Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Instruments - Recurring Measurements

The distribution of the Company’s financial instruments measured at fair value on a recurring basis within the Valuation Hierarchy were as follows:

						December 31, 2021																								December 31, 2020
						Quoted Prices in Active Markets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)						Total						Quoted Prices in Active Markets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)						Total
						(in millions)
Assets
Investment securities available-for-sale 1**:**
Municipal securities						$	—					$	2					$	—					$	2					$	—					$	10					$	—					$	10
Government and agency securities						35						63						—						98						26						38						—						64
Corporate securities						—						214						—						214						—						247						—						247
Derivative instruments 2**:**
Foreign exchange contracts						—						8						—						8						—						19						—						19
Interest rate contracts						—						6						—						6						—						—						—						—
Marketable securities 3**:**
Equity securities						627						—						—						627						476						—						—						476
Deferred compensation plan 4**:**
Deferred compensation assets						89						—						—						89						78						—						—						78
Liabilities
Derivative instruments 2**:**
Foreign exchange contracts						$	—					$	15					$	—					$	15					$	—					$	28					$	—					$	28
Interest rate contracts						—						8						—						8						—						—						—						—
Deferred compensation plan 5**:**
Deferred compensation liabilities						89						—						—						89						81						—						—						81

1The Company’s U.S. government securities are classified within Level 1 of the Valuation Hierarchy as the fair values are based on unadjusted quoted prices for identical assets in active markets. The fair value of the Company’s available-for-sale municipal securities, non-U.S. government and agency securities and corporate securities are based on observable inputs such as quoted prices, benchmark yields and issuer spreads for similar assets in active markets and are therefore included in Level 2 of the Valuation Hierarchy.

2The Company’s foreign exchange and interest rate derivative asset and liability contracts have been classified within Level 2 of the Valuation Hierarchy as the fair value is based on observable inputs such as broker quotes relating to foreign exchange for similar derivative instruments. See Note 23 (Derivative and Hedging Instruments) for further details.

3The Company’s Marketable securities are publicly held and classified within Level 1 of the Valuation Hierarchy as the fair values are based on unadjusted quoted prices in their respective active markets.

4The Company has a nonqualified deferred compensation plan where assets are invested primarily in mutual funds held in a rabbi trust, which is restricted for payments to participants of the plan. The Company has elected to use the fair value option for these mutual funds, which are measured using quoted prices of identical instruments in active markets and are included in prepaid expenses and other current assets on the consolidated balance sheet.

5The deferred compensation liabilities are measured at fair value based on the quoted prices of identical instruments to the investment vehicles selected by the participants. These are included in other liabilities on the consolidated balance sheet.

84 MASTERCARD 2021 FORM 10-K

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Instruments - Non-Recurring Measurements

Nonmarketable Securities

The Company’s Nonmarketable securities are recorded at fair value on a non-recurring basis in periods after initial recognition under the equity method or measurement alternative method. Nonmarketable securities are classified within Level 3 of the Valuation Hierarchy due to the absence of quoted market prices, the inherent lack of liquidity and unobservable inputs used to measure fair value that require management’s judgment. The Company uses discounted cash flows and market assumptions to estimate the fair value of its Nonmarketable securities when certain events or circumstances indicate that impairment may exist. See Note 7 (Investments) for further details.

Debt

The Company estimates the fair value of its long-term debt based on market quotes. These debt securities are classified as Level 2 of the Valuation Hierarchy as they are not traded in active markets. At 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. See Note 15 (Debt) for further details.

Other Financial Instruments

Certain other financial instruments are carried on the consolidated balance sheet at cost or amortized cost basis, which approximates fair value due to their short-term, highly liquid nature. These instruments include cash and cash equivalents, restricted cash, time deposits, accounts receivable, settlement assets, restricted security deposits held for customers, accounts payable, settlement obligations and other accrued liabilities.

Note 9. Prepaid Expenses and Other Assets

Prepaid expenses and other current assets consisted of the following at December 31:

						2021						2020
						(in millions)
Customer and merchant incentives						$	1,326					$	1,086
Prepaid income taxes						92						78
Other						853						719
Total prepaid expenses and other current assets						$	2,271					$	1,883

Other assets consisted of the following at December 31:

						2021						2020
						(in millions)
Customer and merchant incentives						$	3,798					$	3,220
Equity investments						1,834						1,172
Income taxes receivable						645						553
Other						717						420
Total other assets						$	6,994					$	5,365

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.

