What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-12 compared with 2020-02-14 · 113 added, 140 removed, 200 unchanged (56% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Switched Transactions 2 measures the number of transactions switched by Mastercard.

We define transactions switched 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 customers.

2 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.

Foreign Currency

Currency Impact (Translation and Transactional)

Currency Impact

Our primary revenue functional currencies are the U.S.

2 unchanged sentences

dollar reporting currency.

Our operating results can also be impacted by transactional 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 volume-related rebates and incentives.

In most non-European regions, GDV is calculated based on local currency spending volume converted to U.S.

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In Europe, GEV is calculated based on local currency spending volume converted to euros using average exchange rates for the period.

As a result, our domestic assessments, cross-border volume fees and volume-related rebates and incentives are impacted by the strengthening or weakening of the U.S.

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.

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In 2020, GDV on a U.S.

dollar-converted basis increased 9.6% , while GDV on a local currency basis increased 13.0% versus 2018 .

dollar-converted basis decreased 2.0%, while GDV on a local currency basis increased 0.1% versus 2019.

In 2019, GDV on a U.S.

dollar-converted basis increased 9.8%, while GDV on a local currency basis increased 13.1% versus 2018.

Further, the impact from transactional currency occurs in transaction processing revenue, other revenue and operating expenses when the local currency of these items are different than the functional currency.

The translational and transactional impact of currency (“Currency impact”) has been identified in our growth impact tables and has been excluded from our currency neutral growth rates, which are non-GAAP financial measures.

See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments.

Further, the impact from transactional currency occurs in transaction processing revenue, other revenue and operating expenses when the local currency of these items is different than the functional currency of the entity.

The translational and transactional impact of currency (“Currency impact”) has been identified in our drivers of change tables and has been excluded from our currency-neutral growth rates, which are non-GAAP financial measures.

See “Financial Results - Revenue and Operating Expenses” for our drivers of change impact tables and “Non-GAAP Financial Information” for further information on our non-GAAP adjustments.

2021 Hedge Accounting Designation

Through December 31, 2020, our approach to manage our transactional currency exposure consisted of hedging a portion of anticipated revenues impacted by transactional currencies by entering into foreign exchange derivative contracts, and recording the related changes in fair value in general and administrative expenses on the consolidated statement of operations.

Beginning in January 2021, we started to formally designate certain newly-executed foreign exchange derivative contracts, which meet the established accounting criteria, as cash flow hedges.

Starting in the first quarter of 2021, gains and losses resulting from changes in fair value of these designated contracts will be deferred in accumulated other comprehensive income (loss) and subsequently recognized in the respective component of net revenue when the underlying forecasted transactions impact earnings.

The related impact of our foreign exchange cash flow hedging activities will be excluded from our currency-neutral growth rates as part of our Currency impact.

Foreign Exchange Activity

We incur foreign currency gains and losses from remeasuring monetary assets and liabilities that are in a currency other than the functional currency and from remeasuring foreign exchange derivative contracts (“Foreign Exchange Activity”).

The impact of Foreign Exchange Activity has not been eliminated in our currency-neutral results (see “Non-GAAP Financial Information”) and is recorded in general and administrative expenses on the consolidated statement of operations.

We manage foreign currency balance sheet remeasurement and transactional currency exposure through our foreign exchange risk management activities, which are discussed further in Note 23 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part II, Item 8.

Since we do not designate foreign exchange derivatives as hedging instruments pursuant to the accounting standards for derivative instruments and hedging activities, we record gains and losses on foreign exchange derivatives immediately in current-period earnings, with the related hedged item being recognized as the exposures materialize.

We incur foreign currency gains and losses from remeasuring monetary assets and liabilities, including settlement receivables and payables with our customers, that are denominated in a currency other than the functional currency of the entity.

To manage this foreign exchange risk, we may enter into foreign exchange derivative contracts to economically hedge the foreign currency exposure of a portion of our nonfunctional monetary assets and liabilities.

The gains or losses resulting from changes in fair value of these contracts are intended to reduce the potential effect of the underlying hedged exposure and are recorded net within general and

MASTERCARD 2020 FORM 10-K 47

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

administrative expenses on the consolidated statement of operations.

