments
231
317
RSUS:
Weighted-average grant-date fair value of awards granted
358
288
226
Total intrinsic value of RSUs converted into shares of Class A common stock
PSUS:
360
330
394
Weighted-average grant-date fair value of awards granted
385
291
Total intrinsic value of PSUs converted into shares of Class A common stock
32
92
ཀླཚ
85
Value
(in millions)
Aggregate
Intrinsic
Grant-Date
Fair Value
96
-
$ 259
5.4 $
152
4.2 $
122
5.3 $
4.6 $
1,109
986
5.3 $
152
Options vested and expected to vest at December 31, 2021
5.3 $ 1,109
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.
98 MASTERCARD 2021 FORM 10-K
PART II
(0.6) $
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
363
5.7 $
0.3
The following table summarizes the Company's option activity for the year ended December 31, 2021:
Outstanding at January 1, 2021
Granted
Exercised
Forfeited/expired
Outstanding at December 31, 2021
Exercisable at December 31, 2021
Weighted-
Weighted-
Average
Options
(in millions)
Average
Exercise
Price
Remaining Aggregate
Contractual
Term
Intrinsic
Value
(in years)
(in millions)
137
Restricted Stock Units
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.
The following table summarizes the Company's RSU activity for the year ended December 31, 2021:
291 $
781
2.1 $
289
$
751
RSUs expected to vest at December 31, 2021
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.
Performance Stock Units
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:
Outstanding at January 1, 2021
Granted
Converted
Other
Outstanding at December 31, 2021
Weighted-
Average
Units
(in millions)
2.2 $
282
(0.1) $
199
Outstanding at January 1, 2021
Granted
Converted
Forfeited
Outstanding at December 31, 2021
Weighted-
Average
Grant-Date
Aggregate
Intrinsic
$ 53.09
Units
(in millions)
Value
(in millions)
2.5
$
231
0.8 $
358
(1.0) $
Fair Value
Balance at December 31, 2021
6.00
Share-based payments
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
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.
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
$ 617
(in millions)
75
51
Insurance contracts
104
104
96
- 96
Total
$
431 $
206
$
$ 637
$ 329
213 $
-
$ 542
Investments at Net Asset Value ("NAV") 4
Total Plan Assets
$ 688
$
27 $
3
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
1,000
1,000
3.420 %
1,500
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
2.112 %
(in millions)
750 $
$
2.000 % Senior Notes due November 2031
1.900 % Senior Notes due March 2031
2.950 % Senior Notes due March 2051
18
3
21
3
21
4
19
4
3
124
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Debt
Long-term debt consisted of the following at December 31:
2021
2020
Effective
Interest Rate
2021 USD Notes
19
1,000
- 387
270
0.70 % 0.70 %
1.80 %
*
1.55 % 1.55 %
2.00 %
*
*
*
2.50 % 3.25 %
4.25 %
1.60 % 1.60 % 2.10 %
*
3.20 % 3.20% 3.75 %
1.50 % 1.50 %
2.75 % 2.75 %
1.50 %
2.50%
*
Postretirement Plan
*
Vocalink Plan
Rate of compensation increase
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:
Pension Plans
2021
2020
Conversion of Class B to Class A common stock
2021
Postretirement Plan
2020
2019
Discount rate
Non-U.S. Plans
Vocalink Plan
Postretirement Plan
Expected return on plan assets
Non-U.S. Plans
Vocalink Plan
Non-U.S. Plans
*
*
*
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
$ 246 $ - $ - $ 246 $
59 $ - $ - $ 59
185
102
287
Inputs
(Level 2)
Significant
Other
Observable
Quoted
Prices in
Active
Markets
(Level 1)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
117
2021
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
PART II
2020
1,000
2019
1,000
$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
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.
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:
Dividends declared per share
Total dividends declared
Ownership and Governance Structure
2021
2020
2019
(in millions, except per share data)
$
Preferred
1.81 $
Dividend rights
$0.0001
$
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
Dividend and Voting Rights
One vote per share
Dividend rights
B
1,200 Non-voting
1.64 $
1.39
1,781 $
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
Purchases of treasury stock
Conversion of Class B to Class A common stock
Balance at December 31, 2020
Purchases of treasury stock
3.030 %
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.
11.1 %
11.0 %
10.8 %
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
10,726
2020
88.4 %
0.8 %
10.8 %
General
Voting Power
89.2 %
%
Equity
Ownership
General
Voting Power
88.2 %
0.8 %
88.9 %
- %
Equity
Ownership
750
Share-based payments
1,000
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 %
600
906
2.189 %
170
184
2.562 %
2014 USD Notes
3.375 % Senior Notes due April 2024
1,000
982
600
3.044 %
750
750
3.689 %
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
2.236 %
750
1,000
3.484 %
750
12,775
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
14,019
Total
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 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.
1,000
2
3
(116)
(103)
Less: Cumulative hedge accounting fair value adjustments ²
(2)
―
Total debt outstanding
Less: Current portion ³
3
Less: Unamortized discount and debt issuance costs
12,672
(792)
(649)
Long-term debt
13,901
$
13,109 $
12,023
1 €1.650 billion euro-denominated debt issued in December 2015.
$
78
153
60
571
216
174
112
3
61
38
1,127
636
$
91 $
183
114
(415)
1,218
497 $
324
260
218
40
47
136
147
24
58
405
276
206
182
137
142
(353)
1,041
333
Expired statute of limitations
Ending 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:
192
37
(31)
(10)
(11)
(15)
(12)
(2)
(3)
(4)
(7)
$
360 $
(in millions)
388 $
203
MASTERCARD 2021 FORM 10-K 103
4
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.
22
19
Beginning balance
Additions:
Current year tax positions
Prior year tax positions
Reductions:
Prior year tax positions
Settlements with tax authorities
2021
2020
2019
(in millions)
$
388
$
203
$
17
31
164
16.6 %
2021
%
(67)
(0.7)%
(119)
(1.5)%
(129)
(1.3)%
-
Other, net
(122)
(1.2)%
(26)
(0.3)%
(159)
(1.7)%
$
Income tax expense
- %
(1.3)%
(132)
57
0.6 %
PART II
0.7%
65
0.7 %
Foreign tax effect
(283)
(2.7)%
(193)
(2.5)%
(208)
(2.1)%
1
U.S. tax benefits
Windfall benefit
2
1,620
2020
15.7 % $
17.4 % $ 1,613
Net operating and capital losses
Unrealized gain/loss - 2015 EUR Notes
U.S. foreign tax credits
Intangible assets
Other items
Less: Valuation allowance
Total Deferred Tax Assets
State taxes and other credits
Deferred Tax Liabilities
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
Prepaid expenses and other accruals
Compensation and benefits
Accrued liabilities
Deferred Tax Assets
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
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notional
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.
226 $
14 $
483 $
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
1
$
104 $
3 $
1,000
8
- $ -
--
Foreign exchange contracts in a net investment hedge ¹
19
14
1
Fair Value
(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
1,473
Notional
4
1
Gain (Loss) Reclassified from AOCI
Year ended December 31,
Location of Gain
(Loss) Reclassified
from AOCI into
Earnings
2021
2020
2019
(in millions)
2020
(in millions)
Derivative financial instruments in a
cash flow hedge relationship:
Interest rate contracts
Derivative financial instruments in a
net investment hedge relationship:
Foreign exchange contracts
es is
$ 6$
$
60
Foreign exchange contracts
2021
Year ended December 31,
2019
Gain (Loss) Recognized in OCI
Foreign exchange contracts
406
8
1,016
28
Total Derivative Liabilities
$
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:
Derivatives not designated as hedging instruments
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.
Fair Value
December 31, 2021
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 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 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.
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.
U.K. Prepaid Cards Matter
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.
Note 22. 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.
Telephone Consumer Protection Class Action
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
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 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.
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.
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.
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.
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
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
December 31, 2020
MASTERCARD 2021 FORM 10-K 107
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
108 MASTERCARD 2021 FORM 10-K
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).
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
109
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:
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.
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.
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.
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
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.
Note 23. Derivative and Hedging Instruments
PART II
State tax effect, net of federal benefit
483
2,044
4,456
5,518
Income before income taxes
$ 10,307 $
7,760 $
9,731
The total income tax provision for the years ended December 31 is comprised of the following components:
2021
2020
(in millions)
2019
Current
Federal
663 $ 439 $
642
State and local
51
56
81
Foreign
4,213
3,304 $
4,261 $
6,046
$
-
21.0 %
110 MASTERCARD 2021 FORM 10-K
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.
(6) $ (4) $ -
$
es
$
114 $ - $ -
976
$
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
The domestic and foreign components of income before income taxes for the years ended December 31 are as follows:
2021
2020
(in millions)
2019
United States
Foreign
Net revenue
Interest expense
781
- $ –
(189) $
1,690
Amount
Percent
Amount
Percent
2019
Amount
Percent
(in millions, except percentages)
Income before income taxes
$ 10,307
7,760
$
9,731
Federal statutory tax
2,164
21.0 %
21.0 %
1,630
897
2020
2021
$
Effective Income Tax Rate
1,276
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:
Deferred
Federal
State and local
Income tax expense
$
(31)
106
Foreign
(4)
1,620 $ 1,349 $ 1,613
(7)
40
73
(70)
1,620
(42)
(35)
9
(47)
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 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 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)).
10.2.1+
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 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)).
10.2.2*
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)).
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)).
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
10.3+
10.3.1+
10.4+
10.2+
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)).
10.1.1*
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)).
4.30
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)).
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)).
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)).
10.5+
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)).
MASTERCARD 2021 FORM 10-K
117
10.1
EXHIBIT INDEX
4.18
4.19
4.20
4.21
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.17
10.6+
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)).
10.8+
MASTERCARD 2021 FORM 10-K 119
EXHIBIT INDEX
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.29.1
Schedule of Non-Employee Directors' Annual Compensation effective as of January 1, 2022.
