Mastercard Inc 10-Q for FY2022 Q2
Mastercard Inc (MA)
10-Q
2022-07-28
For: 2022-06-30
View Original
Added on
April 02, 2026
About this 10-Q
Mastercard Inc filed this 10-Q on July 28, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $5.5B
- up 21.4% from $4.53B a year earlier
- Net income
- $2.28B
- up 10.1% from net income of $2.07B a year earlier
- Diluted EPS
- $2.34
- up 12.5% from $2.08 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2022
Or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission file number: 001-32877
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) | |||||||
| (Zip Code) | ||||||||
| (Address of principal executive offices) | ||||||||
(914 ) 249-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | ||||||||||||||
Title of each class | Trading Symbol | Name of each exchange of which registered | ||||||||||||
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. | ☒ | No | ☐ | ||||||||||||||||||||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) | ☒ | No | ☐ | ||||||||||||||||||||
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): | |||||||||||||||||||||||
| ☒ | Accelerated filer | ☐ | |||||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||||||||||||||
Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. | ☐ | ||||||||||||||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) | Yes | No | ☒ | ||||||||||||||||||||
As of July 25, 2022, there were 958,675,890 shares outstanding of the registrant’s Class A common stock, par value $0.0001 per share; and 7,700,184 shares outstanding of the registrant’s Class B common stock, par value $0.0001 per share.
MASTERCARD INCORPORATED FORM 10-Q
TABLE OF CONTENTS
PART I | |||||||||||
PART II | |||||||||||
| - | |||||||||||
2 MASTERCARD JUNE 30, 2022 FORM 10-Q
In this Report on Form 10-Q (“Report”), references to the “Company,” “Mastercard,” “we,” “us” or “our” refer to the business conducted by Mastercard Incorporated and its consolidated subsidiaries, including our operating subsidiary, Mastercard International Incorporated, and to the Mastercard brand.
Forward-Looking Statements
This Report contains forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts may be forward-looking statements. When used in this Report, the words “believe”, “expect”, “could”, “may”, “would”, “will”, “trend” and similar words are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements that relate to the Company’s future prospects, developments and business strategies.
Many factors and uncertainties relating to our operations and business environment, all of which are difficult to predict and many of which are outside of our control, influence whether any forward-looking statements can or will be achieved. Any one of those factors could cause our actual results to differ materially from those expressed or implied in writing in any forward-looking statements made by Mastercard or on its behalf, including, but not limited to, the following factors:
•regulation directly related to the payments industry (including regulatory, legislative and litigation activity with respect to interchange rates and surcharging)
•the impact of preferential or protective government actions
•regulation of privacy, data, security and the digital economy
•regulation that directly or indirectly applies to us based on our participation in the global payments industry (including anti-money laundering, counter financing of terrorism, economic sanctions and anti-corruption, account-based payments systems, and issuer and acquirer practice regulation)
•the impact of changes in tax laws, as well as regulations and interpretations of such laws or challenges to our tax positions
•potential or incurred liability and limitations on business related to any litigation or litigation settlements
•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)
•the challenges relating to rapid technological developments and changes
•the challenges relating to operating a real-time account-based payments system and to working with new customers and end users
•the impact of information security incidents, account data breaches or service disruptions
•issues related to our relationships with our stakeholders (including loss of substantial business from significant customers, competitor relationships with our customers, consolidation amongst our customers, merchants’ continued focus on acceptance costs and unique risks from our work with governments)
•exposure to loss or illiquidity due to our role as guarantor and other contractual obligations
•the impact of global economic, political, financial and societal events and conditions, including adverse currency fluctuations and foreign exchange controls
•events and resulting actions related to the Russian invasion of Ukraine
•reputational impact, including impact related to brand perception and lack of visibility of our brands in products and services
•the inability to attract, hire and retain a highly qualified and diverse workforce, or maintain our corporate culture
•issues related to acquisition integration, strategic investments and entry into new businesses
•issues related to our Class A common stock and corporate governance structure
Please see a complete discussion of these risk factors in Part I, Item 1A - Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and in Part II, Item 1A - Risk Factors of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022. We caution you that the important factors referenced above may not contain all of the factors that are important to you. Our forward-looking statements speak only as of the date of this Report or as of the date they are made, and we undertake no obligation to update our forward-looking statements.
MASTERCARD JUNE 30, 2022 FORM 10-Q 3
| PART I | |||||||||||||||||
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Item 1. Consolidated financial statements (unaudited)
Mastercard Incorporated
Index to consolidated financial statements (unaudited)
| Page | ||||||||
Consolidated Statement of Operations — Three and Six Months Ended June 30, 2022 and 2021 | ||||||||
Consolidated Statement of Comprehensive Income — Three and Six Months Ended June 30, 2022 and 2021 | ||||||||
Consolidated Balance Sheet — June 30, 2022 and December 31, 2021 | ||||||||
Consolidated Statement of Changes in Equity — Three and Six Months Ended June 30, 2022 and 2021 | ||||||||
Consolidated Statement of Cash Flows — Six Months Ended June 30, 2022 and 2021 | ||||||||
MASTERCARD JUNE 30, 2022 FORM 10-Q 5
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statement of Operations (Unaudited) | ||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| (in millions, except per share data) | ||||||||||||||||||||||||||
| Net Revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||
| Advertising and marketing | ||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||
| Provision for litigation | ||||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||
| Other Income (Expense): | ||||||||||||||||||||||||||
| Investment income | ||||||||||||||||||||||||||
| Gains (losses) on equity investments, net | ( | ( | ||||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | ||||||||||||||||||||||
| Other income (expense), net | ( | |||||||||||||||||||||||||
| Total other income (expense) | ( | ( | ||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||
| Income tax expense | ||||||||||||||||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||||||||||||
| Basic Earnings per Share | $ | $ | $ | $ | ||||||||||||||||||||||
| Basic weighted-average shares outstanding | ||||||||||||||||||||||||||
| Diluted Earnings per Share | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted weighted-average shares outstanding | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statement of Comprehensive Income (Unaudited) | ||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | |||||||||||||||||||||||
| Income tax effect | ( | |||||||||||||||||||||||||
| Foreign currency translation adjustments, net of income tax effect | ( | ( | ( | |||||||||||||||||||||||
| Translation adjustments on net investment hedges | ( | |||||||||||||||||||||||||
| Income tax effect | ( | ( | ( | |||||||||||||||||||||||
| Translation adjustments on net investment hedges, net of income tax effect | ( | |||||||||||||||||||||||||
| Cash flow hedges | ( | ( | ||||||||||||||||||||||||
| Income tax effect | ( | ( | ||||||||||||||||||||||||
| Reclassification adjustments for cash flow hedges | ( | |||||||||||||||||||||||||
| Income tax effect | ( | ( | ||||||||||||||||||||||||
| Cash flow hedges, net of income tax effect | ( | |||||||||||||||||||||||||
| Reclassification adjustments for defined benefit pension and other postretirement plans | ( | ( | ( | ( | ||||||||||||||||||||||
| Income tax effect | ||||||||||||||||||||||||||
| Defined benefit pension and other postretirement plans, net of income tax effect | ( | ( | ( | ( | ||||||||||||||||||||||
Investment securities available-for-sale | ( | ( | ||||||||||||||||||||||||
| Income tax effect | ( | ( | ||||||||||||||||||||||||
| Investment securities available-for-sale, net of income tax effect | ( | ( | ||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | ||||||||||||||||||||||||
| Comprehensive Income | $ | $ | $ | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
MASTERCARD JUNE 30, 2022 FORM 10-Q 7
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheet (Unaudited) | ||||||||||||||
| June 30, 2022 | December 31, 2021 | |||||||||||||
| (in millions, except per share data) | ||||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Restricted cash for litigation settlement | ||||||||||||||
| Investments | ||||||||||||||
| Accounts receivable | ||||||||||||||
| Settlement assets | ||||||||||||||
| Restricted security deposits held for customers | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
Property, equipment and right-of-use assets, net of accumulated depreciation and amortization of $ | ||||||||||||||
| Deferred income taxes | ||||||||||||||
| Goodwill | ||||||||||||||
Other intangible assets, net of accumulated amortization of $ | ||||||||||||||
| Other assets | ||||||||||||||
| Total Assets | $ | $ | ||||||||||||
| Liabilities, Redeemable Non-controlling Interests and Equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Settlement obligations | ||||||||||||||
| Restricted security deposits held for customers | ||||||||||||||
| Accrued litigation | ||||||||||||||
| Accrued expenses | ||||||||||||||
| Current portion of long-term debt | ||||||||||||||
| Other current liabilities | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term debt | ||||||||||||||
| Deferred income taxes | ||||||||||||||
| Other liabilities | ||||||||||||||
| Total Liabilities | ||||||||||||||
| Commitments and Contingencies | ||||||||||||||
| Redeemable Non-controlling Interests | ||||||||||||||
| Stockholders’ Equity | ||||||||||||||
Class A common stock, $ | ||||||||||||||
Class B common stock, $ | ||||||||||||||
| Additional paid-in-capital | ||||||||||||||
Class A treasury stock, at cost, | ( | ( | ||||||||||||
| Retained earnings | ||||||||||||||
| Accumulated other comprehensive income (loss) | ( | ( | ||||||||||||
| Mastercard Incorporated Stockholders' Equity | ||||||||||||||
| Non-controlling interests | ||||||||||||||
| Total Equity | ||||||||||||||
| Total Liabilities, Redeemable Non-controlling Interests and Equity | $ | $ | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
8 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statement of Changes in Equity (Unaudited) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Class A Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Mastercard Incorporated Stockholders’ Equity | Non- Controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Activity related to non-controlling interests | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable non-controlling interest adjustments | — | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Share-based payments | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Class A Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Mastercard Incorporated Stockholders' Equity | Non- Controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Activity related to non-controlling interests | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable non-controlling interest adjustments | — | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Share-based payments | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
MASTERCARD JUNE 30, 2022 FORM 10-Q 9
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statement of Changes in Equity (Unaudited) - (Continued) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Class A Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Mastercard Incorporated Stockholders’ Equity | Non- Controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Activity related to non-controlling interests | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable non-controlling interest adjustments | — | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Share-based payments | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Class A Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Mastercard Incorporated Stockholders' Equity | Non- Controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Activity related to non-controlling interests | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable non-controlling interest adjustments | — | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Share-based payments | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
10 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statement of Cash Flows (Unaudited) | ||||||||||||||
| Six Months Ended June 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| (in millions) | ||||||||||||||
| Operating Activities | ||||||||||||||
| Net income | $ | $ | ||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Amortization of customer and merchant incentives | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| (Gains) losses on equity investments, net | ( | |||||||||||||
| Share-based compensation | ||||||||||||||
| Deferred income taxes | ( | ( | ||||||||||||
| Other | ||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Accounts receivable | ( | ( | ||||||||||||
| Settlement assets | ||||||||||||||
| Prepaid expenses | ( | ( | ||||||||||||
| Accrued litigation and legal settlements | ||||||||||||||
| Restricted security deposits held for customers | ( | |||||||||||||
| Accounts payable | ( | ( | ||||||||||||
| Settlement obligations | ( | ( | ||||||||||||
| Accrued expenses | ( | |||||||||||||
| Net change in other assets and liabilities | ||||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| Investing Activities | ||||||||||||||
| Purchases of investment securities available-for-sale | ( | ( | ||||||||||||
| Purchases of investments held-to-maturity | ( | ( | ||||||||||||
| Proceeds from sales of investment securities available-for-sale | ||||||||||||||
| Proceeds from maturities of investment securities available-for-sale | ||||||||||||||
| Proceeds from maturities of investments held-to-maturity | ||||||||||||||
| Purchases of property and equipment | ( | ( | ||||||||||||
| Capitalized software | ( | ( | ||||||||||||
| Purchases of equity investments | ( | ( | ||||||||||||
| Proceeds from sales of equity investments | ||||||||||||||
| Acquisition of businesses, net of cash acquired | ( | ( | ||||||||||||
| Other investing activities | ( | ( | ||||||||||||
| Net cash used in investing activities | ( | ( | ||||||||||||
| Financing Activities | ||||||||||||||
| Purchases of treasury stock | ( | ( | ||||||||||||
| Dividends paid | ( | ( | ||||||||||||
| Proceeds from debt, net | ||||||||||||||
| Contingent consideration paid | ( | |||||||||||||
| Tax withholdings related to share-based payments | ( | ( | ||||||||||||
| Cash proceeds from exercise of stock options | ||||||||||||||
| Other financing activities | ( | |||||||||||||
| Net cash used in financing activities | ( | ( | ||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents | ( | ( | ||||||||||||
| Net 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 | $ | $ | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
MASTERCARD JUNE 30, 2022 FORM 10-Q 11
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes to consolidated financial statements (unaudited)
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.
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 June 30, 2022 and December 31, 2021, 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 corrected prior period classifications of certain line items within investing activities on the consolidated statement of cash flows with no impact on total net cash used in investing activities. The Company follows accounting principles generally accepted in the United States of America (“GAAP”).
The balance sheet as of December 31, 2021 was derived from the audited consolidated financial statements as of December 31, 2021. The consolidated financial statements for the three and six months ended June 30, 2022 and 2021 and as of June 30, 2022 are unaudited, and in the opinion of management, include all normal recurring adjustments that are necessary to present fairly the results for interim periods. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year.
The accompanying unaudited consolidated financial statements are presented in accordance with the U.S. Securities and Exchange Commission (“SEC”) requirements for Quarterly Reports on Form 10-Q. Reference should be made to Mastercard’s Annual Report on Form 10-K for the year ended December 31, 2021 for additional disclosures, including a summary of the Company’s significant accounting policies.
Key Developments
Beginning in February 2022, in response to the Russian invasion of Ukraine, the United States and other governments imposed sanctions and other restrictive measures on certain Russian-related entities and individuals and, in March 2022, the Company suspended business operations in Russia. For the three and six months ended June 30, 2022, the net charges directly related to these actions of $26 million and $30 million, respectively, were not considered material to the Company’s overall financial results.
Note 2. Acquisitions
12 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Revenue
The Company’s disaggregated net revenue by source and geographic region were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Revenue by source: | ||||||||||||||||||||||||||
| Domestic assessments | $ | $ | $ | $ | ||||||||||||||||||||||
| Cross-border volume fees | ||||||||||||||||||||||||||
| Transaction processing | ||||||||||||||||||||||||||
| Other revenues | ||||||||||||||||||||||||||
| Gross revenue | ||||||||||||||||||||||||||
| Rebates and incentives (contra-revenue) | ( | ( | ( | ( | ||||||||||||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Net revenue by geographic region: | ||||||||||||||||||||||||||
| North American Markets | $ | $ | $ | $ | ||||||||||||||||||||||
| International Markets | ||||||||||||||||||||||||||
Other 1 | ||||||||||||||||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||||||||||||
1 Includes revenues managed by corporate functions.
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:
| June 30, 2022 | December 31, 2021 | |||||||||||||
| (in millions) | ||||||||||||||
| Receivables from contracts with customers | ||||||||||||||
Accounts receivable | $ | $ | ||||||||||||
Contract assets | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Other assets | ||||||||||||||
Deferred revenue 1 | ||||||||||||||
| Other current liabilities | ||||||||||||||
| Other liabilities | ||||||||||||||
1 Revenue recognized from performance obligations satisfied during the three and six months ended June 30, 2022 was $315 million and $650 million, respectively.
