What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-02-11 compared with 2021-02-12 · 295 added, 290 removed, 1262 unchanged (32% of the section changed)

7 unchanged sentences

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 and reporting currencies, principally the U.S.

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.

3 unchanged sentences

This risk is typically limited to a few days between when a payment transaction takes place and the subsequent settlement with our customers.

The effect of a hypothetical 10% adverse change in the value of the functional currencies could result in a fair value loss of approximately $23 million on our short duration foreign exchange derivative contracts outstanding at December 31, 2020.

The Company did not have any outstanding short duration foreign exchange derivative contracts related to this activity at December 31, 2019.

The effect of a hypothetical 10% adverse change in the value of the functional currencies could result in a fair value loss of approximately $1 million and $23 million on our short duration foreign exchange derivative contracts outstanding at December 31, 2021 and 2020, respectively.

We are further exposed to foreign exchange rate risk related to translation of our foreign operating results where the functional currency is different than our U.S.

dollar reporting currency.

To manage this risk, we may enter into foreign exchange derivative contracts to hedge a portion of our net investment in foreign subsidiaries.

The effect of a hypothetical 10% adverse change in the value of the U.S.

dollar could result in a fair value loss of approximately $165 million on our foreign exchange derivative contracts designated as a net investment hedge at December 31, 2021, before considering the offsetting effect of the underlying hedged activity.

We did not have similar foreign exchange derivative contracts outstanding as of December 31, 2020.

Interest Rate Risk

2 unchanged sentences

A hypothetical 100 basis point adverse change in interest rates would not have a material impact to the fair value of our investments at December 31, 2021 and 2020.

We are also exposed to interest rate risk related to our fixed-rate debt.

To manage this risk, we may enter into interest rate derivative contracts to hedge a portion of our fixed-rate debt that is exposed to changes in fair value attributable to changes in a benchmark interest rate.

The effect of a hypothetical 100 basis point adverse change in interest rates could result in a fair value loss of $49 million on our interest rate derivative contracts designated as a fair value hedge of our fixed-rate debt at December 31, 2021, before considering the offsetting effect of the underlying hedged activity.

We did not have similar interest rate derivative contracts outstanding as of December 31, 2020.

58 MASTERCARD 2021 FORM 10-K

5 unchanged sentences

Management’s report on internal control over financial reporting

Report of independent registered public accounting firm

Report of independent registered public accounting firm (PCAOB ID 238 )

Consolidated Statement of Operations

19 unchanged sentences

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Mastercard Incorporated and its subsidiaries (the “Company”) as of December 31, 2020 and 2019 and the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheet of Mastercard Incorporated and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

27 unchanged sentences

Revenue Recognition - Rebates and Incentives

As described in Notes 1 and 3 to the consolidated financial statements, the Company provides certain customers with rebates or incentives which totaled $8.3 billion for the year ended December 31, 2020.

The Company has business agreements with certain customers that provide for rebates or other support when customers meet certain volume hurdles as well as other support incentives, which are tied to performance.

Rebates and incentives are recorded as a reduction of gross revenue primarily when volume- and transaction-based revenues are recognized over the contractual term.

Rebates and incentives are calculated based upon estimated customer performance and the terms of the related business agreements.

As described in Notes 1 and 3 to the consolidated financial statements, the Company provides certain customers with rebates and incentives which totaled $11.0 billion for the year ended December 31, 2021.

The Company has business agreements with certain customers that provide for rebates and incentives that could be either fixed or variable-based.

Variable rebates and incentives are recorded as a reduction of gross revenue primarily when volume- and transaction-based revenues are recognized over the contractual term.

Variable rebates and incentives are calculated based upon estimated customer performance, such as volume thresholds, and the terms of the related business agreements.

As disclosed by management, various factors are considered in estimating customer performance, including forecasted transactions, card issuance and card conversion volumes, expected payments and historical experience with that customer.

3 unchanged sentences

These procedures included testing the effectiveness of controls relating to rebates and incentives, including controls over evaluating estimated customer performance.

These procedures also included, among others, evaluating the reasonableness of estimated customer performance for a sample of customer agreements, including (i) evaluating rebate and incentive contracts to identify whether all incentives are identified and recorded accurately;

These procedures also included, among others, evaluating the reasonableness of estimated customer performance for a sample of customer agreements, including (i) evaluating the agreements to identify whether all rebates and incentives are identified and recorded accurately;

(ii) testing management’s process for developing estimated customer performance, including evaluating the reasonableness of the various applicable factors considered by management;

43 unchanged sentences

Foreign currency translation adjustments, net of income tax effect ( 387 ) 286 23

Translation adjustments on net investment hedge ( 177 ) 36 96

Translation adjustments on net investment hedges 269 ( 177 ) 36

Income tax effect ( 60 ) 40 ( 8 )

Translation adjustments on net investment hedge, net of income tax effect ( 137 ) 28 75

Translation adjustments on net investment hedges, net of income tax effect 209 ( 137 ) 28

Cash flow hedges 6 ( 189 ) 14

24 unchanged sentences

Accounts receivable 3,006 2,646

Settlement due from customers 1,706 2,995

Settlement assets 1,319 1,706

Restricted security deposits held for customers 1,873 1,696

10 unchanged sentences

Accounts payable $ 738 $ 527

Settlement due to customers 1,475 2,714

Settlement obligations 913 1,475

Restricted security deposits held for customers 1,873 1,696

14 unchanged sentences

Class B common stock, $ 0.0001 par value;

authorized 1,200 shares, 8 and 11 shares issued and outstanding, respectively

authorized 1,200 shares, 8 shares issued and outstanding

Additional paid-in-capital 5,061 4,982

21 unchanged sentences

Balance at December 31, 2018 $ — $ — $ 4,580 $ ( 25,750 ) $ 27,283 $ ( 718 ) $ 5,395 $ 23 $ 5,418

Adoption of revenue standard — — — — 366 — 366 — 366

Adoption of intra-entity asset transfers standard — — — — ( 183 ) — ( 183 ) — ( 183 )

Net income — — — — 8,118 — 8,118 — 8,118

28 unchanged sentences

Activity related to non-controlling interests — — — — — — — ( 9 ) ( 9 )

Acquisition of non-controlling interest — — ( 122 ) — — — ( 122 ) ( 17 ) ( 139 )

Redeemable non-controlling interest adjustments — — — — ( 5 ) — ( 5 ) ( 5 )

23 unchanged sentences

Income taxes receivable ( 87 ) ( 2 ) ( 202 )

Settlement due from customers 1,288 ( 444 ) ( 1,078 )

Settlement assets 390 1,288 ( 444 )

Prepaid expenses ( 2,087 ) ( 1,552 ) ( 1,661 )

2 unchanged sentences

Accounts payable 100 26 ( 42 )

Settlement due to customers ( 1,242 ) 477 849

Settlement obligations ( 568 ) ( 1,242 ) 477

Accrued expenses 1,355 ( 114 ) 657

11 unchanged sentences

Purchases of equity investments ( 228 ) ( 214 ) ( 467 )

Proceeds from sales of equity investments 186 — —

Acquisition of businesses, net of cash acquired ( 4,436 ) ( 989 ) ( 1,440 )

8 unchanged sentences

Acquisition of redeemable non-controlling interests — ( 49 ) —

Acquisition of non-controlling interest ( 133 ) — —

Contingent consideration paid ( 64 ) — ( 199 )

4 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents ( 153 ) 257 ( 44 )

Net increase in cash, cash equivalents, restricted cash and restricted cash equivalents 3,450 632 745

Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents ( 2,517 ) 3,450 632

Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period 12,419 8,969 8,337

6 unchanged sentences

Mastercard Incorporated and its consolidated subsidiaries, including Mastercard International Incorporated (“Mastercard International” and together with Mastercard Incorporated, “Mastercard” or the “Company”), is a technology company in the global payments industry that connects consumers, financial institutions, merchants, governments, digital partners, businesses and other organizations worldwide, enabling them to use electronic forms of payment instead of cash and checks.

The Company makes payments easier and more efficient by providing a wide range of payment solutions and services through its family of well-known brands, including Mastercard®, Maestro® and Cirrus®.

The Company operates a multi-rail network that offers customers one partner to turn to for their domestic and cross-border payment needs.

Through its unique and proprietary global payments network, which is referred to as the core network, the Company switches (authorizes, clears and settles) payment transactions and delivers related products and services.

Mastercard has additional payment capabilities that include automated clearing house (“ACH”) transactions (both batch and real-time account-based payments).

The Company also provides integrated value-added offerings such as cyber and intelligence products, information and analytics services, consulting, loyalty and reward programs, processing and open banking.

The Company’s payment solutions offer customers choice and flexibility and are designed to ensure safety and security for the global payments system.

A typical transaction on the Company’s core network involves four participants in addition to the Company:

account holder (a person or entity who holds a card or uses another device enabled for payment), issuer (the account holder’s financial institution), merchant and acquirer (the merchant’s financial institution).

The Company makes payments easier and more efficient by providing a wide range of payment solutions and services through its family of well-known and trusted brands, including Mastercard®, Maestro® and Cirrus®.

The Company operates a multi-rail payments network that provides choice and flexibility for consumers and merchants.

Through its unique and proprietary core global payments network, the Company switches (authorizes, clears and settles) payment transactions.

The Company has additional payment capabilities that include automated clearing house (“ACH”) transactions (both batch and real-time account-based payments).