10.29.2
10.30.1
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 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).
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).
10.30**
10.7+
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)).
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)).
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
10.16+
10.17+
10.18+
10.19+
10.20*
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)).
Consulting Letter Agreement between Mastercard International Incorporated and Ajaypal Banga, dated as of
December 13, 2021.
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)).
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)).
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)).
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)).
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)).
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)).
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)).
4.1
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)).
717
$
1,907 $
1,902 $
1,147
681
1,828
MASTERCARD 2021 FORM 10-K 111
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.
Item 9A. Controls and procedures
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
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.
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, 2021 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.
112
MASTERCARD 2021 FORM 10-K
PART III
Item 10. Directors, executive officers and corporate governance
Item 11. Executive compensation
790
1,185 $
1,117 $
$
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amount of gain (loss) recognized on the consolidated statement of operations for non-designated derivative contracts is
summarized below:
Derivatives not designated as hedging instruments:
Foreign exchange derivative contracts
General and administrative
Year ended December 31,
2021
2020
(in millions)
2019
$
(10) $
Item 12. Security ownership of certain beneficial owners and management and
related stockholder matters
40 $
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
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.
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.
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)
(39)
Item 13. Certain relationships and related transactions, and director
independence
Item 14. Principal accountant fees and services
None.
116 MASTERCARD 2021 FORM 10-K
Exhibit index
Exhibit number
Exhibit Description
3.1
3.2
4.2
4.3
4.4
4.5
4.6
Item 16. Form 10-K summary
4.7
4.9
4.10
4.11
4.12
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)).
4.8
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)).
Refer to the Exhibit Index included herein.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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
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 following exhibits are filed as part of this Report or, where indicated, were previously filed and are hereby
incorporated by reference:
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 16. Form 10-K summary
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS
Item 15. Exhibits and financial statement schedules
(a) The following documents are filed as part of this Report:
1
Consolidated Financial Statements
2
3
See Index to Consolidated Financial Statements in Part II, Item 8.
Consolidated Financial Statement Schedules
114 MASTERCARD 2021 FORM 10-K
Item 15. Exhibits and financial statement schedules
120 MASTERCARD 2021 FORM 10-K
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)).
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.
Mastercard US Holdings LLC
1
Jurisdiction
United Kingdom
Delaware
Singapore
United Kingdom
Belgium
Singapore
Delaware
United Kingdom
Delaware
United Kingdom
United Kingdom
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
February 11, 2022
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, Michael Miebach, certify that:
Mastercard UK Holdco Limited
Mastercard Payment Gateway Services Group Limited
Mastercard International Incorporated
Mastercard Holdings LP
/s/ JOSÉ OCTAVIO REYES LAGUNES
José Octavio Reyes Lagunes
Director
/s/ GABRIELLE SULZBERGER
Gabrielle Sulzberger
Director
/s/ JACKSON TAI
Jackson Tai
Director
/s/ LANCE UGGLA
Lance Uggla
Director
SIGNATURES
MASTERCARD 2021 FORM 10-K
123
LIST OF SUBSIDIARIES OF MASTERCARD INCORPORATED
Exhibit 21
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:
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 AP Financing Pte. Ltd.
Mastercard Financing Solutions LLC
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;
Date:
February 11, 2022
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
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/Michael Miebach
Michael Miebach
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
February 11, 2022
/s/ Sachin Mehra
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.
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):
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
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
Director
Michael Miebach
I, Sachin Mehra, certify that:
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 31.2
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
President and Chief Executive Officer
Rima Qureshi
/s/ RIMA QURESHI
Director
+
*
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.
MASTERCARD 2021 FORM 10-K 121
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 11, 2022
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:
February 11, 2022
By:
Date:
Management contracts or compensatory plans or arrangements.
XBRL Taxonomy Extension Presentation Linkbase Document
101.PRE*
XBRL Taxonomy Extension Label Linkbase Document
EXHIBIT INDEX
10.30.2
10.31
21*
23.1*
31.1*
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.
February 11, 2022
Consent of PricewaterhouseCoopers LLP.
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.
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.
99.1*
101.INS
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
101.DEF*
101.LAB*
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
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.
By:
Date:
February 11, 2022
Choon Phong Goh
Director
By:
/s/ MERIT E. JANOW
Merit E. Janow
Chairman of the Board; Director
By:
Date: February 11, 2022
Date: February 11, 2022
By:
By:
Date: February 11, 2022
/s/ CHOON PHONG GOH
Date:
By:
By:
Date: February 11, 2022
Date:
February 11, 2022
By:
By:
Date: February 11, 2022
/s/ OKI MATSUMOTO
Oki Matsumoto
Director
/s/ YOUNGME MOON
Youngme Moon
February 11, 2022
Sachin Mehra
Director
Date: February 11, 2022
By:
Date: February 11, 2022
By:
122 MASTERCARD 2021 FORM 10-K
/s/ MICHAEL MIEBACH
Michael Miebach
President and Chief Executive Officer; Director
(Principal Executive Officer)
/s/ SACHIN MEHRA
Sachin Mehra
Chief Financial Officer
(Principal Financial Officer)
/s/ SANDRA ARKELL
Sandra Arkell
/s/ JULIUS GENACHOWSKI
Julius Genachowski
Corporate Controller
(Principal Accounting Officer)
Candido Bracher
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/ CANDIDO BRACHER
Chief Financial Officer
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
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.
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.
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 Europe and Middle East/Africa regions having acquired transactions for an Iranian
airline, which accepted Mastercard cards in these regions
We identified through our compliance program that for the period covered by this Report, Mastercard processed transactions
resulting from:
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").
EXHIBIT 99.1
Section 13(r) Disclosure
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.
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.
•
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 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.
Innovation and Technology
PARTI
ITEM 1. BUSINESS
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.
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.
MASTERCARD 2021 FORM 10-K 13
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.
1 Excludes Maestro and Cirrus cards and volume generated by those cards.
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.
•
11 %
111
11 %
25 %
867
Commercial Credit and Debit
13 %
1,509
•
•
We are using our
°
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:
Our Value-Added Services
14 MASTERCARD 2021 FORM 10-K
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.
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.
Our Digital Doors program helps small businesses establish and protect an online presence, including accepting digital
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.
51 %
°
°
22 %
968
Consumer Debit and Prepaid
Our Payment Products and Applications
Issue Resolution. We operate a framework to enable the resolution of disputes for both customers and consumers
Responsible Stewardship. We establish performance standards to support ecosystem growth and optimization and establish
proactive monitoring to ensure participant performance
•
•
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
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.
3,953
Core Payment Products
We enable our customers to benefit consumers by:
making electronic payments more convenient,
secure and efficient
9%
ITEM 1. BUSINESS
38 %
18 %
2,899
$
Consumer Credit
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:
PART I
ITEM 1. BUSINESS
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).
protecting consumers and all other participants
in a transaction, as well as consumer data
providing loyalty rewards
providing consumers choice, empowering them
to make and receive payments in the ways that
best meet their daily needs
delivering better, seamless consumer
experiences
How We Benefit Consumers
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").
B
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:
•
.
•
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:
Data
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
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
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
•
•
•
•
Diversity, equity and inclusion underpin everything we do:
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
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
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
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
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
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
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.
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:
.
.
highly adaptable global acceptance network built over more than 50 years which can reach a variety of parties enabling
payments
•
global payments network with world-class operating performance
20 MASTERCARD 2021 FORM 10-K
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.
.
•
•
•
•
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.
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, GDV, processed transactions and our other payment-related products and services.
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
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
Cyber and Intelligence Solutions
An annual cycle that is focused on objective setting, performance assessment, talent evaluation, skill development, opportunities
and career progression
•
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 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
阊
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
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
MASTERCARD 2021 FORM 10-K 15
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.
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.
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.
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.
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.
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.
•
•
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
.
•
16 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
Mobile gateways that facilitate transaction routing and processing for mobile-initiated transactions
. attract talent with the key skills needed
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.
Digital Identity
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.
PARTI
ITEM 1. BUSINESS
Open Banking
Our Expanded Network Capabilities
Specifically, to enable our business strategy effectively, our aim is to:
globally recognized and trusted brands
30 MASTERCARD 2021 FORM 10-K
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
Class A Common Stock and Governance Structure
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.
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
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.
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.
•
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:
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.
•
.
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, 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.
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.
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
MASTERCARD 2021 FORM 10-K 25
PARTI
ITEM 1A. RISK FACTORS
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.
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.
Other Regulation
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 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
MASTERCARD 2021 FORM 10-K 27
PARTI
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.
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 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.
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
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.
•
.
PARTI
ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
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.
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.
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 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).
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 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.
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.
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.
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.
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 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.
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.
28 MASTERCARD 2021 FORM 10-K
•
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.
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 or Protective Government Actions
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.
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
MASTERCARD 2021 FORM 10-K 21
PART I
ITEM 1. BUSINESS
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.
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.
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.
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.
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.
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.
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.
22 MASTERCARD 2021 FORM 10-K
PARTI
ITEM 1. BUSINESS
Additional Information
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.
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.
•
settlement guarantee backed by our strong credit standing
•
expertise in real-time account-based payments and open banking
•
development and adoption of innovative products and digital solutions
PARTI
ITEM 1. BUSINESS
.
•
safety and security solutions offered on our network, which reduce fraud and increase security for the payments ecosystem
analytics insights and consulting services that help issuers and merchants optimize their payments and related businesses
•
loyalty solutions that enhance the payments value proposition for issuers and merchants
.
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
world class talent and culture, with a focus on inclusion and being a "force for good"
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.
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 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
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
MASTERCARD 2021 FORM 10-K 23
PARTI
ITEM 1A. RISK FACTORS
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.
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.
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.
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 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).
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
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.
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.
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.
Preferential and protective government actions related to domestic payment services could adversely affect our ability to
maintain or increase our revenues.
Payments Industry Regulation
Settlement and Third-Party Obligations
www.sec.gov.