MASTERCARD 2021 FORM 10-K 85

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Property, Equipment and Right-of-Use Assets

Property, equipment and right-of-use assets consisted of the following at December 31:

						2021						2020
						(in millions)
Building, building equipment and land						$	615					$	522
Equipment						1,456						1,321
Furniture and fixtures						96						99
Leasehold improvements						371						380
Operating lease right-of-use assets						983						970
Property, equipment and right-of-use assets						3,521						3,292
Less: Accumulated depreciation and amortization						(1,614)						(1,390)
Property, equipment and right-of-use assets, net						$	1,907					$	1,902

Depreciation and amortization expense for the above property, equipment and right-of-use assets was $424 million, $400 million and $336 million for 2021, 2020 and 2019, respectively.

Operating lease ROU assets and operating lease liabilities are recorded on the consolidated balance sheet as follows at December 31:

						2021						2020
						(in millions)
Balance sheet location
Property, equipment and right-of-use assets, net						$	671					$	748
Other current liabilities						127						125
Other liabilities						645						726

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.

The following table summarizes the maturity of the Company’s operating lease liabilities at December 31, 2021 based on lease term:

						Operating Leases
						(in millions)
2022						$	145
2023						130
2024						109
2025						83
2026						75
Thereafter						322
Total operating lease payments						864
Less: Interest						(92)
Present value of operating lease liabilities						$	772

86 MASTERCARD 2021 FORM 10-K

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Goodwill

The changes in the carrying amount of goodwill for the years ended December 31 were as follows:

						2021						2020
						(in millions)
Beginning balance						$	4,960					$	4,021
Additions						2,842						844
Foreign currency translation						(140)						95
Ending balance						$	7,662					$	4,960

The Company performed its annual qualitative assessment of goodwill during the fourth quarter of 2021 and determined a quantitative assessment was not necessary. The Company concluded that goodwill was not impaired and had no accumulated impairment losses at December 31, 2021.

Note 12. Other Intangible Assets

The following table sets forth net intangible assets, other than goodwill, at December 31:

						2021																		2020
						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
						(in millions)
Finite-lived intangible assets
Capitalized software						$	2,929					$	(1,288)					$	1,641					$	2,276					$	(1,126)					$	1,150
Customer relationships						2,272						(429)						1,843						743						(322)						421
Other						59						(38)						21						44						(41)						3
Total						5,260						(1,755)						3,505						3,063						(1,489)						1,574
Indefinite-lived intangible assets
Customer relationships						166						—						166						179						—						179
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 2021 was primarily related to businesses acquired in 2021 and software additions. See Note 2 (Acquisitions) for further details. Certain intangible assets are denominated in foreign currencies. As such, the change in intangible assets includes a component attributable to foreign currency translation. Based on the qualitative assessment performed in 2021, it was determined that the Company’s indefinite-lived intangible assets were not impaired.

Amortization on the assets above amounted to $424 million, $303 million and $285 million in 2021, 2020 and 2019, respectively. The following table sets forth the estimated future amortization expense on finite-lived intangible assets on the consolidated balance sheet at December 31, 2021 for the years ending December 31:

						(in millions)
2022						$	429
2023						378
2024						355
2025						347
2026 and thereafter						1,996
Total						$	3,505

MASTERCARD 2021 FORM 10-K 87

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13. Accrued Expenses and Accrued Litigation

Accrued expenses consisted of the following at December 31:

						2021						2020
						(in millions)
Customer and merchant incentives						$	4,730					$	3,998
Personnel costs						980						727
Income and other taxes						337						208
Other						595						497
Total accrued expenses						$	6,642					$	5,430

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. These amounts are not included in the accrued expenses table above and are separately reported as accrued litigation on the consolidated balance sheet. See Note 21 (Legal and Regulatory Proceedings) for additional information regarding the Company’s accrued litigation.

Note 14. Pension, Postretirement and Savings Plans

The Company and certain of its subsidiaries maintain various pension and other postretirement plans that cover substantially all employees worldwide.