MASTERCARD JUNE 30, 2022 FORM 10-Q 13
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Earnings Per Share
The components of basic and diluted earnings per share (“EPS”) for common shares were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| (in millions, except per share data) | ||||||||||||||||||||||||||
| Numerator | ||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Denominator | ||||||||||||||||||||||||||
| Basic weighted-average shares outstanding | ||||||||||||||||||||||||||
| Dilutive stock options and stock units | ||||||||||||||||||||||||||
Diluted weighted-average shares outstanding 1 | ||||||||||||||||||||||||||
| Earnings per Share | ||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||||||||||||
Note: Table may not sum due to rounding.
1 For the periods presented, the calculation of diluted EPS excluded a minimal amount of anti-dilutive share-based payment awards.
Note 5. Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
The following table provides a reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents reported on the consolidated balance sheet that total to the amounts shown on the consolidated statement of cash flows.
| June 30, 2022 | December 31, 2021 | |||||||||||||
| (in millions) | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Restricted cash and restricted cash equivalents | ||||||||||||||
| Restricted cash for litigation settlement | ||||||||||||||
| Restricted security deposits held for customers | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Cash, cash equivalents, restricted cash and restricted cash equivalents | $ | $ | ||||||||||||
Note 6. 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).
Investments
Investments on the consolidated balance sheet consisted of the following:
| June 30, 2022 | December 31, 2021 | |||||||||||||
| (in millions) | ||||||||||||||
Available-for-sale securities 1 | $ | $ | ||||||||||||
Held-to-maturity securities 2 | ||||||||||||||
| Total investments | $ | $ | ||||||||||||
1See Available-for-Sale Securities section below for further detail.
2The cost of these securities approximates fair value.
14 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Available-for-Sale 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:
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | |||||||||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Municipal securities | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Government and agency securities | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate securities | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
The Company’s corporate and municipal available-for-sale investment securities held at June 30, 2022 and December 31, 2021 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.
The maturity distribution based on the contractual terms of the Company’s available-for-sale investment securities at June 30, 2022 was as follows:
| Amortized Cost | Fair Value | |||||||||||||
| (in millions) | ||||||||||||||
| Due within 1 year | $ | $ | ||||||||||||
| Due after 1 year through 5 years | ||||||||||||||
| Total | $ | $ | ||||||||||||
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 investment securities. The realized gains and losses from the sales of available-for-sale securities for the three and six months ended June 30, 2022 and 2021 were not material.
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”).
The following table is a summary of the activity related to the Company’s equity investments:
| Balance at December 31, 2021 | Purchases | Sales | Changes in Fair Value 1 | Other 2 | Balance at June 30, 2022 | |||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||
| Marketable securities | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||
| Nonmarketable securities | ( | ( | ||||||||||||||||||||||||||||||||||||
| Total equity investments | $ | $ | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||
1Recorded in gains (losses) on equity investments, net on the consolidated statement of operations.
2Includes translational impact of currency.
MASTERCARD JUNE 30, 2022 FORM 10-Q 15
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| June 30, 2022 | December 31, 2021 | |||||||||||||
| (in millions) | ||||||||||||||
Measurement alternative | $ | $ | ||||||||||||
Equity method | ||||||||||||||
| Total Nonmarketable securities | $ | $ | ||||||||||||
The following table summarizes the total carrying value of the Company’s Measurement alternative investments, including cumulative unrealized gains and losses through June 30, 2022:
| June 30, 2022 | ||||||||
| (in millions) | ||||||||
Initial cost basis | $ | |||||||
Cumulative adjustments 1: | ||||||||
| Upward adjustments | ||||||||
| Downward adjustments (including impairment) | ( | |||||||
| Carrying amount, end of period | $ | |||||||
1 Includes immaterial translational impact of currency.
The following table summarizes the unrealized gains and losses included in the carrying value of the Company’s Measurement alternative investments and Marketable securities for the three and six months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Measurement alternative investments: | ||||||||||||||||||||||||||
| Upward adjustments | $ | $ | $ | $ | ||||||||||||||||||||||
| Downward adjustments (including impairment) | ( | ( | ( | ( | ||||||||||||||||||||||
| Marketable securities: | ||||||||||||||||||||||||||
| Unrealized gains/(losses), net | ( | ( | ||||||||||||||||||||||||
Note 7. Fair Value Measurements
16 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Instruments - Recurring Measurements
The distribution of the Company’s financial instruments measured at fair value on a recurring basis within the Valuation Hierarchy were as follows:
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||
Investment securities available-for-sale 1: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Municipal securities | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Government and agency securities | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate securities | ||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative instruments 2: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate contracts | ||||||||||||||||||||||||||||||||||||||||||||||||||
Marketable securities 3: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred compensation plan 4: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred compensation assets | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative instruments 2: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Interest rate contracts | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred compensation plan 5: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred compensation liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||
1The 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.
2The Company’s foreign exchange and interest rate derivative asset and liability contracts have been classified within Level 2 of the Valuation Hierarchy as the fair value is based on observable inputs such as broker quotes for similar derivative instruments. See Note 17 (Derivative and Hedging Instruments) for further details.
3The 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.
4The 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.
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 6 (Investments) for further details.
MASTERCARD JUNE 30, 2022 FORM 10-Q 17
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 2022, the carrying value and fair value of total long-term debt (including the current portion) was $14.5 billion and $13.7 billion, respectively. At December 31, 2021, the carrying value and fair value of long-term debt (including the current portion) was $13.9 billion and $15.3 billion, respectively. See Note 10 (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 8. Prepaid Expenses and Other Assets
Prepaid expenses and other current assets consisted of the following:
| June 30, 2022 | December 31, 2021 | |||||||||||||
| (in millions) | ||||||||||||||
| Customer and merchant incentives | $ | $ | ||||||||||||
| Prepaid income taxes | ||||||||||||||
| Other | ||||||||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||||||||
Other assets consisted of the following:
| June 30, 2022 | December 31, 2021 | |||||||||||||
| (in millions) | ||||||||||||||
| Customer and merchant incentives | $ | $ | ||||||||||||
| Equity investments | ||||||||||||||
| Income taxes receivable | ||||||||||||||
| Other | ||||||||||||||
| Total other assets | $ | $ | ||||||||||||
Customer and merchant incentives represent payments made to customers and merchants under business agreements. Payments directly related to entering into such an agreement are generally deferred and amortized over the life of the agreement.
Note 9. Accrued Expenses and Accrued Litigation
Accrued expenses consisted of the following:
| June 30, 2022 | December 31, 2021 | |||||||||||||
| (in millions) | ||||||||||||||
| Customer and merchant incentives | $ | $ | ||||||||||||
| Personnel costs | ||||||||||||||
| Income and other taxes | ||||||||||||||
| Other | ||||||||||||||
| Total accrued expenses | $ | $ | ||||||||||||
Customer and merchant incentives represent amounts to be paid to customers under business agreements. As of June 30, 2022 and December 31, 2021, long-term customer and merchant incentives included in other liabilities were $2,023 million and $1,835 million, respectively.
18 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Debt
Long-term debt consisted of the following:
| June 30, 2022 | December 31, 2021 | Effective Interest Rate | |||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
2022 EUR Notes 1 | % | Senior Notes due February 2029 | $ | $ | % | ||||||||||||||||||||||||
| 2021 USD Notes | % | Senior Notes due November 2031 | % | ||||||||||||||||||||||||||
| % | Senior Notes due March 2031 | % | |||||||||||||||||||||||||||
| % | Senior Notes due March 2051 | % | |||||||||||||||||||||||||||
| 2020 USD Notes | % | Senior Notes due March 2027 | % | ||||||||||||||||||||||||||
| % | Senior Notes due March 2030 | % | |||||||||||||||||||||||||||
| % | Senior Notes due March 2050 | % | |||||||||||||||||||||||||||
| 2019 USD Notes | % | Senior Notes due June 2029 | % | ||||||||||||||||||||||||||
| % | Senior Notes due June 2049 | % | |||||||||||||||||||||||||||
| % | Senior Notes due March 2025 | % | |||||||||||||||||||||||||||
| 2018 USD Notes | % | Senior Notes due February 2028 | % | ||||||||||||||||||||||||||
| % | Senior Notes due February 2048 | % | |||||||||||||||||||||||||||
| 2016 USD Notes | % | Senior Notes due November 2026 | % | ||||||||||||||||||||||||||
| % | Senior Notes due November 2046 | % | |||||||||||||||||||||||||||
2015 EUR Notes 2 | % | Senior Notes due December 2022 | % | ||||||||||||||||||||||||||
| % | Senior Notes due December 2027 | % | |||||||||||||||||||||||||||
| % | Senior Notes due December 2030 | % | |||||||||||||||||||||||||||
| 2014 USD Notes | % | Senior Notes due April 2024 | % | ||||||||||||||||||||||||||
| Less: Unamortized discount and debt issuance costs | ( | ( | |||||||||||||||||||||||||||
Less: Cumulative hedge accounting fair value adjustments 3 | ( | ( | |||||||||||||||||||||||||||
| Total debt outstanding | |||||||||||||||||||||||||||||
Less: Current portion 4 | ( | ( | |||||||||||||||||||||||||||
| Long-term debt | $ | $ | |||||||||||||||||||||||||||
1 €750 million euro-denominated debt issued in February 2022.
2 €1.650 billion euro-denominated debt issued in December 2015.
3 In 2021, the Company entered into an interest rate swap which is accounted for as a fair value hedge. See Note 17 (Derivative and Hedging Instruments) for additional information.
4 2015 EUR Notes due December 2022 are classified as current portion of long-term debt on the consolidated balance sheet as of June 30, 2022 and December 31, 2021.
Senior Notes
In February 2022, the Company issued €750 million ($788 million as of June 30, 2022) principal amount of notes due February 2029 (the “2022 EUR Notes”). The net proceeds from the issuance of the 2022 EUR Notes, after deducting the original issue discount, underwriting discount and offering expenses, were $843 million (as of the date of settlement).
The Senior Notes described above are not subject to any financial covenants and may be redeemed in whole, or in part, at the Company’s option at any time for a specified make-whole amount. These notes are senior unsecured obligations and would rank equally with any future unsecured and unsubordinated indebtedness.
MASTERCARD JUNE 30, 2022 FORM 10-Q 19
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Indian Rupee (“INR”) Term Loan
In July 2022, subsequent to the date of the financial statements, the Company entered into an unsecured INR22.7 billion ($285 million as of the date of settlement) term loan due July 2023 (the “INR Term Loan”). The net proceeds of the INR Term Loan, after deducting issuance costs, were $284 million (as of the date of settlement). The effective interest rate of the INR Term Loan is 9.090 %.
Note 11. Stockholders' Equity
Dividends
The Company declared quarterly cash dividends on its Class A and Class B common stock as summarized below:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| (in millions, except per share data) | ||||||||||||||||||||||||||
| Dividends declared per share | $ | $ | $ | $ | ||||||||||||||||||||||
| Total dividends declared | $ | $ | $ | $ | ||||||||||||||||||||||
Common Stock Activity
The following table presents the changes in the Company’s outstanding Class A and Class B common stock:
| Three Months Ended June 30, | ||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||
| Outstanding Shares | Outstanding Shares | |||||||||||||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Balance at beginning of period | ||||||||||||||||||||||||||
| Purchases of treasury stock | ( | ( | ||||||||||||||||||||||||
| Share-based payments | ||||||||||||||||||||||||||
| Conversion of Class B to Class A common stock | ( | |||||||||||||||||||||||||
| Balance at end of period | ||||||||||||||||||||||||||
| Six Months Ended June 30, | ||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||
| Outstanding Shares | Outstanding Shares | |||||||||||||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Balance at beginning of period | ||||||||||||||||||||||||||
| Purchases of treasury stock | ( | ( | ||||||||||||||||||||||||
| Share-based payments | ||||||||||||||||||||||||||
| Conversion of Class B to Class A common stock | ( | ( | ||||||||||||||||||||||||
| Balance at end of period | ||||||||||||||||||||||||||
20 MASTERCARD JUNE 30, 2020 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In November 2021 and December 2020, the Company’s Board of Directors approved share repurchase programs of its Class A common stock authorizing the Company to repurchase up to $8.0 billion and $6.0 billion, respectively. The following table summarizes the Company’s share repurchases of its Class A common stock:
| Six Months Ended June 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| (In millions, except per share data) | ||||||||||||||
| Dollar-value of shares repurchased | $ | $ | ||||||||||||
| Shares repurchased | ||||||||||||||
| Average price paid per share | $ | $ | ||||||||||||
As of June 30, 2022, the remaining authorization under the share repurchase programs approved by the Company’s Board of Directors was $7.1 billion.
Note 12. Accumulated Other Comprehensive Income (Loss)
The changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, for the six months ended June 30, 2022 and 2021 were as follows:
| December 31, 2021 | Increase / (Decrease) | Reclassifications | June 30, 2022 | |||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
Foreign currency translation adjustments 1 | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||
Translation adjustments on net investment hedges 2 | ||||||||||||||||||||||||||
| Cash flow hedges | ||||||||||||||||||||||||||
Foreign exchange contracts 3 | ( | |||||||||||||||||||||||||
| Interest rate contracts | ( | ( | ||||||||||||||||||||||||
| Defined benefit pension and other postretirement plans | ( | |||||||||||||||||||||||||
| Investment securities available-for-sale | ( | ( | ( | |||||||||||||||||||||||
| Accumulated other comprehensive income (loss) | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| December 31, 2020 | Increase / (Decrease) | Reclassifications | June 30, 2021 | |||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
Foreign currency translation adjustments 1 | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||
Translation adjustments on net investment hedges 2 | ( | ( | ||||||||||||||||||||||||
| Cash flow hedges | ||||||||||||||||||||||||||
Foreign exchange contracts 3 | ( | |||||||||||||||||||||||||
| Interest rate contracts | ( | ( | ||||||||||||||||||||||||
| Defined benefit pension and other postretirement plans | ( | ( | ( | |||||||||||||||||||||||
| Investment securities available-for-sale | ||||||||||||||||||||||||||
| Accumulated other comprehensive income (loss) | $ | ( | $ | $ | $ | ( | ||||||||||||||||||||
1During the six months ended June 30, 2022, the increase in the accumulated other comprehensive loss related to foreign currency translation adjustments was driven primarily by the depreciation of the euro and British pound against the U.S. dollar. During the six months ended June 30, 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.
2During the six months ended June 30, 2022, the increase in the accumulated other comprehensive gain related to the net investment hedges was driven by the depreciation of the euro against the U.S. dollar. During the six months ended June 30, 2021, the decrease in the accumulated other comprehensive loss related to the net investment hedges was driven by the depreciation of the euro against the U.S. dollar. See Note 17 (Derivative and Hedging Instruments) for additional information.
3Certain 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 17 (Derivative and Hedging Instruments) for additional information.