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
Stakeholder Relationships
Litigation
Brand and Reputational Impact
Talent and Culture
Acquisitions
Legal and Regulatory
Our ability to develop evolving systems and products may be inhibited by any difficulty we may experience in attracting and
retaining technology experts.
Global Economic and Political
Environment
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.
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.
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.
Operating a real-time account-based payments network presents risks that could materially affect our business.
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.
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 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 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.
Not applicable.
Chief Financial Officer
51
Sachin Mehra
56 Chief Information Officer (2016-2017)
Chief Emerging Payments Officer
(2010-2015)
Vice President, Investor Relations
Senior Vice President, Core Merchants
Development (2011-2013)
Senior Vice President, Franchise
(2013-2016)
since April 2019
Acceptance (2016-2020)
Vice President, U.S. Region (2008-2011)
Michael Miebach
Tim Murphy
Executive Officer since
January 2021
54
Executive Vice President, Merchants and
54
Chief Administrative
Officer
since April 2021
60
Various senior leadership roles, including
Chief Franchise Development Officer and
Senior Vice President, Bill Payment and
Healthcare
Chief Financial Operations Officer
(2018-2019)
Executive Vice President, Commercial
Products (2015-2018)
Executive Vice President and Business
Financial Officer, North America
(2013-2015)
President and Chief
Edward McLaughlin
President, Operations
and Technology
since May 2017
Linda Kirkpatrick
President, North America
Michael Froman
59
Vice Chairman and
President, Strategic
Growth
since April 2018
38 MASTERCARD 2021 FORM 10-K
Previous Business Experience
Various leadership positions at HSBC and Xerox
Corporation
Managing director, Alvarez & Marsal
CEO, ABN AMRO
Senior corporate and investment banking roles at
Citigroup
President, International (2018-2021)
President, Latin America and Caribbean
region (2013-2018)
Division President, South Latin America/
Brazil (2008-2013)
Executive Vice President, Human Resources,
Global Products and Solutions (2014-2016)
Senior Vice President, Human Resources,
Global Products and Solutions (2012-2014)
Various leadership positions at Citigroup,
including Country Business Manager, Brazil
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
Mr. Froman joined the Company in 2018 in
his current role
U.S. Trade Representative in the Executive Office
of President Obama (2013-2017)
Assistant to the President and Deputy National
Security Advisor for International Economic
Policy (2009-2013)
Various senior leadership positions at Citigroup,
including CEO, Citilnsurance and COO of
Citigroup's alternative investments business
PARTI
EXECUTIVE OFFICERS
Name
Current Position
Age
Previous Mastercard Experience
Corporate Treasurer (2010-2013)
President (2020)
45
President, U.S. Issuers (2020)
since January 2021
Chief Product Officer (2016-2020)
Group Vice President, Product and Strategy,
Metavante Corporation
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
since January 2020
Rich Verma
53
General Counsel and
Head of Global Public
Policy
since April 2021
Craig Vosburg
Chief Product Officer
since January 2021
54
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
Executive Vice President of Global Public
Policy and Regulatory Affairs (2020-2021)
President, North America (2016-2020)
Chief Product Officer (2014-2015)
Executive Vice President, U.S. Market
Development (2010-2014)
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
Previous Business Experience
Managing Director, Head of iShares U.S. Wealth
Advisory business, BlackRock (2014-2016)
Managing Director, Global Marketing Officer of
iShares, BlackRock, Inc. (2012-2014)
Various leadership positions at Citigroup, U.S.
Trust Company and McKinsey & Company, Inc.
Vice President, Counsel, Shawmut National
Corporation
Vice Chairman & Partner, The Asia Group
(2017-2020)
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
(2002-2007)
Senior member-financial services practice, Bain
& Company and A.T. Kearney
Vice president, CoreStates Financial Corporation
40
MASTERCARD 2021 FORM 10-K
40
Officer
President, Middle East and Africa
(2010-2015)
Chief Transformation
Kevin Stanton
Chief Marketing Officer (2013-2015)
Previous Business Experience
Chief People Officer
since July 2016
Co-Founder and CEO, Paytrust, Inc.
Various senior positions at Hess Corporation,
including Vice President and Treasurer
Various senior treasury and finance positions,
General Motors Corporation and GMAC
Managing Director, Middle East and North Africa
and Managing Director, Sub-Saharan Africa,
Barclays Bank PLC
Various executive positions at Citigroup in
Germany, Austria, U.K. and Turkey
Associate, Cleary, Gottlieb, Steen and Hamilton,
New York and London
Raja Rajamannar
Chief Marketing and
Communications Officer
and President,
Healthcare
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 management positions at Citigroup,
including Executive Vice President and Chief
Marketing Officer-Citi Global Cards
MASTERCARD 2021 FORM 10-K 39
PARTI
EXECUTIVE OFFICERS
Name
Current Position
Age
Raj Seshadri
56
Previous Mastercard Experience
President, U.S. Issuers (2016-2019)
President, Data and
Services
since January 2020
60
56
since January 2016
62
Brand and Reputational Impact
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.
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.
Adverse currency fluctuations and foreign exchange controls could negatively impact our results of operations.
ITEM 1A. RISK FACTORS
PARTI
34 MASTERCARD 2021 FORM 10-K
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.
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.
Tightening of credit availability that could impact the ability of participating financial institutions to lend to us under the terms of
our credit facility
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
Consumers and businesses lowering spending, which could impact domestic and cross-border spend
Customers mitigating their economic exposure by limiting the issuance of new Mastercard products and requesting greater
incentive or greater cost stability from us
.
•
.
•
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:
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.
Global Economic and Political Environment
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.
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.
Our role as guarantor, as well as other contractual obligations, expose us to risk of loss or illiquidity.
Settlement and Third-Party Obligations
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.
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.
ITEM 1A. RISK FACTORS
PARTI
Negative brand perception may materially and adversely affect our overall business.
MASTERCARD 2021 FORM 10-K 33
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.
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.
Item 4. Mine Safety Disclosures
Michael Fraccaro
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.
Item 2. Properties
Not applicable.
Item 1B. Unresolved staff comments
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.
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
PARTI
ITEM 1A. RISK FACTORS
36 MASTERCARD 2021 FORM 10-K
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
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:
Provisions in our organizational documents and Delaware law could be considered anti-takeover provisions and have an impact
on change-in-control.
Class A Common Stock and Governance Structure
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.
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.
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.
Acquisitions
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.
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 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.
Talent and Culture
ITEM 1A. RISK FACTORS
MASTERCARD 2021 FORM 10-K 35
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.
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.
PARTI
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:
PARTI
EXECUTIVE OFFICERS
Information about our executive officers
(as of February 11, 2022)
Name
Current Position
Age
Previous Mastercard Experience
Ajay Bhalla
56
President, Cyber and
President, Enterprise Security Solutions
(2014-2018)
Intelligence Solutions
since November 2018
MASTERCARD 2021 FORM 10-K 37
Vice Chairman
Gilberto Caldart
Vice Chairman, Senior
Client Partnerships and
Relationships
since January 2022
President, Digital Gateway Services
(2011-2013)
President, South Asia and Southeast Asia
(2008-2011)
Various senior leadership positions,
including President, Southeast Asia; Country
Manager, Singapore and Head of Marketing,
Southeast Asia; Vice President
.
65
President, International (2011-2018)
since June 2018
PARTI
ITEM 1A. RISK FACTORS
Ann Cairns
Information Security and Service Disruptions
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.
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.
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.
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.
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.
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.
PARTI
ITEM 1A. RISK FACTORS
32 MASTERCARD 2021 FORM 10-K
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.
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.
Exclusive/near exclusive relationships certain customers have with our competitors may have a material adverse impact on our
business.
Our work with governments exposes us to unique risks that could have a material impact on our business and results of
operations.
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.
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.
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.
Stakeholder Relationships
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.
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.
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
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.
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.
-
income
income
(expense) tax rate
Net
income
Diluted
earnings
per share
Effective
**
17.4 % $ 6,411 $ 6.37
$ 7,220
52.8 % $
(321)
Other
**
(30)
($ in millions, except per share data)
Year ended December 31, 2020
8,802
Operating
expenses
15.4 % $
(0.1)%
54.3 % $ (413)
$ 8,627
8,333 $ 8.40
Reported GAAP
$
(Gains) losses on equity investments
**
Litigation provisions
Indirect tax matter
Non-GAAP
Reported GAAP
-
(Gains) losses on equity investments
Litigation provisions
Non-GAAP
Operating
margin
(15)
(Gains) losses on equity investments
(73)
-
$
7,219
57.2 % $
($ in millions, except per share data)
67
16.6 % $ 8,118
7.94
Reported GAAP
**
(167)
(0.2)%
(124)
(0.12)
0.07
**
Tax act
**
(0.01)
per share
Net
income
0.5 %
**
(0.1)%
67
0.07
$ 7,147
53.3 % $ (351)
Diluted
earnings
17.2 % $
Year ended December 31, 2019
Operating
expenses
Operating
margin (expense)
Other
income
Effective
income
tax rate
6,463 $ 6.43
69
Non-GAAP Financial Information
6
MASTERCARD 2021 FORM 10-K
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Items
Litigation provisions
•
During 2021, we recorded pre-tax charges of $94 million ($74 million after tax, or $0.07 per diluted share) related to litigation
settlements and estimated attorneys' fees with U.K. and Pan-European merchants.
46
During 2020, we recorded pre-tax charges of $73 million ($67 million after tax, or $0.07 per diluted share) related to litigation
provisions which included pre-tax charges of:
$45 million related to a legal matter associated with our prepaid cards in the U.K., and
о
$28 million related to estimated attorneys' fees and litigation settlements with U.K. and Pan-European merchants.
Indirect tax matter
•
During 2021, we recorded a pre-tax charge of $88 million ($69 million after tax, or $0.07 per diluted share) to resolve a foreign
indirect tax matter for 2015 through the current period and the related interest.