Defined Contribution Plans

The Company sponsors defined contribution retirement plans. The primary plan is the Mastercard Savings Plan, a 401(k) plan for substantially all of the Company’s U.S. employees, which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. In addition, the Company has several defined contribution plans outside of the U.S. The Company’s total expense for its defined contribution plans was $175 million, $150 million and $127 million in 2021, 2020 and 2019, respectively.

Defined Benefit and Other Postretirement Plans

The Company sponsors pension and postretirement plans for certain non-U.S. employees (the “non-U.S. Plans”) that cover various benefits specific to their country of employment. 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. Plans and the Vocalink Plan.

The Company maintains a postretirement plan providing health coverage and life insurance benefits for substantially all of its U.S. employees hired before July 1, 2007 (the “Postretirement Plan”).

88 MASTERCARD 2021 FORM 10-K

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 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
						2021						2020						2021						2020
						($ in millions)
Change in benefit obligation
Benefit obligation at beginning of year						$	604					$	531					$	70					$	64
Service cost						14						13						1						1
Interest cost						9						9						2						2
Actuarial (gain) loss						(6)						43						(7)						7
Benefits paid						(17)						(18)						(4)						(4)
Transfers in						4						3						—						—
Foreign currency translation						(12)						23						—						—
Benefit obligation at end of year						596						604						62						70
Change in plan assets
Fair value of plan assets at beginning of year						617						518						—						—
Actual gain on plan assets						63						56						—						—
Employer contributions						32						34						4						4
Benefits paid						(17)						(18)						(4)						(4)
Transfers in						4						5						—						—
Foreign currency translation						(11)						22						—						—
Fair value of plan assets at end of year						688						617						—						—
Funded status at end of year						$	92					$	13					$	(62)					$	(70)
Amounts recognized on the consolidated balance sheet consist of:
Noncurrent assets						$	105					$	28					$	—					$	—
Other liabilities, short-term						—						—						(3)						(4)
Other liabilities, long-term						(13)						(15)						(59)						(66)
						$	92					$	13					$	(62)					$	(70)
Accumulated other comprehensive income consists of:
Net actuarial (gain) loss						$	(38)					$	12					$	2					$	9
Prior service credit						1						1						(2)						(4)
Balance at end of year						$	(37)					$	13					$	—					$	5
Weighted-average assumptions used to determine end of year benefit obligations
Discount rate
Non-U.S. Plans						0.90		%				0.70		%				*						*
Vocalink Plan						1.75		%				1.55		%				*						*
Postretirement Plan						*						*						2.75		%				2.50		%
Rate of compensation increase
Non-U.S. Plans						1.50		%				1.50		%				*						*
Vocalink Plan						3.20		%				2.75		%				*						*
Postretirement Plan						*						*						3.00		%				3.00		%

• Not applicable

MASTERCARD 2021 FORM 10-K 89

PART II

ITEM 8. 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. 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:

						2021						2020
						(in millions)
Projected benefit obligation						$	596					$	604
Accumulated benefit obligation						592						601
Fair value of plan assets						688						617

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:

						Pension Plans																		Postretirement Plan
						2021						2020						2019						2021						2020						2019
						(in millions)
Service cost						$	14					$	13					$	11					$	1					$	1					$	1
Interest cost						9						9						13						2						2						2
Expected return on plan assets						(19)						(18)						(18)						—						—						—
Amortization of actuarial loss						(1)						—						1						—						—						—
Amortization of prior service credit						—						—						—						(1)						(1)						(1)
Net periodic benefit cost						$	3					$	4					$	7					$	2					$	2					$	2

The service cost component is recognized in general and administrative expenses on the consolidated statement of operations. Net periodic benefit cost, excluding the service cost component, is recognized in other income (expense) on the consolidated statement of operations.