MASTERCARD JUNE 30, 2022 FORM 10-Q 21
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Share-Based Payments
During the six months ended June 30, 2022, the Company granted the following awards under the Mastercard Incorporated 2006 Long Term Incentive Plan, amended and restated as of June 22, 2021 (the “LTIP”). The LTIP is a stockholder-approved plan that permits the grant of various types of equity awards to employees.
| Grants in 2022 | Weighted-Average Grant-Date Fair Value | |||||||||||||
| (in millions) | (per option/unit) | |||||||||||||
| Non-qualified stock options | $ | |||||||||||||
| Restricted stock units | ||||||||||||||
| Performance stock units | ||||||||||||||
The Company used the Black-Scholes option pricing model to determine the grant-date fair value of stock options and calculated the expected life and the expected volatility based on historical Mastercard information. The expected life of stock options granted in 2022 was estimated to be six years , while the expected volatility was determined to be 24.6 %. These awards expire ten years from the date of grant and vest ratably over three years .
The fair value of restricted stock units (“RSUs”) is determined and fixed on the grant date based on the Company’s Class A common stock price, adjusted for the exclusion of dividend equivalents. For RSUs granted between January 1, 2022 and February 28, 2022, the awards generally vest ratably over four years and for RSUs granted on or after March 1, 2022, the awards generally vest ratably over three years .
The Company used the Monte Carlo simulation valuation model to determine the grant-date fair value of performance stock units (“PSUs”) granted. PSUs vest after three years from the date of grant and are subject to a mandatory one-year deferral period, during which vested PSUs are eligible for dividend equivalents.
Compensation expense is recorded net of estimated forfeitures over the shorter of the vesting period or the date the individual becomes eligible to retire under the LTIP. The Company uses the straight-line method of attribution over the requisite service period for expensing equity awards.
Note 14. Income Taxes
The effective income tax rates were 18.7 % and 16.6 % for the three months ended June 30, 2022 and 2021, respectively. The higher effective income tax rate for the three months ended June 30, 2022, versus the comparable period in 2021, was primarily due to a discrete tax benefit in the prior year related to the remeasurement of the Company’s net deferred tax asset in the U.K. due to an enacted tax rate change in 2021.
The effective income tax rates were 11.9 % and 16.6 % for the six months ended June 30, 2022 and 2021, respectively. The lower effective income tax rate for the six months ended June 30, 2022, versus the comparable period in 2021, was primarily due to a discrete tax benefit related to final U.S. tax regulations published in the current year, partially offset by a discrete tax benefit in the prior year related to the remeasurement of the Company’s net deferred tax asset in the U.K. due to an enacted tax rate change in 2021. The U.S tax regulations resulted in a valuation allowance release of $333 million associated with the U.S. foreign tax credit carryforward deferred tax asset. The regulations limit the Company’s ability to generate foreign tax credits starting in 2022 for certain foreign taxes paid, resulting in additional U.S. tax expense.
The Company is subject to tax in the United States, 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 2014. With limited exception, the Company is no longer subject to state and local or foreign examinations by tax authorities for years before 2010.
Note 15. Legal and Regulatory Proceedings
22 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and overall business. However, an adverse judgment or other outcome or settlement with respect to any proceedings discussed below could result in fines or payments by Mastercard and/or could require Mastercard to change its business practices. In addition, an adverse outcome in a regulatory proceeding could lead to the filing of civil damage claims and possibly result in significant damage awards. Any of these events could have a material adverse effect on Mastercard’s results of operations, financial condition and overall business.
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 seeking treble damages.
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
MASTERCARD JUNE 30, 2022 FORM 10-Q 23
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 was heard in 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.
During the second quarter of 2022, Mastercard recorded an additional accrual of $133 million as a result of a change in estimate with respect to the claims of merchants who opted out of the Damages Class litigation. As of June 30, 2022 and December 31, 2021, Mastercard had accrued a liability of $914 million and $783 million, respectively, as a reserve for both the Damages Class litigation and the opt-out merchant cases. As of June 30, 2022 and December 31, 2021, Mastercard had $584 million and $586 million, respectively, 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 June 30, 2022 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 June 30, 2022) 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 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 U.K. trial court denied the plaintiffs’ motion for summary judgment on certain liability issues. The plaintiffs were granted permission to appeal that ruling and oral argument on the appeal was heard in July 2022. In a separate matter filed in Belgium involving multiple merchants from the Czech Republic and Slovakia, the trial court held a hearing in June 2022 on liability issues, and a decision is expected late in the third quarter of 2022.
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 $17 billion as of June 30, 2022). 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 trial court has scheduled a case management conference for September 2022.
Australia. In May 2022, the Australian Competition & Consumer Commission (“ACCC”) filed a complaint targeting certain agreements entered into by Mastercard and certain Australian merchants related to Mastercard’s debit program. The ACCC alleges that by entering into such agreements, Mastercard engaged in conduct with the purpose of substantially lessening competition in the supply of debit card acceptance services. The ACCC seeks both declaratory relief and monetary fines and costs.
24 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ATM Non-Discrimination Rule Surcharge Complaints
In October 2011, a trade association of independent Automated Teller Machine (“ATM”) operators and 13 independent ATM operators filed a complaint styled as a class action lawsuit in the U.S. District Court for the District of Columbia against both Mastercard and Visa (the “ATM Operators Complaint”). Plaintiffs seek to represent a class of non-bank operators of ATM terminals that operate in the United States with the discretion to determine the price of the ATM access fee for the terminals they operate. Plaintiffs allege that Mastercard and Visa have violated Section 1 of the Sherman Act by imposing rules that require ATM operators to charge non-discriminatory ATM surcharges for transactions processed over Mastercard’s and Visa’s respective networks that are not greater than the surcharge for transactions over other networks accepted at the same ATM. Plaintiffs seek both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the alleged violations and their costs of suit, including attorneys’ fees.
Subsequently, multiple related complaints were filed in the U.S. District Court for the District of Columbia alleging both federal antitrust and multiple state unfair competition, consumer protection and common law claims against Mastercard and Visa on behalf of putative classes of users of ATM services (the “ATM Consumer Complaints”). The claims in these actions largely mirror the allegations made in the ATM Operators Complaint, although these complaints seek damages on behalf of consumers of ATM services who pay allegedly inflated ATM fees at both bank and non-bank ATM operators as a result of the defendants’ ATM rules. Plaintiffs seek both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the alleged violations and their costs of suit, including attorneys’ fees.
In January 2012, the plaintiffs in the ATM Operators Complaint and the ATM Consumer Complaints filed amended class action complaints that largely mirror their prior complaints. In February 2013, the district court granted Mastercard’s motion to dismiss the complaints for failure to state a claim. On appeal, the Court of Appeals reversed the district court’s order in August 2015 and sent the case back for further proceedings. In September 2019, the plaintiffs filed their motions for class certification in which the plaintiffs, in aggregate, allege over $1 billion in damages against all of the defendants. In August 2021, the trial court issued an order granting the plaintiffs’ request for class certification. Visa and Mastercard’s request for permission to appeal the certification decision to the appellate court was granted. Oral argument on the appeal is scheduled for September 2022.
U.S. Liability Shift Litigation
In March 2016, a proposed U.S. merchant class action complaint was filed in federal court in California alleging that Mastercard, Visa, American Express and Discover (the “Network Defendants”), EMVCo, and a number of issuing banks (the “Bank Defendants”) engaged in a conspiracy to shift fraud liability for card present transactions from issuing banks to merchants not yet in compliance with the standards for EMV chip cards in the United States (the “EMV Liability Shift”), in violation of the Sherman Act and California law. Plaintiffs allege damages equal to the value of all chargebacks for which class members became liable as a result of the EMV Liability Shift on October 1, 2015. The plaintiffs seek treble damages, attorney’s fees and costs and an injunction against future violations of governing law, and the defendants have filed a motion to dismiss. In September 2016, the district court denied the Network Defendants’ motion to dismiss the complaint, but granted such a motion for EMVCo and the Bank Defendants. In May 2017, the district court transferred the case to New York so that discovery could be coordinated with the U.S. merchant class interchange litigation described above. In August 2020, the district court issued an order granting the plaintiffs’ request for class certification. In January 2021, the Network Defendants’ request for permission to appeal the district court’s certification decision to the appellate court was denied. The plaintiffs have submitted expert reports that allege aggregate damages in excess of $1 billion against the four Network Defendants. The Network Defendants have submitted expert reports rebutting both liability and damages. Briefing on summary judgment is scheduled to commence in October 2022.
Telephone Consumer Protection Class Action
Mastercard is a defendant in a Telephone Consumer Protection Act (“TCPA”) class action pending in Florida. The plaintiffs are individuals and businesses who allege that approximately 381,000 unsolicited faxes were sent to them advertising a Mastercard co-brand card issued by First Arkansas Bank (“FAB”). The TCPA provides for uncapped statutory damages of $500 per fax. Mastercard has asserted various defenses to the claims, and has notified FAB of an indemnity claim that it has (which FAB has disputed). In 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 online via e-mail. 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. 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 stand-alone fax recipients only. Mastercard’s request to appeal that decision was denied.
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
MASTERCARD JUNE 30, 2022 FORM 10-Q 25
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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. Mastercard paid the agreed fine in March 2022.
Note 16. Settlement and Other Risk Management
Mastercard’s rules guarantee the settlement of many of the transactions between its customers (“settlement risk”). Settlement exposure is the settlement risk to customers under Mastercard’s rules due to the difference in timing between the payment transaction date and subsequent settlement. While the term and amount of the guarantee are unlimited, the duration of settlement exposure is short term and typically limited to a few days.
Gross settlement exposure is estimated using the average daily payment volume during the three months prior to period end multiplied by the estimated number of days of exposure. The Company has global risk management policies and procedures, which include risk standards, to provide a framework for managing the Company’s settlement risk and exposure. In the event of failed settlement by a customer, Mastercard may pursue one or more remedies available under the Company’s rules to recover potential losses. Historically, the Company has experienced a low level of losses from customer settlement failures.
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:
| June 30, 2022 | December 31, 2021 | |||||||||||||
| (in millions) | ||||||||||||||
Gross settlement exposure | $ | $ | ||||||||||||
Risk mitigation arrangements applied to settlement exposure | ( | ( | ||||||||||||
Net settlement exposure | $ | $ | ||||||||||||
Note 17. Derivative and Hedging Instruments
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.
Cash Flow Hedges
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
26 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Gains and losses resulting from changes in fair value of these contracts are deferred in accumulated other comprehensive income (loss) and are subsequently reclassified as an adjustment to interest expense over the respective terms of the hedged debt issuances.
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 three and six months ended June 30, 2022 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 excluded from the effectiveness assessment and are recognized in general and administrative expenses on the consolidated statement of operations over the hedge period. The amounts recognized in earnings related to forward points for the three and six months ended June 30, 2022 and 2021 were not material.
In 2015 and 2022, the Company designated its €1,650 million and €750 million euro-denominated debt, respectively, as hedges of a portion of its net investment in its European operations. For the three and six months ended June 30, 2022 and 2021, the Company recorded pre-tax net foreign currency gains (losses) of $148 million and $199 million and $(27 ) million and $60 million, respectively, in other comprehensive income (loss).
As of June 30, 2022 and December 31, 2021, the Company had net foreign currency gains of $345 million and $34 million, respectively, after tax, in accumulated other comprehensive income (loss) associated with this hedging activity.
Non-designated Derivatives
The Company may also enter into foreign exchange derivative contracts to serve as economic hedges, such as to offset possible changes in the value of monetary assets and liabilities due to foreign exchange fluctuations, without designating these derivative contracts as hedging instruments. In addition, the Company is subject to foreign exchange risk as part of its daily settlement activities. This risk is typically limited to a few days between when a payment transaction takes place and the subsequent settlement with customers. To manage this risk, the Company may enter into short duration foreign exchange derivative contracts based upon anticipated receipts and disbursements for the respective currency position. The objective of these activities is to reduce the Company’s exposure to volatility arising from gains and losses resulting from fluctuations of foreign currencies against its functional currencies. Gains and losses resulting from changes in fair value of these contracts are recorded in general and administrative expenses on the consolidated statement of operations, net, along with the foreign currency gains and losses on monetary assets and liabilities.
MASTERCARD JUNE 30, 2022 FORM 10-Q 27
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the fair value of the Company’s derivative financial instruments and the related notional amounts:
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||
| Notional | Derivative assets | Derivative liabilities | Notional | Derivative assets | Derivative liabilities | |||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments | ||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts in a cash flow hedge 1 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
Interest rate contracts in a fair value hedge 2 | ||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts in a net investment hedge 1 | ||||||||||||||||||||||||||||||||||||||
| Derivatives not designated as hedging instruments | ||||||||||||||||||||||||||||||||||||||
Foreign exchange contracts 1 | ||||||||||||||||||||||||||||||||||||||
| Total derivative assets/liabilities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
1Foreign exchange derivative assets and liabilities are included within prepaid expenses and other current assets and other current liabilities, respectively, on the consolidated balance sheet.
2As of June 30, 2022, interest rate derivative liabilities are included within other current liabilities and other liabilities on the consolidated balance sheet. As of December 31, 2021, interest rate derivative assets and liabilities are included within prepaid expenses and other current assets and other liabilities, respectively, on the consolidated balance sheet.
The pre-tax gain (loss) related to the Company's derivative financial instruments designated as hedging instruments are as follows:
| Gain (Loss) Recognized in OCI | Gain (Loss) Reclassified from AOCI | |||||||||||||||||||||||||||||||
| Three Months Ended June 30, | Location of Gain (Loss) Reclassified from AOCI into Earnings | Three Months Ended June 30, | ||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||
| Derivative financial instruments in a cash flow hedge relationship: | ||||||||||||||||||||||||||||||||
| Foreign exchange contracts | $ | $ | ( | Net revenue | $ | $ | ( | |||||||||||||||||||||||||
| Interest rate contracts | $ | $ | Interest expense | $ | ( | $ | ( | |||||||||||||||||||||||||
| Derivative financial instruments in a net investment hedge relationship: | ||||||||||||||||||||||||||||||||
| Foreign exchange contracts | $ | $ | ( | |||||||||||||||||||||||||||||
| Gain (Loss) Recognized in OCI | Gain (Loss) Reclassified from AOCI | |||||||||||||||||||||||||||||||
| Six Months Ended June 30, | Location of Gain (Loss) Reclassified from AOCI into Earnings | Six Months Ended June 30, | ||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||
| Derivative financial instruments in a cash flow hedge relationship: | ||||||||||||||||||||||||||||||||
| Foreign exchange contracts | $ | $ | ( | Net revenue | $ | $ | ( | |||||||||||||||||||||||||
| Interest rate contracts | $ | $ | Interest expense | $ | ( | $ | ( | |||||||||||||||||||||||||
| Derivative financial instruments in a net investment hedge relationship: | ||||||||||||||||||||||||||||||||
| Foreign exchange contracts | $ | $ | ||||||||||||||||||||||||||||||
The Company estimates that $2 million, pre-tax, of the net deferred loss on cash flow hedges recorded in accumulated other comprehensive income (loss) at June 30, 2022 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.