Tax act
•
о
During 2019, we recorded a $57 million net tax benefit ($0.06 per diluted share), which included a $30 million benefit related to
a reduction to the 2017 one-time deemed repatriation tax on accumulated foreign earnings (the transition tax) resulting from
final tax regulations issued in 2019 and a $27 million benefit related to additional foreign tax credits which can be carried back
under transition rules.
During 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
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.
Non-GAAP
up 19%
Adjusted effective
income tax rate
Non-GAAP
(currency-neutral)
15.4%
The adjusted effective income tax rate of 15.4% was lower than prior year, primarily
due to the recognition of U.S. tax benefits, the majority of which were discrete,
resulting from a higher foreign derived intangible income deduction and greater
utilization of foreign tax credits in the U.S. In addition, a more favorable geographic
mix of earnings in 2021 contributed to our lower effective tax rate. These benefits
were partially offset by a lower discrete tax benefit related to share-based payments in
2021.
•
Other 2021 financial highlights were as follows:
•
We completed the acquisitions of businesses for total consideration of $4.7 billion.
•
We repurchased 16.5 million shares of our common stock for $5.9 billion and paid dividends of $1.7 billion.
•
We completed debt offerings for an aggregate principal amount of $2.1 billion.
Non-GAAP financial information 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:
• We generated net cash flows from operations of $9.5 billion.
0.1 %
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.
Currency-neutral Growth Rates
15.7 % $
8,687 $
8.76
**
(645)
(0.5)%
(497)
53.4 % $ 225
(0.50)
0.5 %
**
0.1 %
74
0.07
(82)
0.4 %
(94)
We believe that the non-GAAP financial measures presented facilitate an understanding of our operating performance and provide a
meaningful comparison of our results between periods. We use non-GAAP financial measures to, among other things, evaluate our
ongoing operations in relation to historical results, for internal planning and forecasting purposes and in the calculation of
performance-based compensation.
($ in millions, except per share data)
Diluted
earnings
We present growth rates adjusted for the impact of currency, which is a non-GAAP financial measure. Currency-neutral growth rates
are calculated by remeasuring the prior period's results using the current period's exchange rates for both the translational and
transactional impacts on operating results. The impact of currency translation represents the effect of translating operating results
where the functional currency is different than our U.S. dollar reporting currency. The impact of the transactional currency
represents the effect of converting revenue and expenses occurring in a currency other than the functional currency of the entity.
The impact of the related realized gains and losses resulting from our foreign exchange derivative contracts designated as cash flow
hedging instruments is recognized in the respective financial statement line item on the statement of operations when the
underlying forecasted transactions impact earnings. We believe the presentation of currency-neutral growth rates provides relevant
information to facilitate an understanding of our operating results.
The translational and transactional impact of currency and the related impact of our foreign exchange derivative contracts
designated as cash flow hedging instruments ("Currency impact") has been excluded from our currency-neutral growth rates and has
been identified in our drivers of change impact tables. See "Foreign Currency - Currency Impact" for further information on our
currency impacts and "Financial Results - Revenue and Operating Expenses" for our drivers of change impact tables.
Net revenue, operating expenses, operating margin, other income (expense), effective income tax rate, net income and diluted
earnings per share adjusted for the impact of gains and losses on our equity investments, Special Items and/or the impact of
currency, are non-GAAP financial measures and should not be relied upon as substitutes for measures calculated in accordance with
GAAP.
MASTERCARD 2021 FORM 10-K 47
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following tables reconcile our reported financial measures calculated in accordance with GAAP to the respective non-GAAP
adjusted financial measures:
Year ended December 31, 2021
per share
Other
Operating
expenses
Operating
income
income
margin
(expense) tax rate
Net
income
Effective
$ 7,219
(1)%
(100)
ppt
1 %
1 %
**
(1)%
0.5 ppt
(0.1) ppt
-
1 %
**
**
**
(0.6) ppt
1 %
1 %
(9)%
1 %
(1)%
**
**
Year Ended December 31, 2020 as compared to the Year Ended December 31, 2019
Increase/(Decrease)
Net
revenue
Operating
expenses
Operating
margin
Effective
income tax
rate
Net
income
**
Diluted
per share
(9)%
- %
(4.4) ppt
0.8 ppt
(21)%
(20)%
earnings
30%
(4.0) ppt
(19)%
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
2
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.
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.
Foreign Currency
PART II
Currency Impact
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.
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.
Foreign Exchange Activity
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.
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.
Risk of Currency Devaluation
operating expenses
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.
0.2 ppt
MASTERCARD 2021 FORM 10-K 49
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.
(17)%
1 %
― %
0.3 ppt
0.2 ppt
1 %
1 %
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.
(8)%
0.3 ppt
(17)%
(16)%
See "Non-GAAP Financial Information" for further information on Currency impact.
Key Metrics
In addition to the financial measures described above in "Financial Results Overview", we review the following metrics to evaluate
and identify trends in our business, measure our performance, prepare financial projections and make strategic decisions. We
believe that the key metrics presented facilitate an understanding of our operating and financial performance and provide a
meaningful comparison of our results between periods.
Gross Dollar Volume ("GDV") ¹ measures dollar volume of activity on cards carrying our brands during the period, on a local currency
basis and U.S. dollar-converted basis. GDV represents purchase volume plus cash volume and includes the impact of balance
transfers and convenience checks; "purchase volume" means the aggregate dollar amount of purchases made with Mastercard-
branded cards for the relevant period; and "cash volume" means the aggregate dollar amount of cash disbursements and includes
the impact of balance transfers and convenience checks obtained with Mastercard-branded cards for the relevant period.
Information denominated in U.S. dollars relating to GDV is calculated by applying an established U.S. dollar/local currency exchange
rate for each local currency in which our volumes are reported. These exchange rates are calculated on a quarterly basis using the
average exchange rate for each quarter. We report period-over-period rates of change in purchase volume and cash volume on the
basis of local currency information, in order to eliminate the impact of changes in the value of currencies against the U.S. dollar in
calculating such rates of change.
(3.7) ppt
28 %
(1.8) ppt
1.2 ppt
(Gains) losses on equity investments
Litigation provisions
Tax act
Non-GAAP
Currency impact
1
Non-GAAP -currency-neutral
Reported GAAP
Note: Tables may not sum due to rounding.
1
Net
revenue
Operating
expenses
Operating
margin
Effective
income tax
rate
Net
income
Diluted
earnings
per share
**Not applicable
23 %
Non-GAAP -currency-neutral
Non-GAAP
0.6 %
17.0 % $ 7,937 $
(57)
(0.06)
7.77
Note: Tables may not sum due to rounding.
**Not applicable
48 MASTERCARD 2021 FORM 10-K
PART II
Currency impact 1
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year Ended December 31, 2021 as compared to the Year Ended December 31, 2020
Increase/(Decrease)
Reported GAAP
-
(Gains) losses on equity investments
Litigation provisions
Indirect tax matter
The following tables represent the reconciliation of our growth rates reported under GAAP to our non-GAAP growth rates:
22 %
0.6 ppt
(1.7) ppt
1%
1 %
23 %
21 %
1.0 ppt
(1.8) ppt
29%
0.1 ppt
31 %
(2)%
0.2 ppt
- ppt
(1)%
(1)%
22%
19%
(1)%
0.4 ppt
(1)%
**
35 %
38 %
**
**
**
(0.4) ppt
(7)%
(8)%
**
-
- %
-
ppt
0.1 ppt
- %
-
- %
57.2 % $
Adjusted
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.
GAAP
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 7. Management's discussion and analysis of financial
condition and results of operations
The following discussion should be read in conjunction with the consolidated financial statements and notes of Mastercard
Incorporated and its consolidated subsidiaries, including Mastercard International Incorporated ("Mastercard International")
(together, "Mastercard" or the "Company"), included elsewhere in this Report. Percentage changes provided throughout
"Management's Discussion and Analysis of Financial Condition and Results of Operations" were calculated on amounts rounded to
the nearest thousand. For discussion related to the results of operations for the year ended December 31, 2020 compared to the
year ended December 31, 2019, please see Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.
Business Overview
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.
Mastercard is not a financial institution. We do not issue cards, extend credit, determine or receive revenue from interest rates or
other fees charged to account holders by issuers, or establish the rates charged by acquirers in connection with merchants'
acceptance of our products. In most cases, account holder relationships belong to, and are managed by, our customers.
COVID-19
In 2021, our growth rates, which are at various stages of recovery, increased as compared to the respective year ago period as
consumer and business spend recovers and we lap the initial effects of the COVID-19 pandemic. The following tables provide a
summary of trends in our key metrics for 2021 and 2020 as compared to the respective year ago periods:
PART II
March 31
December 31
Year ended
December 31,
2021
Gross dollar volume (local currency basis)
Cross-border volume (local currency basis)
Switched transactions
8%
33 %
20%
23 %
2021 Quarter ended
June 30
September 30
Increase/(Decrease)
(17)%
MASTERCARD 2021 FORM 10-K 43
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.
Average Price
Paid per Share
(including
commission cost)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Dollar Value of
Shares that may yet
be Purchased under
the Plans or
Programs
1,282,075 $
351.18
340.52
1,126,537
Item 6. [Reserved]
336.75
342.86
3,720,933
4,752,404,601
12,368,795,391
11,926,866,431
2
1 Dollar value of shares that may yet be purchased under the share repurchase programs is as of the end of the period.
1,312,321
3,720,933
58 %
53 %
4 %
Year ended
December 31,
2020
- %
(29)%
3 %
The impact of the COVID-19 pandemic, which began in the first quarter of 2020, continues to have negative effects on the global
economy. The pandemic has affected business activity, adversely impacting consumers, our customers, suppliers and business
partners, as well as our workforce. Variants of the virus have emerged, resulting in a resurgence of infections that have affected
regions at different times. New variants may emerge with similar results. The extent to which the resurgence and severity of
infections has affected regions is impacted by the ongoing global administration of vaccines and the availability of therapeutic
44 MASTERCARD 2021 FORM 10-K
5 %
PART II
treatments in those locations. Governments, businesses and consumers continue to react to the changing conditions, tightening or
loosening safety measures or voluntarily making personal safety decisions, as applicable, based on the current environment of their
location.