The impact of foreign exchange activity, including the related hedging activities, has not been eliminated in our currency-neutral results.

Our foreign exchange risk management activities are discussed further in Note 23 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part II, Item 8.

Risk of Currency Devaluation

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dollar and/or a continued and sustained deterioration of economic conditions in these countries.

Specifically, in 2017, due to foreign exchange regulations which were restricting access to U.S.

dollars in Venezuela, an other-than-temporary lack of exchangeability between the Venezuela bolivar and the U.S.

dollar impacted our ability to manage risk, process cross-border transactions and satisfy U.S.

dollar denominated liabilities related to our Venezuelan operations.

As a result of these factors, we concluded that, effective December 31, 2017, we did not meet the accounting criteria for consolidation of these subsidiaries, and therefore we transitioned to the cost method of accounting.

This accounting change resulted in a pre-tax charge of $167 million ( $108 million after tax, or $0.10 per diluted share) in 2017.

We continue to operate and serve our Venezuelan issuers, acquirers, merchants and account holders with our products and services.

See Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements included in Part II, Item 8 for further discussion.

MASTERCARD 2019 FORM 10-K 45

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Results

Gross revenue increased 14% , or 17% on a currency-neutral basis in 2019 versus the prior year, primarily due to an increase in transactions, dollar volume of activity on cards carrying our brands for both domestic and cross-border transactions and other payment-related products and services.

Rebates and incentives increased 18% , or 20% on a currency-neutral basis in 2019 versus the prior year, primarily due to the impact from new and renewed agreements and increased volumes.

Our net revenue increased 13% , or 16% on a currency-neutral basis in 2019 versus the prior year, including growth of 1 percentage point from our acquisitions.

Primary drivers of net revenue, versus the prior year, were as follows:

Gross revenue decreased 5%, or 4% on a currency-neutral basis, driven by decreased cross-border volumes reflecting impacts of the COVID-19 outbreak, partially offset by increases in our value-added products and services and the number of switched transactions.

Gross dollar volume of $6.3 trillion was flat.

Rebates and incentives increased 3%, or 4% on a currency-neutral basis, due to new and renewed deals partially offset by a favorable mix of volume-based incentives.

Net revenue decreased 9%, or 8% on a currency-neutral basis, including 1 percentage point of growth from our acquisitions.

See Note 3 (Revenue) to the consolidated financial statements included in Part II, Item 8 for a further discussion of how we recognize revenue.

The components of net revenue were as follows:

For the Years Ended December 31,

Increase (Decrease)

For the Years Ended December 31, Increase (Decrease)

2020 2019 2018 2020 2019

($ in millions)

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Rebates and incentives (contra-revenue) (8,315) (8,097) (6,881) 3% 18%

The following table summarizes the drivers of net revenue growth:

Net revenue $ 15,301 $ 16,883 $ 14,950 (9)% 13%

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table summarizes the drivers of change in net revenue:

For the Years Ended December 31,

Revenue Standard 1

Currency Impact 2

Volume Acquisitions Currency Impact 1

2020 2019 2020 2019 2020 2019 2020 2019 2020 2019

Domestic assessments —% 13% —% —% (3)% (3)% 1 % 3 1 % 3 (2) % 10 %

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Rebates and incentives (6)% 5 9% 5 —% —% (2)% (3)% 10 % 6 11 % 6 3 % 18 %

Net revenue (5)% 13% 1% 1% (1)% (3)% (4) % 2 % (9) % 13 %

Table may not sum due to rounding

** Not applicable

Represents the impact of our adoption of the revenue guidance in 2018.

For a more detailed discussion on the impact of the revenue guidance, refer to Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements included in Part II, Item 8.

Represents the currency translational and transactional impact.

Includes impact from pricing and other non-volume based fees.

1 Represents the translational and transactional impact of currency.

2 Includes impact from pricing, other non-volume based fees and geographic mix.

3 Includes impact of the allocation of revenue to service deliverables, which are primarily recorded in other revenue when services are performed.

4 Includes impacts from cyber and intelligence fees, data analytics and consulting fees and other payment-related products and services.