28 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - 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:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Foreign exchange derivative contracts | ||||||||||||||||||||||||||
| General and administrative | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
MASTERCARD JUNE 30, 2022 FORM 10-Q 29
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. Management’s discussion and analysis of financial condition and results of operations
The following supplements management's discussion and analysis of Mastercard Incorporated for the year ended December 31, 2021 as contained in the Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on February 11, 2022. It also should be read in conjunction with the consolidated financial statements and notes of Mastercard Incorporated and its consolidated subsidiaries, including Mastercard International Incorporated (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.
Key Developments
Beginning in February 2022, in response to the Russian invasion of Ukraine, the United States and other governments imposed sanctions and other restrictive measures on certain Russian-related entities and individuals and, in March 2022, we suspended our business operations in Russia1. We have taken steps necessary to ensure compliance with all applicable regulatory restrictions with sanctioned entities and individuals and have suspended our business operations with non-sanctioned customers in Russia. Throughout this process, our priority has been the safety and well-being of our employees and their families.
These actions have impacted our 2022 performance to date and are expected to continue to impact our full year 2022 performance. As a point of reference, for the year ended December 31, 2021, approximately 4% of our net revenues were derived from business conducted within, into and out of Russia. Additional financial implications directly related to these actions include, but are not limited to, incremental employee-related costs, reserves on uncollectible balances with certain customers and impacts to rebates and incentives as a result of revised estimates of customer performance through the date of the suspension of our business operations.
We continue to monitor the effects of the Russian invasion of Ukraine and the related impacts to regional and global economies. The full extent to which this matter affects our business, results of operations and financial condition will depend on future developments, including the duration of the invasion and the impacts on regional and global economies, which are uncertain, and cannot be predicted at this time.
1 As a result of the suspension of our business operations, which included the suspension of our network services, cards issued by Russian banks are no longer supported by the Mastercard network regardless of where the cards are used, inside or outside of Russia. In addition, any Mastercard issued outside of Russia will not work at merchants or ATMs located in Russia.
Financial Results Overview
The following table provides a summary of our key GAAP operating results, as reported:
| Three Months Ended June 30, | Increase/(Decrease) | Six Months Ended June 30, | Increase/(Decrease) | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||
| ($ in millions, except per share data) | ||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 5,497 | $ | 4,528 | 21% | $ | 10,664 | $ | 8,683 | 23% | ||||||||||||||||||||||||||||
| Operating expenses | $ | 2,479 | $ | 2,187 | 13% | $ | 4,696 | $ | 4,145 | 13% | ||||||||||||||||||||||||||||
| Operating income | $ | 3,018 | $ | 2,341 | 29% | $ | 5,968 | $ | 4,538 | 32% | ||||||||||||||||||||||||||||
| Operating margin | 54.9 | % | 51.7 | % | 3.2 ppt | 56.0 | % | 52.3 | % | 3.7 ppt | ||||||||||||||||||||||||||||
| Income tax expense | $ | 523 | $ | 412 | 27% | $ | 665 | $ | 774 | (14)% | ||||||||||||||||||||||||||||
| Effective income tax rate | 18.7 | % | 16.6 | % | 2.1 ppt | 11.9 | % | 16.6 | % | (4.6) ppt | ||||||||||||||||||||||||||||
| Net income | $ | 2,275 | $ | 2,066 | 10% | $ | 4,906 | $ | 3,894 | 26% | ||||||||||||||||||||||||||||
| Diluted earnings per share | $ | 2.34 | $ | 2.08 | 13% | $ | 5.02 | $ | 3.91 | 28% | ||||||||||||||||||||||||||||
| Diluted weighted-average shares outstanding | 974 | 994 | (2)% | 977 | 996 | (2)% | ||||||||||||||||||||||||||||||||
30 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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:
| Three Months Ended June 30, | Increase/(Decrease) | Six Months Ended June 30, | Increase/(Decrease) | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | As adjusted | Currency-neutral | 2022 | 2021 | As adjusted | Currency-neutral | ||||||||||||||||||||||||||||||||||||||||
| ($ in millions, except per share data) | |||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted net revenue | $ | 5,491 | $ | 4,528 | 21% | 27% | $ | 10,627 | $ | 8,683 | 22% | 27% | |||||||||||||||||||||||||||||||||||
| Adjusted operating expenses | $ | 2,313 | $ | 2,121 | 9% | 12% | $ | 4,496 | $ | 4,079 | 10% | 13% | |||||||||||||||||||||||||||||||||||
| Adjusted operating margin | 57.9 | % | 53.2 | % | 4.7 ppt | 5.4 ppt | 57.7 | % | 53.0 | % | 4.7 ppt | 5.3 ppt | |||||||||||||||||||||||||||||||||||
| Adjusted effective income tax rate | 18.8 | % | 15.9 | % | 2.9 ppt | 3.1 ppt | 12.3 | % | 16.4 | % | (4.1) ppt | (4.0) ppt | |||||||||||||||||||||||||||||||||||
| Adjusted net income | $ | 2,497 | $ | 1,937 | 29% | 37% | $ | 5,199 | $ | 3,678 | 41% | 49% | |||||||||||||||||||||||||||||||||||
| Adjusted diluted earnings per share | $ | 2.56 | $ | 1.95 | 31% | 40% | $ | 5.32 | $ | 3.69 | 44% | 52% | |||||||||||||||||||||||||||||||||||
Note: Table may not sum due to rounding.
1 See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
Key highlights for the three and six months ended June 30, 2022, during which we suspended our business operations in Russia, versus the comparable periods in 2021:
| Net revenue | Adjusted net revenue | Adjusted net revenue increased 27% on a currency-neutral basis, which includes 1 percentage point of growth from acquisitions. Primary drivers of the increase were as follows: | |||||||||
| Three Months Ended June 30, 2022 | |||||||||||
| GAAP | Non-GAAP (currency-neutral) | ||||||||||
| up 21% | up 27% | ||||||||||
| - Gross dollar volume growth of 14% on a local currency basis | |||||||||||
| - Cross-border volume growth of 58% on a local currency basis | |||||||||||
| - Switched transactions growth of 12% | |||||||||||
| - Other revenues increased 18% or 23% on a currency-neutral basis, which | |||||||||||
| includes 3 percentage points of growth due to acquisitions. The remaining growth | |||||||||||
| was driven primarily by our Cyber & Intelligence and Data & Services solutions. | |||||||||||
| These increases were partially offset by: | |||||||||||
| - Rebates and incentives (contra-revenue) increased 19%, or 23% on a currency- | |||||||||||
| neutral basis, primarily due to increased volumes and transactions and new | |||||||||||
| and renewed deals. | |||||||||||
| Six Months Ended June 30, 2022 | Adjusted net revenue increased 27% on a currency-neutral basis, which includes 2 percentage points of growth from acquisitions. Primary drivers of the increase were as follows: | ||||||||||
| GAAP | Non-GAAP (currency-neutral) | ||||||||||
| up 23% | up 27% | ||||||||||
| - Gross dollar volume growth of 15% on a local currency basis | |||||||||||
| - Cross-border volume growth of 56% on a local currency basis | |||||||||||
| - Switched transactions growth of 16% | |||||||||||
| - Other revenues increased 18%, or 22% on a currency-neutral basis, which | |||||||||||
| includes 5 percentage points of growth due to acquisitions. The remaining growth | |||||||||||
| was driven primarily by our Cyber & Intelligence and Data & Services solutions. | |||||||||||
| These increases were partially offset by: | |||||||||||
| - Rebates and incentives (contra-revenue) increased 22%, or 25% on a currency- | |||||||||||
| neutral basis, primarily due to increased volumes and transactions and new and | |||||||||||
| renewed deals, which includes a 1 percentage point reduction from Special Items. | |||||||||||
MASTERCARD JUNE 30, 2022 FORM 10-Q 31
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| Operating expenses | Adjusted operating expenses | ||||||||||
| Three Months Ended June 30, 2022 | Adjusted operating expenses increased 12% on a currency-neutral basis, which includes 5 percentage points of growth due to acquisitions. The remaining increase was primarily due to higher personnel costs and unfavorable foreign exchange activity. | ||||||||||
| GAAP | Non-GAAP (currency-neutral) | ||||||||||
| up 13% | up 12% | ||||||||||
| Six Months Ended June 30, 2022 | Adjusted operating expenses increased 13% on a currency-neutral basis, which includes 5 percentage points of growth due to acquisitions. The remaining increase was primarily due to higher personnel costs, increased spending on advertising and marketing and unfavorable foreign exchange activity. | ||||||||||
| GAAP | Non-GAAP (currency-neutral) | ||||||||||
| up 13% | up 13% | ||||||||||
Effective income tax rate | Adjusted effective income tax rate | ||||||||||
| Three Months Ended June 30, 2022 | The adjusted effective income tax rate of 18.8% was higher than prior year due to a discrete tax benefit in 2021 related to the remeasurement of the Company's net deferred tax asset in the U.K. due to an enacted tax rate change in 2021. | ||||||||||
| GAAP | Non-GAAP (currency-neutral) | ||||||||||
| 18.7% | 18.8% | ||||||||||
| Six Months Ended June 30, 2022 | The adjusted effective income tax rate of 12.3% was lower than prior year due to a discrete tax benefit related to final U.S. tax regulations published in the current year, partially offset by a discrete tax benefit in the prior year related to the remeasurement of the Company's net deferred tax asset in the U.K. due to an enacted tax rate change in 2021. The U.S. tax regulations resulted in a valuation allowance release of $333 million associated with the U.S. foreign tax credit carryforward deferred tax asset. | ||||||||||
| GAAP | Non-GAAP (currency-neutral) | ||||||||||
| 11.9% | 12.3% | ||||||||||
Other financial highlights for the six months ended June 30, 2022 were as follows:
•We generated net cash flows from operations of $4.2 billion.
•We repurchased 13.7 million shares of our common stock for $4.8 billion and paid dividends of $1.0 billion.
•We completed a euro-denominated debt offering for an aggregate principal amount of $0.8 billion.
Non-GAAP Financial Information
Non-GAAP financial information is defined as a numerical measure of a company’s performance that excludes or includes amounts so as to be different than the most comparable measure calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Our non-GAAP financial measures exclude the impact of gains and losses on our equity investments which includes mark-to-market fair value adjustments, impairments and gains and losses upon disposition and the related tax impacts. Our non-GAAP financial measures also exclude the impact of special items, where applicable, which represent litigation judgments and settlements and certain one-time items, as well as the related tax impacts (“Special Items”). Our non-GAAP financial measures for the comparable periods exclude the impact of the following:
Gains and Losses on Equity Investments
•In the three and six months ended June 30, 2022, we recorded net losses of $117 million ($113 million after tax, or $0.12 per diluted share) and $193 million ($181 million after tax, or $0.18 per diluted share), respectively, primarily related to unrealized fair market value adjustments on marketable and non-marketable equity securities.
•In the three and six months ended June 30, 2021, we recorded net gains of $243 million ($182 million after tax, or $0.18 per diluted share) and $337 million ($269 million after tax, or $0.27 per diluted share), respectively, primarily related to unrealized fair market value adjustments on marketable and non-marketable equity securities.
Special Items
Litigation provisions
•In the second quarter of 2022, we recorded charges of $133 million ($89 million after tax, or $0.09 per diluted share) as a result of a change in estimate related to the claims of merchants who opted out of the U.S. merchant class litigation.
32 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
•In the second quarter of 2021, we recorded charges of $67 million ($52 million after tax, or $0.05 per diluted share) related to litigation settlements and estimated attorneys’ fees with U.K. merchants.
Russia-related impacts
•In the three and six months ended June 30, 2022, we recorded net charges of $26 million ($20 million after tax, or $0.02 per diluted share) and $30 million ($24 million after tax, or $0.02 per diluted share), respectively, directly related to imposed sanctions and the suspension of our business operations. The net charges are comprised of general and administrative expenses of $33 million and $67 million, respectively, primarily related to incremental employee-related costs and reserves on uncollectible balances with certain sanctioned customers. These charges are offset by net benefits of $6 million and $37 million, respectively, in rebates and incentives (contra-revenue) primarily related to a reduction in liabilities as a result of lower estimates of customer performance for certain customer business agreements due to the suspension of our business operations in Russia.
See Note 6 (Investments) and Note 15 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part I, Item 1 and “Key Developments” above for further discussion related to certain of our non-GAAP financial measures. We excluded these items because management evaluates the underlying operations and performance of the Company separately from these recurring and nonrecurring items.
We believe that the non-GAAP financial measures presented facilitate an understanding of our operating performance and provide a meaningful comparison of our results between periods. We use non-GAAP financial measures to, among other things, evaluate our ongoing operations in relation to historical results, for internal planning and forecasting purposes and in the calculation of performance-based compensation.
Currency-neutral Growth Rates
We present growth rates adjusted for the impact of currency which is a non-GAAP financial measure. Currency-neutral growth rates are calculated by remeasuring the prior period’s results using the current period’s exchange rates for both the translational and transactional impacts on operating results. The impact of currency translation represents the effect of translating operating results where the functional currency is different than our U.S. dollar reporting currency. The impact of the transactional currency represents the effect of converting revenue and expenses occurring in a currency other than the functional currency of the entity. The impact of the related realized gains and losses resulting from our foreign exchange derivative contracts designated as cash flow hedging instruments is recognized in the respective financial statement line item on the statement of operations when the underlying forecasted transactions impact earnings. We believe the presentation of currency-neutral growth rates provides relevant information to facilitate an understanding of our operating results.