We continue to monitor the effects of the pandemic and the related impact on our business. The full extent to which the pandemic,
and measures and actions taken by stakeholders in response, affect our business, results of operations and financial condition will
depend on future developments, including the duration of the pandemic and its impact on the global economy, which are uncertain,
and cannot be predicted at this time.
Financial Results Overview
The following table provides a summary of our key GAAP operating results, as reported:
2021
2020
Year ended December 31,
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
52 %
(10)%
1 %
(29)%
21 %
32%
9%
41 %
25 %
27 %
25 %
Gross dollar volume (local currency basis)
13 %
Cross-border volume (local currency basis)
March 31
2020 Quarter ended
June 30 September 30
Increase/(Decrease)
December 31
8%
(1)%
(10)%
(45)%
1 %
(36)%
Switched transactions
Increase/
1,312,321
1,282,075 $
$300
$250
$200
$150
$100
$50
$0
$350
2016
Mastercard
2018
2019
2020
2021
S&P 500
S&P 500 Financials
2017
Total returns to stockholders for each of the years presented were as follows:
$400
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.
PART II
Item 5. Market for registrant's common equity, related stockholder matters and
issuer purchases of equity securities
Item 6. Reserved
Item 7. Management's discussion and analysis of financial condition and results of
operations
Item 7A. Quantitative and qualitative disclosures about market risk
Item 8. Financial statements and supplementary data
Item 9. Changes in and disagreements with accountants on accounting and
financial disclosure
Comparison of cumulative five-year total return
Item 9A. Controls and procedures
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUES PURCHASES OF EQUITY SECURITIES
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, 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.
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.
Stock Performance Graph
Item 9B. Other information
1,126,537
Company/Index
S&P 500
138.02
186.38
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUES PURCHASES OF EQUITY SECURITIES
Dividend Declaration and Policy
On November 30, 2021, our Board of Directors declared a quarterly cash dividend of $0.49 per share paid on February 9, 2022 to
holders of record on January 7, 2022 of our Class A common stock and Class B common stock. On February 8, 2022, our Board of
Directors declared a quarterly cash dividend of $0.49 per share payable on May 9, 2022 to holders of record on April 8, 2022 of our
Class A common stock and Class B common stock.
Subject to legally available funds, we intend to continue to pay a quarterly cash dividend on our outstanding Class A common stock
and Class B common stock. However, the declaration and payment of future dividends is at the sole discretion of our Board of
Directors after taking into account various factors, including our financial condition, operating results, available cash and current and
anticipated cash needs.
140.40
Issuer Purchases of Equity Securities
Period
October 1-31
November 1-30
December 1-31
Total
Total Number
of Shares
Purchased
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:
Mastercard
106.26
100.00
S&P 500 Financials
42 MASTERCARD 2021 FORM 10-K
Indexed Returns
Base
period
2016
2017
For the Years Ended December 31,
2018
2019
122.18
2020
$ 100.00 $ 147.68 $ 185.07 $ 294.55 $ 353.98 $ 358.07
100.00
121.83
116.49
153.17
181.35
233.41
2021
Increase/
2021
2020
(1)%
53.3 %
Adjusted effective income tax rate
15.4 %
17.2 %
57.2 %
17.0% (1.8) ppt
1.0 ppt
(1)%
1.2 ppt
(3.7) ppt
(1.8) ppt
0.2 ppt
0.3 ppt
Adjusted net income
$
8,333
(4.0) ppt
$
19%
7,219
As
Currency-
adjusted neutral
As
adjusted
Currency-
neutral
Net revenue
Adjusted operating expenses
$ 18,884 $ 15,301
($ in millions, except per share data)
$ 16,883
23%
21%
22%
(8)%
$
Adjusted operating margin
8,627
54.3 %
$
7,147
$
(9)%
2019
6,463
29%
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Key highlights for 2021 as compared to 2020 were as follows:
Net revenue
Non-GAAP
GAAP
up 23%
up 22%
PART II
- Gross dollar volume growth of 21% on a local currency basis
- Cross-border volume growth of 32% on a local currency basis
- Switched transactions growth of 25%
- Other revenues increased 32%, or 31% on a currency-neutral basis, which
includes 8 percentage points of growth due to acquisitions. The remaining growth
was driven primarily by our Cyber & Intelligence and Data & Services solutions.
These increases to net revenue were partially offset by:
- Rebates and incentives growth of 32%, or 31% on a currency-neutral basis,
primarily due to increased volumes and transactions and new and renewed deals.
Operating
expenses
GAAP
up 22%
Effective income
tax rate
(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:
7,937
49
See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
28%
(19)%
(17)%
Adjusted diluted earnings per share
$
8.40
$
MASTERCARD 2021 FORM 10-K 45
6.43
7.77
31%
30%
(17)%
(16)%
Note: Tables may not sum due to rounding.
1
$
2020
2021
Increase/(Decrease)
10,082
ՄՌ
8,081
$
9,664
25%
(16)%
$
Operating margin
52.8 %
57.2 %
0.6 ppt
(4.4) ppt
Income tax expense
Effective income tax rate
$
53.4 %
1,620
Operating income
22%
2019
(Decrease)
(Decrease)
($ in millions, except per share data)
Net revenue
$ 18,884
$
-%
15,301 $ 16,883
(9)%
Operating expenses
$
8,802
$
7,220 $
7,219
23%
$
1,349
$
es
$
6.37 $
7.94
38%
(20)%
992
8.76
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)
1,022
$
(21)%
35%
1,613
20%
(16)%
15.7 %
17.4 %
16.6 %
(1.7) ppt
0.8 ppt
Net income
Diluted earnings per share
Diluted weighted-average shares outstanding
$
8,687
$
6,411
$
8,118
15.7%
50 MASTERCARD 2021 FORM 10-K
Programs
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.
The following tables provide a summary of the trend in volumes and transactions.
Mastercard-branded GDV
United States
1
Worldwide less United States
Cross-border volume
1
1 Excludes volume generated by Maestro and Cirrus cards.
For the Years Ended December 31,
2021
2020
Increase/(Decrease)
USD
Local
USD
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Local
21 %
(2)%
- %
23 %
23 %
2 %
2%
22 %
20%
(4)%
(1)%
32 %
(29)%
Switched transactions
22%
PART II
MASTERCARD 2021 FORM 10-K 51
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.
2
2
23%
12%
8%
3%
1%
(1)%
32 %
14 %
Rebates and incentives (contra-revenue)
31%
4%
-%
-%
1%
(2)%
2 Includes impacts from our cyber and intelligence solution fees, data analytics and consulting fees and other value-added services.
1 Includes impacts from our key metrics, other non-volume based fees, pricing and mix.
Note: Table may not sum due to rounding
(9)%
23 %
(1)%
For the Years Ended
December 31,
Increase/(Decrease)
1%
2%
(9)%
20%
Net revenue
3 %
32 %
1%
Other revenues
2021
2020
8,802
7,220
7,219
22 %
- %
(176)
(73)
**
**
Adjusted operating expenses (excluding Special Items ¹)
$ 8,627 $ 7,147 $ 7,219
21 %
(1)%
Note: Table may not sum due to rounding.
73
**Not meaningful
See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
62
52
MASTERCARD 2021 FORM 10-K
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table summarizes the drivers of changes in operating expenses:
For the Years Ended December 31,
Operational
Special
Items
Acquisitions
Currency
Impact
Total
2021
1
94
**
**
3 %
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 $4.2 billion, or 23%, of total net revenue. The loss of any of these customers or their significant card programs could
adversely impact our revenue.
Operating Expenses
Operating expenses increased 22% in 2021 versus the prior year. Adjusted operating expenses increased 21%, or 19% on a currency-
neutral basis, versus the prior year. Current year results include growth of approximately 7 percentage points from acquisitions.
Excluding acquisitions, expenses increased 12% primarily due to higher personnel costs to support our continued investment in our
strategic initiatives, increased spending on advertising and marketing and increased data processing costs.
The components of operating expenses were as follows:
For the Years Ended December 31,
2021
2020
Increase (Decrease)
2019
2021
2020
($ in millions)
General and administrative
Advertising and marketing
Depreciation and amortization
Provision for litigation
Total operating expenses
Special Items
11 %
25 %
522
580
726
(30)%
25 %
36 %
657
895
3 %
20%
$ 7,087 $ 5,910 $ 5,763
1
934
3%
24 %
-%
Revenue
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Primary drivers of net revenue, versus the prior year, were as follows:
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.
Rebates and incentives increased 32%, or 31% on a currency-neutral basis, primarily due to increased volumes and transactions and
new and renewed deals.
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
revenue.
The components of net revenue were as follows:
2021
For the Years Ended December 31,
2020
2019
Increase (Decrease)
2021
2020
Financial Results
($ in millions)
8,158 $
6,656 $
6,781
23%
Cross-border volume fees
4,664
3,512
5,606
33%
(37)%
Transaction processing
10,799
8,731
8,469
Domestic assessments
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.
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.
58 MASTERCARD 2021 FORM 10-K
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.
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
64
63
61
60
60
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial statements and supplementary data
Mastercard Incorporated
Index to consolidated financial statements
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
24%
Report of independent registered public accounting firm (PCAOB ID 238)
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to consolidated financial statements
Page
Consolidated Statement of Operations
3%
Other revenues
6,224
2020
Domestic assessments
1
1
22%
1%
―%
-%
-%
(3)%
23 %
(2)%
1
Cross-border volume fees
30%
(37)%
1
1%
-%
-%
3%
22%
1,2
2021
1,2
(37)%
33 %
―%
3%
-%
-%
Transaction processing
2020
2020
2020
4,717
4,124
32%
14%
Gross revenue
29,845
23,616
24,980
26%
(5)%
Rebates and incentives (contra-revenue)
(10,961)
(8,315)
(8,097)
32%
3%
Net revenue
2021
2020
2021
Total
Currency Impact 3
Acquisitions
2021
Operational
The following table summarizes the drivers of change in net revenue:
(9)%
23%
15,301 $ 16,883
18,884 $
$
For the Years Ended December 31,
2021 2020
(2)%
2020
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.