Using these capabilities, the Company offers integrated payment products and services and captures new payment flows.

The Company’s value-added services include, among others, cyber and intelligence solutions to allow all parties to transact easily and with confidence, as well as other services that provide proprietary insights, drawing on Mastercard’s principled use of consumer and merchant data.

The Company’s franchise model sets the standards and ground-rules that balance value and risk across all stakeholders and allows for interoperability among them.

The Company’s payment solutions are designed to ensure safety and security for the global payments ecosystem.

Mastercard is not a financial institution.

The Company does not issue cards, extend credit, determine or receive revenue from interest rates or other fees charged to account holders by issuers, or establish the rates charged by acquirers in connection with merchants’ acceptance of the Company’s products.

2 unchanged sentences

Consolidation and basis of presentation - The consolidated financial statements include the accounts of Mastercard and its majority-owned and controlled entities, including any variable interest entities (“VIEs”) for which the Company is the primary beneficiary.

Investments in VIEs for which the Company is not considered the primary beneficiary are not consolidated and are accounted for as equity method or measurement alternative method investments and recorded in other assets on the consolidated balance sheet.

Investments in VIEs for which the Company is not considered the primary beneficiary are not consolidated and are accounted for as marketable, equity method or measurement alternative method investments and recorded in other assets on the consolidated balance sheet.

At December 31, 2021 and 2020, there were no significant VIEs which required consolidation and the investments were not considered material to the consolidated financial statements.

The Company consolidates acquisitions as of the date in which the Company has obtained a controlling financial interest.

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.

4 unchanged sentences

Use of estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.

Future events and their effects cannot be predicted with certainty, including the potential impacts and duration of the COVID-19 pandemic, as well as other factors;

Future events and their effects cannot be predicted with certainty;

accordingly, accounting estimates require the exercise of judgment.

3 unchanged sentences

Revenue recognition - Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services.

Revenue is primarily generated from assessing customers based on the dollar volume of activity, or gross dollar volume, on the products that carry the Company’s brands, from fees to issuers, acquirers and other stakeholders for providing switching services, as well as from value-added products and services that are typically integrated and sold with the Company’s payment offerings.

Revenue is primarily generated from assessing customers based on the dollar volume of activity, or gross dollar volume (“GDV”), on the products that carry the Company’s brands, from fees to issuers, acquirers and other stakeholders for providing switching services, as well as from value-added products and services that are often integrated and sold with the Company’s payment offerings.

MASTERCARD 2021 FORM 10-K 69

5 unchanged sentences

For services provided to customers where delivery involves the use of a third-party, the Company recognizes revenue on a gross basis if it acts as the principal, controlling the service to the customer and on a net basis if it acts as the agent, arranging for the service to be provided.

Mastercard has business agreements with certain customers that provide for rebates or other support when the customers meet certain volume hurdles as well as other support incentives, which are tied to performance.

Rebates and incentives are recorded as a reduction of gross revenue primarily when volume- and transaction-based revenues are recognized over the contractual term.

Rebates and incentives are calculated based upon estimated customer performance and the terms of the related business agreements.

In addition, Mastercard may make payments to a customer directly related to entering into an agreement, which are generally capitalized and amortized over the life of the agreement on a straight-line basis.

Contract assets include unbilled consideration typically resulting from executed data analytic and consulting services performed for customers in connection with Mastercard’s payment network service arrangements.

Mastercard has business agreements with certain customers that provide for rebates and incentives that could be either fixed or variable-based.

Fixed incentives typically represent payments to a customer directly related to entering into an agreement, which are generally capitalized and amortized over the life of the agreement on a straight-line basis as a reduction of gross revenue.

Variable rebates and incentives are recorded as a reduction of gross revenue primarily when volume- and transaction-based revenues are recognized over the contractual term.

Variable rebates and incentives are calculated based upon estimated customer performance, such as volume thresholds, and the terms of the related business agreements.

Collection for these services typically occurs over the contractual term.

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Capitalized software includes internal and external costs incurred directly related to the design, development and testing phases of each capitalized software project.

The valuation methods for goodwill and other intangible assets acquired in business combinations involve assumptions concerning comparable company multiples, discount rates, growth projections and other assumptions of future business conditions.

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

As the assumptions employed to measure these assets are based on management’s judgment using internal and external data, these fair value determinations are classified in Level 3 of the Valuation Hierarchy (as defined in Fair value subsection below).

Impairment of assets - Goodwill and indefinite-lived intangible assets are not amortized but tested annually for impairment at the reporting unit level in the fourth quarter, or sooner when circumstances indicate an impairment may exist.

2 unchanged sentences

If it is determined that it is more likely than not that goodwill is impaired, then the Company is required to perform a quantitative goodwill impairment test.

If the fair value of a reporting unit exceeds the carrying value, goodwill is not impaired.

If the fair value of the reporting unit exceeds the carrying value, goodwill is not impaired.

If the fair value of the reporting unit is less than its carrying value, then goodwill is impaired and the excess of the reporting unit’s carrying value over the fair value is recognized as an impairment charge.

1 unchanged sentence

If the qualitative assessment indicates that it is more likely than not that indefinite-lived intangible assets are impaired, then a quantitative assessment is required.

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Long-lived assets, other than goodwill and indefinite-lived intangible assets, are tested for impairment whenever events or circumstances indicate that their carrying amount may not be recoverable.

2 unchanged sentences

Impairment charges, if any, are recorded in general and administrative expenses on the consolidated statement of operations.

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Litigation - The Company is a party to certain legal and regulatory proceedings with respect to a variety of matters.

25 unchanged sentences

The funds continue to be restricted for payments until the litigation matter is resolved.

• Restricted security deposits held for customers - The Company requires collateral from certain customers for settlement of their transactions.

The majority of collateral for settlement is in the form of standby letters of credit and bank guarantees which are not recorded on the consolidated balance sheet.

Additionally, the Company holds cash deposits and certificates of deposit from certain customers as collateral for settlement of their transactions, which are recorded as assets on the consolidated balance sheet.

• Restricted security deposits held for customers - The Company requires certain customers to enter into risk mitigation arrangements, including cash collateral and/or other forms of credit enhancement such as letters of credit and guarantees, for settlement of their transactions.

Certain risk mitigation arrangements for settlement, such as standby letters of credit and bank guarantees, are not recorded on the consolidated balance sheet.

The Company also holds cash deposits and certificates of deposit from certain customers as collateral for settlement of their transactions, which are recorded as assets on the consolidated balance sheet.

These assets are fully offset by corresponding liabilities included on the consolidated balance sheet.

2 unchanged sentences

These funds are classified on the consolidated balance sheet within prepaid expenses and other current assets and other assets.

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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair value - The Company measures certain financial assets and liabilities at fair value on a recurring basis by estimating the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants.

The Company classifies these recurring fair value measurements into a three-level hierarchy (“Valuation Hierarchy”).

The Company also measures certain financial and non-financial assets and liabilities at fair value on a non-recurring basis, when a change in fair value or impairment is evidenced.

The Company classifies these recurring and non-recurring fair value measurements into a three-level hierarchy (“Valuation Hierarchy”).

The Valuation Hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

2 unchanged sentences

• Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets

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• Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in inactive markets and inputs that are observable for the asset or liability

• Level 3 - inputs to the valuation methodology are unobservable and cannot be directly corroborated by observable market data

Certain assets are measured at fair value on a nonrecurring basis.

The Company’s non-financial assets measured at fair value on a nonrecurring basis include property, equipment and right-of-use assets, goodwill and other intangible assets.

These assets are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

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

The Company’s financial assets and liabilities measured at fair value on a recurring basis include investment securities available for sale, marketable securities, derivative instruments and deferred compensation.

The Company’s financial assets and liabilities measured at fair value on a non-recurring basis include nonmarketable securities, debt and other financial instruments.

The Company’s non-financial assets measured at fair value on a non-recurring basis include property, equipment and right-of-use assets, goodwill and other intangible assets and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

Contingent consideration - Certain business combinations involve the potential for future payment of consideration that is contingent upon the achievement of performance milestones.

17 unchanged sentences

◦ Time deposits - The Company classifies time deposits with original maturities greater than three months as held-to-maturity.

Held-to-maturity securities that mature within one year are classified as current assets within investments on the consolidated balance sheet while held-to-maturity securities with maturities of greater than one year are classified as non-current assets.

Time deposits are carried at amortized cost on the consolidated balance sheet and are intended to be held until maturity.

2 unchanged sentences

Equity investments - The Company holds equity securities of publicly traded and privately held companies.

• Marketable equity securities - Marketable equity securities are strategic investments in publicly traded companies and are measured at fair value using quoted prices in their respective active markets with changes recorded through gain (losses) on equity investments, net on the consolidated statement of operations.

• Marketable equity securities - Marketable equity securities are strategic investments in publicly traded companies and are measured at fair value using quoted prices in their respective active markets with changes recorded through gains (losses) on equity investments, net on the consolidated statement of operations.

Securities that are not for use in current operations are classified in other assets on the consolidated balance sheet.

1 unchanged sentence

The Company uses discounted cash flows and market assumptions to estimate the fair value of its nonmarketable equity investments when certain events or circumstances indicate that impairment may exist.

The Company’s nonmarketable equity investments are accounted for under the equity method or measurement alternative method.

◦ Equity method - The Company accounts for investments in common stock or in-substance common stock under the equity method of accounting when it has the ability to exercise significant influence over the investee, generally when it holds between 20 % and 50 % ownership in the entity.