5 Includes the impact from mix on volume-based incentives.

6 Includes the impact of new, renewed and expired agreements.

46 MASTERCARD 2019 FORM 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following tables provide a summary of the trend in volume and transaction growth.

The cross-border volume and switched transactions growth rates have been 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.

Additionally, we adjusted the switched transactions growth rate in the prior period for the deconsolidation of our Venezuelan subsidiaries in 2017.

For a more detailed discussion of the deconsolidation of our Venezuelan subsidiaries, refer to Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements included in Part II, Item 8.

The following tables provide a summary of the trend in volumes and transactions.

For the Years Ended December 31,

Growth (Local)

Increase/(Decrease)

USD Local USD Local

Mastercard-branded GDV 1

(2) % — % 10 % 13 %

Asia Pacific/Middle East/Africa (3) % (2) % 8 % 12 %

Canada (4) % (3) % 4 % 7 %

Europe (2) % 1 % 12 % 18 %

Latin America (17) % (2) % 9 % 15 %

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For the Years Ended December 31,

Increase/(Decrease)

Switched transactions 3 % 19 %

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Operating Expenses

Operating expenses decreased 6% in 2019 versus the prior year.

Adjusted operating expenses increased 10% , or 12% on a currency-neutral basis in 2019 versus the prior year.

Current year results include growth of approximately 2 percentage points from acquisitions and 1 percentage point primarily from foreign exchange derivative contracts.

Operating expenses were flat in 2020 versus the prior year.

Adjusted operating expenses decreased 1% on both an as adjusted and a currency-neutral basis versus the prior year.

Current year results include growth of approximately 4 percentage points from acquisitions.

Excluding acquisitions, expenses declined 5% primarily due to reduced spending on advertising and marketing, travel and professional fees, partially offset by higher personnel and data processing costs to support continued investment in our strategic initiatives.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The components of operating expenses were as follows:

For the Years Ended December 31,

Increase (Decrease)

For the Years Ended December 31, Increase (Decrease)

2020 2019 2018 2020 2019

($ in millions)

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Special Items 1

(73) — (1,128) ** **

Adjusted operating expenses (excluding Special Items 1 )

$ 7,147 $ 7,219 $ 6,540 (1) % 10 %

Table may not sum due to rounding.

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1 See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table summarizes the drivers of changes in operating expenses:

For the Years Ended December 31,

Currency Impact 4

Operational Special

Acquisitions Currency Impact 2

2020 2019 2020 2019 2020 2019 2020 2019 2020 2019

General and administrative (1)% 11 % ** ** 4 % 2 % — % (2) % 3 % 11 %

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** Not meaningful

Includes a 2 percentage point impact to general and administrative and total operating expenses growth due to contributions made in 2018 to support inclusive growth efforts.

Contributions made in 2019 were comparable to the prior year.

1 See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.

Represents the impact of our adoption of the revenue guidance in 2018.

Represents the currency translational and transactional impact.

2 Represents the translational and transactional impact of currency.

General and Administrative

General and administrative expenses increased 11% , or 13% on a currency-neutral basis in 2019 versus the prior year.

Current year results include growth of approximately 2 percentage points from acquisitions and 1 percentage point primarily from foreign exchange derivative contracts.

The remaining increase was primarily driven by an increase in personnel to support our continued investment in our strategic initiatives.

General and administrative expenses increased 3% on both an as reported and a currency-neutral basis in 2020 versus the prior year.

Current year results include growth of approximately 4 percentage points from acquisitions.

Excluding acquisitions, expenses declined 1% primarily due to reduced spending on travel and professional fees, partially offset by an increase in personnel and data processing costs to support continued investment in our strategic initiatives.

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The components of general and administrative expenses were as follows:

For the Years Ended December 31,

Increase (Decrease)

For the Years Ended December 31, Increase (Decrease)

2020 2019 2018 2020 2019

($ in millions)

Personnel $ 3,787 $ 3,537 $ 3,214 7% 10%

Professional fees 384 447 377 (14)% 19%

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Foreign exchange activity 1

9 32 (36) ** **

Other 974 1,081 1,019 (10)% 6%

Total general and administrative expenses 5,910 5,763 5,174 3% 11%

Special Items 2

Adjusted general and administrative expenses (excluding Special Items 2 )

Table may not sum due to rounding.