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
(in billions)
7.9 $
6.0
10.6
6.0
1
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.
Income Taxes
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.
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
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.
Foreign Exchange Risk
1 See "Non-GAAP Financial Information" for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
**
18%
(75)%
**
**
645
30
167
(431)
(380)
(224)
13%
70%
5
27
**
**
**
**
(100)
(413) $ (351) $
$
6
**
**
Loss Contingencies
**
(167)
(30)
(645)
67
(321)
225
**
(52)%
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
56 MASTERCARD 2021 FORM 10-K
Cash Flow
The table below shows a summary of the cash flows from operating, investing and financing activities:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
2019
For the Years Ended December 31,
2021
2020
(in millions)
$ 9,463
$ 7,224 $ 8,183
(5,272)
(1,879)
(1,640)
(6,555)
(2,152)
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.
(5,867)
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 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.
Debt and Credit Availability
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.
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.
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.
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.
Dividends and Share Repurchases
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.
MASTERCARD 2021 FORM 10-K 55
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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;
2021
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.
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
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
$
Remaining authorization at December 31, 2021
5,904
$
9,831
$
54 MASTERCARD 2021 FORM 10-K
The following table summarizes the annual, per share dividends paid in the years reflected:
For the Years Ended December 31,
2021
2020
2019
(in millions, except per share data)
Cash dividend, per share
Cash dividends paid
$
PART II
1.76 $ 1.60 $ 1.32
$ 1,741 $ 1,605 $ 1,345
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.
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:
(in millions, except
per share data)
Remaining authorization at December 31, 2020
Dollar-value of shares repurchased in 2021
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.
$ 24 $ 97
$
($ in millions)
Provision for litigation
**
**
**
**
**
**
**
**
**
**
Total operating expenses
12% (5)%
1 %
1 %
7%
4 % 2 %
Data processing and telecommunications
Professional fees
Personnel
The components of general and administrative expenses were as follows:
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
11 %
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.
1
** Not meaningful
Note: Table may not sum due to rounding.
%
22 %
― %
2
Foreign exchange activity 1
25%
2%
2021
2020
2021
2020
General and administrative
11% (1)%
1 %
**
6%
4 %
2 %
%
20% 3%
Advertising and marketing
35%
(30)%
**
$ 11
20%
**
**
5%
3%
― %
Depreciation and amortization
(1)%
1 %
%
-
1 %
**
36 % (30)%
Other²
6%
For the Years Ended December 31,
2021
2020
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
MASTERCARD 2021 FORM 10-K 53
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.
Provision for Litigation
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.
Other Income (Expense)
Depreciation and Amortization
Advertising and Marketing
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.
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.
2
1
**Not meaningful
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.
The components of other income (expense) were as follows:
Investment Income
Gains (losses) on equity investments, net
2021
Total general and administrative expenses
2019
Increase (Decrease)
For the Years Ended December 31,
2021
2020
** Not meaningful
Note: Table may not sum due to rounding.
Adjusted total other income (expense) 1
Special Items
1
1
(Gains) losses on equity investments
Total other income (expense)
Other income (expense), net
Interest expense
Note: Table may not sum due to rounding.
2020
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.
447
384
Increase (Decrease)
19%
13%
(14)%
898
756
666
19%
$ 4,489 $ 3,787 $ 3,537
14%
51
9
32
**
($ in millions)
**
1,216
974
1,081
25%
(10)%
$ 7,087 $ 5,910 $ 5,763 20%
3%
2020
2021
2019
433
7%
--- (5,934)
7,312 $
- - 201 4 -- 205
The accompanying notes are an integral part of these consolidated financial statements.
40
MASTERCARD 2021 FORM 10-K 67
71 $ 7,383
(809) $
(in millions)
-
-
$
- 205
PART II
(5,934)
(5,934)
(1,781)
(1,781)
(129)
$ 5,061 $(42,588) $45,648 $
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For the Years Ended December 31,
Operating Activities
2020
$
8,687
$ 6,411
(129)
$ 8,118
2021
2019
Income taxes receivable
Accounts receivable
Changes in operating assets and liabilities:
Other
Deferred income taxes
Share-based compensation
(Gains) losses on equity investments, net
Depreciation and amortization
Amortization of customer and merchant incentives
Adjustments to reconcile net income to net cash provided by operating activities:
Net income
Consolidated Statement of Cash Flows
(5)
4,982
----- (129)
38,747
(in millions, except per share data)
Earnings Income (Loss)
Other
Comprehensive
Accumulated
Retained
Class A
Treasury
Stock
Additional
Paid-In
Capital
Class A Class B
Common Stock
controlling interest
adjustments
Redeemable non-
controlling interest
Acquisition of non-
interests
non-controlling
Activity related to
1,371
Net income
(680)
(36,658)
- - 8,687 -
Mastercard
Incorporated
Non-
Balance at December
31, 2021
payments
Share-based
Purchases of treasury
stock
Dividends
income (loss)
Other comprehensive
SE ---- (5) - (5)
(139)
(1,781)
(17)
(9)
|
(122)
------- (9)
8,687 - 8,687
6,488
97
6,391
Stockholders' Controlling Total
Equity
Interests Equity
(122)
1,072
(5,904)
726
(214)
(228)
(306)
(369)
(407)
Purchases of equity investments
Capitalized software
(422)
(339)
(407)
Purchases of property and equipment
383
121
(467)
296
376
140
291
Proceeds from maturities of investment securities available-for-sale
1,098
361
83
Proceeds from sales of investment securities available-for-sale
(215)
(198)
(294)
Purchases of investments held-to-maturity
(643)
Proceeds from maturities of investments held-to-maturity
(220)
Proceeds from sales of equity investments
Acquisition of businesses, net of cash acquired
3,959
2,024
(1,605) (1,345)
(1,741)
(6,497)
(4,473)
31, 2020
(4)
(1,640)
(1,879)
(5,272)
3
33
(175)
186
(1,440)
(4,436)
Tax withholdings related to share-based payments
Contingent consideration paid
Acquisition of non-controlling interest
Acquisition of redeemable non-controlling interests
Payment of debt
Proceeds from debt, net
Dividends paid
Purchases of treasury stock
Financing Activities
Net cash used in investing activities
Other investing activities
Settlement of interest rate derivative contracts
(989)
1,141
(389)
8,183
(1,552)
(2,087)
(444)
1,288
390
Accrued litigation and legal settlements
Prepaid expenses
Settlement assets
(202)
(2)
(87)
(246)
(86)
(1,661)
(397)
14
36
(7)
73
(69)
250
254
273
(167)
(30)
(645)
522
580
24
Purchases of investment securities available-for-sale
(1)
(662)
7,224
9,463
133
316
254
Investing Activities
Net cash provided by operating activities
Net change in other assets and liabilities
2
(37)
(52)
657
(114)
(73)
1,355
(1,242)
(568)
(42)
26
100
Long-term taxes payable
Accrued expenses
Settlement obligations
Accounts payable
290
326
177
Restricted security deposits held for customers
477
Balance at December
Balance at December
PART II
3,111
3,591
86
395
12,023
13,109
11,847
13,162
1,228
1,364
649
792
5,430
6,642
842
840
1,696
1,873
1,475
913
527
738 $
$
30,257
27,067
Total Liabilities
Commitments and Contingencies
6,488
97
71
7,383
Total Equity
Non-controlling interests
6,391
7,312
Mastercard Incorporated Stockholders' Equity
(680)
(809)
Accumulated other comprehensive income (loss)
Other liabilities
38,747
Retained earnings
4,982
(36,658)
5,061
(42,588)
Class A treasury stock, at cost, 425 and 409 shares, respectively
Additional paid-in-capital
Class B common stock, $0.0001 par value; authorized 1,200 shares, 8 shares issued and
outstanding
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
Stockholders' Equity
29
29
Redeemable Non-controlling Interests
45,648
Deferred income taxes
Long-term debt
Total current liabilities
16,949
Total current assets
1,883
2,271
Prepaid expenses and other current assets
1,696
1,873
1,706
1,319
2,646
3,006
19,113
483
586
586
10,113
7,421 $
$
Restricted security deposits held for customers
Settlement assets
Accounts receivable
Investments
Restricted cash for litigation settlement
2,724
473
Total Liabilities, Redeemable Non-controlling Interests and Equity
Property, equipment and right-of-use assets, net
1,902
Other current liabilities
Current portion of long-term debt
Accrued expenses
Accrued litigation
Restricted security deposits held for customers
Settlement obligations
Accounts payable
Current liabilities:
Liabilities, Redeemable Non-controlling Interests and Equity
33,584
37,669 $
1,907
Total Assets
6,994
Other assets
1,753
3,671
Other intangible assets, net
4,960
7,662
Goodwill
491
486
Deferred income taxes
5,365
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
$
33,584
---- (7) - (7) - 17
73
------- 73 7
- 6,411
5,917
21
6,411
24
5,893
(673)
4,787 (32,205) 33,984
6,411
----
Dividends
Other comprehensive
income (loss)
controlling interest
adjustments
Redeemable non-
Activity related to
non-controlling
interests
Net income
31, 2019
Balance at December
- 215
215
8
(7)
(1,641)
1641) (7)
E
Stockholders' Equity
Consolidated Statement of Changes in Equity (Continued)
66 MASTERCARD 2021 FORM 10-K
6,488
97
6,391
(680)
(36,658) 38,747
4,982
31, 2020
Balance at December
(6,463)
- 201
6
195
payments
Share-based
(4,459)
--- (4,459) - - (4,459)
Purchases of treasury
stock
(1,641)
(1,641)
(7)
(7)
201
(1,408)
(1,408)
(1,408)
Comprehensive
Retained
Other
Class A
Treasury
Stock
Additional
Paid-In
Capital
Class A Class B
Common Stock
Accumulated
income (loss)
Other comprehensive
adjustments
Earnings
controlling interest
interests
non-controlling
Activity related to
Net income
31, 2018
Stockholders' Equity
Consolidated Statement of Changes in Equity
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART II
MASTERCARD 2021 FORM 10-K 65
The accompanying notes are an integral part of these consolidated financial statements.