The Company’s nonmarketable equity investments are accounted for under the measurement alternative method or equity method.

◦ Measurement alternative method - The Company accounts for investments in common stock or in-substance common stock under the measurement alternative method of accounting when it does not exercise significant influence, generally when it holds less than 20 % ownership in the entity or when the interest in a limited partnership or limited liability company is less than 5 % and the Company has no significant influence over the operations of the investee.

Investments in companies that Mastercard does not control, but that are not in the form of common stock or in-substance common stock, are also accounted for under the measurement alternative method of accounting.

Measurement alternative investments are measured at cost, less any impairment and adjusted for changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.

Fair value adjustments, as well as impairments, are included in gains (losses) on equity investments, net on the consolidated statement of operations.

◦ Equity method - The Company accounts for investments in common stock or in-substance common stock under the equity method of accounting when it has the ability to exercise significant influence over the operations of the investee, generally when it holds between 20 % and 50 % ownership in the entity.

The excess of the cost over the underlying net equity of investments accounted for under the equity method is allocated to identifiable tangible and intangible assets and liabilities based on fair values at the date of acquisition.

The amortization of the excess of the cost over the underlying net equity of investments and Mastercard’s share of net earnings or losses of entities accounted for under the equity method of accounting is included in other income (expense), net on the consolidated statement of operations.

In addition, investments in flow-through entities such as limited partnerships and limited liability companies are also accounted for under the equity method when the Company has the ability to exercise significant influence over the investee, generally when the investment ownership percentage is equal to or greater than 5 % of the outstanding ownership interest.

In addition, investments in flow-through entities such as limited partnerships and limited liability companies are also accounted for under the equity method when the Company has the ability to exercise significant influence over the operations of the investee, generally when the investment ownership percentage is equal to or greater than 5 % of the outstanding ownership interest.

The Company’s share of net earnings or losses for these investments are included in gains (losses) on equity investments, net on the consolidated statement of operations.

Fair value adjustments, as well as impairments, are included in gain (losses) on equity investments, net on the consolidated statement of operations.

Derivative and hedging instruments - The Company’s derivative financial instruments are recorded as either assets or liabilities on the balance sheet and measured at fair value.

The Company’s foreign exchange and interest rate derivative contracts are included in Level 2 of the Valuation Hierarchy as the fair value of the contracts are based on inputs, which are observable based on broker quotes for the same or similar instruments.

The Company does not enter into derivative contracts for trading or speculative purposes.

For derivative contracts that are not designated as hedging instruments, realized and unrealized gains and losses from the change in fair value of the contracts are recognized in current earnings.

The Company does not enter into derivative instruments for trading or speculative purposes.

For derivatives that are not designated as hedging instruments, realized and unrealized gains and losses from the change in fair value of the derivatives are recognized in current earnings.

The Company’s derivatives that are designated as hedging instruments are required to meet established accounting criteria.

1 unchanged sentence

The method of assessing hedge effectiveness and measuring hedge results is formally documented at hedge inception and assessed at least quarterly throughout the designated hedge period.

For cash flow hedges, the fair value adjustments are recorded, net of tax, in other comprehensive income (loss) on the consolidated statement of comprehensive income.

The Company may designate derivative instruments as cash flow, fair value and net investment hedges, as follows:

• Cash flow hedges - Fair value adjustments to derivative instruments are recorded, net of tax, in other comprehensive income (loss) on the consolidated statement of comprehensive income.

Any gains and losses deferred in accumulated other comprehensive income (loss) are subsequently reclassified to the corresponding line item on the consolidated statement of operations when the underlying hedged transactions impact earnings.

For hedging instruments that are no longer deemed highly effective, hedge accounting is discontinued prospectively, and any gains and losses remaining in accumulated other comprehensive income (loss) are reclassified to earnings when the underlying forecasted transaction occurs.

For hedges that are no longer deemed highly effective, hedge accounting is discontinued prospectively, and any gains and losses remaining in accumulated other comprehensive income (loss) are reclassified to earnings when the underlying forecasted transaction occurs.

If it is probable that the forecasted transaction will no longer occur, the associated gains or losses in accumulated other comprehensive income (loss) are reclassified to the corresponding line item on the consolidated statement of operations in current earnings.

The Company has numerous investments in its foreign subsidiaries.

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• Fair value hedges - Changes in the fair value of derivative instruments are recorded in current-period earnings, along with the gain or loss on the hedged asset or liability (“hedged item”) that is attributable to the hedged risk.

All amounts recognized in earnings are recorded to the corresponding line item on the consolidated statement of operations as the earnings effect of the hedged item.

Hedged items are measured on the consolidated balance sheet at their carrying amount adjusted for any changes in fair value attributable to the hedged risk (“basis adjustments”).

The Company defers the amortization of any basis adjustments until the end of the derivative instrument’s term.

If the hedge designation is discontinued for reasons other than derecognition of the hedged item, the remaining basis adjustments are amortized in accordance with applicable GAAP for the hedged item.

• Net investment hedges - The Company has numerous investments in foreign subsidiaries.

The net assets of these subsidiaries are exposed to volatility in foreign currency exchange rates.

1 unchanged sentence

The effective portion of the foreign currency gains and losses related to the hedging instruments are reported in accumulated other comprehensive income (loss) on the consolidated balance sheet as a cumulative translation adjustment component of equity.

Amounts excluded from

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effectiveness testing of net investment hedges are recognized in earnings over the life of the hedging instrument.

Gains and losses in accumulated other comprehensive income (loss) are reclassified to earnings only if the Company sells or substantially liquidates its net investments in foreign subsidiaries.

Amounts excluded from effectiveness testing of net investment hedges are recognized in earnings over the life of the hedging instrument.

The Company evaluates the effectiveness of the net investment hedge each quarter.

Settlement due from/due to customers - The Company operates systems for clearing and settling payment transactions among customers.

Net settlements are generally cleared daily among customers through settlement cash accounts by wire transfer or other bank clearing means.

However, some transactions may not settle until subsequent business days, resulting in amounts due from and due to customers.

Settlement assets/obligations - The Company operates systems for settling payment transactions among participants in the payments ecosystem in which the Company operates.

Settlement is generally completed on a same-day basis, however, in some circumstances, funds may not settle until subsequent business days.

In addition, the Company may receive or post funds in advance of transactions related to certain payment capabilities over its multi-rail payments network.

The Company classifies the balances arising from these various activities as settlement assets and settlement obligations.

Property, equipment and right-of-use assets - Property and equipment are stated at cost less accumulated depreciation and amortization.

22 unchanged sentences

When available, consideration is allocated to the separate lease and nonlease components in a lease contract on a relative standalone price basis using observable standalone prices.

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Pension and other postretirement plans - The Company recognizes the funded status of its single-employer defined benefit pension plans and postretirement plans as assets or liabilities on its consolidated balance sheet and recognizes changes in the funded status in the year in which the changes occur through accumulated other comprehensive income (loss).

1 unchanged sentence

Overfunded plans, if any, are aggregated and recorded in other assets, while underfunded plans are aggregated and recorded as accrued expenses and other liabilities on the consolidated balance sheet.

Net periodic pension and postretirement benefit cost/(income), excluding the service cost component, is recognized in other income (expense) on the consolidated statement of operations.

Net periodic pension and postretirement benefit cost/(income), excluding the service cost component, is recognized in other income (expense), net on the consolidated statement of operations.

These costs include interest cost, expected return on plan assets, amortization of prior service costs or credits and gains or losses previously recognized as a component of accumulated other comprehensive income (loss).

2 unchanged sentences

The charge is recorded in general and administrative expenses on the consolidated statement of operations.

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Advertising and marketing - Expenses incurred to promote Mastercard’s brand, products and services are recognized in advertising and marketing on the consolidated statement of operations.

24 unchanged sentences

If redemption value exceeds the fair value of the redeemable non-controlling interests, the excess would be a reduction to net income for the EPS calculation.

Accounting pronouncements not yet adopted

Simplifying the accounting for income taxes - In December 2019, the FASB issued accounting guidance to simplify the accounting for income taxes.

This guidance includes the removal of certain exceptions to the general income tax accounting principles and provides clarity and simplification to other areas of income tax accounting by amending the existing guidance.

The guidance is effective for periods beginning after December 15, 2020.

The Company will adopt this guidance effective January 1, 2021 and does not expect the impacts to be material.

Reference Rate Reform - In March 2020, the FASB issued accounting guidance to provide temporary optional expedients and exceptions to the current contract modifications and hedge accounting guidance in light of the expected market transition from LIBOR to alternative rates.

The new guidance provides optional expedients and exceptions to transactions affected by reference rate reform if certain criteria are met.

The transactions primarily include (1) contract modifications, (2) hedging relationships, and (3) sale or transfer of debt securities classified as held-to-maturity.

The amendments were effective immediately upon issuance of the update.

Companies may elect to adopt the amendments prospectively to transactions existing as of or entered from the date of adoption through December 31, 2022.

The Company does not expect the impacts to be material.

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In 2020 and 2019, the Company acquired several businesses for total consideration of $ 1.1 billion and $ 1.5 billion, respectively, representing both cash and contingent consideration.

There were no acquisitions in 2018.

Accounting pronouncements not yet adopted

Accounting for contract assets and contract liabilities in a business combination - In October 2021, the Financial Accounting Standards Board issued accounting guidance that requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers .

The guidance is effective for periods beginning after December 15, 2022 with early adoption permitted.