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See Note 23 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part II, Item 8 for further discussion.

See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts .

Advertising and Marketing

Advertising and marketing expenses increased 3% , or 5% on a currency-neutral basis in 2019 versus the prior year, primarily due to higher spending on certain sponsorship initiatives.

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Advertising and marketing expenses decreased 30%, or 29% on a currency-neutral basis in 2020 versus the prior year, primarily due to lower advertising and sponsorship spend in response to COVID-19.

Depreciation and Amortization

Depreciation and amortization expenses increased 14% , or 15% on a currency-neutral basis in 2019 versus the prior year.

Current year results include growth of approximately 7 percentage points from acquisitions with the remaining increase primarily driven by amortization of certain intangible assets and depreciation on data center assets.

Depreciation and amortization expenses increased 11% on both an as reported and a currency-neutral basis in 2020 versus the prior year.

Current year results include growth of approximately 6 percentage points from acquisitions.

The remaining increase was primarily due to higher depreciation from capital investments.

Provision for Litigation

Provision for litigation decreased in 2019 versus the prior year as there were no litigation charges in the current year.

In 2020, we recorded $73 million related to various litigation settlements and legal costs.

There were no litigation charges in the prior year.

See Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for further discussion.

Other Income (Expense)

Other income (expense) increased in 2019 versus the prior year primarily due to net gains of $167 million which were related to unrealized fair market value adjustments on marketable and non-marketable equity securities in the current period.

Other income (expense) was unfavorable in 2020 versus the prior year primarily due to increased interest expense related to our recent debt issuances, as well as lower net gains in the current year versus the prior year related to unrealized fair market value adjustments on marketable and non-marketable equity securities and a decrease in our investment income.

The components of other income (expense) were as follows:

For the Years Ended December 31,

Increase (Decrease)

For the Years Ended December 31, Increase (Decrease)

2020 2019 2018 2020 2019

($ in millions)

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The effective income tax rates for the years ended December 31, 2020 and 2019 were 17.4% and 16.6%, respectively.

The effective income tax rate for 2019 was lower than the effective income tax rate for 2018 , primarily due to the nondeductible nature of the fine issued by the European Commission in 2018 and a discrete tax benefit related to a favorable court ruling in 2019 .

These 2019 benefits were partially offset by discrete tax benefits in 2018 primarily related to foreign tax credits generated in 2018 as a result of U.S.

tax reform, which can be carried back and utilized in 2017 under transition rules issued by the Department of the Treasury and the Internal Revenue Service.

The effective income tax rate for 2020 was higher than the prior year, primarily due to discrete tax benefits in 2019, partially offset by a more

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

favorable geographic mix of earnings in 2020.

The 2019 discrete tax benefits related to a favorable court ruling, a reduction to the Company’s transition tax liability and additional foreign tax credits which can be carried back under U.S tax reform transition rules issued by the Department of the Treasury and the Internal Revenue Service.

The adjusted effective income tax rates for the years ended December 31, 2020 and 2019 were 17.2% and 17.0%, respectively.

The adjusted effective income tax rate was lower than the prior year primarily due to a more favorable geographic mix of earnings and discrete tax benefits including a favorable court ruling in 2019.

The adjusted effective income tax rate was higher than the prior year, primarily due to a discrete tax benefit related to a favorable court ruling in 2019.

See Note 20 (Income Taxes) to the consolidated financial statements included in Part II, Item 8 for further discussion.

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This amount excludes restricted cash and restricted cash equivalents of $2.3 billion and $2.0 billion at December 31, 2020 and 2019, respectively.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

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For additional discussion of these and other risks facing our business, see Part I, Item 1A - Risk Factors - Legal and Regulatory Risks and Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8.

and Part II, Item 7 (Business Environment).

The table below shows a summary of the cash flows from operating, investing and financing activities for the years ended December 31 :

The table below shows a summary of the cash flows from operating, investing and financing activities:

For the Years Ended December 31,

2020 2019 2018

(in millions)

2 unchanged sentences

Net cash used in financing activities (2,152) (5,867) (4,966)

Net cash provided by operating activities increased $2.0 billion in 2019 versus the prior year, primarily due to higher net income as adjusted for non-cash items.