Redeemable non-
37,669 $
Income (Loss)
Total
Equity
- 45
45
--- (6,463) -- (6,463)
payments
Share-based
stock
Purchases of treasury
hive --- 45
207
Dividends
-(9)
Mastercard
Incorporated
Non-
Stockholders' Controlling
Equity
Interests
(9)
8 - - - - - -- 1 1
8,118
-
8,118
8,118
72 € 541
23 $ 
5,418
5205 $
5,395 $
(718) $
$(25,750) $27,283 $
$25.750) $278 79 ċ
$ 4,580
4580
(in millions, except per share data)
(9)
(650)
$ 12,419 $
(49)
8,081
10,082
7,219
7,220
8,802
73
94
522
580
726
934
657
895
5,763
5,910
7,087
16,883
15,301 $
(in millions, except per share data)
18,884 $
2019
2020
For the Years Ended December 31,
2021
$
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART II
Provision for litigation
Advertising and marketing
Depreciation and amortization
General and administrative
9,664
Total operating expenses
Operating income
Other Income (Expense):
1,620
9,731
7,760
10,307
67
(321)
225
27
5
(224)
(380)
(431)
167
30
Operating Expenses:
645
24
11
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
Interest expense
Gains (losses) on equity investments, net
Investment income
97
Net Revenue
Consolidated Statement of Operations
62 MASTERCARD 2021 FORM 10-K
8,337
$
9,902
Cash and cash equivalents
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.
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.
8,969
Significant Accounting Policies
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.
MASTERCARD 2021 FORM 10-K 69
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.
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.
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).
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
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.
1,349
12,419
3,450
We have served as the Company's auditor since 1989.
February 11, 2022
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 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.
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 2021 FORM 10-K 61
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.
632
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.
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.
(500)
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.
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, 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.
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).
Opinions on the Financial Statements and Internal Control over Financial Reporting
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
257
(44)
(2,517)
Definition and Limitations of Internal Control over Financial Reporting
1,613
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.
8,687 $
2
(1)
3
MEN
(1)
(1)
(1)
(1)
Comprehensive Income
Other comprehensive income (loss), net of income tax effect
Investment securities available-for-sale, net of income tax effect
Income tax effect
Investment securities available-for-sale
(19)
(129)
(11)
Defined benefit pension and other postretirement plans, net of income tax effect
(1)
(1)
(2)
Reclassification adjustment for defined benefit pension and other postretirement plans
Income tax effect
3
2
(14)
Income tax effect
(21)
(12)
57
Defined benefit pension and other postretirement plans
11
41
(144)
(7)
$ 8,558 $ 6,404 $ 8,163
$
(133)
(64)
(199)
(133)
(150)
(161)
Cash proceeds from exercise of stock options
61
97
126
Other financing activities
(15)
69
45
Net cash used in financing activities
(2,152)
(15)
(5,867)
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)
Assets
(in millions, except per share data)
2020
2021
December 31,
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART II
Consolidated Balance Sheet
64 MASTERCARD 2021 FORM 10-K
The accompanying notes are an integral part of these consolidated financial statements.
(6,555)
9
Current assets:
(1)
Income tax effect
Foreign currency translation adjustments
$ 8,687
Other comprehensive income (loss):
Net Income
$ 6,411 $ 8,118
For the Years Ended December 31,
2021
2020
(in millions)
2019
Consolidated Statement of Comprehensive Income
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART II
MASTERCARD 2021 FORM 10-K 63
89
The accompanying notes are an integral part of these consolidated financial statements.
(442)
1,022
992
6.37 $
8.76 $
$
1,017
1,002
988
7.98
6.40 $
8.79 $
$
8,118
6,411 $
Cash flow hedges, net of income tax effect
1,006
345
7.94
55
(1)
10
4
5
Reclassification adjustment for cash flow hedges
(3)
42
Income tax effect
14
(189)
6
Cash flow hedges
28
(137)
209
(1)
(8)
(59)
13
Translation adjustments on net investment hedges, net of income tax effect
Foreign currency translation adjustments, net of income tax effect
Translation adjustments on net investment hedges
(387)
286
23
Income tax effect
269
(177)
36
Income tax effect
(60)
40
Leasehold improvements
Furniture and fixtures and equipment
Building equipment
Asset Category
Buildings
The useful lives of the Company's assets are as follows:
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 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.
-
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.
Right-of-use assets
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:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
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.
•
Settlement assets/obligations
MASTERCARD 2021 FORM 10-K 73
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).
30 years
10-15 years
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.
MASTERCARD 2021 FORM 10-K 75
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.
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.
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.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
MASTERCARD 2021 FORM 10-K
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.
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.
Shorter of life of improvement or lease term
Shorter of life of the asset or lease term
3-5 years
Estimated Useful Life
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.
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.
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.
•
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:
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").
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
MASTERCARD 2021 FORM 10-K 71
PART II
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.
•
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.
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:
.
PART II
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.
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.
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.
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.
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.
°
.
Equity investments - The Company holds equity securities of publicly traded and privately held companies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
MASTERCARD 2021 FORM 10-K
72
22
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.
Held-to-maturity securities:
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.
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.
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.
о
•
Investment securities - The Company classifies investments as available-for-sale or held-to-maturity at the date of acquisition.
• Available-for-sale debt securities:
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
-
1,066 $
4,700 $
$
205
46
522
32
8
1,511
12
23
398
121
15
112
1,716
1,112
5,222
52
48
Developed technologies
Other
114
1,614
7.7
6.3
11.7
199
122 $
433 $
Customer relationships
Weighted-Average Useful Life
(in years)
Acquisition Date Fair Value
2019
2020
2021
2019
2020
2021
Other intangible assets
(in millions)
Accounting pronouncements not yet adopted
11
1,076
Other assets
Goodwill
Other intangible assets
Other current assets
Cash and cash equivalents
Assets:
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total assets
PART II
76
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.
Mastercard acquired additional businesses in 2021 for consideration of $272 million. These businesses 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.
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.
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.
Note 2. Acquisitions
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.
MASTERCARD 2021 FORM 10-K
15
Liabilities:
Deferred income taxes
844
2,842
395
237
2,071
143
14
41
Other current liabilities
54
$
253
2019
2020
(in millions)
2021
Net assets acquired
Total liabilities
Other liabilities
$
The following table summarizes the identified intangible assets acquired during the years ended December 31:
.
о
Transaction processing
Cross-border volume fees
Domestic assessments
Revenue by source:
(in millions)
2019
2020
2021
The Company's disaggregated net revenue by source and geographic region were as follows for the years ended December 31:
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.
8,158 $
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
78 MASTERCARD 2021 FORM 10-K
Other payment-related products and services and platforms, including account and transaction enhancement services, open
banking and digital identity solutions, rules compliance and publications.
•
Batch and real-time 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.
Data analytics and consulting fees are for insights, analytics, and test and learn capabilities as well as Mastercard's advisory and
managed 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.
•
PART II
6,656 $
6,781
4,664
Net revenue by geographic region:
15,301 $ 16,883
18,884 $
$
Net revenue
(8,097)
(8,315)
(10,961)
Rebates and incentives (contra-revenue)
24,980
23,616
29,845
Gross revenue
4,124
4,717
6,224
Other revenues
8,469
8,731
10,799
5,606
•
3,512
•
North American Markets
•
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:
MASTERCARD 2021 FORM 10-K 77
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.
Note 3. Revenue
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.
Pending Acquisition
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.
9.7
9.0
17.5
395
PART II
5.0
7.1
18
1
237 $
2,071 $
$
24
12.6
12.0
19.2
178
1.0
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
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.
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.
Settlement, which facilitates the exchange of funds between parties.
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.
о
Switched transaction revenue is generated from the following products and services:
•
•
.
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:
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.
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.
The Company classifies its net revenue into the following five categories:
amount of rebates and incentives provided to customers
•
amount of usage of the Company's other products or services
switched or not switched by the Company
volumes/transactions subject to tiered rates
geographic region or country in which the transaction occurs
•
•
•
•
•
International Markets
$
1
$
8.76
$
7.98
6.40
8.79
1,022
1,006
992
5
4
4
1,017
1,002
988
8,118
6,411 $
8,687 $
$
(in millions, except per share data)
2019
2020
2021
6.37
Diluted
$
Other
80 MASTERCARD 2021 FORM 10-K
12,419
9,902 $
$
Cash, cash equivalents, restricted cash and restricted cash equivalents
24
22
1,696
1,873
586
586
10,113
(in millions)
7,421 $
$
2020
2021
Restricted cash for litigation settlement
Restricted security deposits held for customers
Prepaid expenses and other current assets
Restricted cash and restricted cash equivalents
Cash and 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 for the years ended
December 31:
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
7.94
Basic
Note: Table may not sum due to rounding.