Other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31 were as follows:

						Pension Plans																		Postretirement Plan
						2021						2020						2019						2021						2020						2019
						(in millions)
Current year actuarial loss (gain)						$	(50)					$	5					$	12					$	(7)					$	7					$	9
Amortization of prior service credit						—						—						—						2						1						1
Total other comprehensive loss (income)						$	(50)					$	5					$	12					$	(5)					$	8					$	10
Total net periodic benefit cost and other comprehensive loss (income)						$	(47)					$	9					$	19					$	(3)					$	10					$	12

90 MASTERCARD 2021 FORM 10-K

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assumptions

Weighted-average assumptions used to determine net periodic benefit cost were as follows for the years ended December 31:

						Pension Plans																		Postretirement Plan
						2021						2020						2019						2021						2020						2019
Discount rate
Non-U.S. Plans						0.70		%				0.70		%				1.80		%				*						*						*
Vocalink Plan						1.55		%				1.55		%				2.00		%				*						*						*
Postretirement Plan						*						*						*						2.50		%				3.25		%				4.25		%
Expected return on plan assets
Non-U.S. Plans						1.60		%				1.60		%				2.10		%				*						*						*
Vocalink Plan						3.20		%				3.20		%				3.75		%				*						*						*
Rate of compensation increase
Non-U.S. Plans						1.50		%				1.50		%				1.50		%				*						*						*
Vocalink Plan						2.75		%				2.75		%				2.50		%				*						*						*
Postretirement Plan						*						*						*						3.00		%				3.00		%				3.00		%

• Not applicable

The Company’s discount rate assumptions are based on yield curves derived from high quality corporate bonds, which are matched to the expected cash flows of each respective plan. The expected return on plan assets assumptions are derived using the current and expected asset allocations of the Pension Plans’ assets and considering historical as well as expected returns on various classes of plan assets. The rates of compensation increases are determined by the Company, based upon its long-term plans for such increases.

The following additional assumptions were used at December 31 in accounting for the Postretirement Plan:

						2021						2020
Healthcare cost trend rate assumed for next year						6.75		%				7.00		%
Ultimate trend rate						5.00		%				5.00		%
Year that the rate reaches the ultimate trend rate						7						8

Assets

Plan assets are managed taking into account the timing and amount of future benefit payments. The Vocalink Plan assets are managed with the following target asset allocations: cash and cash equivalents 42%, U.K. government securities 18%, fixed income 17%, equity 15% and real estate 8%. For the non-U.S. Plans, the assets are concentrated primarily in insurance contracts.

The Valuation Hierarchy of the Pension Plans’ assets is determined using a consistent application of the categorization measurements for the Company’s financial instruments. See Note 1 (Summary of Significant Accounting Policies) for additional information.

MASTERCARD 2021 FORM 10-K 91

PART II

ITEM 8. 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:

						December 31, 2021																								December 31, 2020
						Quoted Prices in Active Markets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)						Fair Value						Quoted Prices in Active Markets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)						Fair Value
						(in millions)
Cash and cash equivalents 1						$	246					$	—					$	—					$	246					$	59					$	—					$	—					$	59
Mutual funds 2						185						102						—						287						270						117						—						387
Insurance contracts 3						—						104						—						104						—						96						—						96
Total						$	431					$	206					$	—					$	637					$	329					$	213					$	—					$	542
Investments at Net Asset Value (“NAV”) 4																								51																								75
Total Plan Assets																								$	688																							$	617

1Cash and cash equivalents are valued at quoted market prices, which represent the net asset value of the shares held by the Plans.

2Certain mutual funds are valued at quoted market prices, which represent the value of the shares held by the Plans, and are therefore included in Level 1. Certain other mutual funds are valued at unit values provided by investment managers, which are based on the fair value of the underlying investments utilizing public information, independent external valuation from third-party services or third-party advisors, and are therefore included in Level 2.

3Insurance contracts are valued at unit values provided by investment managers, which are based on the fair value of the underlying investments utilizing public information, independent external valuation from third-party services or third-party advisors.

4Investments at NAV include mutual funds (comprised primarily of credit investments) and other investments (comprised primarily of real estate investments) and are valued using the net asset value provided by the administrator as a practical expedient, and therefore these investments are not included in the valuation hierarchy. These investments have quarterly redemption frequencies with redemption notice periods ranging from 60 to 90 days.

The following table summarizes expected benefit payments (as of December 31, 2021) through 2031 for the Pension Plans and the Postretirement Plan, including those payments expected to be paid from the Company’s general assets. Actual benefit payments may differ from expected benefit payments.