The translational and transactional impact of currency and the related impact of our foreign exchange derivative contracts designated as cash flow hedging instruments (“Currency impact”) has been excluded from our currency-neutral growth rates and has been identified in our “Drivers of Change” 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” 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 JUNE 30, 2022 FORM 10-Q 33
PART I
ITEM 2. 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 adjusted non-GAAP financial measures:
| Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | Operating expenses | Operating margin | Other income (expense) | Effective income tax rate | Net income | Diluted earnings per share | ||||||||||||||||||||||||||||||||||||||
| ($ in millions, except per share data) | ||||||||||||||||||||||||||||||||||||||||||||
| Reported - GAAP | $ | 5,497 | $ | 2,479 | 54.9 | % | $ | (220) | 18.7 | % | $ | 2,275 | $ | 2.34 | ||||||||||||||||||||||||||||||
| (Gains) losses on equity investments | ** | ** | ** | 117 | (0.6) | % | 113 | 0.12 | ||||||||||||||||||||||||||||||||||||
| Litigation provisions | ** | (133) | 2.4 | % | ** | 0.7 | % | 89 | 0.09 | |||||||||||||||||||||||||||||||||||
| Russia-related impacts | (6) | (33) | 0.5 | % | ** | — | % | 20 | 0.02 | |||||||||||||||||||||||||||||||||||
| Adjusted - Non-GAAP | $ | 5,491 | $ | 2,313 | 57.9 | % | $ | (104) | 18.8 | % | $ | 2,497 | $ | 2.56 | ||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | Operating expenses | Operating margin | Other income (expense) | Effective income tax rate | Net income | Diluted earnings per share | ||||||||||||||||||||||||||||||||||||||
| ($ in millions, except per share data) | ||||||||||||||||||||||||||||||||||||||||||||
| Reported - GAAP | $ | 10,664 | $ | 4,696 | 56.0 | % | $ | (397) | 11.9 | % | $ | 4,906 | $ | 5.02 | ||||||||||||||||||||||||||||||
| (Gains) losses on equity investments | ** | ** | ** | 193 | (0.2) | % | 181 | 0.18 | ||||||||||||||||||||||||||||||||||||
| Litigation provisions | ** | (133) | 1.2 | % | ** | 0.5 | % | 89 | 0.09 | |||||||||||||||||||||||||||||||||||
| Russia-related impacts | (37) | (67) | 0.5 | % | ** | 0.1 | % | 24 | 0.02 | |||||||||||||||||||||||||||||||||||
| Adjusted - Non-GAAP | $ | 10,627 | $ | 4,496 | 57.7 | % | $ | (205) | 12.3 | % | $ | 5,199 | $ | 5.32 | ||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | Operating expenses | Operating margin | Other income (expense) | Effective income tax rate | Net income | Diluted earnings per share | ||||||||||||||||||||||||||||||||||||||
| ($ in millions, except per share data) | ||||||||||||||||||||||||||||||||||||||||||||
| Reported - GAAP | $ | 4,528 | $ | 2,187 | 51.7 | % | $ | 137 | 16.6 | % | $ | 2,066 | $ | 2.08 | ||||||||||||||||||||||||||||||
| (Gains) losses on equity investments | ** | ** | ** | (243) | (0.9) | % | (182) | (0.18) | ||||||||||||||||||||||||||||||||||||
| Litigation provisions | ** | $ | (67) | 1.5 | % | ** | 0.2 | % | 52 | 0.05 | ||||||||||||||||||||||||||||||||||
| Adjusted - Non-GAAP | $ | 4,528 | $ | 2,121 | 53.2 | % | $ | (106) | 15.9 | % | $ | 1,937 | $ | 1.95 | ||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | Operating expenses | Operating margin | Other income (expense) | Effective income tax rate | Net income | Diluted earnings per share | ||||||||||||||||||||||||||||||||||||||
| ($ in millions, except per share data) | ||||||||||||||||||||||||||||||||||||||||||||
| Reported - GAAP | $ | 8,683 | $ | 4,145 | 52.3 | % | $ | 130 | 16.6 | % | $ | 3,894 | $ | 3.91 | ||||||||||||||||||||||||||||||
| (Gains) losses on equity investments | ** | ** | ** | (337) | (0.3) | % | (269) | (0.27) | ||||||||||||||||||||||||||||||||||||
| Litigation provisions | ** | (67) | 0.8 | % | ** | 0.1 | % | 52 | 0.05 | |||||||||||||||||||||||||||||||||||
| Adjusted - Non-GAAP | $ | 8,683 | $ | 4,079 | 53.0 | % | $ | (207) | 16.4 | % | $ | 3,678 | $ | 3.69 | ||||||||||||||||||||||||||||||
Note: Tables may not sum due to rounding.
** Not applicable
34 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table represents the reconciliation of our growth rates reported under GAAP to our non-GAAP growth rates:
| Three Months Ended June 30, 2022 as compared to the Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||
| Increase/(Decrease) | ||||||||||||||||||||||||||||||||||||||
| Net revenue | Operating expenses | Operating margin | Effective income tax rate | Net income | Diluted earnings per share | |||||||||||||||||||||||||||||||||
| Reported - GAAP | 21% | 13% | 3.2 ppt | 2.1 ppt | 10% | 13% | ||||||||||||||||||||||||||||||||
| (Gains) losses on equity investments | ** | ** | ** | 0.3 ppt | 17% | 17% | ||||||||||||||||||||||||||||||||
| Litigation provisions | ** | (3)% | 1.0 ppt | 0.5 ppt | 1% | 1% | ||||||||||||||||||||||||||||||||
| Russia-related impacts | —% | (2)% | 0.5 ppt | — ppt | 1% | 1% | ||||||||||||||||||||||||||||||||
| Adjusted - Non-GAAP | 21% | 9% | 4.7 ppt | 2.9 ppt | 29% | 31% | ||||||||||||||||||||||||||||||||
Currency impact 1 | 6% | 3% | 0.8 ppt | 0.1 ppt | 8% | 9% | ||||||||||||||||||||||||||||||||
| Adjusted - Non-GAAP - currency-neutral | 27% | 12% | 5.4 ppt | 3.1 ppt | 37% | 40% | ||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2022 as compared to the Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||
| Increase/(Decrease) | ||||||||||||||||||||||||||||||||||||||
| Net revenue | Operating expenses | Operating margin | Effective income tax rate | Net income | Diluted earnings per share | |||||||||||||||||||||||||||||||||
| Reported - GAAP | 23% | 13% | 3.7 ppt | (4.6) ppt | 26% | 28% | ||||||||||||||||||||||||||||||||
| (Gains) losses on equity investments | ** | ** | ** | 0.1 ppt | 14% | 15% | ||||||||||||||||||||||||||||||||
| Litigation provisions | ** | (1)% | 0.5 ppt | 0.4 ppt | —% | 1% | ||||||||||||||||||||||||||||||||
| Russia-related impacts | —% | (2)% | 0.5 ppt | 0.1 ppt | 1% | —% | ||||||||||||||||||||||||||||||||
| Adjusted - Non-GAAP | 22% | 10% | 4.7 ppt | (4.1) ppt | 41% | 44% | ||||||||||||||||||||||||||||||||
Currency impact 1 | 5% | 2% | 0.7 ppt | 0.1 ppt | 7% | 8% | ||||||||||||||||||||||||||||||||
| Adjusted - Non-GAAP - currency-neutral | 27% | 13% | 5.3 ppt | (4.0) ppt | 49% | 52% | ||||||||||||||||||||||||||||||||
Note: Table may not sum due to rounding.
** Not applicable
1 See “Non-GAAP Financial Information” for further information on Currency impact.
Key Metrics
In addition to the financial measures described above in “Financial Results Overview”, we review the following metrics to evaluate and identify trends in our business, measure our performance, prepare financial projections and make strategic decisions. We believe that the key metrics presented facilitate an understanding of our operating and financial performance and provide a meaningful comparison of our results between periods.
Gross Dollar Volume (“GDV”) 1 measures dollar volume of activity on cards carrying our brands during the period, on a local currency basis and U.S. dollar-converted basis. GDV represents purchase volume plus cash volume and includes the impact of balance transfers and convenience checks; “purchase volume” means the aggregate dollar amount of purchases made with Mastercard-branded cards for the relevant period; and “cash volume” means the aggregate dollar amount of cash disbursements and includes the impact of balance transfers and convenience checks obtained with Mastercard-branded cards for the relevant period. Information denominated in U.S. dollars relating to GDV is calculated by applying an established U.S. dollar/local currency exchange rate for each local currency in which our volumes are reported. These exchange rates are calculated on a quarterly basis using the average exchange rate for each quarter. We report period-over-period rates of change in purchase volume and cash volume on the basis of local currency information, in order to eliminate the impact of changes in the value of currencies against the U.S. dollar in calculating such rates of change.
Cross-border Volume 2 measures cross-border dollar volume initiated and switched through our network during the period, on a local currency basis and U.S. dollar-converted basis, for all Mastercard-branded programs.
Switched Transactions 2 measures the number of transactions switched by Mastercard, which is defined as the number of transactions initiated and switched through our network during the period.
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.
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
MASTERCARD JUNE 30, 2022 FORM 10-Q 35
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
customers. Starting in the first quarter of 2022, data related to sanctioned Russian banks was not reported to us and therefore such amounts are not included. Subsequent to the suspension of our business operations in Russia in March 2022, there is no Russian data to be reported.
2 Growth rates are normalized to eliminate the effects of differing switching and carryover days between periods. 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
Currency Impact
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.
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. For the three and six months ended June 30, 2022, GDV on a U.S. dollar-converted basis increased 8% and 10%, respectively, while GDV on a local currency basis increased 14% and 15%, respectively, versus the comparable periods in 2021. Further, the impact from transactional currency occurs in transaction processing revenue, other revenue and operating expenses when the transacting currency of these items is different than the functional currency of the entity.
To manage the impact of foreign currency variability on anticipated revenues and expenses, we may enter into foreign exchange derivative contracts and designate such derivatives as hedging instruments in a cash flow hedging relationship as discussed further in Note 17 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part I, Item 1.
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 currency monetary assets and liabilities. The gains or losses resulting from the changes in fair value of these contracts are intended to reduce the potential effect of the underlying hedged exposure and are recorded net within general and administrative expenses on the consolidated statement of operations. The impact of this foreign exchange activity, 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 17 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part I, Item 1.
Risk of Currency Devaluation
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.
36 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Results
Revenue
For the three months ended June 30, 2022, net revenue increased 21% versus the comparable period in 2021. Excluding the impact of Special Items, adjusted net revenue increased 21%, or 27% on a currency-neutral basis, and includes 1 percentage point of growth from acquisitions. The remaining increase was primarily driven by domestic and cross-border transaction and volume growth and an increase in our Cyber & Intelligence and Data & Services solutions within other revenue. These increases were partially offset by an increase in rebates and incentives (contra-revenue) of 19%, or 23% on a currency-neutral basis, primarily due to increased volumes and transactions and new and renewed deals.
For the six months ended June 30, 2022, net revenue increased 23% versus the comparable period in 2021. Excluding the impact of Special Items, adjusted net revenue increased 22%, or 27% on a currency-neutral basis, and includes 2 percentage points of growth from acquisitions. The remaining increase was primarily driven by domestic and cross-border transaction and volume growth and an increase in our Cyber & Intelligence and Data & Services solutions within other revenue. These increases were partially offset by an increase in rebates and incentives (contra-revenue) of 22%, or 25% on a currency-neutral basis, primarily due to increased volumes and transactions and new and renewed deals, which includes a 1 percentage point reduction from Special Items.
See Note 3 (Revenue) to the consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021 for a further discussion of how we recognize revenue.
The components of net revenue were as follows:
| Three Months Ended June 30, | Increase/ (Decrease) | Six Months Ended June 30, | Increase/ (Decrease) | ||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||||||||||||||||||||
| Domestic assessments | $ | 2,283 | $ | 2,056 | 11% | $ | 4,417 | $ | 3,854 | 15% | |||||||||||||||||||||||||||||||
| Cross-border volume fees | 1,615 | 1,076 | 50% | 3,010 | 2,008 | 50% | |||||||||||||||||||||||||||||||||||
| Transaction processing | 3,061 | 2,612 | 17% | 5,973 | 4,963 | 20% | |||||||||||||||||||||||||||||||||||
| Other revenues | 1,745 | 1,475 | 18% | 3,329 | 2,822 | 18% | |||||||||||||||||||||||||||||||||||
| Gross revenue | 8,704 | 7,219 | 21% | 16,729 | 13,647 | 23% | |||||||||||||||||||||||||||||||||||
| Rebates and incentives (contra-revenue) | (3,207) | (2,691) | 19% | (6,065) | (4,964) | 22% | |||||||||||||||||||||||||||||||||||
| Net revenue | 5,497 | 4,528 | 21% | 10,664 | 8,683 | 23% | |||||||||||||||||||||||||||||||||||
Special Items 1 | (6) | — | ** | (37) | — | ** | |||||||||||||||||||||||||||||||||||
Adjusted net revenue (excluding Special Items 1) | $ | 5,491 | $ | 4,528 | 21% | $ | 10,627 | $ | 8,683 | 22% | |||||||||||||||||||||||||||||||
Note: Table may not sum due to rounding
** Not meaningful.
1 See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
MASTERCARD JUNE 30, 2022 FORM 10-Q 37
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Drivers of Change
The following tables summarize the drivers of change in net revenue:
| Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operational | Special Items 3 | Acquisitions | Currency Impact 4 | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic assessments | 13 | % | 1 | — | % | — | % | (2) | % | 11 | % | ||||||||||||||||||||||||||||||||||||||||||
| Cross-border volume fees | 61 | % | 1 | — | % | — | % | (11) | % | 50 | % | ||||||||||||||||||||||||||||||||||||||||||
| Transaction processing | 22 | % | 1, 2 | — | % | — | % | (5) | % | 17 | % | ||||||||||||||||||||||||||||||||||||||||||
| Other revenues | 20 | % | 2 | — | % | 3 | % | (5) | % | 18 | % | ||||||||||||||||||||||||||||||||||||||||||
| Rebates and incentives (contra-revenue) | 23 | % | — | % | — | % | (3) | % | 19 | % | |||||||||||||||||||||||||||||||||||||||||||
| Net revenue | 26 | % | — | % | 1 | % | (6) | % | 21 | % | |||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operational | Special Items 3 | Acquisitions | Currency Impact 4 | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic assessments | 17 | % | 1 | — | % | — | % | (2) | % | 15 | % | ||||||||||||||||||||||||||||||||||||||||||
| Cross-border volume fees | 59 | % | 1 | — | % | — | % | (9) | % | 50 | % | ||||||||||||||||||||||||||||||||||||||||||
| Transaction processing | 24 | % | 1, 2 | — | % | — | % | (4) | % | 20 | % | ||||||||||||||||||||||||||||||||||||||||||
| Other revenues | 17 | % | 2 | — | % | 5 | % | (4) | % | 18 | % | ||||||||||||||||||||||||||||||||||||||||||
| Rebates and incentives (contra-revenue) | 26 | % | (1) | % | — | % | (3) | % | 22 | % | |||||||||||||||||||||||||||||||||||||||||||
| Net revenue | 25 | % | — | % | 2 | % | (5) | % | 23 | % | |||||||||||||||||||||||||||||||||||||||||||
Note: Tables may not sum due to rounding.
1 Includes impacts from our key metrics, other non-volume based fees, pricing and mix.
2 Includes impacts from our cyber and intelligence solutions fees, data analytics and consulting fees and other value-added services.
3 See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
4 Includes the translational and transactional impact of currency and the related impact of our foreign exchange derivative contracts designated as cash flow hedging instruments.
38 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following tables provide a summary of the trend in volumes and transactions.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Increase/(Decrease) | Increase/(Decrease) | |||||||||||||||||||||||||||||||||||||||||||||||||
| USD | Local | USD | Local | USD | Local | USD | Local | |||||||||||||||||||||||||||||||||||||||||||
Mastercard-branded GDV 1 | 8% | 14% | 39% | 33% | 10% | 15% | 23% | 20% | ||||||||||||||||||||||||||||||||||||||||||
| United States | 10% | 10% | 34% | 34% | 12% | 12% | 24% | 24% | ||||||||||||||||||||||||||||||||||||||||||
| Worldwide less United States | 7% | 16% | 41% | 33% | 9% | 17% | 23% | 18% | ||||||||||||||||||||||||||||||||||||||||||
Cross-border volume 1 | 46% | 58% | 70% | 58% | 45% | 56% | 18% | 11% | ||||||||||||||||||||||||||||||||||||||||||
Mastercard-branded GDV 1 adjusted for Russia 2 | 12% | 19% | 38% | 32% | 14% | 20% | 23% | 19% | ||||||||||||||||||||||||||||||||||||||||||
Worldwide less United States adjusted for Russia 2 | 14% | 25% | 41% | 32% | 15% | 24% | 23% | 17% | ||||||||||||||||||||||||||||||||||||||||||
Cross-border volume 1 adjusted for Russia 2 | 50% | 64% | 69% | 57% | 48% | 59% | 17% | 11% | ||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Increase/(Decrease) | Increase/(Decrease) | |||||||||||||||||||||||||
| Switched transactions | 12% | 41% | 16% | 24% | ||||||||||||||||||||||
Switched transactions adjusted for Russia 2 | 22% | 39% | 23% | 23% | ||||||||||||||||||||||
1 Excludes volume generated by Maestro and Cirrus cards.
2 Starting in the first quarter of 2022, as a result of imposed sanctions and the suspension of our business operations in Russia, we have provided adjusted growth rates for our key operating metrics excluding activity from Russian issued cards from the current and prior periods.
