Mastercard Inc 10-K

ITEM 7. 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 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. In 2020, GDV on a U.S. 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 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, 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 PART II ITEM 7. 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 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. Financial Results Revenue 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 $6.3 trillion was flat. Rebates and incentives increased 3%, or 4% on a currency-neutral basis, due to new and renewed deals partially offset by a favorable mix of volume-based incentives. Net revenue decreased 9%, or 8% on a currency-neutral basis, including 1 percentage point of growth from our acquisitions. See Note 3 (Revenue) to the consolidated financial statements included in Part II, Item 8 for a further discussion of how we recognize revenue. The components of net revenue were as follows: For the Years Ended December 31, Increase (Decrease) 2020 2019 2018 2020 2019 ($ in millions) Domestic assessments $ 6,656 $ 6,781 $ 6,138 (2)% 10% Cross-border volume fees 3,512 5,606 4,954 (37)% 13% Transaction processing 8,731 8,469 7,391 3% 15% Other revenues 4,717 4,124 3,348 14% 23% Gross revenue 23,616 24,980 21,831 (5)% 14% Rebates and incentives (contra-revenue) (8,315) (8,097) (6,881) 3% 18% Net revenue $ 15,301 $ 16,883 $ 14,950 (9)% 13% 48 MASTERCARD 2020 FORM 10-K PART II ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table summarizes the drivers of change in net revenue: For the Years Ended December 31, Volume Acquisitions Currency Impact 1 Other 2 Total 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Domestic assessments —% 13% —% —% (3)% (3)% 1 % 3 1 % 3 (2) % 10 % Cross-border volume fees (30)% 14% —% —% —% (3)% (7) % 2 % (37) % 13 % Transaction processing 3% 14% —% —% —% (2)% — % 3 % 3 % 15 % Other revenues ** ** 3% 2% (1)% (1)% 12 % 4 22 % 4 14 % 23 % 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 % Note: Table may not sum due to rounding ** Not applicable 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. The following tables provide a summary of the trend in volumes and transactions. For the Years Ended December 31, 2020 2019 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 % United States 2 % 2 % 10 % 10 % Cross-border volume 1 (29) % 16 % 1 Excludes volume generated by Maestro and Cirrus cards. For the Years Ended December 31, Increase/(Decrease) 2020 2019 Switched transactions 3 % 19 % No individual country, other than the United States, generated more than 10% of net revenue in any such period. A significant portion of our net revenue is concentrated among our five largest customers. In 2020, the net revenue from these customers was approximately $3.4 billion, or 22%, of total net revenue. The loss of any of these customers or their significant card programs could adversely impact our revenue. Operating Expenses Operating expenses were flat in 2020 versus the prior year. Adjusted operating expenses decreased 1% on both an as adjusted and a currency-neutral basis versus the prior year. Current year results include growth of approximately 4 percentage points from acquisitions. Excluding acquisitions, expenses declined 5% primarily due to reduced spending on advertising and marketing, travel and professional fees, partially offset by higher personnel and data processing costs to support continued investment in our strategic initiatives. MASTERCARD 2020 FORM 10-K 49 PART II ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The components of operating expenses were as follows: For the Years Ended December 31, Increase (Decrease) 2020 2019 2018 2020 2019 ($ in millions) General and administrative $ 5,910 $ 5,763 $ 5,174 3 % 11 % Advertising and marketing 657 934 907 (30) % 3 % Depreciation and amortization 580 522 459 11 % 14 % Provision for litigation 73 — 1,128 ** ** Total operating expenses 7,220 7,219 7,668 — % (6) % Special Items 1 (73) — (1,128) ** ** Adjusted operating expenses (excluding Special Items 1 ) $ 7,147 $ 7,219 $ 6,540 (1) % 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. The following table summarizes the drivers of changes in operating expenses: For the Years Ended December 31, Operational Special Items 1 Acquisitions Currency Impact 2 Total 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 General and administrative (1)% 11 % ** ** 4 % 2 % — % (2) % 3 % 11 % Advertising and marketing (30)% 5 % ** ** — % — % (1) % (2) % (30) % 3 % Depreciation and amortization 5% 9 % ** ** 6 % 7 % — % (2) % 11 % 14 % Provision for litigation ** ** ** ** ** ** ** ** ** ** Total operating expenses (5)% 10 % 1 % (16) % 4 % 2 % — % (2) % — % (6) % 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. 2 Represents the translational and transactional impact of currency. General and Administrative 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. 