						Pension Plans						Postretirement Plan
						(in millions)
2022						$	27					$	3
2023						18						3
2024						21						3
2025						21						4
2026						19						4
2027 - 2031						124						19

92 MASTERCARD 2021 FORM 10-K

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15. Debt

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

															2021						2020						Effective Interest Rate
															(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		%
						3.350		%	Senior Notes due March 2030						1,500						1,500						3.430		%
						3.850		%	Senior Notes due March 2050						1,500						1,500						3.896		%
2019 USD Notes						2.950		%	Senior Notes due June 2029						1,000						1,000						3.030		%
						3.650		%	Senior Notes due June 2049						1,000						1,000						3.689		%
						2.000		%	Senior Notes due March 2025						750						750						2.147		%
2018 USD Notes						3.500		%	Senior Notes due February 2028						500						500						3.598		%
						3.950		%	Senior Notes due February 2048						500						500						3.990		%
2016 USD Notes						2.000		%	Senior Notes due November 2021						—						650						2.236		%
						2.950		%	Senior Notes due November 2026						750						750						3.044		%
						3.800		%	Senior Notes due November 2046						600						600						3.893		%
2015 EUR Notes 1						1.100		%	Senior Notes due December 2022						793						859						1.265		%
						2.100		%	Senior Notes due December 2027						906						982						2.189		%
						2.500		%	Senior Notes due December 2030						170						184						2.562		%
2014 USD Notes						3.375		%	Senior Notes due April 2024						1,000						1,000						3.484		%
															14,019						12,775
Less: Unamortized discount and debt issuance costs															(116)						(103)
Less: Cumulative hedge accounting fair value adjustments 2															(2)						—
Total debt outstanding															13,901						12,672
Less: Current portion 3															(792)						(649)
Long-term debt															$	13,109					$	12,023

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

2In 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.

32015 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 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.

MASTERCARD 2021 FORM 10-K 93

PART II

ITEM 8. 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”. 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.

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

						(in millions)
2022						$	793
2023						—
2024						1,000
2025						750
2026						750
Thereafter						10,726
Total						$	14,019

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. dollars.

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. dollars and/or euros. The facility fee under the Credit Facility is determined according to the Company’s credit rating and is payable on the average daily commitment, regardless of usage, per annum. In addition to the facility fee, interest rates on borrowings under the Credit Facility would be based on prevailing market interest rates plus applicable margins that fluctuate based on the Company’s credit rating. The Credit Facility contains customary representations, warranties, affirmative and negative covenants, events of default and indemnification provisions. 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 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. The Company had no borrowings under the Credit Facility and the Commercial Paper Program at December 31, 2021 and 2020.

Note 16. Stockholders' Equity

Classes of Capital Stock

Mastercard’s amended and restated certificate of incorporation authorizes the following classes of capital stock:

Class						Par Value Per Share						Authorized Shares (in millions)						Dividend and Voting Rights
A						$0.0001						3,000						One vote per share Dividend rights
B						$0.0001						1,200						Non-voting Dividend rights
Preferred						$0.0001						300						No shares issued or outstanding at December 31, 2021 and 2020. Dividend and voting rights are to be determined by the Board of Directors of the Company upon issuance.

94 MASTERCARD 2021 FORM 10-K

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Dividends

The Company declared a quarterly cash dividend on its Class A and Class B Common Stock during each of the four quarters of 2021, 2020 and 2019.

The Company declared total per share dividends on its Class A and Class B Common Stock during the years ended December 31 as summarized below:

																		2021						2020						2019
															(in millions, except per share data)
Dividends declared per share																		$	1.81					$	1.64					$	1.39
Total dividends declared																		$	1,781					$	1,641					$	1,408

Ownership and Governance Structure

Equity ownership and voting power of the Company’s shares were allocated as follows as of December 31:

						2021												2020
						Equity Ownership						General Voting Power						Equity Ownership						General Voting Power
Public Investors (Class A stockholders)						88.4		%				89.2		%				88.2		%				88.9		%
Principal or Affiliate Customers (Class B stockholders)						0.8		%				—		%				0.8		%				—		%
Mastercard Foundation (Class A stockholders)						10.8		%				10.8		%				11.0		%				11.1		%

Class B Common Stock Conversions

Shares of Class B common stock are convertible on a one-for-one basis into shares of Class A common stock. Entities eligible to hold Mastercard’s Class B common stock are defined in the Company’s amended and restated certificate of incorporation (generally the Company’s principal or affiliate customers), and they are restricted from retaining ownership of shares of Class A common stock. Class B stockholders are required to subsequently sell or otherwise transfer any shares of Class A common stock received pursuant to such a conversion.