The Company will early adopt this guidance effective January 1, 2022 and does not expect the impacts to be material.

In 2021, 2020 and 2019, the Company acquired several businesses for total consideration of $ 4.7 billion, $ 1.1 billion and $ 1.5 billion, respectively, representing both cash and contingent consideration.

These acquisitions align with the Company’s strategy to grow, diversify and build the Company’s business.

1 unchanged sentence

The residual value allocated to goodwill is primarily attributable to the synergies expected to arise after the acquisition date and a majority of the goodwill is not expected to be deductible for local tax purposes.

In 2020, the Company finalized the purchase accounting for businesses acquired during 2019 and $ 185 million of the businesses acquired in 2020.

The Company is evaluating and finalizing the purchase accounting for the remainder of the businesses acquired during 2020.

The preliminary estimated and final fair values of the purchase price allocations in aggregate, as of the acquisition dates, are noted below for the years ended December 31.

On March 5, 2021, Mastercard acquired a majority of the Corporate Services business of Nets Denmark A/S (“Nets”) for € 3.0 billion (approximately $ 3.6 billion as of the date of acquisition) in cash consideration based on a € 2.85 billion enterprise value, adjusted for cash and net working capital at closing.

The business acquired is primarily comprised of clearing and instant payment services and e-billing solutions.

In relation to this acquisition, the Company’s preliminary estimate of net assets acquired primarily relates to intangible assets, including goodwill of $ 2.1 billion, of which $ 0.8 billion is expected to be deductible for local tax purposes.

The goodwill arising from this acquisition is primarily attributable to the synergies expected to arise through geographic, product and customer expansion, the underlying technology and workforce acquired.

On June 9, 2021, Mastercard acquired a 100 % equity interest in Ekata, Inc.

(“Ekata”) for cash consideration of $ 861 million, based on an $ 850 million enterprise value, adjusted for cash and net working capital at closing.

The acquisition of Ekata is expected to broaden the Company’s digital identity verification capabilities.

The residual value allocated to goodwill is primarily attributable to the synergies expected to arise after the acquisition date and none of the goodwill is expected to be deductible for local tax purposes.

Mastercard acquired additional businesses in 2021 for consideration of $ 272 million.

These businesses were not considered individually material to Mastercard.

Among the businesses acquired in 2020, the largest acquisition relates to Finicity Corporation (“Finicity”), an open-banking provider, headquartered in Salt Lake City, Utah.

On November 18, 2020, Mastercard acquired 100 % equity interest in Finicity for cash consideration of $ 809 million.

In addition, the Finicity sellers earned additional contingent consideration of $ 64 million upon meeting 2021 revenue targets in accordance with terms of the purchase agreement.

The additional businesses acquired in 2020 and the businesses acquired in 2019 were not considered individually material to Mastercard.

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The Company is evaluating and finalizing the purchase accounting for the businesses acquired during 2021.

In 2021, the Company finalized the purchase accounting for businesses acquired during 2020.

The estimated and final fair values of the purchase price allocations in aggregate, as of the acquisition dates, are noted below for the years ended December 31.

2021 2020 2019

(in millions)

18 unchanged sentences

Other intangible assets $ 2,071 $ 237 $ 395 17.5 9.0 9.7

Pro forma information related to the acquisitions was not included because the impact on the Company's consolidated results of operations was not considered to be material.

Among the businesses acquired in 2020, the largest acquisition relates to Finicity Corporation (“Finicity”), an open-banking provider, headquartered in Salt Lake City, Utah.

On November 18, 2020, Mastercard acquired 100 % equity interest in Finicity for cash consideration of $ 809 million.

In addition, the Finicity sellers have the potential to earn contingent consideration of up to $ 160 million if certain revenue targets are met in 2021.

As of the acquisition date, the fair value of the contingent consideration was $ 71 million.

The businesses acquired in 2019 were not individually significant to Mastercard.

Proforma information related to these acquisitions was not included because the impact on the Company's consolidated results of operations was not considered to be material.

Pending Acquisition

In August 2019, Mastercard entered into a definitive agreement to acquire the majority of the Corporate Services business of Nets Denmark A/S, for € 2.85 billion (approximately $ 3.5 billion as of December 31, 2020 ) after adjusting for cash and certain other

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liabilities at closing.

The pending acquisition primarily comprises the clearing and instant payment services, and e-billing solutions of Nets Denmark A/S’s Corporate Services business.

The Company has secured conditional approval from the European Commission and, subject to other closing conditions, anticipates completing the acquisition in the first quarter of 2021, or shortly thereafter.

As of December 31, 2021, Mastercard has entered into a definitive agreement to acquire Dynamic Yield LTD.

This acquisition is expected to close in the second quarter of 2022.

Mastercard’s core network involves four participants in addition to the Company:

1 unchanged sentence

Revenue from contracts with customers is recognized when services are performed in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those services.

Revenue recognized from domestic assessments, cross-border volume fees and transaction processing are derived from Mastercard’s payment network services.

Revenue is primarily generated by charging fees to issuers, acquirers and other stakeholders for providing switching services, as well as by assessing customers based primarily on the dollar volume of activity, or gross dollar volume, on the products that carry the Company’s brands.

Revenue recognized from domestic assessments, cross-border volume fees and transaction processing are derived from Mastercard’s payments network services.

Revenue is primarily generated by charging fees to issuers, acquirers and other stakeholders for providing switching services, as well as by assessing customers based primarily on the dollar volume of activity, or GDV, on the products that carry the Company’s brands.

Revenue is generally derived from information accumulated by Mastercard’s systems or reported by customers.

In addition, the Company generates other revenues from value-added products and services that are typically integrated and sold with the Company’s payment offerings and are recognized as revenue in the period in which the related transactions occur or services are performed.

In addition, the Company generates other revenues from value-added products and services, often integrated and sold with the Company’s payment offerings, that are recognized as revenue in the period in which the related transactions occur or services are performed.

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The price structure for Mastercard’s products and services is dependent on the nature of volumes, types of transactions and type of products and services offered to customers.

3 unchanged sentences

• volumes/transactions subject to tiered rates

• processed or not processed by the Company

• switched or not switched by the Company

• amount of usage of the Company’s other products or services

8 unchanged sentences

• Switched transaction revenue is generated from the following products and services:

◦ Authorization is the process by which a transaction is routed to the issuer for approval.

◦ Authorization, which is the process by which a transaction is routed to the issuer for approval.

In certain circumstances, such as when the issuer’s systems are unavailable or cannot be contacted, Mastercard or others approve such transactions on behalf of the issuer in accordance with either the issuer’s instructions or applicable rules (also known as “stand-in”).

◦ Clearing is the determination and exchange of financial transaction information between issuers and acquirers after a transaction has been successfully conducted at the point of interaction.

◦ Clearing, which is the determination and exchange of financial transaction information between issuers and acquirers after a transaction has been successfully conducted at the point of interaction.

Transactions are cleared among customers through Mastercard’s central and regional processing systems.

◦ Settlement is facilitating the exchange of funds between parties.

◦ Settlement, which facilitates the exchange of funds between parties.

• Connectivity fees are charged to issuers, acquirers and other financial institutions for network access, equipment and the transmission of authorization and settlement messages.

These fees are based on the size of the data being transmitted and the number of connections to the Company’s network.

• Other processing fees include issuer and acquirer processing solutions;

payment gateways for e-commerce merchants;

mobile gateways for mobile-initiated transactions;

and safety and security.

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Other revenues consist of value-added products and services that are typically sold with the Company’s payment service offerings and are recognized in the period in which the related services are performed or transactions occur.

• Other processing fees include issuer and acquirer processing solutions, payment gateways for e-commerce merchants, mobile gateways for mobile-initiated transactions, and safety and security.

Other revenues consist of value-added products and services that are often sold with the Company’s payment service offerings and are recognized in the period in which the related services are performed or transactions occur.

Other revenues include the following:

• Data analytics and consulting fees.

• Cyber and intelligence fees are for products and services offered to prevent, detect and respond to fraud and to ensure the safety of transactions made primarily on Mastercard products.

• Cyber and intelligence solutions fees are for products and services offered to prevent, detect and respond to fraud and to ensure the safety of transactions made primarily on Mastercard products.

• Data analytics and consulting fees are for insights, analytics, and test and learn capabilities as well as Mastercard’s advisory and managed services.

• Loyalty and rewards solutions fees are charged to issuers for benefits provided directly to consumers with Mastercard-branded cards, such as access to a global airline lounge network, global and local concierge services, individual insurance coverages, emergency card replacement, emergency cash advance services and a 24-hour cardholder service center.

2 unchanged sentences

• Batch and real-time account-based payment services relating to ACH transactions and other ACH related services.

• Other payment-related products and services and platforms, including account and transaction enhancement services, open banking solutions, rules compliance and publications.

Rebates and incentives (contra-revenue) are provided to customers that meet certain volume targets and can be in the form of a rebate or other support incentives, which are tied to performance.

Rebates and incentives are recorded as a reduction of gross revenue primarily when volume- and transaction-based revenues are recognized over the contractual term.

In addition, Mastercard may make incentive payments to a customer directly related to entering into an agreement, which are generally capitalized and amortized over the life of the agreement on a straight-line basis.

• Other payment-related products and services and platforms, including account and transaction enhancement services, open banking and digital identity solutions, rules compliance and publications.

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Rebates and incentives (contra-revenue) are provided to customers and can be either fixed or variable-based.