Net cash used in investing activities increased $1.1 billion in 2019 versus the prior year, primarily due to acquisitions and purchases of equity investments, partially offset by higher net proceeds from our investments in available-for-sale and held-to-maturity securities.

Net cash used in financing activities increased $901 million in 2019 versus the prior year, primarily due to higher repurchases of our Class A common stock, higher dividends paid and the settlement of the contingent consideration attributable to our 2017 acquisitions, partially offset by higher net debt proceeds in the current period.

Net cash provided by operating activities decreased $1.0 billion in 2020 versus the prior year, primarily due to lower net income adjusted for non-cash items, partially offset by a decrease in litigation payments.

Net cash used in investing activities increased $239 million in 2020 versus the prior year, primarily due to lower net proceeds from our investments in available-for-sale and held-to-maturity securities, partially offset by higher prior year acquisition payments.

Net cash used in financing activities decreased $3.7 billion in 2020 versus the prior year, primarily due to lower repurchases of our Class A common stock, higher net debt proceeds in the current period and the repayment of debt that matured in the prior year.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Debt and Credit Availability

In May 2019, we issued $1.0 billion principal amount of notes due June 2029 and $1.0 billion principal amount of notes due June 2049 and in December 2019, we issued $750 million principal amount of notes due March 2025.

Additionally, during 2019, $500 million of principal related to the 2014 USD Notes matured and was paid.

In March 2020, we issued $1 billion principal amount of notes due March 2027, $1.5 billion principal amount of notes due March 2030 and $1.5 billion principal amount notes due March 2050.

Our total debt outstanding was $12.7 billion at December 31, 2020, with the earliest maturity of $650 million of principal occurring in November 2021.

As of December 31, 2020, 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 2024.

In conjunction with the Commercial Paper Program, we have a committed unsecured $6 billion revolving credit facility (the “Credit Facility”) which, in 2020, was extended for an additional year and now expires in November 2025.

Borrowings under the Commercial Paper Program and the Credit Facility are to provide liquidity for general corporate purposes, including providing liquidity in the event of one or more settlement failures by our customers.

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Subject to legally available funds, we intend to continue to pay a quarterly cash dividend.

However, the declaration and payment of future dividends is at the sole discretion of our Board of Directors after taking into account various factors, including our financial condition, operating

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results, available cash and current and anticipated cash needs.

The declaration and payment of future dividends is at the sole discretion of our Board of Directors after taking into account various factors, including our financial condition, operating results, available cash and current and anticipated cash needs.

The following table summarizes the annual, per share dividends paid in the years reflected:

For the Years Ended December 31,

2020 2019 2018

(in millions, except per share data)

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Repurchased shares of our common stock are considered treasury stock.

The timing and actual number of additional shares repurchased will depend on a variety of factors, including the operating needs of the business, legal requirements, price and economic and market conditions.

In December 2020, 2019 and 2018, our Board of Directors approved share repurchase programs authorizing us to repurchase up to $6.0 billion, $8.0 billion and $6.5 billion, respectively, of our Class A common stock.

The program approved in 2019 became effective in January 2020 after completion of the share repurchase program authorized in 2018.

The following table summarizes our share repurchase authorizations of our Class A common stock through December 31, 2019 , under the plans approved in 2018 and 2017:

The program approved in 2020 will become effective after completion of the share repurchase program authorized in 2019.

The timing and actual number of additional shares repurchased will depend on a variety of factors, including cash requirements to meet the operating needs of the business, legal requirements, as well as the share price and economic and market conditions.

The following table summarizes our share repurchase activity of our Class A common stock through December 31, 2020, under the plans approved in 2019 and 2018:

(in millions, except per share data)

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See Note 16 (Stockholders' Equity) to the consolidated financial statements included in Part II, Item 8 for further discussion.

Off-Balance Sheet Arrangements

We have no off-balance sheet debt, other than the commitments presented in the Future Obligations table that follows.

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Future Obligations

The following table summarizes our obligations as of December 31, 2019 that are expected to impact liquidity and cash flow in future periods.

We believe we will be able to fund these obligations through cash generated from operations and our cash balances.