Diluted weighted-average shares outstanding 1
(in millions)
2020
2021
Other assets
Prepaid expenses and other current assets
Contract assets
Accounts receivable
Receivables from contracts with customers
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:
18,884 $ 15,301 $ 16,883
171
176
222
10,869
9,701
12,068
5,843
5,424
6,594 $
$
1 Includes revenues managed by corporate functions.
Net revenue
Earnings per Share
$
2,829 $
$
134
Dilutive stock options and stock units
2,505
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:
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
MASTERCARD 2021 FORM 10-K 79
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
Note 4. Earnings Per Share
143
180
355
482
Other current liabilities
Other liabilities
1
Deferred revenue
245
487
59
$ 105 $ 28 $ (3) $ (4)
(13)
22
1
(15)
(59)
$ 13
(11)
$ (62) $ (70)
(66)
$ 28 $ - $ -
92
Other liabilities, long-term
(17)
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
Foreign currency translation
5
4
Transfers in
(18)
Benefits paid
32
22
34
Other liabilities, short-term
22
(6)
617
(18)
Employer contributions
(17)
(7)
43
2
9
9
1
13
14
70
$
688
$ 531
($ in millions)
2020
2021
2020
2021
Postretirement Plan
Pension Plans
13
$
es
92
$
es
$ 604
56
-- 476
Actual gain on plan assets
727
980
3,998
4,730 $
$
(in millions)
2020
2021
Total accrued expenses
Other
Income and other taxes
Personnel costs
Customer and merchant incentives
337
Accrued expenses consisted of the following at December 31:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
52
87
MASTERCARD 2021 FORM 10-K
3,505
1,996
347
355
378
429
(in millions)
$
(4)
Note 13. Accrued Expenses and Accrued Litigation
63
208
497
518
617
Fair value of plan assets at beginning of year
Change in plan assets
Benefit obligation at end of year
Foreign currency translation
Transfers in
Benefits paid
Actuarial (gain) loss
Interest cost
Service cost
Benefit obligation at beginning of year
Change in benefit obligation
595
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:
PART II
88 MASTERCARD 2021 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 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
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, 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.
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.
5,430
6,642 $
$
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
Other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31
were as follows:
(12)
13
9
(18) (18)
(19)
9
$ 14 $ 13 $ 11$ 1$ 1$1
Postretirement Plan
2020 2019
2021
2019
(in millions)
2020
2021
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, 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
688
601
592
596 $ 604
$
(in millions)
2020
2021
Fair value of plan assets
2
2
2
Amortization of prior service credit
$ (47) $ 9 $ 19 $ (3) $ 10 $ 12
$ (50) $ 5 $ 12 $ (5) $ 8 $ 10
12 $ (7) $ 7 $ 9
---21 1
$ (50) $ 5
(in millions)
2019
2020
2021
2019
2020
2021
Postretirement Plan
Pension Plans
Accumulated benefit obligation
90 MASTERCARD 2021 FORM 10-K
Total other comprehensive loss (income)
Amortization of prior service credit
Current year actuarial loss (gain)
Total
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)
3 $
$
(1)-1---
Net periodic benefit cost
Total net periodic benefit cost and other comprehensive loss (income)
3
Projected benefit obligation
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rate of compensation increase
Postretirement Plan
Vocalink 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
Net actuarial (gain) loss
Accumulated other comprehensive income consists of:
$
$ (38) $ 12 $
$ (62) $ (70)
(4)
(4)
4
4
70
(4)
$ 64
|| ± │6
8 1 2 7 R
62
604
596
23
Non-U.S. Plans
Vocalink Plan
Postretirement Plan
*Not applicable
PART II
MASTERCARD 2021 FORM 10-K 89
3.00 %
3.00 %
2.75 %
3.20 %
1.50 %
1.50 %
2.50 %
2.75 %
0.70 %
1.55 %
0.90 %
1.75 %
945
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:
(4)
$
$
-
(2)
22
$
es
13
$
es
1
$ (37)
1
es
2026 and thereafter
2025
2024
132 $
$
(in millions)
Fair Value
Amortized
Cost
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,
2021 was as follows:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $
$ - $ - $ 31
314
247
1
246
214
214
64
64
98
98
132
10
182
314 $
627
1,207
(250)
554
(21)
228
225 $
91 $
(165) $
476 $
696
Nonmarketable securities
$
Marketable securities
(in millions)
Balance at
December 31,
2021
Other
2
Changes in
Fair Value
Sales
Purchases
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
182
Total equity investments
10
Fair Value
Held-to-maturity securities
2
1
Available-for-sale securities
Investments on the consolidated balance sheet consisted of the following at December 31:
Investments
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).
205
46
522
1,662
1,106
4,969
468
154
15
403
439
479
668
149
98
199
311
399
Total investments
$ 2 $ - $ - $ 2 $
2021
$
Gross
Unrealized
Loss
Gross
Unrealized
Gain
Amortized
Cost
Fair Value
(in millions)
Loss
Gain
Cost
Amortized Unrealized Unrealized
December 31, 2020
December 31, 2021
Gross
Gross
Total
Corporate securities
Government and agency
securities
Municipal 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 $
162
159
321
(in millions)
314 $
2020
1,644
$
228 $
$
es
Total
(in millions)
Significant
Unobservable
Inputs
(Level 3)
December 31, 2020
Significant
Inputs
(Level 2)
(Level 1)
Total
Markets
Other
Observable
in Active
Quoted
Prices
Significant
Unobservable
Inputs
(Level 3)
Inputs
(Level 2)
in Active
Markets
(Level 1)
Quoted
Prices
Other
Observable
December 31, 2021
Significant
Liabilities
Deferred compensation assets
Deferred compensation plan 4:
Marketable securities 3:
Equity securities
Interest rate contracts
Foreign exchange contracts
-
Derivative instruments ²:
$
63
476
627 .- - 627
1919
6
6.
8
247
- 247
-
214
214
-
- 214 -
64
38
26
98
ཋ
$ 10
$
10
es
$ 2 $
2 $
210
35
1,172 $
Corporate securities
Municipal securities
448
(in millions)
$
2021
The following table summarizes the total carrying value of the Company's Measurement alternative investments, including
cumulative unrealized gains and losses, at December 31:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
696
1,207 $
157
255
539
952 $
(in millions)
2020
2021
82 MASTERCARD 2021 FORM 10-K
Total Nonmarketable securities
Equity method
Measurement alternative
The following table sets forth the components of the Company's Nonmarketable securities at December 31:
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.
1,834
(25) $
645 $
(186) $
Initial cost basis
Government and agency securities
Adjustments:
Downward adjustments (including impairment)
Investment securities available-for-
sale 1:
Assets
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
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART II
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
468 $
$
$
(in millions)
2020
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
(10)
514
Carrying amount, end of period
Upward adjustments
89 - - 89
1,820 $ 1,349 $
(in millions)
2026
Thereafter
Total operating lease payments
Less: Interest
Present value of operating lease liabilities
86 MASTERCARD 2021 FORM 10-K
$
145
130
109
83
75
322
864
(92)
$
772
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Goodwill
The changes in the carrying amount of goodwill for the years ended December 31 were as follows:
2021
2020
(in millions)
Beginning balance
2025
Additions
2024
2022
3,292
(1,614)
(1,390)
$
1,907 $
1,902
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.
Operating lease ROU assets and operating lease liabilities are recorded on the consolidated balance sheet as follows at
December 31:
Balance sheet location
Property, equipment and right-of-use assets, net
Other current liabilities
Other liabilities
2021
2020
(in millions)
$
671 $
748
127
125
645
726
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.
The following table summarizes the maturity of the Company's operating lease liabilities at December 31, 2021 based on lease term:
Operating Leases
(in millions)
2023
3,521
Foreign currency translation
4,960 $
2,842
(1,126) $
(322)
1,150
421
(41)
3
3,505
3,063
(1,489)
1,574
Indefinite-lived intangible assets
Customer relationships
Total
$
166
5,426 $
(1,755) $
166
3,671 $
179
179
3,242 $
(1,489) $
1,753
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.
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:
2022
2023
2,276 $
743
44
$
1,641 $
1,843
21
5,260
4,021
844
(140)
95
$
7,662 $
4,960
Ending balance
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.
Note 12. Other Intangible Assets
The following table sets forth net intangible assets, other than goodwill, at December 31:
Finite-lived intangible assets
Gross Carrying
Amount
2021
Accumulated
Amortization
Net Carrying
Amount
Gross Carrying
Amount
2020
Accumulated
Amortization
Net Carrying
Amount
(in millions)
Capitalized software
Customer relationships
Other
2,929 $
2,272
59
Total
(1,288) $
(429)
(38)
(1,755)
$
970
380
100
9 - - 89 81
89
- - 81
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.
2
3
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.
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.
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.
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.
84 MASTERCARD 2021 FORM 10-K
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Instruments - Non-Recurring Measurements
Nonmarketable Securities
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.
Debt
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.
Other Financial Instruments
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.
Note 9. Prepaid Expenses and Other Assets
Prepaid expenses and other current assets consisted of the following at December 31:
Customer and merchant incentives
$ 28
Prepaid income taxes
28 $
----
- $ 15 $
- 8
2019
2021
Note 7. Investments
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
Cash paid for interest
Cash paid for income taxes, net of refunds
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
78
-- 78
Derivative instruments ²:
Foreign exchange contracts
Interest rate contracts
Deferred compensation plan 5:
Deferred compensation liabilities
$ - $ 15 $
8
- $
983
Other
Other assets consisted of the following at December 31:
5,365
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.
MASTERCARD 2021 FORM 10-K 85
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Property, Equipment and Right-of-Use Assets
Property, equipment and right-of-use assets consisted of the following at December 31:
2021
2020
(in millions)
Building, building equipment and land
$
615 $
522
Equipment
Furniture and fixtures
Leasehold improvements
Operating lease right-of-use assets
Property, equipment and right-of-use assets
Less: Accumulated depreciation and amortization
Property, equipment and right-of-use assets, net
1,456
1,321
96
99
371
6,994 $
Total prepaid expenses and other current assets
$
717
Customer and merchant incentives
Equity investments
Income taxes receivable
Other
Total other assets
2021
2020
(in millions)
1,326 $
1,086
92
78
853
719
2,271 $
1,883
2021
2020
(in millions)
$
3,798 $
3,220
1,834
1,172
645
553
420
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.