Operating Expenses
For the three months ended June 30, 2022, operating expenses increased 13% versus the comparable period in 2021. Adjusted operating expenses increased 9%, or 12% on a currency-neutral basis, versus the comparable period in 2021, which includes a 5 percentage point increase from acquisitions. The remaining increase was primarily due to higher personnel costs to support our continued investment in our strategic initiatives and unfavorable foreign exchange activity.
For the six months ended June 30, 2022, operating expenses increased 13% versus the comparable period in 2021. Adjusted operating expenses increased 10%, or 13% on a currency-neutral basis, versus the comparable period in 2021, which includes a 5 percentage point increase from acquisitions. The remaining increase was primarily due to higher personnel costs to support our continued investment in our strategic initiatives, increased spending on advertising and marketing and unfavorable foreign exchange activity.
MASTERCARD JUNE 30, 2022 FORM 10-Q 39
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The components of operating expenses were as follows:
| Three Months Ended June 30, | Increase/ (Decrease) | Six Months Ended June 30, | Increase/ (Decrease) | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||
| ($ in millions) | ||||||||||||||||||||||||||||||||||||||
| General and administrative | $ | 1,947 | $ | 1,718 | 13% | $ | 3,791 | $ | 3,394 | 12% | ||||||||||||||||||||||||||||
| Advertising and marketing | 210 | 216 | (2)% | 391 | 335 | 17% | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 189 | 186 | 2% | 381 | 349 | 9% | ||||||||||||||||||||||||||||||||
| Provision for litigation | 133 | 67 | ** | 133 | 67 | ** | ||||||||||||||||||||||||||||||||
| Total operating expenses | 2,479 | 2,187 | 13% | 4,696 | 4,145 | 13% | ||||||||||||||||||||||||||||||||
Special Items 1 | (166) | (67) | ** | (200) | (67) | ** | ||||||||||||||||||||||||||||||||
Adjusted total operating expenses (excluding Special Items 1) | $ | 2,313 | $ | 2,121 | 9% | $ | 4,496 | $ | 4,079 | 10% | ||||||||||||||||||||||||||||
Note: Table may not sum due to rounding
** Not meaningful.
1 See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
Drivers of Change
The following tables summarize the drivers of changes in operating expenses:
| Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||
| Operational | Special Items 1 | Acquisitions | Currency Impact 2 | Total | ||||||||||||||||||||||||||||
| General and administrative | 9% | 2% | 5% | (3)% | 13% | |||||||||||||||||||||||||||
| Advertising and marketing | 1% | ** | 1% | (4)% | (2)% | |||||||||||||||||||||||||||
| Depreciation and amortization | ** | ** | 6% | (4)% | 2% | |||||||||||||||||||||||||||
| Provision for litigation | ** | ** | ** | ** | ** | |||||||||||||||||||||||||||
| Total operating expenses | 8% | 4% | 5% | (3)% | 13% | |||||||||||||||||||||||||||
| Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||
| Operational | Special Items 1 | Acquisitions | Currency Impact 2 | Total | ||||||||||||||||||||||||||||
| General and administrative | 7% | 2% | 5% | (2)% | 12% | |||||||||||||||||||||||||||
| Advertising and marketing | 20% | ** | 1% | (5)% | 17% | |||||||||||||||||||||||||||
| Depreciation and amortization | 1% | ** | 11% | (3)% | 9% | |||||||||||||||||||||||||||
| Provision for litigation | ** | ** | ** | ** | ** | |||||||||||||||||||||||||||
| Total operating expenses | 8% | 3% | 5% | (2)% | 13% | |||||||||||||||||||||||||||
Note: Tables may not sum due to rounding.
** Not meaningful.
1 See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
2 Represents the translational and transactional impact of currency.
General and Administrative
For the three months ended June 30, 2022, general and administrative expenses increased 13%, or 16% on a currency-neutral basis, versus the comparable period in 2021. Current period results include growth of 5 percentage points from acquisitions and 2 percentage points from Special Items. For the six months ended June 30, 2022, general and administrative expenses increased 12%, or 14% on a currency-neutral basis, versus the comparable period in 2021. Current period results include growth of 5 percentage points from acquisitions and 2 percentage points from Special Items. The remaining increase for both the three and six months ended June 30, 2022 was primarily due to higher personnel costs to support our continued investment in our strategic initiatives and balance sheet remeasurement losses due to unfavorable foreign exchange activity.
40 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The components of general and administrative expenses were as follows:
| Three Months Ended June 30, | Increase/ (Decrease) | Six Months Ended June 30, | Increase/(Decrease) | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||
| ($ in millions) | ||||||||||||||||||||||||||||||||||||||
Personnel 1 | $ | 1,319 | $ | 1,130 | 17% | $ | 2,500 | $ | 2,234 | 12% | ||||||||||||||||||||||||||||
| Professional fees | 109 | 106 | 3% | 195 | 203 | (4)% | ||||||||||||||||||||||||||||||||
| Data processing and telecommunications | 225 | 215 | 5% | 460 | 415 | 11% | ||||||||||||||||||||||||||||||||
Foreign exchange activity 2 | 35 | 8 | ** | 71 | 16 | ** | ||||||||||||||||||||||||||||||||
Other 1 | 259 | 259 | —% | 565 | 526 | 7% | ||||||||||||||||||||||||||||||||
| Total general and administrative expenses | $ | 1,947 | $ | 1,718 | 13% | $ | 3,791 | $ | 3,394 | 12% | ||||||||||||||||||||||||||||
Note: Table may not sum due to rounding.
** Not meaningful.
1 Total general and administrative expenses for the three months ended June 30, 2022 includes a Special Item for Russia-related impacts of $33 million, of which $31 million is included within Personnel and $2 million is included within Other. Total general and administrative expenses for the six months ended June 30, 2022 includes a Special Item for Russia-related impacts of $67 million, of which $35 million is included within Personnel and $32 million is included within Other. See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
2 Foreign exchange activity includes the impact of remeasurement of assets and liabilities denominated in foreign currencies net of the impact of gains and losses on foreign exchange derivative contracts. See Note 17 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part I, Item 1 for further discussion.
Advertising and Marketing
For the three months ended June 30, 2022, advertising and marketing expenses decreased 2%, or increased 2% on a currency-neutral basis, versus the comparable period in 2021. For the six months ended June 30, 2022, advertising and marketing expenses increased 17%, or 21% on a currency-neutral basis, primarily due to an increase in spending on marketing campaigns, advertising and sponsorships.
Depreciation and Amortization
For the three and six months ended June 30, 2022, depreciation and amortization expenses increased 2% and 9%, or 6% and 12% on a currency-neutral basis, versus the comparable period in 2021, which includes growth of 6 and 11 percentage points from acquisitions, respectively, due to the amortization of acquired intangible assets.
Provision for Litigation
For the three and six months ended June 30, 2022, we recorded litigation provisions of $133 million as a result of a change in estimate related to the claims of merchants who opted out of the U.S. merchant class litigation. For the three and six months ended June 30, 2021, we recorded litigation provisions of $67 million related to litigation settlements and estimated attorneys’ fees with U.K. merchants. See “Non-GAAP Financial Information” in this section for further discussion.
MASTERCARD JUNE 30, 2022 FORM 10-Q 41
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Income (Expense)
For the three months ended June 30, 2022, other income (expense) was unfavorable $357 million, versus the comparable period in 2021, primarily due to net losses in the current period versus net gains in the prior period related to unrealized fair market value adjustments on marketable and non-marketable equity securities. Adjusted other income (expense) was favorable $2 million versus the prior year.
For the six months ended June 30, 2022, other income (expense) was unfavorable $527 million, versus the comparable period in 2021, primarily due to net losses in the current period versus net gains in the prior period related to unrealized fair market value adjustments on marketable and non-marketable equity securities. Adjusted other income (expense) was favorable $2 million versus the prior year.
The components of other income (expense) were as follows:
| Three Months Ended June 30, | Increase/ (Decrease) | Six Months Ended June 30, | Increase/ (Decrease) | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||
| ($ in millions) | ||||||||||||||||||||||||||||||||||||||
| Investment income | $ | 7 | $ | 3 | ** | $ | 12 | $ | 4 | ** | ||||||||||||||||||||||||||||
| Gains (losses) on equity investments, net | (117) | 243 | ** | (193) | 337 | ** | ||||||||||||||||||||||||||||||||
| Interest expense | (114) | (106) | 7% | (224) | (213) | 5% | ||||||||||||||||||||||||||||||||
| Other income (expense), net | 4 | (3) | ** | 8 | 2 | ** | ||||||||||||||||||||||||||||||||
| Total other income (expense) | (220) | 137 | ** | (397) | 130 | ** | ||||||||||||||||||||||||||||||||
(Gains) losses on equity investments 1 | 117 | (243) | ** | 193 | (337) | ** | ||||||||||||||||||||||||||||||||
Adjusted total other income (expense) 1 | $ | (104) | $ | (106) | (2)% | $ | (205) | $ | (207) | (1)% | ||||||||||||||||||||||||||||
Note: Table may not sum due to rounding.
** Not meaningful.
1 See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.
Income Taxes
The effective income tax rates were 18.7% and 16.6% for the three months ended June 30, 2022 and 2021, respectively. The adjusted effective income tax rates were 18.8% and 15.9% for the three months ended June 30, 2022 and 2021, respectively. Both the as reported and as adjusted effective income tax rates were higher versus the comparable period in 2021, primarily due to a discrete tax benefit in the prior year related to the remeasurement of the Company’s net deferred tax asset in the U.K. due to an enacted tax rate change in 2021.
The effective income tax rates were 11.9% and 16.6% for the six months ended June 30, 2022 and 2021, respectively. The adjusted effective income tax rates were 12.3% and 16.4% for the six months ended June 30, 2022 and 2021, respectively. Both the as reported and as adjusted effective income tax rates were lower versus the comparable period in 2021, primarily due to a discrete tax benefit related to final U.S. tax regulations published in the current year, partially offset by a discrete tax benefit in the prior year related to the remeasurement of the Company’s net deferred tax asset in the U.K. due to an enacted tax rate change in 2021. The U.S. tax regulations resulted in a valuation allowance release of $333 million associated with the U.S. foreign tax credit carryforward deferred tax asset. The regulations limit our ability to generate foreign tax credits starting in 2022 for certain foreign taxes paid, resulting in additional U.S. tax expense.
Liquidity and Capital Resources
We rely on existing liquidity, cash generated from operations and access to capital to fund our global operations, 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:
| June 30, 2022 | December 31, 2021 | ||||||||||
| (in billions) | |||||||||||
Cash, cash equivalents and investments 1 | $ | 6.4 | $ | 7.9 | |||||||
| Unused line of credit | 6.0 | 6.0 | |||||||||
1 Investments include available-for-sale securities and held-to-maturity securities. This amount excludes restricted cash and restricted cash equivalents of $2.2 billion and $2.5 billion at June 30, 2022 and December 31, 2021, respectively.
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.
42 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 2. 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; 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 16 (Settlement and Other Risk Management) to the consolidated financial statements in Part I, Item 1 for a description of these guarantees.
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 of our Annual Report on Form 10-K for the year ended December 31, 2021, Part II, Item 1A - Risk Factors of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 and Note 15 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part I, Item 1 of this Report.
Cash Flow
The table below shows a summary of the cash flows from operating, investing and financing activities:
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (in millions) | |||||||||||
| Net cash provided by operating activities | $ | 4,239 | $ | 3,731 | |||||||
| Net cash used in investing activities | (812) | (4,702) | |||||||||
| Net cash used in financing activities | (4,975) | (2,801) | |||||||||
Net cash provided by operating activities increased $508 million for the six months ended June 30, 2022, versus the comparable period in 2021, primarily due to higher net income adjusted for non-cash items, partially offset by higher customer incentive payments.
Net cash used in investing activities decreased $3,890 million for the six months ended June 30, 2022, versus the comparable period in 2021, primarily due to lower business acquisition activity in the current year.
Net cash used in financing activities increased $2,174 million for the six months ended June 30, 2022, versus the comparable period in 2021, primarily due to higher repurchases of our Class A common stock and lower proceeds from debt issuances in the current year.
Debt and Credit Availability
In February 2022, we issued €750 million ($788 million as of June 30, 2022) principal amount of notes due February 2029 (the “2022 EUR Notes”). Our total debt outstanding was $14.5 billion and $13.9 billion at June 30, 2022 and December 31, 2021, respectively, with the earliest maturity of €700 million ($735 million as of June 30, 2022) of principal occurring in December 2022.
In July 2022, the Company entered into an unsecured INR22.7 billion ($285 million as of the date of settlement) term loan due July 2023 (the “INR Term Loan”).
As of June 30, 2022, 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 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 June 30, 2022 and December 31, 2021.
See Note 10 (Debt) to the consolidated financial statements included in Part I, Item 1 for further discussion on our debt and Note 15 (Debt) to the consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021 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.
Aggregate payments for quarterly dividends totaled $956 million for the six months ended June 30, 2022.
MASTERCARD JUNE 30, 2022 FORM 10-Q 43
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
On February 8, 2022, our Board of Directors declared a quarterly cash dividend of $0.49 per share paid 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 was $477 million.
On June 20, 2022, our Board of Directors declared a quarterly cash dividend of $0.49 per share payable on August 9, 2022 to holders of record on July 8, 2022 of our Class A common stock and Class B common stock. The aggregate amount of this dividend is estimated to be $474 million.
Repurchased shares of our common stock are considered treasury stock. In November 2021 and December 2020, our Board of Directors approved share repurchase programs of our Class A common stock authorizing us to repurchase up to $8.0 billion and $6.0 billion, respectively. The program approved in 2021 became effective in May 2022 after completion of the share repurchase program authorized 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 authorizations and repurchase activity of our Class A common stock through June 30, 2022:
| (in millions, except average price data) | ||||||||||||||||||||
| Remaining authorization at December 31, 2021 | $ | 11,927 | ||||||||||||||||||
| Dollar value of shares repurchased during the six months ended June 30, 2022 | $ | 4,788 | ||||||||||||||||||
| Remaining authorization at June 30, 2022 | $ | 7,139 | ||||||||||||||||||
| Shares repurchased during the six months ended June 30, 2022 | 13.7 | |||||||||||||||||||
| Average price paid per share during the six months ended June 30, 2022 | $ | 350.10 | ||||||||||||||||||
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, if any, and the potential impact of these pronouncements refer to Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements included in Part I, Item 1.
Item 3. 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 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 17 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part I, Item 1.
Foreign Exchange Risk
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 $73 million and $70 million on our foreign exchange derivative contracts outstanding at June 30, 2022 and December 31, 2021, respectively, before considering the offsetting effect of the underlying hedged activity.