Variable rebates and incentives are typically tied to customer performance, such as volume thresholds, and are recorded as a reduction of gross revenue primarily when volume- and transaction-based revenues are recognized over the contractual term.

The Company’s disaggregated net revenue by source and geographic region were as follows for the years ended December 31:

14 unchanged sentences

1 Includes revenues managed by corporate functions.

Receivables from contracts with customers of $ 2.5 billion and $ 2.3 billion as of December 31, 2020 and 2019, respectively, are recorded within accounts receivable on the consolidated balance sheet.

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.

Contract assets are included in prepaid expenses and other current assets and other assets on the consolidated balance sheet at December 31, 2020 in the amounts of $ 59 million and $ 245 million, respectively.

The comparable amounts included in prepaid expenses and other current assets and other assets at December 31, 2019 were $ 48 million and $ 152 million, respectively.

Deferred revenue is included in other current liabilities and other liabilities on the consolidated balance sheet at December 31, 2020 in the amounts of $ 355 million and $ 143 million, respectively.

The comparable amounts included in other current liabilities and

The following table sets forth the location of the amounts recognized on the consolidated balance sheet from contracts with customers at December 31:

(in millions)

Receivables from contracts with customers

Accounts receivable

$ 2,829 $ 2,505

Contract assets

Prepaid expenses and other current assets 134 59

Other assets 487 245

Deferred revenue 1

Other current liabilities 482 355

Other liabilities 180 143

1 Revenue recognized from performance obligations satisfied in 2021, 2020 and 2019 was $ 1.5 billion, $ 1.1 billion and $ 994 million, respectively.

The Company’s remaining performance periods for its contracts with customers for its payments network services are typically long-term in nature (generally up to 10 years).

As a payments network service provider, the Company provides its customers with continuous access to its global payments network and stands ready to provide transaction processing and related services over the contractual term.

Consideration is variable as the Company generates volume- and transaction-based revenues from assessing its customers’ current period activity.

The Company has elected the optional exemption to not disclose the remaining performance obligations related to its payments network services.

The Company also earns revenues primarily from other value-added services comprised of both batch and real-time account-based payments services, cyber and intelligence solutions, consulting fees, loyalty programs, gateway services, processing, and other payment-related products and services.

At December 31, 2021, the estimated

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other liabilities at December 31, 2019 were $ 238 million and $ 106 million, respectively.

In 2020, 2019 and 2018 revenue recognized from the satisfaction of such performance obligations was $ 1.1 billion, $ 994 million and $ 904 million, respectively.

The Company’s remaining performance periods for its contracts with customers for its payment network services are typically long-term in nature (generally up to 10 years).

As a payment network service provider, the Company provides its customers with continuous access to its global payments network and stands ready to provide transaction processing and related services over the contractual term.

Consideration is variable as the Company generates volume- and transaction-based revenues from assessing its customers’ current period activity.

The Company has elected the optional exemption to not disclose the remaining performance obligations related to its payment network services.

The Company also earns revenues primarily from other value-added services comprised of both batch and real-time account-based payment services, consulting fees, gateway services, processing, loyalty programs and other payment-related products and services.

At December 31, 2020, the estimated aggregate consideration allocated to unsatisfied performance obligations for these other value-added services is $ 1.3 billion, which is expected to be recognized through 2023.

aggregate consideration allocated to unsatisfied performance obligations for these other value-added services is $ 1.3 billion, which is expected to be recognized through 2024.

The estimated remaining performance obligations related to these revenues are subject to change and are affected by several factors, including modifications and terminations and are not expected to be material to any future annual period.

36 unchanged sentences

Fair value of liabilities assumed related to acquisitions 522 46 205

The Company’s investments on the consolidated balance sheet include both available-for-sale and held-to-maturity securities (see Investments section below).

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).

4 unchanged sentences

Total investments $ 473 $ 483

1 See Available-for-Sale Securities section below for further detail.

2 The cost of these securities approximates fair value.

Available-for-Sale Securities

6 unchanged sentences

Corporate securities 214 — — 214 246 1 — 247

Asset-backed securities — — — — 85 1 — 86

Total $ 314 $ — $ — $ 314 $ 320 $ 1 $ — $ 321

The Company’s available-for-sale investment securities held at December 31, 2020 and 2019, primarily carried a credit rating of A- or better with unrealized gains and losses recorded as a separate component of other comprehensive income (loss) on the consolidated statement of comprehensive income.

The municipal securities are comprised of state tax-exempt bonds and are diversified across states and sectors.

The Company’s corporate and municipal available-for-sale investment securities held at December 31, 2021 and 2020, primarily carried a credit rating of A- or better.

Corporate securities are comprised of commercial paper and corporate bonds.

Municipal securities are comprised of state tax-exempt bonds and are diversified across states and sectors.

Government and agency securities include U.S.

government bonds, U.S.

government sponsored agency bonds and foreign government bonds.

Corporate securities are comprised of commercial paper and corporate bonds.

The asset-backed securities are investments in bonds which are collateralized primarily by automobile loan receivables.

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.

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The maturity distribution based on the contractual terms of the Company’s investment securities at December 31, 2020 was as follows:

Available-For-Sale

The maturity distribution based on the contractual terms of the Company’s available-for-sale investment securities at December 31, 2021 was as follows:

Cost Fair Value

3 unchanged sentences

Total $ 314 $ 314

Investment income on the consolidated statement of operations primarily consists of interest income generated from cash, cash equivalents, time deposits, and realized gains and losses on the Company’s debt securities.

The realized gains and losses from the sale of available-for-sale securities for 2020, 2019 and 2018 were not significant.

Held-to-Maturity Securities

The Company classifies time deposits with maturities greater than three months but less than one year as held-to-maturity.

Time deposits are carried at amortized cost on the consolidated balance sheet and are intended to be held until maturity.

The cost of these securities approximates fair value.

Investment income on the consolidated statement of operations primarily consists of interest income generated from cash, cash equivalents, time deposits and available-for-sale investment securities, as well as realized gains and losses on the Company’s available-for-sale investment securities.

The realized gains and losses from the sales of available-for-sale securities for 2021, 2020 and 2019 were not material.

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 publicly traded companies and are measured using unadjusted quoted prices in their respective active markets.

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, 2019 Purchases (Sales), net Changes in Fair Value 1

Balance at December 31, 2020 Purchases Sales Changes in Fair Value 1

Balance at December 31, 2021

4 unchanged sentences

1 Recorded in gains (losses) on equity investments, net on the consolidated statement of operations.

2 Includes translational impact of currency

At December 31, 2020 , the total carrying value of Nonmarketable securities included $ 157 million of measurement alternative investments and $ 539 million of equity method investments.

At December 31, 2019, the total carrying value of Nonmarketable securities included $ 317 million of measurement alternative investments and $ 118 million of equity method investments.

Cumulative impairments and downward fair value adjustments on measurement alternative investments were $ 14 million and cumulative upward fair value adjustments were $ 86 million as of December 31, 2020 .

2 Includes translational impact of currency and $ 227 million of transfers between equity investment categories due to changes to the existence of readily determinable fair values.

The following table sets forth the components of the Company’s Nonmarketable securities at December 31:

(in millions)

Measurement alternative

Equity method

Total Nonmarketable securities $ 1,207 $ 696

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The following table summarizes the total carrying value of the Company’s Measurement alternative investments, including cumulative unrealized gains and losses, at December 31:

(in millions)

Initial cost basis

Upward adjustments 514

Downward adjustments (including impairment) ( 10 )

Carrying amount, end of period $ 952

Unrealized gains and losses included in the carrying value of the Company’s Measurement alternative investments still held as of December 31, 2021 and 2020, were as follows:

For the Years Ended December 31,

(in millions)

Upward adjustments $ 468 $ 21

Downward adjustments (including impairment) $ ( 2 ) $ ( 3 )

Fair Value Measurements

The Company classifies its fair value measurements of financial instruments into a three-level hierarchy within the Valuation Hierarchy.

The Company classifies its fair value measurements of financial instruments into a three-level hierarchy (the “Valuation Hierarchy”).

Financial instruments are categorized for fair value measurement purposes as recurring or non-recurring in nature.

There were no transfers made among the three levels in the Valuation Hierarchy for 2020 and 2019.

MASTERCARD 2021 FORM 10-K 83

15 unchanged sentences

Corporate securities — 214 — 214 — 247 — 247

Asset-backed securities — — — — — 86 — 86

Derivative instruments 2 :

6 unchanged sentences

Derivative instruments 2 :

Foreign exchange derivative liabilities $ — $ ( 28 ) $ — $ ( 28 ) $ — $ ( 32 ) $ — $ ( 32 )

Foreign exchange contracts $ — $ 15 $ — $ 15 $ — $ 28 $ — $ 28

Interest rate contracts — 8 — 8 — — — —

Deferred compensation plan 5 :

2 unchanged sentences

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, government and agency securities, corporate securities and asset-backed securities are based on observable inputs such as quoted prices, benchmark yields and issuer spreads for similar assets in active markets and are therefore included in Level 2 of the Valuation Hierarchy.

2 The Company’s foreign exchange and interest rate derivative asset and liability contracts have been classified within Level 2 of the Valuation Hierarchy as the fair value is based on observable inputs such as broker quotes relating to foreign currency exchange rates for similar derivative instruments.

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.

See Note 23 (Derivative and Hedging Instruments) for further details.

13 unchanged sentences

The Company estimates the fair value of its long-term debt based on market quotes.

These debt instruments are not traded in active markets and are classified as Level 2 of the Valuation Hierarchy.

These debt securities are classified as Level 2 of the Valuation Hierarchy as they are not traded in active markets.

At December 31, 2021, the carrying value and fair value of total long-term debt (including the current portion) was $ 13.9 billion and $ 15.3 billion, respectively.

2 unchanged sentences

Other Financial Instruments

Certain 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 due from customers, restricted security deposits held for customers, accounts payable, settlement due to customers and other accrued liabilities.

Certain other financial instruments are carried on the consolidated balance sheet at cost or amortized cost basis, which approximates fair value due to their short-term, highly liquid nature.

These instruments include cash and cash equivalents, restricted cash, time deposits, accounts receivable, settlement assets, restricted security deposits held for customers, accounts payable, settlement obligations and other accrued liabilities.

Prepaid Expenses and Other Assets

13 unchanged sentences

Customer and merchant incentives represent payments made to customers and merchants under business agreements.

Costs directly related to entering into such an agreement are generally deferred and amortized over the life of the agreement.

See Note 7 (Investments) for further information on the Company’s equity investments.

Payments directly related to entering into such an agreement are generally deferred and amortized over the life of the agreement.

MASTERCARD 2021 FORM 10-K 85

18 unchanged sentences

Other liabilities 645 726

Operating lease amortization expense for 2020 and 2019 was $ 123 million and $ 99 million, respectively.

Operating lease amortization expense for 2021, 2020 and 2019 was $ 122 million, $ 123 million and $ 99 million, respectively.

As of December 31, 2021 and 2020, the weighted-average remaining lease term of operating leases was 8.8 years and 9.1 years and the weighted-average discount rate for operating leases was 2.6 % and 2.7 %, respectively.

6 unchanged sentences

Present value of operating lease liabilities $ 772

Prior to adoption of the lease accounting standard in 2019, consolidated rental expense for the Company’s leased office space was $ 94 million for 2018.

Consolidated lease expense for automobiles, computer equipment and office equipment was $ 20 million for 2018, respectively.

86 MASTERCARD 2021 FORM 10-K

25 unchanged sentences

Total $ 5,426 $ ( 1,755 ) $ 3,671 $ 3,242 $ ( 1,489 ) $ 1,753

The increase in the gross carrying amount of amortized intangible assets in 2020 was primarily related to software additions and businesses acquired in 2020.

The increase in the gross carrying amount of amortized intangible assets in 2021 was primarily related to businesses acquired in 2021 and software additions.

See Note 2 (Acquisitions) for further details.

6 unchanged sentences

2026 and thereafter 1,996

Total $ 3,505

MASTERCARD 2021 FORM 10-K 87

9 unchanged sentences

Customer and merchant incentives represent amounts to be paid to customers under business agreements.

As of December 31, 2021 and 2020, long-term customer and merchant incentives included in other liabilities were $ 1,835 million and $ 1,215 million, respectively.

As of December 31, 2021 and 2020, the Company’s provision for litigation was $ 840 million and $ 842 million, respectively.

22 unchanged sentences

The Company uses a December 31 measurement date for the Pension Plans and its Postretirement Plan (collectively the “Plans”).

The Company recognizes the funded status of its Plans, measured as the difference between the fair value of the plan assets and the projected benefit obligation, in the consolidated balance sheet.

The following table sets forth the Plans’ funded status, key assumptions and amounts recognized in the Company’s consolidated balance sheet at December 31:

The Company recognizes the funded status of its Plans, measured as the difference between the fair value of the plan assets and the projected benefit obligation, on the consolidated balance sheet.

The following table sets forth the Plans’ funded status, key assumptions and amounts recognized on the Company’s consolidated balance sheet at December 31:

Pension Plans Postretirement Plan

12 unchanged sentences

Fair value of plan assets at beginning of year 617 518 — —

Actual (loss) gain on plan assets 56 79 — —

Actual gain on plan assets 63 56 — —

Employer contributions 32 34 4 4

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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2020, the Company’s aggregated Pension Plan assets exceed the benefit obligations.

For plans where the benefit obligations exceeded plan assets, the projected benefit obligation was $ 112 million, the accumulated benefit obligation was $ 111 million and plan assets were $ 97 million.

At December 31, 2019, all of the Pension Plans had benefit obligations in excess of plan assets.

At December 31, 2021 and 2020, the Company’s aggregated Pension Plan assets exceed the benefit obligations.

For plans where the benefit obligations exceeded plan assets, the projected benefit obligation was $ 116 million and $ 112 million, the accumulated benefit obligation was $ 115 million and $ 111 million and plan assets were $ 104 million and $ 97 million at December 31, 2021 and 2020, respectively.

Information on the Pension Plans were as follows as of December 31:

3 unchanged sentences

Fair value of plan assets 688 617

For the years ended December 31, 2020 and 2019, the Company’s projected benefit obligation related to its Pension Plans increased $ 73 million and $ 93 million, respectively, primarily attributable to actuarial losses related to lower discount rate assumptions.

For the year ended December 31, 2021, the Company’s projected benefit obligation related to its Pension Plans decreased $ 8 million, primarily attributable to actuarial gains related to higher discount rate assumptions.

For the year ended December 31, 2020, the Company’s projected benefit obligation related to its Pension Plans increased $ 73 million, primarily attributable to actuarial losses related to lower discount rate assumptions.

Components of net periodic benefit cost recorded in earnings were as follows for the Plans for each of the years ended December 31:

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Current year actuarial loss (gain) $ ( 50 ) $ 5 $ 12 $ ( 7 ) $ 7 $ 9

Current year prior service credit — — 1 — — —

Amortization of prior service credit — — — 2 1 1

27 unchanged sentences

The Vocalink Plan assets are managed with the following target asset allocations:

fixed income 35 %, U.K.

government securities 23 %, equity 22 %, cash and cash equivalents 12 % and real estate 8 %.

cash and cash equivalents 42 %, U.K.

government securities 18 %, fixed income 17 %, equity 15 % and real estate 8 %.

For the non-U.S.

37 unchanged sentences

(in millions)

2021 USD Notes 2.000 % Senior Notes due November 2031 $ 750 $ — 2.112 %

1.900 % Senior Notes due March 2031 600 — 1.981 %

2.950 % Senior Notes due March 2051 700 — 3.013 %

2020 USD Notes 3.300 % Senior Notes due March 2027 1,000 1,000 3.420 %

14 unchanged sentences

2014 USD Notes 3.375 % Senior Notes due April 2024 1,000 1,000 3.484 %

14,019 12,775

Unamortized discount and debt issuance costs ( 116 ) ( 103 )

Cumulative hedge accounting fair value adjustments 2

Total debt outstanding 13,901 12,672

Current portion 3

( 792 ) ( 649 )

Long-term debt $ 13,109 $ 12,023

1 Relates to euro-denominated debt issuance of € 1.650 billion in December 2015

2 Relates to current portion of the 2016 USD Notes, due in November 2021, classified as current portion of long-term debt on the consolidated balance sheet

In March 2020, the Company issued $ 1 billion principal amount of notes due March 2027, $ 1.5 billion principal amount of notes due March 2030 and $ 1.5 billion principal amount notes due March 2050 (collectively the “2020 USD Notes”).

1 € 1.650 billion euro-denominated debt issued in December 2015.

2 In 2021, the Company entered into an interest rate swap which is accounted for as a fair value hedge.

See Note 23 (Derivative and Hedging Instruments) for additional information.

3 2015 EUR Notes due December 2022 and 2016 USD Notes due November 2021 are classified as current portion of long-term debt on the consolidated balance sheet as of December 31, 2021 and 2020, respectively.

In March 2021, the Company issued $ 600 million principal amount of notes due March 2031 and $ 700 million principal amount of notes due March 2051.

In November 2021, the Company also issued $ 750 million principal amount of notes due November 2031.

The two issuances in 2021 are collectively referred to as the “2021 USD Notes”.

The net proceeds from the issuance of the 2021 USD Notes, after deducting the original issue discount, underwriting discount and offering expenses, were $ 2.024 billion.

In May 2019, the Company issued $ 1 billion principal amount of notes due June 2029 and $ 1 billion principal amount of notes due June 2049 and in December 2019, the Company issued $ 750 million principal amount of notes due March 2025 (collectively the “2019 USD Notes”).

The net proceeds from the issuance of the 2020 USD Notes, after deducting the original issue discount, underwriting discount and offering expenses, were $ 3.959 billion.

The net proceeds, after deducting the original issue discount, underwriting discount and offering expenses, from the issuance of the 2018 USD Notes were $ 991 million.

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In May 2019, the Company issued $ 1 billion principal amount of notes due June 2029 and $ 1 billion principal amount of notes due June 2049.

In December 2019, the Company also issued $ 750 million principal amount of notes due March 2025.

The two issuances in 2019 are collectively referred to as the “2019 USD Notes”.

The net proceeds from the issuance of the 2019 USD Notes, after deducting the original issue discount, underwriting discount and offering expenses, were $ 2.724 billion.

The outstanding debt, described above, is not subject to any financial covenants and it may be redeemed in whole, or in part, at the Company’s option at any time for a specified make-whole amount.

These notes are senior unsecured obligations and would rank equally with any future unsecured and unsubordinated indebtedness.

The proceeds of the notes are to be used for general corporate purposes.

Scheduled annual maturities of the principal portion of long-term debt outstanding at December 31, 2021 are summarized below.

2 unchanged sentences

Total $ 14,019

On November 14, 2019, the Company increased its commercial paper program (the “Commercial Paper Program”) from $ 4.5 billion to $ 6 billion under which the Company is authorized to issue unsecured commercial paper notes with maturities of up to 397 days from the date of issuance.

As of December 31, 2021, the Company has a commercial paper program (the “Commercial Paper Program”) under which the Company is authorized to issue up to $ 6 billion in unsecured commercial paper notes with maturities of up to 397 days from the date of issuance.

The Commercial Paper Program is available in U.S.

In conjunction with the Commercial Paper Program, the Company entered into a committed five-year unsecured $ 6 billion revolving credit facility (the “Credit Facility”) on November 14, 2019.

The Credit Facility, which previously expired on November 14, 2024, was extended on November 14, 2020 for an additional year and now expires on November 13, 2025.

The extension did not result in material changes to the terms and conditions of the Credit Facility.

In conjunction with the Commercial Paper Program, the Company has a committed five-year unsecured $ 6 billion revolving credit facility (the “Credit Facility”).

The Credit Facility, which previously expired on November 13, 2025, was amended and extended on November 13, 2021 for an additional year and now expires on November 12, 2026.

The amendment and extension did not result in material changes to the terms and conditions of the Credit Facility.

Borrowings under the Credit Facility are available in U.S.

4 unchanged sentences

The Company was in compliance in all material respects with the covenants of the Credit Facility at December 31, 2021 and 2020.

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

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

The Company may borrow and repay amounts under the Commercial Paper Program and Credit Facility from time to time.

36 unchanged sentences

Mastercard Foundation will be permitted to sell all of its remaining shares beginning May 1, 2027, subject to certain conditions.

Stock Repurchase Programs

The Company’s Board of Directors have approved share repurchase programs authorizing the Company to repurchase shares of its Class A Common Stock.

These programs become effective after the completion of the previously authorized share repurchase program.

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The following table summarizes the Company’s share repurchase authorizations of its Class A common stock through December 31, 2020, as well as historical purchases:

Board authorization dates December 2020 December 2019 December

2018 December

2017 December

Date program became effective Not yet effective January 2020 January 2019 March 2018 April 2017 Total

(in millions, except average price data)

Board authorization $ 6,000 $ 8,000 $ 6,500 $ 4,000 $ 4,000 $ 28,500

Dollar-value of shares repurchased in 2018 $ — $ — $ — $ 3,699 $ 1,234 $ 4,933

Remaining authorization at December 31, 2018 $ — $ — $ 6,500 $ 301 $ — $ 6,801

Dollar-value of shares repurchased in 2019 $ — $ — $ 6,196 $ 301 $ — $ 6,497

Remaining authorization at December 31, 2019 $ — $ 8,000 $ 304 $ — $ — $ 8,304

Dollar-value of shares repurchased in 2020 $ — $ 4,169 $ 304 $ — $ — $ 4,473

Remaining authorization at December 31, 2020 $ 6,000 $ 3,831 $ — $ — $ — $ 9,831

Shares repurchased in 2018 — — — 19.0 7.2 26.2

Average price paid per share in 2018 $ — $ — $ — $ 194.77 $ 171.11 $ 188.26

Shares repurchased in 2019 — — 24.8 1.6 — 26.4

Average price paid per share in 2019 $ — $ — $ 249.58 $ 188.38 $ — $ 245.89

Shares repurchased in 2020 — 13.3 1.0 — — 14.3

Average price paid per share in 2020 $ — $ 313.26 $ 304.89 $ — $ — $ 312.68

Cumulative shares repurchased through December 31, 2020 — 13.3 25.8 20.6 28.2 87.9

Cumulative average price paid per share $ — $ 313.26 $ 251.72 $ 194.27 $ 141.99 $ 212.41

Common Stock Activity

The following table presents the changes in the Company’s outstanding Class A and Class B common stock for the years ended December 31:

15 unchanged sentences

Balance at December 31, 2021 972.1 7.8

The Company’s Board of Directors have approved share repurchase programs authorizing the Company to repurchase shares of its Class A Common Stock.

The following table summarizes the Company’s share repurchase authorizations of its Class A common stock for the years ended December 31:

2021 2020 2019

(In millions, except per share data)

Board authorization $ 8,000 $ 6,000 $ 8,000

Dollar-value of shares repurchased $ 5,904 $ 4,473 $ 6,497

Shares repurchased 16.5 14.3 26.4

Average price paid per share $ 356.82 $ 312.68 $ 245.89

As of December 31, 2021, the remaining authorization under the share repurchase programs approved by the Company’s Board of Directors was $ 11.9 billion.

96 MASTERCARD 2021 FORM 10-K

6 unchanged sentences

$ ( 352 ) $ ( 387 ) $ — $ ( 739 )

Translation adjustments on net investment hedge 2

Translation adjustments on net investment hedges 2

( 175 ) 209 — 34

Cash flow hedges

Foreign exchange contracts 3

Interest rate contracts 4

8 unchanged sentences

$ ( 638 ) $ 286 $ — $ ( 352 )

Translation adjustments on net investment hedge 2

Translation adjustments on net investment hedges 2

( 38 ) ( 137 ) — ( 175 )

1 unchanged sentence

Interest rate contracts 4

11 ( 147 ) 3 ( 133 )

Defined benefit pension and other postretirement plans 5

2 unchanged sentences

Accumulated Other Comprehensive Income (Loss) $ ( 673 ) $ ( 9 ) $ 2 $ ( 680 )

1 During 2021, the increase in the accumulated other comprehensive loss related to foreign currency translation adjustments was driven primarily b y the depreciation of the euro against the U.S.

During 2020, the decrease in the accumulated other comprehensive loss related to foreign currency translation adjustments was driven primarily by the appreciation of the euro and British pound partially offset by the depreciation of the Brazilian real.

During 2019, the decrease in the accumulated other comprehensive loss related to foreign currency translation adjustments was driven primarily by the appreciation of the British pound partially offset by the depreciation of the euro.

The Company uses foreign currency denominated debt to hedge a portion of its net investment in foreign operations against adverse movements in exchange rates.

Changes in the value of the debt are recorded in accumulated other comprehensive income (loss).

2 During 2021, t he increase in the accumulated other comprehensive income related to the net investment hedges was driven by the depreciation of the euro against the U.S.

During 2020, the increase in the accumulated other comprehensive loss related to the net investment hedge was driven by the appreciation of the euro.

During 2019, the decrease in the accumulated other comprehensive loss related to the net investment hedge was driven by the depreciation of the euro.

See Note 23 (Derivative and Hedging Instruments) for additional information.

3 Beginning in 2021, certain foreign exchange derivative contracts are designated as cash flow hedging instruments.

Gains and losses resulting from changes in the fair value of these contracts are deferred in accumulated other comprehensive income (loss) and subsequently reclassified to the consolidated statement of operations when the underlying hedged transactions impact earnings.

See Note 23 (Derivative and Hedging Instruments) for additional information.

4 In 2019, the Company entered into treasury rate locks which are accounted for as cash flow hedges.

2 unchanged sentences

See Note 23 (Derivative and Hedging Instruments) for additional information.

During 2020, the increase in the accumulated other comprehensive loss related to the Company’s Plans was driven primarily by an actuarial loss within the Postretirement Plan.

During 2019, the decrease in the accumulated other comprehensive gain related to the Company’s Plans was primarily driven by actuarial losses within the Vocalink and non-U.S.

5 During 2021, the increase in the accumulated other comprehensive income related to the Plans was driven primarily by a net actuarial gain within the Pension Plans.

During 2020, the increase in the accumulated other comprehensive loss related to the Plans was driven primarily by an actuarial loss within the Postretirement Plan.

See Note 14 (Pension, Postretirement and Savings Plans) for additional information.

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Share-Based Payments

In May 2006, the Company implemented the Mastercard Incorporated 2006 Long Term Incentive Plan, which was amended and restated as of June 5, 2012 (the “LTIP”).

In May 2006, the Company granted the following awards under the Mastercard Incorporated 2006 Long Term Incentive Plan, which was amended and restated as of June 5, 2012 (the “LTIP”).

The LTIP is a stockholder-approved plan that permits the grant of various types of equity awards to employees.

2 unchanged sentences

Compensation expense is recorded net of estimated forfeitures, with estimates adjusted as appropriate.

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There are approximately 116 million shares of Class A common stock authorized for equity awards under the LTIP.

31 unchanged sentences

The cost is expected to be recognized over a weighted-average period of 1.9 years.

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Restricted Stock Units

5 unchanged sentences

Compensation expense is recognized over the shorter of the vesting periods stated in the LTIP or the date the individual becomes eligible to retire but not less than seven months .

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The following table summarizes the Company’s RSU activity for the year ended December 31, 2021:

24 unchanged sentences

Converted ( 0.1 ) $ 226

Other ( 0.1 ) $ 231

Outstanding at December 31, 2021 0.4 $ 334 $ 128

4 unchanged sentences

The Monte Carlo simulation valuation model is used to determine the grant-date fair value.

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Compensation expense for PSUs is recognized over the requisite service period, or the date the individual becomes eligible to retire but not less than seven months , if it is probable that the performance target will be achieved and subsequently adjusted if the probability assessment changes.

During the year ended December 31, 2020, performance targets related to PSU awards granted in 2018, and scheduled to vest in 2021 (“2018 PSU Awards”), were adjusted to exclude certain pandemic-related financial impacts deemed outside of the Company’s control.

The adjustment required the Company to apply modification accounting to the 2018 PSU Awards.

The modification had an immaterial impact on compensation expense expected to be recognized over the remaining service period.

During the year ended December 31, 2020, performance targets related to PSU awards granted in 2018 (“2018 PSU Awards”) were adjusted to exclude certain pandemic-related financial impacts deemed outside of the Company’s control.

The adjustment during the year ended December 31, 2020 required the Company to apply modification accounting to the 2018 PSU Awards which had an immaterial impact on compensation expense.

As of December 31, 2021, there was $ 34 million of total unrecognized compensation cost related to non-vested PSUs.

The cost is expected to be recognized over a weighted-average period of 1.5 years.

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Additional Information

11 unchanged sentences

Total intrinsic value of PSUs converted into shares of Class A common stock 32 92 85

At December 31, 2020, the Company had the following future minimum payments due under noncancelable agreements, primarily related to sponsorships to promote the Mastercard brand and licensing arrangements and a commitment to purchase the remaining shares of a majority-owned joint venture.

At December 31, 2021, the Company had the following future minimum payments due under noncancelable agreements, primarily related to sponsorships to promote the Mastercard brand and licensing arrangements.

The Company has accrued $ 17 million of these future payments as of December 31, 2021.

(in millions)

Total $ 1,024

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Components of Income and Income Tax Expense

5 unchanged sentences

Income before income taxes $ 10,307 $ 7,760 $ 9,731

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The total income tax provision for the years ended December 31 is comprised of the following components:

20 unchanged sentences

Foreign tax effect ( 283 ) ( 2.7 ) % ( 193 ) ( 2.5 ) % ( 208 ) ( 2.1 ) %

European Commission fine — — % — — % 194 2.7 %

Foreign tax credits 1

tax benefits 1

( 132 ) ( 1.3 ) % — — % — — %

Windfall benefit ( 67 ) ( 0.7 ) % ( 119 ) ( 1.5 ) % ( 129 ) ( 1.3 ) %

Other, net ( 26 ) ( 0.3 ) % ( 127 ) ( 1.4 ) % ( 134 ) ( 1.8 ) %

( 122 ) ( 1.2 ) % ( 26 ) ( 0.3 ) % ( 159 ) ( 1.7 ) %

Income tax expense $ 1,620 15.7 % $ 1,349 17.4 % $ 1,613 16.6 %

1 Included within the impact of the foreign tax credits is $ 27 million for 2019 and $ 90 million for 2018 of tax benefits relating to the carryback of certain foreign tax credits.

1 Refer to the description below for the components that represent U.S.

tax benefits.

2 Included within the impact of other is $ 27 million of tax benefits for 2019 relating to the carryback of certain foreign tax credits.

The effective income tax rates for the years ended December 31, 2021, 2020 and 2019 were 15.7 %, 17.4 % and 16.6 %, respectively.

The effective income tax rate for 2020 was higher than the effective income tax rate for 2019, primarily due to discrete tax benefits in 2019, partially offset by a more favorable geographic mix of earnings in 2020.

The 2019 discrete tax benefits related to a favorable court ruling, a reduction to the Company’s transition tax liability and additional foreign tax credits which can be carried back under U.S.

tax reform transition rules issued by the Department of the Treasury and the Internal Revenue Service.

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 2021 was lower than the effective income tax rate for 2020, primarily due to the recognition of U.S.

tax benefits, the majority of which were discrete, resulting from a higher foreign derived intangible income deduction and greater utilization of foreign tax credits in the U.S.

In addition, a more favorable geographic mix of earnings in 2021 contributed to the Company’s lower effective tax rate.

These benefits were partially offset by a lower discrete tax benefit related to share-based payments in 2021.

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The effective income tax rate for 2020 was higher than the effective income tax rate for 2019, primarily due to higher discrete tax benefits in 2019, partially offset by a more favorable geographic mix of earnings in 2020.

The 2019 discrete tax benefits related to a favorable court ruling, a reduction to the Company’s transition tax liability and additional foreign tax credits which can be carried back under U.S.

tax reform transition rules issued by the Department of the Treasury and the Internal Revenue Service.

Singapore Income Tax Rate

6 unchanged sentences

Indefinite Reinvestment

As of December 31, 2020 the Company had deferred tax liabilities of $ 61 million primarily related to the tax effect of the estimated foreign exchange impact on unremitted earnings.

As of December 31, 2021 the Company had immaterial deferred tax liabilities related to the tax effect of the estimated foreign exchange impact on unremitted earnings.

The Company expects that foreign withholding taxes associated with future repatriation of these earnings will not be material.

Earnings of approximately $ 1.1 billion remain permanently reinvested and the Company estimates that immaterial U.S.

federal and state and local income tax expense would result, primarily from foreign exchange, if these earnings were to be repatriated.

federal and state and local income tax benefits would result, primarily from foreign exchange, if these earnings were to be repatriated.

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Deferred Taxes

15 unchanged sentences

Prepaid expenses and other accruals 114 78

Gains on equity investments 153 60

Goodwill and intangible assets 571 216

5 unchanged sentences

The valuation allowance balance at December 31, 2021 and 2020 primarily relates to the Company’s ability to recognize future tax benefits associated with the carry forward of U.S.

foreign tax credits generated in the current and prior periods and certain foreign net operating losses.

foreign tax credits generated in the current and prior periods and certain foreign losses.

The recognition of the foreign tax credits is dependent upon the realization of future foreign source income in the appropriate foreign tax credit basket in accordance with U.S.

federal income tax law.

The recognition of the foreign losses is

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dependent upon the future taxable income in such jurisdictions and the ability under tax law in these jurisdictions to utilize net operating losses following a change in control.

The recognition of the foreign losses is dependent on the timing and character of future taxable income in such jurisdictions.

A reconciliation of the beginning and ending balance for the Company’s unrecognized tax benefits for the years ended December 31, is as follows:

8 unchanged sentences

Ending balance $ 360 $ 388 $ 203

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As of December 31, 2021, the amount of unrecognized tax benefit was $ 360 million.

This amount, if recognized, would reduce the effective income tax rate.

The Company’s unrecognized tax benefits increased primarily due to a prior year tax issue resulting from a refund claim filed in 2020.

The Company’s unrecognized tax benefits increased in 2020 primarily due to a prior year tax issue resulting from a refund claim filed in 2020.

The Company is subject to tax in the U.S., Belgium, Singapore, the United Kingdom and various other foreign jurisdictions, as well as state and local jurisdictions.

20 unchanged sentences

Any of these events could have a material adverse effect on Mastercard’s results of operations, financial condition and overall business.

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Interchange Litigation and Regulatory Proceedings

8 unchanged sentences

The plaintiffs filed a consolidated class action complaint that seeks 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.

and Visa International Service Association and a number of financial institutions;

and (2) a Mastercard settlement and judgment sharing agreement with a number of financial institutions.

The agreements provide for the apportionment of certain costs and liabilities which Mastercard, the Visa parties and the financial institutions may incur, jointly and/or severally, in the event of an adverse judgment or settlement of one or all of the cases in the merchant litigations.

Among a number of scenarios addressed by the agreements, in the event of a global settlement involving the Visa parties, the financial institutions and Mastercard, Mastercard would pay 12 % of the monetary portion of the settlement.

In the event of a settlement involving only Mastercard and the financial institutions with respect to their issuance of Mastercard cards, Mastercard would pay 36 % of the monetary portion of such settlement.

In October 2012, the parties entered into a definitive settlement agreement with respect to the merchant class litigation (including with respect to the claims related to the IPO) and the defendants separately entered into a settlement agreement with the individual merchant plaintiffs.

The settlements included cash payments that were apportioned among the defendants pursuant to the omnibus judgment sharing and settlement sharing agreement described above.

Mastercard also agreed to provide class members with a short-term reduction in default credit interchange rates and to modify certain of its business practices, including its “no surcharge” rule.

The court granted final approval of the settlement in December 2013, and objectors to the settlement appealed that decision to the U.S.

Court of Appeals for the Second Circuit.

In June 2016, the court of appeals vacated the class action certification, reversed the settlement approval and sent the case back to the district court for further proceedings.

The court of appeals’ ruling was based primarily on whether the merchants were adequately represented by counsel in the settlement.

As a result of the appellate court ruling, the district court divided the merchants’ claims into two separate classes - monetary damages claims (the “Damages Class”) and claims seeking changes to business practices (the “Rules Relief Class”).

The court appointed separate counsel for each class.

In September 2018, the parties to the Damages Class litigation entered into a class settlement agreement to resolve the Damages Class claims.

Mastercard increased its reserve by $ 237 million during 2018 to reflect both its expected financial obligation under the Damages Class settlement agreement and the filed and anticipated opt-out merchant cases.

The time period during which Damages Class members were permitted to opt out of the class settlement agreement ended in July 2019 with merchants representing slightly more than 25 % of the Damages Class interchange volume choosing to opt out of the settlement.

The district court granted final approval of the settlement in December 2019.

The district court’s settlement approval order has been appealed.

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.

In December 2020, the Rules Relief Class filed a motion for class certification.

Briefing on summary judgment motions in the Rules Relief Class and opt-out merchant cases was completed in December 2020.

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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 7A. Quantitative and Qualitative Disclosures About Market Risk