50 MASTERCARD 2020 FORM 10-K PART II ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The components of general and administrative expenses were as follows: 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% Data processing and telecommunications 756 666 600 14% 11% 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% Note: Table may not sum due to rounding. ** Not meaningful 1 Foreign exchange activity includes gains and losses on foreign exchange derivative contracts and the impact of remeasurement of assets and liabilities denominated in foreign currencies. See Note 23 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part II, Item 8 for further discussion. Advertising and Marketing 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 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 In 2020, we recorded $73 million related to various litigation settlements and legal costs. There were no litigation charges in the prior year. See Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for further discussion. Other Income (Expense) Other income (expense) was unfavorable in 2020 versus the prior year primarily due to increased interest expense related to our recent debt issuances, as well as lower net gains in the current year versus the prior year related to unrealized fair market value adjustments on marketable and non-marketable equity securities and a decrease in our investment income. The components of other income (expense) were as follows: For the Years Ended December 31, Increase (Decrease) 2020 2019 2018 2020 2019 ($ in millions) Investment Income $ 24 $ 97 $ 122 (75) % (21) % Gains (losses) on equity investments, net 30 167 — (82) % ** Interest expense (380) (224) (186) 70 % 20 % Other income (expense), net 5 27 (14) (81) % ** Total other income (expense) (321) 67 (78) ** ** Note: Table may not sum due to rounding. ** Not meaningful Income Taxes 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 2020 was higher than the prior year, primarily due to discrete tax benefits in 2019, partially offset by a more MASTERCARD 2020 FORM 10-K 51 PART II ITEM 7. 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 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. Liquidity and Capital Resources We rely on existing liquidity, cash generated from operations and access to capital to fund our global operations, credit and settlement exposure, capital expenditures, investments in our business and current and potential obligations. The following table summarizes the cash, cash equivalents, investments and credit available to us at December 31: 2020 2019 (in billions) Cash, cash equivalents and investments 1 $ 10.6 $ 7.7 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 $2.3 billion and $2.0 billion at December 31, 2020 and 2019, 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. 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 22 (Settlement and Other Risk Management) to the consolidated financial statements in Part II, Item 8 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 - Legal and Regulatory Risks and Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8. Cash Flow 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) Net cash provided by operating activities $ 7,224 $ 8,183 $ 6,223 Net cash used in investing activities (1,879) (1,640) (506) Net cash used in financing activities (2,152) (5,867) (4,966) 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. 52 MASTERCARD 2020 FORM 10-K PART II ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Debt and Credit Availability 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, 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. In addition, we may borrow and repay amounts under these facilities for business continuity purposes. We had no borrowings outstanding under the Commercial Paper Program or the Credit Facility at December 31, 2020. See Note 15 (Debt) to the consolidated financial statements included in Part II, Item 8 for further discussion on our debt, the Commercial Paper Program and the Credit Facility. Dividends and Share Repurchases We have historically paid quarterly dividends on our outstanding Class A common stock and Class B common stock. Subject to legally available funds, we intend to continue to pay a quarterly cash dividend. The declaration and payment of future dividends is at the sole discretion of our Board of Directors after taking into account various factors, including our financial condition, operating results, available cash and current and anticipated cash needs. 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) Cash dividend, per share $ 1.60 $ 1.32 $ 1.00 Cash dividends paid $ 1,605 $ 1,345 $ 1,044 On December 8, 2020, our Board of Directors declared a quarterly cash dividend of $0.44 per share paid on February 9, 2021 to holders of record on January 8, 2021 of our Class A common stock and Class B common stock. The aggregate amount of this dividend was $439 million. On February 8, 2021, our Board of Directors declared a quarterly cash dividend of $0.44 per share payable on May 7, 2021 to holders of record on April 9, 2021 of our Class A common stock and Class B common stock. The aggregate amount of this dividend is estimated to be $437 million. Repurchased shares of our common stock are considered treasury stock. 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 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) Remaining authorization at December 31, 2019 $ 8,304 Dollar-value of shares repurchased in 2020 $ 4,473 Remaining authorization at December 31, 2020 $ 9,831 Shares repurchased in 2020 14.3 Average price paid per share in 2020 $ 312.68 See Note 16 (Stockholders' Equity) to the consolidated financial statements included in Part II, Item 8 for further discussion. MASTERCARD 2020 FORM 10-K 53 PART II ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Critical Accounting Estimates The application of GAAP requires us to make estimates and assumptions about certain items and future events that directly affect our reported financial condition. Our significant accounting policies, including recent accounting pronouncements, are described in Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements included in Part II, Item 8. Revenue Recognition - Rebates and Incentives We enter into business agreements with certain customers that provide for rebates or support when customers meet certain volume thresholds as well as other support incentives, which are tied to customer performance. We consider various factors in estimating customer performance, including forecasted transactions, card issuance and card conversion volumes, expected payments and historical experience with that customer. Rebates and incentives are recorded as a reduction to gross revenue based on these estimates primarily when volume- and transaction- based revenues are recognized over the contractual term. Differences between actual results and our estimates are adjusted in the period the customer reports actual performance. If our customers’ actual performance is not consistent with our estimates of their performance, net revenue may be materially different. Loss Contingencies We are currently involved in various claims and legal proceedings. We regularly review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the determination of probability and whether an exposure is reasonably estimable. Our judgments are subjective based on the status of the legal or regulatory proceedings, the merits of our defenses and consultation with in-house and outside legal counsel. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may revise our estimates. Due to the inherent uncertainties of the legal and regulatory process in the multiple jurisdictions in which we operate, our judgments may be materially different than the actual outcomes. Income Taxes In calculating our effective income tax rate, estimates are required regarding the timing and amount of taxable and deductible items which will adjust the pretax income earned in various tax jurisdictions. Through our interpretation of local tax regulations, adjustments to pretax income for income earned in various tax jurisdictions are reflected within various tax filings. Although we believe that our estimates and judgments discussed herein are reasonable, actual results may be materially different than the estimated amounts. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Significant judgment is required in determining the valuation allowance. In assessing the need for a valuation allowance, we consider all sources of taxable income including, projected future taxable income, reversing taxable temporary differences and ongoing tax planning strategies. If it is determined that we are able to realize deferred tax assets in excess of the net carrying value or to the extent we are unable to realize a deferred tax asset, we would adjust the valuation allowance in the period in which such a determination is made, with a corresponding increase or decrease to earnings. We record tax liabilities for uncertain tax positions taken, or expected to be taken, which may not be sustained or may only be partially sustained, upon examination by the relevant taxing authorities. We consider all relevant facts and current authorities in the tax law in assessing whether any benefit resulting from an uncertain tax position is more likely than not to be sustained and, if so, how current law impacts the amount reflected within these financial statements. If upon examination, we realize a tax benefit which is not fully sustained or is more favorably sustained, this would decrease or increase earnings in the period. In certain situations, we will have offsetting tax credits or taxes in other jurisdictions. Deferred taxes are established on the estimated foreign exchange gains or losses for foreign earnings that are not considered permanently reinvested, which will be recognized through cumulative translation adjustments as incurred. Ultimately, the working capital requirements of foreign affiliates will determine the amount of cash to be remitted from respective jurisdictions. Business Combinations We account for our business combinations using the acquisition method of accounting. 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 54 MASTERCARD 2020 FORM 10-K PART II ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS expense. We use various valuation techniques to determine fair value, primarily discounted cash flows analysis, relief-from-royalty and multi-period excess earnings for estimating the value of intangible assets. These valuation techniques included comparable company multiples, discount rates, growth projections and other assumptions of future business conditions. Determining the fair value of assets acquired, liabilities assumed, any non-controlling interest in the acquiree and the expected useful lives, requires management’s judgment. The significance of management’s estimates and assumptions is relative to the size of the acquisition. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.