We are also subject to foreign exchange risk as part of our daily settlement activities. To manage this risk, we enter into short duration foreign exchange contracts based upon anticipated receipts and disbursements for the respective currency position. This risk is typically limited to a few days between when a payment transaction takes place and the subsequent settlement with our customers. A hypothetical 10% adverse change in the value of the functional currencies would not have a material impact to the fair value of our short duration foreign exchange derivative contracts outstanding at June 30, 2022 and December 31, 2021, respectively.
We are further exposed to foreign exchange rate risk related to translation of our net investment in foreign subsidiaries where the functional currency is different than our U.S. dollar reporting currency. To manage this risk, we may enter into foreign exchange derivative contracts to hedge a portion of our net investment in foreign subsidiaries. The effect of a hypothetical 10% adverse change in the value of
44 MASTERCARD JUNE 30, 2022 FORM 10-Q
PART I
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
the U.S. dollar could result in a fair value loss of approximately $273 million and $165 million on our foreign exchange derivative contracts designated as a net investment hedge at June 30, 2022 and December 31, 2021, respectively, before considering the offsetting effect of the underlying hedged activity.
Interest Rate Risk
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 June 30, 2022 and December 31, 2021.
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 approximately $41 million and $49 million on our interest rate derivative contracts designated as a fair value hedge of our fixed-rate debt at June 30, 2022 and December 31, 2021, respectively, before considering the offsetting effect of the underlying hedged activity.
Item 4. 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 that is required to be disclosed in the reports 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 the end of the period covered by this Report and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.
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 June 30, 2022 that has materially affected, or is reasonably likely to materially affect, Mastercard's internal control over financial reporting.
MASTERCARD JUNE 30, 2022 FORM 10-Q 45
| PART II | |||||||||||||||||
PART II
ITEM 1. LEGAL PROCEEDINGS
Item 1. Legal proceedings
Refer to Note 15 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part I, Item 1.
Item 1A. Risk factors
For a discussion of our risk factors, see Part I, Item 1A - Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021 and Part II, Item 1A - Risk Factors of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.
Item 2. Unregistered sales of equity securities and use of proceeds
Issuer Purchases of Equity Securities
During the second quarter of 2022, we repurchased 6.9 million shares for $2.4 billion at an average price of $345.17 per share of Class A common stock. The following table presents our repurchase activity on a cash basis during the second quarter of 2022:
| Period | Total Number of Shares Purchased | Average Price Paid per Share (including commission cost) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Dollar Value of Shares that may yet be Purchased under the Plans or Programs 1, 2 | ||||||||||||||||||||||
| April 1 - 30 | 2,105,718 | $ | 357.73 | 2,105,718 | $ | 8,765,950,568 | ||||||||||||||||||||
| May 1 - 31 | 2,481,832 | 341.59 | 2,481,832 | 7,918,182,527 | ||||||||||||||||||||||
| June 1 - 30 | 2,307,755 | 337.55 | 2,307,755 | 7,139,198,823 | ||||||||||||||||||||||
| Total | 6,895,305 | 345.17 | 6,895,305 | |||||||||||||||||||||||
1 Dollar value of shares that may yet be purchased under the repurchase programs is as of the end of the period.
2 In November 2021 and December 2020, our Board of Directors approved share repurchase programs of our Class A common stock authorizing us to repurchase up to $8.0 billion and $6.0 billion, respectively.
Item 5. 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.
Item 6. Exhibits
Refer to the Exhibit Index included herein.
MASTERCARD JUNE 30, 2022 FORM 10-Q 47
PART II
EXHIBIT INDEX
Exhibit index
| Exhibit Number | Exhibit Description | |||||||
| 101.INS | 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. | |||||||
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
+ Management contracts or compensatory plans or arrangements.
* Filed or furnished herewith.
The agreements and other documents filed as exhibits to this Report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and should not be relied upon for that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
48 MASTERCARD JUNE 30, 2022 FORM 10-Q
SIGNATURES
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MASTERCARD INCORPORATED | ||||||||||||||
| (Registrant) | ||||||||||||||
| Date: | July 28, 2022 | By: | /S/ MICHAEL MIEBACH | |||||||||||
| Michael Miebach | ||||||||||||||
| President and Chief Executive Officer | ||||||||||||||
| (Principal Executive Officer) | ||||||||||||||
| Date: | July 28, 2022 | By: | /S/ SACHIN MEHRA | |||||||||||
| Sachin Mehra | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
| (Principal Financial Officer) | ||||||||||||||
| Date: | July 28, 2022 | By: | /S/ SANDRA ARKELL | |||||||||||
| Sandra Arkell | ||||||||||||||
| Corporate Controller | ||||||||||||||
| (Principal Accounting Officer) | ||||||||||||||
MASTERCARD JUNE 30, 2022 FORM 10-Q 49
EXHIBIT 10.1
DEFERRED STOCK UNIT AGREEMENT
[for grants made on or after June 21, 2022]
THIS AGREEMENT, dated as of _______________, 20__ (“Grant Date”) is between Mastercard Incorporated, a Delaware Corporation (the “Company”), and you (the “Director”). Capitalized terms that are used but not defined in this Agreement have the meanings given to them in the 2006 Non-Employee Director Equity Compensation Plan amended and restated as of June 22, 2021 (the “Plan”). The parties hereby agree as follows:
1. Grant of Units.
Subject to the terms and conditions of this Agreement and of the Plan, the Company hereby grants to the Director the number of Deferred Stock Units (“Units”) reflected in the Director’s grant statement, the terms and conditions of which statement are incorporated as a part of this Agreement. The Units comprising this award will be recorded in an unfunded Units account in the Director’s name maintained on the books of the Company (“Account”). Each Unit represents the right to receive one share of the Company’s $0.0001 par value Class A Common Stock (“Common Shares”) under the terms and conditions set forth below.
2. Vesting.
The interest of the Director in the Units is fully vested on grant.
3. Transfer Restrictions.
The Units granted hereunder may not be sold, assigned, margined, transferred, encumbered, conveyed, gifted, hypothecated, pledged, or otherwise disposed of and may not be subject to lien, garnishment, attachment, or other legal process, except as expressly permitted by the Plan.
4. Stockholder Rights.
Prior to the time that the Director’s Units are settled and the Company has issued Common Shares relating to such Units, the Director will not be deemed to be the holder of, or have any of the rights of a holder with respect to, any Common Shares deliverable with respect to such Units.
5. Dividend Equivalents.
Until such time as the Units are released to the Director, the Company will pay the Director a cash amount equal to the number of Units granted hereunder times any per share dividend payment made to stockholders of the Company’s Common Shares as long as the Director continues to hold such Units on the dividend payment date. Such payments shall be made by the end of the year in which dividends are paid to stockholders.
6. Changes in Stock.
In the event of any change with respect to outstanding Common Shares contemplated by Section 4.2 of the Plan, the Units may be adjusted in accordance with Section 4.2 of the Plan.
7. Form and Timing of Payment.
The Company shall pay on the fourth anniversary of the Grant Date, __________, ______ (or on the first business day thereafter), a number of Common Shares equal to the aggregate number of Units granted under this Agreement; provided, however, that if the Director has timely made a valid election to defer or re-defer settlement of the Deferred Stock Units in accordance with the Plan, the Common Shares shall be paid as specified in such election. Notwithstanding the foregoing, in the event the Director has a Termination from Service, payment shall be made within 60 days of the Director’s Termination from Service.
1
In the event a Director is a specified employee for purposes of Code section 409A(a)(2)(B)(i) at the time of his or her Termination from Service, any payment required to be made on Termination from Service shall be made on the first day of the seventh month following Termination from Service.
8. Compliance with Law.
No Common Shares will be delivered to the Director unless counsel for the Company is satisfied that such delivery will be in compliance with all applicable laws, including, without limitation, any rule, regulation or procedure of the U.S. national securities exchange upon which the Common Shares are traded or any listing agreement with any such securities exchange, or any other requirement of law or of any administrative or regulatory body having jurisdiction over the Company. The Company reserves the right to impose other requirements on the Units, any Common Shares acquired or payment made pursuant to the Units, and the Director’s participation in the Plan, to the extent the Company determines, in its sole discretion, that such other requirements are necessary or advisable to comply with applicable laws. Such requirements may include (but are not limited to) requiring the Director to sign any agreements or undertakings that may be necessary to accomplish the foregoing.
9. Taxes.
The Director shall be liable for any and all U.S. and foreign income and social taxes, including any required withholding taxes, arising out of this grant or the issuance of the Common Shares hereunder. To the extent withholding is required under applicable law, the Company is authorized to deduct the amount of tax withholding from the amount payable to the Director upon payment of dividend equivalents and settlement of the Units, or to obtain withholdings in any other method permitted by the Committee, and the Company will determine the amount of any such required withholding using the information in its applicable systems and other business records at the time of such withholding event. With regard to the Units, unless otherwise approved by the Committee, and provided that the withholding obligation does not arise prior to
settlement of the Units, the Company shall withhold from the total number of Common Shares the Director is to receive the value equal to the amount necessary to satisfy any such withholding obligation. In accordance with U.S. federal income tax withholding requirements, the Company shall withhold on amounts payable to Directors who are considered U.S. nonresident aliens under Code Section 7701(b).
10. Data Privacy.
The Company and its affiliates may collect, use, process, transfer or disclose the Director’s personal data for the purpose of implementing, administering and managing the Director’s participation in the Plan, in accordance with the Company’s Employee Privacy Notice which the Director has previously received. (Please contact the Company’s stock administrator to receive another copy of this notice.) Notwithstanding the foregoing, if the Director resides outside the United States, the privacy provisions of the addendum to this Agreement (the “Addendum”) shall apply to the Director in place of this Section 10. The Addendum constitutes part of this Agreement.
11. Section 409A.
The Company may at its sole discretion amend or replace this Agreement to cause the Agreement to comply with Code section 409A. The Agreement shall be construed and administered consistent with Code section 409A or an exemption from Code section 409A. This section does not create an obligation on the part of the Company to modify the terms of the Agreement, and the Company shall have no liability in the event the Agreement results in adverse tax consequences to the Director under Code section 409A.
12. Miscellaneous.
(a) All amounts credited to the Director’s Account under this Agreement shall continue for all purposes to be a part of the general assets of the Company. The Director’s interest in the Account shall make the Director only a general, unsecured creditor of the Company.
(b) The parties agree to execute such further instruments and to take such action as may reasonably be necessary to carry out the intent of this Agreement.
2
(c) Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon delivery to the Director at the address then on file with the Company or upon delivery to the Company at 2000 Purchase Street, Purchase, New York 10577, Attn: Executive Vice President, Total Rewards.
(d) This Agreement and the Plan constitute the entire agreement of the parties with respect to the subject matter hereof.
By /s/ _________________________
Name:
Title:
3
ADDENDUM
If the Director resides outside the United States, in place of Section 10 of the Agreement, the Units shall be subject to the Data Privacy terms set forth below, as applicable based on the Director’s country of residence:
EUROPEAN UNION, EUROPEAN ECONOMIC AREA AND SWITZERLAND
Data Privacy Terms. The following data privacy terms, in addition to the Mastercard Employee Privacy Notice – EEA (please contact the Company’s stock administrator to request a copy of this notice), govern the grant of the Award under the Agreement to Directors who reside in the European Union and European Economic Area (which, for the avoidance of doubt, includes the United Kingdom for purposes of these data privacy terms) and in Switzerland:
Data Collection and Usage. Pursuant to applicable data protection laws, the Director is hereby notified that, in the context of the grant of the Units under the Agreement, the Company collects, processes, uses and transfers certain personal information about the Director for the exclusive legitimate purpose of facilitating the Director’s participation in the Plan, allocating Common Shares, implementing, administering and managing the Director's Units and generally administering the Director's remuneration and any related benefits (“Purposes”). The Company may process specifically the following personal information: the Director’s name, home address and telephone number, email address, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Units or any other cash or equity award granted, canceled, exercised, vested, unvested or outstanding in the Director’s favor (“Data”). The Company’s collection, processing, use and transfer of the Director's Data is necessary for the Company’s legitimate business interests of implementing, administering and managing the Director's Units and generally administering Director remuneration and any related benefits and the fulfilment of Company’s contractual obligations with the Director. The Director’s refusal to provide Data would make it impossible for the Company to perform its contractual obligations and may affect the Director's ability to receive Units. As such, by participating in the Plan, Director acknowledges the collection, use, processing and transfer of his/her Data as described herein.
Service Providers. The Company transfers the Director's Data to Morgan Stanley Smith Barney LLC (including its affiliated companies), based, in relevant part, in the United States, which assists the Company with the implementation, administration and management of the Units. In the future, the Company may select a different service provider and share Data with that service provider, which will serve in a similar manner. The Company’s service provider will open an account for the Director to receive and administer the Units. The processing of the Director's Data will take place through both electronic and non-electronic means. The Director's Data will only be accessible by those individuals requiring access to it for purposes of implementation, administration and operation of the Units and other aspects of the Director's relationship with the Company.
International Data Transfers. The Company and its service providers are based, in relevant part, in the United States, which means that it will be necessary for Data to be transferred to, and processed in, the United States. By accepting the Units, the Director understands that the providers will receive, possess, use, retain and transfer the Director's Data for the purposes of implementing, administering and managing his/her participation in the Plan. Personal Data is transferred by the Company in compliance with our Binding Corporate Rules (available upon request from the Company’s stock administrator) and other data transfer mechanisms. When transferring the Director's Data to its service providers, the Company provides appropriate safeguards through contractual protections for the transfer of personal information to third parties, such as the European Commission's Standard Contractual Clauses or their equivalent under applicable law.
Data Subject Rights. To the extent provided by law, the Director has the right to request: access to Data, rectification of Data, erasure of Data, restriction of processing of Data, and portability of Data. The Director may also have the right to object, on grounds related to a particular situation, to the processing
4
of Data, without cost, and to lodge a complaint with the relevant data protection supervisory authority. The Director's provision of Data is a contractual requirement. The Director understands, however, that the only consequence of refusing to provide Data is that the Company may not be able to grant Units or other awards to the Director, or administer or maintain such awards. The Director can exercise these rights or request more information on the consequences of the refusal to provide Data in various ways, as specified in the Mastercard Employee Privacy Notice – EEA.
Data Retention. The Company will use Data only as long as necessary for the Purposes, or as required to comply with legal or regulatory obligations, including tax and securities laws. When the Company no longer needs the Data, the Company will remove it from its systems. If the Company keeps Data longer, it would be to satisfy legal or regulatory obligations and the Company’s legal basis for retaining such Data would be compliance with the relevant laws or regulations.
NON-EUROPEAN UNION / EUROPEAN ECONOMIC AREA / SWITZERLAND
Data Privacy Terms. The following data privacy terms govern the grant of the Units under the Agreement to Directors who reside outside the European Union / European Economic Area and Switzerland:
The Director hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Director’s personal data as described in this Agreement and any other documents related to the Units by and among, as applicable, the Company and its affiliates for the exclusive purpose of implementing, administering and managing the Director’s Units.
The Director understands that the Company may hold certain personal data about the Director, specifically: the Director’s name, home address and telephone number, email address, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Units or any other cash or equity award granted, canceled, exercised, vested, unvested or outstanding in the Director’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Director’s Units.