Payments Due by Period

2025 and thereafter

(in millions)

Interest on debt

Operating leases 1

Other obligations

Sponsorship, licensing and other

Employee benefits 2

Transition Tax 3

Redeemable non-controlling interests 4

Amounts relate to the maturity of our operating lease liabilities.

See Note 10 (Property, Equipment and Right-of-Use Assets) to the consolidated financial statements included in Part II, Item 8 for further discussion.

Amounts relate to severance along with expected funding requirements for defined benefit pension and postretirement plans.

Amounts relate to the U.S.

tax liability on the Transition Tax on accumulated non-U.S.

earnings of U.S entities.

See Note 20 (Income Taxes) to the consolidated financial statements included in Part II, Item 8 for further discussion.

Amount relates to the fixed-price put option for the Vocalink remaining shareholders to sell their ownership interest to Mastercard on the third and fifth anniversaries of the transaction and quarterly thereafter.

See Note 2 (Acquisitions) to the consolidated financial statements included in Part II, Item 8 for further discussion.

The table does not include the following:

Payment related to a definitive agreement to acquire the majority of the Corporate Services business of Nets Denmark A/S, for €2.85 billion (approximately $3.19 billion as of December 31, 2019 ) as the transaction is subject to regulatory approval and other customary closing conditions.

See Note 2 (Acquisitions) to the consolidated financial statements included in Part II, Item 8 for further discussion.

Liability for unrecognized tax benefits of $203 million as of December 31, 2019 .

These amounts have been excluded from the table since the settlement period of this liability cannot be reasonably estimated and the timing of these payments will depend on the progress of tax examinations with the various authorities.

See Note 20 (Income Taxes) to the consolidated financial statements included in Part II, Item 8 for further discussion.

Litigation provision of $914 million as of December 31, 2019 as the timing of payments is not fixed and determinable.

See Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for further discussion.

Future cash payments that will become due to customers and merchants under business agreements as the amounts due are contingent on future performance.

We have accrued $4.8 billion as of December 31, 2019 related to these customer and merchant agreements.

Critical Accounting Estimates

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If our customers’ actual performance is not consistent with our estimates of their performance, net revenue may be materially different.

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Loss Contingencies

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Due to the inherent uncertainties of the legal and regulatory process in the multiple jurisdictions in which we operate, our judgments may be materially different than the actual outcomes.

See Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for further discussion.

In calculating our effective income tax rate, we need to make estimates regarding the timing and amount of taxable and deductible items which will adjust the pretax income earned in various tax jurisdictions.

In calculating our effective income tax rate, estimates are required regarding the timing and amount of taxable and deductible items which will adjust the pretax income earned in various tax jurisdictions.

Through our interpretation of local tax regulations, adjustments to pretax income for income earned in various tax jurisdictions are reflected within various tax filings.

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Significant judgment is required in determining the valuation allowance.

We consider projected future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance.

In assessing the need for a valuation allowance, we consider all sources of taxable income including, projected future taxable income, reversing taxable temporary differences and ongoing tax planning strategies.

If it is determined that we are able to realize deferred tax assets in excess of the net carrying value or to the extent we are unable to realize a deferred tax asset, we would adjust the valuation allowance in the period in which such a determination is made, with a corresponding increase or decrease to earnings.

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We account for our business combinations using the acquisition method of accounting.

The acquisition purchase price is allocated to the underlying identified, tangible and intangible assets, liabilities assumed and any non-controlling interest in the acquiree, based on their respective estimated fair values on the acquisition date.

The acquisition purchase price, including contingent consideration, is allocated to the underlying identified, tangible and intangible assets, liabilities assumed and any non-controlling interest in the acquiree, based on their respective estimated fair values on the acquisition date.

Any excess of purchase price over the fair value of net assets acquired, including identifiable intangible assets, is recorded as goodwill.

The amounts and useful lives assigned to acquisition-related tangible and intangible assets impact the amount and timing of future amortization expense.

The amounts and useful lives assigned to acquisition-related tangible and intangible assets impact the amount and timing of future amortization

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We use various valuation techniques to determine fair value, primarily discounted cash flows analysis, relief-from-royalty and multi-period excess earnings for estimating the value of intangible assets.

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Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis