What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-02-14 compared with 2022-02-11 · 231 added, 239 removed, 1318 unchanged (26% of the section changed)

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

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

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.

The effect of a hypothetical 10% adverse change in the value of the functional currencies would not have a material impact to the fair value of our short duration foreign exchange derivative contracts outstanding at December 31, 2022 and 2021, respectively.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are further exposed to foreign exchange rate risk related to translation of our net investment in foreign subsidiaries where the functional currency is different than our U.S.

dollar reporting currency.

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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.

dollar could result in a fair value loss of approximately $203 million and $165 million on our foreign exchange derivative contracts designated as a net investment hedge at December 31, 2022 and 2021, respectively, before considering the offsetting effect of the underlying hedged activity.

Interest Rate Risk

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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.

The effect of a hypothetical 100 basis point adverse change in interest rates could result in a fair value loss of approximately $36 million and $49 million on our interest rate derivative contracts designated as a fair value hedge of our fixed-rate debt at December 31, 2022 and 2021, respectively, before considering the offsetting effect of the underlying hedged activity.

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Revenue Recognition - Rebates and Incentives

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.

As described in Notes 1 and 3 to the consolidated financial statements, the Company provides certain customers with rebates and incentives which are a portion of total net revenue of $22.2 billion for the year ended December 31, 2022.

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

Variable rebates and incentives are recorded 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.

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Accrued expenses 7,801 6,642

Current portion of long-term debt 792 649

Short-term debt 274 792

Other current liabilities 1,397 1,364

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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 )

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Activity related to non-controlling interests — — — — — — — ( 13 ) ( 13 )

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

Redeemable non-controlling interest adjustments — — — — ( 3 ) — ( 3 ) ( 3 )

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Summary of Significant Accounting Policies

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.

Mastercard connects consumers, financial institutions, merchants, governments, digital partners, businesses and other organizations worldwide by enabling electronic forms of payment instead of cash and checks and making those payment transactions safe, simple, smart and accessible.

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.

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

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

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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 investments in new networks, such as open banking solutions and digital identity capabilities, support and strengthen our payments and services solutions.

The Company’s franchise model sets the standards and ground-rules for our core global payments network 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.

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Intercompany transactions and balances have been eliminated in consolidation.

During 2022, the Company updated its disaggregated net revenue presentation by category and geography to reflect the nature of its payment services and to align such information with the way in which management will prospectively view its categories of net revenue.

Prior period amounts have been reclassified to conform to the 2022 presentation.

The reclassification had no impact on previously reported total net revenue, operating income or net income.

The Company follows accounting principles generally accepted in the United States of America (“GAAP”).

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Changes in a parent’s ownership interest while the parent retains its controlling interest are accounted for as equity transactions, and upon loss of control, retained ownership interests are remeasured at fair value, with any gain or loss recognized in earnings.

For 2021, 2020 and 2019, net losses from non-controlling interests were not material and, as a result, amounts are included on the consolidated statement of operations within other income (expense).

For 2022, 2021 and 2020, net losses attributable to non-controlling interests were not material and, as a result, amounts are included on the consolidated statement of operations within other income (expense).

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

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Actual results may differ from these estimates.

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

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

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Volume-based revenue (domestic assessments and cross-border volume fees) is recorded as revenue in the period it is earned, which is primarily based on the related volume generated on the cards.

Certain volume-based revenue is based upon information reported by customers.

Transaction-based revenue (transaction processing) is primarily based on the number and type of transactions and is recognized as revenue in the same period in which the related transactions occur.

Other payment-related products and services are recognized as revenue in the period in which the related services are performed or transactions occur.

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

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

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

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

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

Revenue from the Company’s payment network is primarily generated by charging fees to customers (issuers, acquirers and other market participants) for providing switching and other network-related services, as well as by charging fees to customers based primarily on the gross dollar volume of activity (GDV, which includes both domestic and cross-border volume) on the cards that carry the Company’s brands.

Revenue is recognized in the period in which the related transactions and volume occur.

Certain volume-based revenue is determined from information reported by customers.

Revenue from the Company’s value-added services and solutions is generated through either fixed or transaction-based fees.

These services and solutions can be integrated and sold with the Company’s payment network services or can be sold on a stand-alone basis.

Revenue from the Company’s value-added services and solutions is recognized in the period in which the related services and solutions are performed or transactions occur.

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

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

Variable rebates and incentives are recorded 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.

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As these performance obligations are satisfied, revenue is subsequently recognized.

Deferred revenue is primarily derived from data analytic and consulting services.

Deferred revenue primarily relates to certain value-added services and solutions.

Deferred revenue is included in other current liabilities and other liabilities on the consolidated balance sheet.

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Measurement period adjustments, if any, to the preliminary estimated fair value of the intangibles assets as of the acquisition date are recorded in goodwill.

Goodwill and other intangible assets - Indefinite-lived intangible assets consist of goodwill, which represents the synergies expected to arise after the acquisition date and the assembled workforce, and customer relationships.

Goodwill and other intangible assets - Indefinite-lived intangible assets consist of goodwill and customer relationships.

Goodwill represents the synergies expected to arise after the acquisition date and the assembled workforce.

Finite-lived intangible assets consist of capitalized software costs, customer relationships and other intangible assets.

Intangible assets with finite useful lives are amortized over their estimated useful lives, on a straight-line basis, which range from one to twenty years .

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

Capitalized software includes internal and external costs incurred directly related to the design, development and testing phases of each capitalized software project, as well as technology acquired in business combinations.

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

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

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

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).

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

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

If the fair value of the reporting unit

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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.

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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.

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Settlement exposure is the outstanding settlement risk to customers under Mastercard’s rules due to the difference in timing between the payment transaction date and subsequent settlement.

While the term and amount of the guarantee are unlimited, the duration of settlement exposure is short term and typically limited to a few days.

For those transactions the Company guarantees, the guarantee will cover the full amount of the settlement obligation to the extent the settlement obligation is not otherwise satisfied.

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

The Company also enters into agreements in the ordinary course of business under which the Company agrees to indemnify third parties against damages, losses and expenses incurred in connection with legal and other proceedings arising from relationships or transactions with the Company.

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• 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.

Certain risk mitigation arrangements for settlement, such as standby letters of credit and bank

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guarantees, are not recorded on the consolidated balance sheet.

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

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

These security deposits are typically held for the duration of the agreement with the customers.

The amount of these security deposits and the duration held are determined by the risk profile of the individual customer and the Company’s risk management practices.

• Other restricted cash balances - The Company has other restricted cash balances which include contractually restricted deposits, as well as cash balances that are restricted based on the Company’s intention with regard to usage.

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

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

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

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

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

The Company classifies these recurring and nonrecurring 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.

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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.

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

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 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.

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• Available-for-sale debt securities:

◦ Investments in debt securities that are available to meet the Company’s current operational needs are classified as current assets and the securities that are not available for current operational needs are classified as non-current assets on the consolidated balance sheet.

The debt securities are carried at fair value, with unrealized gains and losses, net of tax, recorded as a separate component of accumulated other comprehensive income (loss) on the consolidated statement of comprehensive income.

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The credit loss component of the impairment is recognized as an allowance and recorded in other income (expense), net on the consolidated statement of operations while the non-credit related loss remains in accumulated other comprehensive income (loss) until realized from a sale or subsequent impairment.

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• Held-to-maturity securities:

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

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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 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.

Marketable equity securities that are expected to be held as part of the Company’s long-term investment strategy are classified in other assets on the consolidated balance sheet.

• Nonmarketable equity investments - The Company’s nonmarketable equity investments, which are reported in other assets on the consolidated balance sheet, include investments in privately held companies without readily determinable market values.

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

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

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

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

Any gains and losses deferred in accumulated other

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comprehensive income (loss) are subsequently reclassified to the corresponding line item on the consolidated statement of operations when the underlying hedged transactions impact earnings.

• 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.

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The incremental borrowing rate is determined by using the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment.

Lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Lease terms include options to extend or terminate the lease when it is

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reasonably certain that the Company will exercise that option.

Leases with a term of one year or less are excluded from ROU assets and liabilities.

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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).

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The timing of recognition is dependent on the type of advertising or marketing expense.

Foreign currency remeasurement and translation - Monetary assets and liabilities are remeasured to functional currencies using current exchange rates in effect at the balance sheet date.

Foreign currency remeasurement and translation - Monetary assets and liabilities in a currency other than the functional currency are remeasured using current exchange rates in effect at the balance sheet date.

Non-monetary assets and liabilities are recorded at historical exchange rates.

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Earnings per share - The Company calculates basic earnings per share (“EPS”) by dividing net income by the weighted-average number of common shares outstanding during the year.

Diluted EPS is calculated by dividing net income by the weighted-average number of common shares outstanding during the year, adjusted for the potentially dilutive effect of stock options and unvested stock units using the treasury stock method.

The Company may be required to calculate EPS using the two-class method as a result of its redeemable non-controlling interests.

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

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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.

stock units using the treasury stock method.

The Company may be required to calculate EPS using the two-class method as a result of its redeemable non-controlling interests.

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

In 2022, 2021 and 2020, the Company acquired several businesses for total consideration of $ 0.3 billion , $ 4.7 billion and $ 1.1 billion, respectively, representing both cash and contingent consideration.

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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.

On April 1, 2022, Mastercard acquired a 100 % equity interest in Dynamic Yield LTD (“Dynamic Yield”) for cash consideration of $ 325 million.

The Company’s preliminary estimate of net assets acquired has been recorded primarily as intangible assets, including goodwill of $ 200 million that is primarily attributable to the synergies expected to arise after the acquisition date.

None of the goodwill is expected to be deductible for local tax purposes.

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

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

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

In relation to this acquisition, the net assets acquired primarily relate 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.

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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.

The additional businesses acquired in 2020 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.

The Company is evaluating and finalizing the purchase accounting for Dynamic Yield.

In 2022, the Company finalized the purchase accounting for businesses acquired during 2021.

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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

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:

Mastercard is a payments network service provider that generates revenue from a wide range of payment solutions provided to customers.

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 (i.e., fees charged to customers).

The Company disaggregates its net revenue from contracts with customers into two categories:

(i) payment network and (ii) value-added services and solutions.

The Company’s net revenue categories, payment network and value-added services and solutions, are recognized net of rebates and incentives provided to customers.

Rebates and incentives can be either fixed or variable and are attributed to the category of revenue to which they pertain.

Payment network

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

account holders (a person or entity who holds a card or uses another device enabled for payment), issuers (the account holders’ financial institutions), merchants and acquirers (the merchants’ financial institutions).

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

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

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

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

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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.

Net revenue can be impacted by the following:

• domestic or cross-border transactions

• geographic region or country in which the transaction occurs

• volumes/transactions subject to tiered rates

• switched or not switched by the Company

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

• amount of rebates and incentives provided to customers

The Company classifies its net revenue into the following five categories:

Domestic assessments are fees charged to issuers and acquirers based primarily on the dollar volume of activity on cards and other devices that carry the Company’s brands where the merchant country and the country of issuance are the same.

Revenue from domestic assessments is recorded as revenue in the period it is earned, which is when the related volume is generated on the cards or other devices that carry the Company’s brands.

Cross-border volume fees are charged to issuers and acquirers based primarily on the dollar volume of activity on cards and other devices that carry the Company’s brands where the merchant country and the country of issuance are different.

Revenue from cross-border volume is recorded as revenue in the period it is earned, which is when the related volume is generated on the cards or other devices that carry the Company’s brands.

Transaction processing revenue is recognized for both domestic and cross-border transactions in the period in which the related transactions occur.

Transaction processing includes the following:

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

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

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

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

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

◦ 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.

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:

• 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.

Loyalty and reward solution fees also include rewards campaigns and management services.

• Program management services provided to prepaid card issuers consist of foreign exchange margin, commissions, load fees and ATM withdrawal fees paid by cardholders on the sale and encashment of prepaid cards.

• 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 and digital identity solutions, rules compliance and publications.

As a payments network service provider, the Company provides its

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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

customers with continuous access to its global payments network and stands ready to provide transaction processing over the contractual term.

Consideration is variable and is recognized as revenue in the period in which volumes and transactions occur.

Value-added services and solutions

The Company generates revenues from value-added services and solutions through either fixed or transaction-based fees.

These services and solutions can be integrated and sold with the Company’s payment network services or can be sold on a stand-alone basis.

These services and solutions primarily include cyber and intelligence, data and services, processing and gateway, ACH batch and real-time account-based payments and solutions, open banking and digital identity.

Revenue from these value-added services and solutions is recognized in the period in which the related services and solutions are performed or transactions occur.

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

2022 2021 2020

(in millions)

Revenue by source:

Domestic assessments $ 8,158 $ 6,656 $ 6,781

Cross-border volume fees 4,664 3,512 5,606

Transaction processing 10,799 8,731 8,469

Other revenues 6,224 4,717 4,124

Gross revenue 29,845 23,616 24,980

Rebates and incentives (contra-revenue) ( 10,961 ) ( 8,315 ) ( 8,097 )

Revenue by category:

Payment network $ 14,358 $ 11,943 $ 9,897

Value-added services and solutions 7,879 6,941 5,404

Net revenue $ 22,237 $ 18,884 $ 15,301

3 unchanged sentences

Net revenue $ 22,237 $ 18,884 $ 15,301

1 Includes revenues managed by corporate functions.

The Company’s customers are generally billed weekly, however, the frequency is dependent upon the nature of the performance obligation and the underlying contractual terms.