The Director understands that Data may be transferred to Morgan Stanley Smith Barney LLC or other third parties which may assist the Company with the implementation, administration and management of the Units. The Director understands that the recipients of Data may be located in the United States or elsewhere, and that the recipients’ country (e.g., the United States) may have different data privacy laws and protections than the Director’s country. The Director understands that the Director may request a list with the names and addresses of any potential recipients of Data by contacting the Company. The Director authorizes the Company, Morgan Stanley Smith Barney LLC, and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Units to receive, possess, use, retain and transfer Data, in electronic or other form, for the sole purpose of implementing, administering and managing the Director’s Units.
The Director understands that Data will be held only as long as is necessary to implement, administer and manage the Director’s Units. The Director understands that the Director may, at any time, view Data, request information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting the Company in writing. Further, the Director understands that the Director is providing the consents herein on a purely voluntary basis. If the Director does not consent, or if the Director later seeks to revoke the Director’s consent, the Director’s service with the Company will not be affected; the only consequence of refusing or withdrawing the Director’s consent is that the Company would not be able to grant the Units or other awards to the Director or administer or maintain such awards. Therefore, the Director understands that refusing or withdrawing the Director’s consent may affect the Director’s ability to receive Units or other awards. For more information on the consequences of the Director’s refusal to consent or withdrawal of consent, the Director understands that the Director may contact the Global Privacy Office at privacyanddataprotection@mastercard.com.
5
EXHIBIT 10.2
RESTRICTED STOCK AGREEMENT
[for grants made on or after June 21, 2022]
THIS AGREEMENT, dated as of _______________, 20__, (“Grant Date”) is between Mastercard Incorporated, a Delaware Corporation (the “Company”), and you (the “Director”). Capitalized terms that are used but not defined in this Agreement have the meanings given to them in the 2006 Non-Employee Director Equity Compensation Plan amended and restated as of June 22, 2021 (“Plan”) and, where applicable, in the 2006 Long Term Incentive Plan as amended and restated as of June 22, 2021 (“Omnibus Plan”).
WHEREAS, the Company has established the Plan, the terms of which Plan, and, to the extent applicable, the Omnibus Plan are made a part hereof;
WHEREAS, the Human Resources and Compensation Committee of the Board of Directors of the Company (the “Committee”) has approved, and the Board of Directors of the Company has ratified, this grant under the terms of the Plan;
NOW, THEREFORE, the parties hereby agree as follows:
1. Award.
Subject to the terms and conditions of this Agreement and of the Plan, the Company hereby grants to the Director the number of shares of the Company’s $0.0001 par value Class A Common Stock (the “Common Shares”) reflected in the Director’s grant statement, the terms and conditions of which are incorporated as a part of this Agreement. The Common Shares will be subject to the terms and conditions set forth below (the “Restricted Stock”). Common Shares will be issued in the name of the Director, deposited in an account for the benefit of the Director, and subjected to appropriate transfer restrictions implemented to reflect the terms, conditions and restrictions applicable to the Restricted Stock as described herein.
2. Vesting.
The interest of the Director in the Restricted Stock is fully vested on grant but is subject to transfer restrictions pursuant to Section 3 below.
3. Transfer Restrictions.
The Restricted Stock granted hereunder may not be sold, assigned, margined, transferred, encumbered, conveyed, gifted, hypothecated, pledged, or otherwise disposed of and may not be subject to lien, garnishment, attachment or other legal process before the fourth anniversary of the Grant Date. In the event the Director has a Termination from Service before the fourth anniversary of the Grant Date, the transfer restrictions shall lapse and be removed from the Common Shares within 60 days of the Director’s Termination from Service.
4. Stockholder Rights.
Except as otherwise provided in this Agreement, the Director will have, with respect to the Restricted Stock, all of the rights of a stockholder of the Company holding the class of Common Shares that is the subject of the Restricted Stock, including, if applicable, the right to vote the shares and the right to receive any cash dividends.
1
5. Changes in Stock.
In the event of any change with respect to outstanding Common Shares contemplated by Section 4.2 of the Plan, the Restricted Stock may be adjusted in accordance with Section 4.2 of the Plan.
6. Compliance with Law.
No Common Shares will be delivered to the Director under this Agreement unless counsel for the Company is satisfied that such delivery will be in compliance with all applicable laws, including, without limitation, any rule, regulation or procedure of the U.S. national securities exchange upon which the Common Shares are traded or any listing agreement with any such securities exchange, or any other requirement of law or of any administrative or regulatory body having jurisdiction over the Company. The Company reserves the right to impose other requirements on the Restricted Stock, any Common Shares, and the Director's participation in the Plan, to the extent the Company determines, in its sole discretion that such other requirements are necessary or advisable to comply with applicable laws. Such requirements may include (but are not limited to) requiring the Director to sign any agreements or undertakings that may be necessary to accomplish the foregoing.
7. Taxes.
The Director shall be liable for any and all U.S. and foreign income and social taxes, including any required withholding taxes, arising out of this Award. To the extent withholding is required under applicable law, the Company is authorized to deduct from the total number of Common Shares subject to the Award the total value equal to the amount necessary to satisfy any such withholding obligation. Alternatively, the Company may obtain withholdings in any other method permitted by the Committee. In either case, the Company will determine the amount of any such required withholding using the information in its applicable systems and other business records at the time of such withholding event. In accordance with U.S. federal income tax withholding requirements, the Company shall withhold on amounts payable to Directors who are considered U.S. nonresident aliens under Code Section 7701(b).
8. Discretionary Nature of Restricted Stock Award.
The Director acknowledges and agrees that the grant of Restricted Stock is a discretionary Alternative Award under Section 6.3 of the Plan. The grant of Restricted Stock under the Plan is a one-time benefit and does not create any contractual or other right to receive a grant of Restricted Stock or other Alternative Award under the Plan in the future.
9. Data Privacy.
The Company and its affiliates may collect, use, process, transfer or disclose the Director’s personal data for the purpose of implementing, administering and managing the Director’s participation in the Plan, in accordance with the Company’s Employee Privacy Notice which the Director has previously received. (Please contact the Company’s stock administrator to receive another copy of this notice.) Notwithstanding the foregoing, if the Director resides outside the United States, the privacy provisions of the addendum to this Agreement (the “Addendum”) shall apply to the Director in place of this Section 9. The Addendum constitutes part of this Agreement.
10. Miscellaneous.
(a) The parties agree to execute such further instruments and to take such action as may reasonably be necessary to carry out the intent of this Agreement.
(b) Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon delivery to the Director at the address then on file with the Company or upon delivery to the Company at 2000 Purchase Street, Purchase, New York 10577, Attn: Executive Vice President, Total Rewards.
2
(c) This Agreement, the Plan and, where applicable, the Omnibus Plan, constitute the entire agreement of the parties with respect to the subject matter hereof.
By /s/ _____________________________________
Name:
Title:
3
ADDENDUM
If the Director resides outside the United States, in place of Section 9 of the Agreement, the Award shall be subject to the Data Privacy terms set forth below, as applicable based on the Director’s country of residence:
EUROPEAN UNION, EUROPEAN ECONOMIC AREA AND SWITZERLAND
Data Privacy Terms. The following data privacy terms, in addition to the Mastercard Employee Privacy Notice – EEA (please contact the Company’s stock administrator to request a copy of this notice), govern the grant of the Award under the Agreement to Directors who reside in the European Union and European Economic Area (which, for the avoidance of doubt, includes the United Kingdom for purposes of these data privacy terms) and in Switzerland:
Data Collection and Usage. Pursuant to applicable data protection laws, the Director is hereby notified that, in the context of the grant of the Award under the Agreement, the Company collects, processes, uses and transfers certain personal information about the Director for the exclusive legitimate purpose of facilitating the Director’s participation in the Plan, allocating Common Shares, implementing, administering and managing the Director's Award and generally administering the Director's remuneration and any related benefits (“Purposes”). The Company may process specifically the following personal information: the Director’s name, home address and telephone number, email address, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Restricted Stock or any other cash or equity award granted, canceled, exercised, vested, unvested or outstanding in the Director’s favor (“Data”). The Company’s collection, processing, use and transfer of the Director's Data is necessary for the Company’s legitimate business interests of implementing, administering and managing the Director's Award and generally administering Director remuneration and any related benefits and the fulfilment of Company’s contractual obligations with the Director. The Director’s refusal to provide Data would make it impossible for the Company to perform its contractual obligations and may affect the Director's ability to receive Awards. As such, by participating in the Plan, Director acknowledges the collection, use, processing and transfer of his/her Data as described herein.
Service Providers. The Company transfers the Director's Data to Morgan Stanley Smith Barney LLC (including its affiliated companies), based, in relevant part, in the United States, which assists the Company with the implementation, administration and management of the Award. In the future, the Company may select a different service provider and share Data with that service provider, which will serve in a similar manner. The Company’s service provider will open an account for the Director to receive and administer the Award. The processing of the Director's Data will take place through both electronic and non-electronic means. The Director's Data will only be accessible by those individuals requiring access to it for purposes of implementation, administration and operation of the Award and other aspects of the Director's relationship with the Company.
International Data Transfers. The Company and its service providers are based, in relevant part, in the United States, which means that it will be necessary for Data to be transferred to, and processed in, the United States. By accepting the Award, the Director understands that the providers will receive, possess, use, retain and transfer the Director's Data for the purposes of implementing, administering and managing his/her participation in the Plan. Personal Data is transferred by the Company in compliance with our Binding Corporate Rules (available upon request from the Company’s stock administrator) and other data transfer mechanisms. When transferring the Director's Data to its service providers, the Company provides appropriate safeguards through contractual protections for the transfer of personal information to third parties, such as the European Commission's Standard Contractual Clauses or their equivalent under applicable law.
Data Subject Rights. To the extent provided by law, the Director has the right to request: access to Data, rectification of Data, erasure of Data, restriction of processing of Data, and portability of Data. The Director may also have the right to object, on grounds related to a particular situation, to the processing
4
of Data, without cost, and to lodge a complaint with the relevant data protection supervisory authority. The Director's provision of Data is a contractual requirement. The Director understands, however, that the only consequence of refusing to provide Data is that the Company may not be able to grant Restricted Stock or other awards to the Director, or administer or maintain such awards. The Director can exercise these rights or request more information on the consequences of the refusal to provide Data in various ways, as specified in the Mastercard Employee Privacy Notice – EEA.
Data Retention. The Company will use Data only as long as necessary for the Purposes, or as required to comply with legal or regulatory obligations, including tax and securities laws. When the Company no longer needs the Data, the Company will remove it from its systems. If the Company keeps Data longer, it would be to satisfy legal or regulatory obligations and the Company’s legal basis for retaining such Data would be compliance with the relevant laws or regulations.
NON-EUROPEAN UNION / EUROPEAN ECONOMIC AREA / SWITZERLAND
Data Privacy Terms. The following data privacy terms govern the grant of the Award under the Agreement to Directors who reside outside the European Union / European Economic Area and Switzerland:
The Director hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Director’s personal data as described in this Agreement and any other documents related to the Award by and among, as applicable, the Company and its affiliates for the exclusive purpose of implementing, administering and managing the Director’s Award.
The Director understands that the Company may hold certain personal data about the Director, specifically: the Director’s name, home address and telephone number, email address, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Restricted Stock or any other cash or equity award granted, canceled, exercised, vested, unvested or outstanding in the Director’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Director’s Award.
The Director understands that Data may be transferred to Morgan Stanley Smith Barney LLC or other third parties which may assist the Company with the implementation, administration and management of the Award. The Director understands that the recipients of Data may be located in the United States or elsewhere, and that the recipients’ country (e.g., the United States) may have different data privacy laws and protections than the Director’s country. The Director understands that the Director may request a list with the names and addresses of any potential recipients of Data by contacting the Company. The Director authorizes the Company, Morgan Stanley Smith Barney LLC, and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Award to receive, possess, use, retain and transfer Data, in electronic or other form, for the sole purpose of implementing, administering and managing the Director’s Award.
The Director understands that Data will be held only as long as is necessary to implement, administer and manage the Director’s Award. The Director understands that the Director may, at any time, view Data, request information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting the Company in writing. Further, the Director understands that the Director is providing the consents herein on a purely voluntary basis. If the Director does not consent, or if the Director later seeks to revoke the Director’s consent, the Director’s service with the Company will not be affected; the only consequence of refusing or withdrawing the Director’s consent is that the Company would not be able to grant the Restricted Stock or other awards to the Director or administer or maintain such awards. Therefore, the Director understands that refusing or withdrawing the Director’s consent may affect the Director’s ability to receive Restricted Stock or other awards. For more information on the consequences of the Director’s refusal to consent or withdrawal of consent, the Director understands that the Director may contact the Global Privacy Office at privacyanddataprotection@mastercard.com.
5
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Miebach, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Mastercard Incorporated for the three months ended June 30, 2022;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | July 28, 2022 | |||||||
| By: | /s/ Michael Miebach | |||||||
| Michael Miebach | ||||||||
| President and Chief Executive Officer | ||||||||
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Sachin Mehra, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Mastercard Incorporated for the three months ended June 30, 2022;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | July 28, 2022 | |||||||
| By: | /s/ Sachin Mehra | |||||||
| Sachin Mehra | ||||||||
| Chief Financial Officer | ||||||||
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Mastercard Incorporated (the "Company") on Form 10-Q for the three month period ended June 30, 2022 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.
| July 28, 2022 | ||
| /s/ Michael Miebach | ||
| Michael Miebach | ||
| President and Chief Executive Officer | ||
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Mastercard Incorporated (the "Company") on Form 10-Q for the three month period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sachin Mehra, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| July 28, 2022 | ||
| /s/ Sachin Mehra | ||
| Sachin Mehra | ||
| Chief Financial Officer | ||
EXHIBIT 99.1
Section 13(r) Disclosure
Mastercard Incorporated ("Mastercard") has established a risk-based compliance program designed to prevent us from having business dealings with Iran, as well as other prohibited countries, regions, individuals or entities. This includes obligating issuers and acquirers to screen account holders and merchants, respectively, against the U.S. Office of Foreign Assets Control’s (“OFAC”) sanctions lists, including the List of Specially Designated Nationals (“SDN list”).
We identified through our compliance program that for the period covered by this Report, Mastercard processed transactions resulting from:
•acquirers located in the Europe and Eastern Europe/Middle East/Africa regions, each having acquired transactions for an Iranian airline that accepted Mastercard cards in these regions
•an acquirer located in the Europe region having acquired transactions for consular services with an entity located within an Iranian embassy in that region that accepted Mastercard cards.
OFAC regulations and other legal authorities provide exemptions for certain activities involving dealings with Iran. However, Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 requires us to disclose whether we, or any of our affiliates, have knowingly engaged in certain transactions or dealings involving the Government of Iran or with certain persons or entities found on the SDN list, regardless of whether these dealings constitute a violation of OFAC regulations.
We do not calculate net revenues or net profits associated with specific merchants (our customers’ customers). However, we used our fee schedule and the aggregate number and amount of transactions involving the above merchants to estimate the net revenue and net profit we obtained during the three months ended June 30, 2022. Both the number of transactions and our estimated net revenue and net profits for this period are de minimis.