11 unchanged sentences

Other liabilities 248 180

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

1 Revenue recognized from performance obligations satisfied in 2022 was $ 1.6 billion.

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.

Consideration is variable as the Company generates volume- and transaction-based revenues from charging fees on 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

The Company also earns revenue from value-added services and solutions.

At December 31, 2022, the estimated aggregate consideration allocated to unsatisfied performance obligations for these value-added services and solutions is $ 1.4 billion, which is expected to be recognized through 2027.

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.

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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.

Earnings Per Share

21 unchanged sentences

Cash, cash equivalents, restricted cash and restricted cash equivalents $ 9,196 $ 9,902

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Supplemental Cash Flows

10 unchanged sentences

Fair value of liabilities assumed related to acquisitions 27 522 46

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

8 unchanged sentences

Available-for-Sale Securities

The major classes of the Company’s available-for-sale investment securities and their respective amortized cost basis and fair values were as follows:

December 31, 2021 December 31, 2020

The major classes of the Company’s available-for-sale investment securities and their respective amortized cost basis and fair values at December 31 were as follows:

Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value

11 unchanged sentences

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 available-for-sale investment securities at December 31, 2022 was as follows:

4 unchanged sentences

Total $ 278 $ 272

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 2022, 2021 and 2020 were not material.

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Equity Investments

10 unchanged sentences

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

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

2 Includes translational impact of currency.

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

1 unchanged sentence

Measurement alternative

$ 1,087 $ 952

Equity method

Total Nonmarketable securities $ 1,331 $ 1,207

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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

(in millions)

Initial cost basis

Cumulative adjustments 1 :

Upward adjustments 620

1 unchanged sentence

Carrying amount, end of period $ 1,087

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,

1 Includes immaterial translational impact of currency.

The following table summarizes the unrealized gains and losses included in the carrying value of the Company’s Measurement alternative investments and Marketable securities for the years ended December 31:

2022 2021 2020

(in millions)

Measurement alternative investments:

Upward adjustments $ 114 $ 468 $ 21

Downward adjustments (including impairment) $ ( 23 ) $ ( 2 ) $ ( 3 )

Marketable securities:

Unrealized gains (losses), net $ ( 213 ) $ 8 $ ( 5 )

Fair Value Measurements

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.

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

MASTERCARD 2022 FORM 10-K 84

31 unchanged sentences

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

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

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

6 unchanged sentences

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Instruments - Non-Recurring Measurements

Financial Instruments - Nonrecurring Measurements

Nonmarketable Securities

The Company’s Nonmarketable securities are recorded at fair value on a non-recurring basis in periods after initial recognition under the equity method or measurement alternative method.

The Company’s Nonmarketable securities are recorded at fair value on a nonrecurring basis in periods after initial recognition under the equity method or measurement alternative method.

Nonmarketable securities are classified within Level 3 of the Valuation Hierarchy due to the absence of quoted market prices, the inherent lack of liquidity and unobservable inputs used to measure fair value that require management’s judgment.

1 unchanged sentence

See Note 7 (Investments) for further details.

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

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

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

At December 31, 2020, the carrying value and fair value of long-term debt (including the current portion) was $ 12.7 billion and $ 14.8 billion, respectively.

The Company estimates the fair value of its debt based on either market quotes or observable market data.

Debt is classified as Level 2 of the Valuation Hierarchy as it is generally not traded in active markets.

At December 31, 2022, the carrying value and fair value of debt was $ 14.0 billion and $ 12.7 billion, respectively.

At December 31, 2021, the carrying value and fair value of debt was $ 13.9 billion and $ 15.3 billion, respectively.

See Note 15 (Debt) for further details.

17 unchanged sentences

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

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

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

MASTERCARD 2022 FORM 10-K 86

18 unchanged sentences

Other liabilities 630 645

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

Operating lease amortization expense was $ 137 million, $ 122 million and $ 123 million for 2022, 2021 and 2020, respectively.

As of December 31, 2022 and 2021, the weighted-average remaining lease term of operating leases was 8.4 years and 8.8 years and the weighted-average discount rate for operating leases was 2.5 % and 2.6 %, respectively.

33 unchanged sentences

Total $ 5,819 $ ( 1,960 ) $ 3,859 $ 5,426 $ ( 1,755 ) $ 3,671

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

The increase in the gross carrying amount of amortized intangible assets in 2022 was primarily related to software additions and the business acquired in 2022.

See Note 2 (Acquisitions) for further details.

35 unchanged sentences

Additionally, Vocalink has a defined benefit pension plan (the “Vocalink Plan”) which was permanently closed to new entrants and future accruals as of July 21, 2013, however, plan participants’ obligations are adjusted for future salary changes.

The Company has agreed to make contributions of £ 15 million (approximately $ 20 million as of December 31, 2021) annually until September 2022.

The term “Pension Plans” includes the non-U.S.

21 unchanged sentences

Fair value of plan assets at beginning of year 688 617 — —

Actual gain on plan assets 63 56 — —

Actual gain/(loss) on plan assets ( 203 ) 63 — —

Employer contributions 25 32 6 4

25 unchanged sentences

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

At December 31, 2022 and 2021, the Company’s aggregated Pension Plan assets exceeded the benefit obligations.

For plans where the benefit obligations exceeded plan assets, the projected benefit obligation was $ 8 million and $ 116 million, the accumulated benefit obligation was $ 6 million and $ 115 million and plan assets were $ 2 million and $ 104 million at December 31, 2022 and 2021, respectively.

5 unchanged sentences

For the year ended December 31, 2022, the Company’s projected benefit obligation related to its Pension Plans decreased $ 204 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.

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.

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

52 unchanged sentences

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables set forth by level, within the Valuation Hierarchy, the Pension Plans’ assets at fair value:

The following table sets forth by level within the Valuation Hierarchy, the Pension Plans’ assets at fair value:

December 31, 2022 December 31, 2021

26 unchanged sentences

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-term debt consisted of the following at December 31:

Debt consisted of the following at December 31:

2022 2021 Effective

1 unchanged sentence

(in millions)

2022 EUR Notes 1

1.000 % Senior Notes due February 2029 $ 800 $ — 1.138 %

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

11 unchanged sentences

3.800 % Senior Notes due November 2046 600 600 3.893 %

2015 EUR Notes 2

3 unchanged sentences

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

INR Term Loan 3

8.640 % Term Loan due July 2023 275 — 9.090 %

14,239 14,019

1 unchanged sentence

Cumulative hedge accounting fair value adjustments 4

( 105 ) ( 2 )

Total debt outstanding 14,023 13,901

Current portion 3

Short-term debt 5

( 274 ) ( 792 )

Long-term debt $ 13,749 $ 13,109

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

1 € 750 million euro-denominated debt issued in February 2022.

2 € 1.650 billion euro-denominated debt issued in December 2015 of which € 700 million ($ 724 million) matured and was paid during 2022.

3 INR 22.7 billion Indian rupee-denominated loan issued in July 2022.

4 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.

5 The INR Term Loan due July 2023 is classified as short-term debt on the consolidated balance sheet as of December 31, 2022.

The 2015 EUR Notes due December 2022 are classified as short-term debt on the consolidated balance sheet as of December 31, 2021.

In February 2022, the Company issued € 750 million ($ 800 million as of December 31, 2022) principal amount of notes due February 2029 (the “2022 EUR Notes”).

The net proceeds from the issuance of the 2022 EUR Notes, after deducting the original issue discount, underwriting discount and offering expenses, were € 743 million ($ 843 million as of the date of settlement).

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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.

2 unchanged sentences

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

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

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

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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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 of notes due March 2050 (collectively the “2020 USD Notes”).

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

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.

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

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

Indian Rupee (“INR”) Term Loan

In July 2022, the Company entered into an unsecured INR 22.7 billion ($ 275 million as of December 31, 2022) term loan due July 2023 (the “INR Term Loan”).

The net proceeds of the INR Term Loan, after deducting issuance costs, were INR 22.6 billion ($ 284 million as of the date of settlement).

The Company obtained the INR Term Loan to serve as an economic hedge to offset possible changes in the value of INR-denominated monetary assets due to foreign exchange fluctuations.

The INR Term Loan is not subject to any financial covenants and it may be repaid in whole at the Company’s option at any time for a specified make-whole amount.

Scheduled annual maturities of the principal portion of long-term debt outstanding at December 31, 2022 are summarized below.

3 unchanged sentences

As of December 31, 2022, 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.

On January 27, 2023, the Company increased its Commercial Paper Program from $ 6 billion to $ 8 billion.

The Commercial Paper Program is available in U.S.

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.

In conjunction with the Commercial Paper Program, the Company entered into a committed five-year unsecured $ 8 billion revolving credit facility (the “Credit Facility”) on November 10, 2022.

The Credit Facility, which expires on November 10, 2027, amended and restated the Company’s prior $ 6 billion credit facility which was set to expire on November 12, 2026.

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

6 unchanged sentences

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

The Company had no borrowings under the Credit Facility and the Commercial Paper Program at December 31, 2021 and 2020.

The Company had no borrowings under the Credit Facility or the Commercial Paper Program at December 31, 2022 and 2021.

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Stockholders' Equity

9 unchanged sentences

Dividend and voting rights are to be determined by the Board of Directors of the Company upon issuance.

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The Company declared a quarterly cash dividend on its Class A and Class B Common Stock during each of the four quarters of 2022, 2021 and 2020.

14 unchanged sentences

Class B stockholders are required to subsequently sell or otherwise transfer any shares of Class A common stock received pursuant to such a conversion.

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Mastercard Foundation

3 unchanged sentences

Under such current law, Mastercard Foundation must annually disburse at least 3.5 % of its assets not used in its charitable activities and administration in the previous eight quarters (“Disbursement Quota”).

However, Mastercard Foundation obtained permission from the Canada Revenue Agency to, until December 31, 2021, meet its cumulative Disbursement Quota obligations over a period of time that, on average, demonstrates compliance with the requirement for such established time period.

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

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However, Mastercard Foundation obtained permission from the Canada Revenue Agency to, until December 31, 2021, meet its cumulative Disbursement Quota obligations over a period of time that, on average, demonstrated compliance with the requirement for such established time period.

Currently, Mastercard Foundation may not sell or otherwise transfer its donated shares prior to May 1, 2027, except to the extent necessary to satisfy the Disbursement Quota.

Based on that timing, Mastercard Foundation would be permitted to sell all of its remaining shares beginning May 1, 2027, subject to certain conditions.

Common Stock Activity

16 unchanged sentences

Balance at December 31, 2022 948.4 7.6

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

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

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

15 unchanged sentences

Translation adjustments on net investment hedges 2

( 175 ) 209 — 34

Cash flow hedges

Foreign exchange contracts 3

Interest rate contracts 4

4 1 ( 13 ) ( 8 )

Interest rate contracts ( 128 ) — 5 ( 123 )

Defined benefit pension and other postretirement plans 4

9 unchanged sentences

Cash flow hedges

Foreign exchange contracts 3

Interest rate contracts ( 133 ) — 5 ( 128 )

11 ( 147 ) 3 ( 133 )

Defined benefit pension and other postretirement plans 4

2 unchanged sentences

Accumulated other comprehensive income (loss) $ ( 680 ) $ ( 131 ) $ 2 $ ( 809 )

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.

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.

1 During 2022, the increase in the accumulated other comprehensive loss related to foreign currency translation adjustments was driven primarily by the depreciation of the euro and British pound against the U.S.

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

2 During 2022 and 2021, the increase in the accumulated other comprehensive income related to the net investment hedges was driven by the depreciation of the euro against the U.S.

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.

3 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.

In the first quarter of 2020, in connection with the issuance of the 2020 USD Notes, these contracts were settled for a loss of $ 175 million, or $ 136 million net of tax, recorded in accumulated other comprehensive income (loss).

The cumulative loss will be reclassified as an adjustment to interest expense over the respective terms of the 2020 USD Notes.

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

4 During 2022, the increase in the accumulated other comprehensive loss related to the Plans was driven primarily by a net actuarial loss within the Pension Plans.

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

4 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.

2 unchanged sentences

Stock Options

Options expire ten years from the date of grant and vest ratably over four years .

Options expire ten years from the date of grant and vest ratably over three years for awards granted on or after March 1, 2022.

For awards granted before March 1, 2022, they vest ratably over four years .

For Options granted, a participant’s unvested awards are forfeited upon termination.

20 unchanged sentences

Exercised ( 0.9 ) $ 100

Forfeited/expired — $ 259

Forfeited ( 0.1 ) $ 308

Expired — $ 363

Outstanding at December 31, 2022 4.7 $ 173 4.9 $ 828

1 unchanged sentence

Options vested and expected to vest at December 31, 2022 4.7 $ 173 4.9 $ 827

As of December 31, 2021, there was $ 26 million of total unrecognized compensation cost related to non-vested Options.

As of December 31, 2022, there wa s $ 19 million of total unrecognized compensation cost related to non-vested Options.

The cost is expected to be recognized over a weighted-average period of 1.7 years.

2 unchanged sentences

Restricted Stock Units

For RSUs granted on or after March 1, 2020, the awards generally vest ratably over four years .

For RSUs granted before March 1, 2020, the awards generally vest after three years .

For RSUs granted on or after March 1, 2022, the awards generally vest ratably over three years .

For RSUs granted on or after March 1, 2020 but before March 1, 2022, the awards generally vest ratably over four years .

A participant’s unvested awards are forfeited upon termination of employment.

14 unchanged sentences

The remaining RSUs will be settled in shares of the Company’s Class A common stock after the vesting period.

As of December 31, 2021, there was $ 283 million of total unrecognized compensation cost related to non-vested RSUs.

As of December 31, 2022, there wa s $ 334 million of total unrecognized compensation cost related to non-vested RSUs.

The cost is expected to be recognized over a weighted-average period of 2.0 years.

Performance Stock Units

PSUs vest after three years , however, awards granted on or after March 1, 2019 are subject to a mandatory one-year post-vest hold.

PSUs vest after three years and are subject to a mandatory one-year post-vest hold, during which they are eligible for dividend equivalents.

A participant’s unvested awards are forfeited upon termination of employment.

11 unchanged sentences

PSUs expected to vest at December 31, 2022 0.4 $ 352 $ 128

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Since 2013, PSUs containing performance and market conditions have been issued.

2 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.

19 unchanged sentences

(in millions)

Thereafter 47

Total $ 1,205

101 MASTERCARD 2022 FORM 10-K

24 unchanged sentences

Amount Percent Amount Percent Amount Percent

(in millions, except percentages)

($ in millions)

Income before income taxes $ 11,732 $ 10,307 $ 7,760

2 unchanged sentences

Foreign tax effect ( 347 ) ( 3.0 ) % ( 283 ) ( 2.7 ) % ( 193 ) ( 2.5 ) %

Valuation allowance - U.S.

foreign tax credit ( 333 ) ( 2.8 ) % — — % — — %

tax expense on foreign operations 111 0.9 % 63 0.6 % 47 0.6 %

Foreign-derived intangible income deduction ( 129 ) ( 1.1 ) % ( 69 ) ( 0.7 ) % ( 46 ) ( 0.6 ) %

tax benefits 1

1 unchanged sentence

Windfall benefit ( 68 ) ( 0.6 ) % ( 67 ) ( 0.7 ) % ( 119 ) ( 1.5 ) %

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

Other, net 32 0.3 % ( 116 ) ( 1.1 ) % ( 27 ) ( 0.3 ) %

Income tax expense $ 1,802 15.4 % $ 1,620 15.7 % $ 1,349 17.4 %

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.

Table may not sum due to rounding.

The effective income tax rates for the years ended December 31, 2022, 2021 and 2020 were 15.4 %, 15.7 % and 17.4 %, respectively.

The effective income tax rate for 2022 was lower than the effective income tax rate for 2021, primarily due to a discrete tax benefit in the first quarter of 2022 related to final U.S.

tax regulations published in the current year.

These regulations resulted in a valuation allowance release of $ 333 million associated with the U.S.

foreign tax credit carryforward deferred tax asset.

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regulations limit the Company’s ability to generate foreign tax credits starting in 2022 for certain foreign taxes paid, resulting in additional U.S.

Additionally, a more favorable geographic mix of earnings in 2022 contributed to the lower effective tax rate.

The lower effective income tax rate in 2022 was partially offset by:

• the recognition of U.S.

tax benefits in 2021 (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.

• a discrete tax benefit in 2021 related to the remeasurement of the Company’s net deferred tax asset in the U.K.

due to an enacted tax rate change in 2021

• a discrete tax expense related to an unfavorable court ruling in 2022

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.

2 unchanged sentences

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

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

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

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

As of December 31, 2022 the Company does not accrue taxes on $ 1.6 billion of foreign earnings which remain permanently reinvested outside the U.S.

The Company expects that taxes associated with any future repatriation of these earnings are immaterial.

103 MASTERCARD 2022 FORM 10-K

8 unchanged sentences

State taxes and other credits 43 40

Net operating and capital losses 136 147

Unrealized gain/loss - 2015 EUR Notes 24 58

Net operating losses 156 136

foreign tax credits 274 333

Property, plant and equipment 52 —

Intangible assets 186 206

7 unchanged sentences

Property, plant and equipment — 174

Previously taxed earnings and profits 3 61

Other items 135 115

1 unchanged sentence

Net Deferred Tax Assets $ 758 $ 91

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

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

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

federal income tax law.

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

The valuation allowance balance at December 31, 2022 primarily related to the Company’s ability to recognize future tax benefits associated with certain foreign losses.

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

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

foreign tax credits and certain foreign losses.

The valuation allowance associated with the carryforward of U.S.

foreign tax credits was released in 2022 as a result of the publication of final U.S.

tax regulations.

The regulations limit the Company’s ability to generate foreign tax credits for certain taxes paid beginning in 2022, but have the effect of allowing the Company to utilize its foreign tax credit carryforwards.

As of December 31, 2022, the Company had foreign tax credit and tax effected net operating loss carryforwards of $ 274 million and $ 156 million, respectively.

The foreign tax credits begin to expire in 2029 and the majority of the net operating losses can be carried forward indefinitely.

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

5 unchanged sentences

Prior year tax positions 1

( 14 ) ( 31 ) ( 10 )

Settlements with tax authorities ( 13 ) ( 15 ) ( 12 )

1 unchanged sentence

Ending balance $ 414 $ 360 $ 388

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1 Includes immaterial translational impact of currency.

As of December 31, 2022, the amount of unrecognized tax benefit was $ 414 million.

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

This amount, if recognized, would reduce the effective income tax rate by $ 362 million.

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.

1 unchanged sentence

Uncertain tax positions are reviewed on an ongoing basis and are adjusted after considering facts and circumstances, including progress of tax audits, developments in case law and closing of statutes of limitation.

Within the next twelve months, the Company believes that the resolution of certain federal, foreign and state and local examinations are reasonably possible and that a change in estimate, reducing unrecognized tax benefits, may occur.

Within the next twelve months, the Company believes that the resolution of certain federal, foreign and state and local examinations is reasonably possible and that a change in estimate, reducing unrecognized tax benefits, may occur.

While such a change may be significant, it is not possible to provide a range of the potential change until the examinations progress further or the related statutes of limitation expire.

2 unchanged sentences

With limited exception, the Company is no longer subject to state and local or foreign examinations by tax authorities for years before 2011.

At December 31, 2021 and 2020, the Company had a net income tax-related interest payable of $ 20 million and $ 24 million, respectively, in its consolidated balance sheet.

Tax-related interest income/(expense) in 2021, 2020 and 2019 was not material.

In addition, as of December 31, 2021 and 2020, the amounts the Company has recognized for penalties payable in its consolidated balance sheet were not material.

Legal and Regulatory Proceedings

6 unchanged sentences

(1) actual or potential plaintiffs have not claimed an amount of monetary damages or the amounts are unsupportable or exaggerated, (2) the matters are in early stages, (3) there is uncertainty as to the outcome of pending appeals or motions, (4) there are significant factual issues to be resolved, (5) the existence in many such proceedings of multiple defendants or potential defendants whose share of any potential financial responsibility has yet to be determined and/or (6) there are novel legal issues presented.

Furthermore, except as identified with respect to the matters below, Mastercard does not believe that the outcome of any individual existing legal or regulatory proceeding to which it is a party will have a material adverse effect on its results of operations, financial condition or overall business.

However, an adverse judgment or other outcome or settlement with respect to any proceedings discussed below could result in fines or payments by Mastercard and/or could require Mastercard to change its business practices.

4 unchanged sentences

When taken as a whole, the resulting decisions, regulations and legislation with respect to interchange fees and acceptance practices may have a material adverse effect on the Company’s prospects for future growth and its overall results of operations, financial position and cash flows.

United States.

In June 2005, the first of a series of complaints were filed on behalf of merchants (the majority of the complaints were styled as class actions, although a few complaints were filed on behalf of individual merchant plaintiffs) against Mastercard International, Visa U.S.A., Inc., Visa International Service Association and a number of financial institutions.

Taken together, the claims in the complaints were generally brought under both Sections 1 and 2 of the Sherman Act, which prohibit monopolization and attempts or conspiracies to monopolize a particular industry, and some of these complaints contain unfair competition law claims under state law.

The complaints allege, among other things, that Mastercard, Visa, and certain financial institutions conspired to set the price of interchange fees, enacted point of sale acceptance rules (including the no surcharge rule) in violation of antitrust laws and engaged in unlawful tying and bundling of certain products and services, resulting in merchants paying excessive costs for the acceptance of Mastercard and Visa credit and debit cards.

The cases were consolidated for pre-trial proceedings in the U.S.

District Court for the Eastern District of New York in MDL No.

The plaintiffs filed a consolidated class action complaint that seeks treble damages.

105 MASTERCARD 2022 FORM 10-K

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