Mastercard Foundation

In connection and simultaneously with its 2006 initial public offering (the “IPO”), the Company issued and donated 135 million newly authorized shares of Class A common stock to Mastercard Foundation. Mastercard Foundation is a private charitable foundation incorporated in Canada that is controlled by directors who are independent of the Company and its principal customers. Under the terms of the donation, Mastercard Foundation became able to resell the donated shares in May 2010 to the extent necessary to meet charitable disbursement requirements pursuant to Canadian tax law. 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.

MASTERCARD 2021 FORM 10-K 95

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

						Outstanding Shares
						Class A						Class B
						(in millions)
Balance at December 31, 2018						1,018.6						11.8
Purchases of treasury stock						(26.4)						—
Share-based payments						3.2						—
Conversion of Class B to Class A common stock						0.6						(0.6)
Balance at December 31, 2019						996.0						11.2
Purchases of treasury stock						(14.3)						—
Share-based payments						2.3						—
Conversion of Class B to Class A common stock						2.9						(2.9)
Balance at December 31, 2020						986.9						8.3
Purchases of treasury stock						(16.5)						—
Share-based payments						1.2						—
Conversion of Class B to Class A common stock						0.5						(0.5)
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

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17. Accumulated Other Comprehensive Income (Loss)

The changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 2021 and 2020 were as follows:

						December 31, 2020						Increase / (Decrease)						Reclassifications						December 31, 2021
						(in millions)
Foreign currency translation adjustments 1						$	(352)					$	(387)					$	—					$	(739)
Translation adjustments on net investment hedges 2						(175)						209						—						34
Cash flow hedges
Foreign exchange contracts 3						—						5						(1)						4
Interest rate contracts 4						(133)						—						5						(128)
Defined benefit pension and other postretirement plans 5						(20)						43						(2)						21
Investment securities available-for-sale						—						(1)						—						(1)
Accumulated Other Comprehensive Income (Loss)						$	(680)					$	(131)					$	2					$	(809)

						December 31, 2019						Increase / (Decrease)						Reclassifications						December 31, 2020
						(in millions)
Foreign currency translation adjustments 1						$	(638)					$	286					$	—					$	(352)
Translation adjustments on net investment hedges 2						(38)						(137)						—						(175)
Cash flow hedges
Interest rate contracts 4						11						(147)						3						(133)
Defined benefit pension and other postretirement plans 5						(9)						(10)						(1)						(20)
Investment securities available-for-sale						1						(1)						—						—
Accumulated Other Comprehensive Income (Loss)						$	(673)					$	(9)					$	2					$	(680)

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

2During 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. dollar. During 2020, the increase in the accumulated other comprehensive loss related to the net investment hedge was driven by the appreciation of the euro. See Note 23 (Derivative and Hedging Instruments) for additional information.

3Beginning 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.

4In 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.

5During 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.

MASTERCARD 2021 FORM 10-K 97

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Share-Based Payments

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. The Company has granted Options, RSUs and PSUs under the LTIP. The Company uses the straight-line method of attribution for expensing all equity awards. Compensation expense is recorded net of estimated forfeitures, with estimates adjusted as appropriate.

There are approximately 116 million shares of Class A common stock authorized for equity awards under the LTIP. Although the LTIP permits the issuance of shares of Class B common stock, no such shares have been authorized for issuance. Shares issued as a result of Option exercises and the conversions of RSUs and PSUs were funded primarily with the issuance of new shares of Class A common stock.

Stock Options

Options expire ten years from the date of grant and vest ratably over four years. For Options granted, a participant’s unvested awards are forfeited upon termination. In the event a participant terminates employment due to disability or retirement more than seven months after receiving the award, however, the participant retains all of their awards without providing additional service to the Company. Retirement eligibility is dependent upon age and years of service. Compensation expense is recognized over the vesting period as stated in the LTIP.

The fair value of each Option is estimated on the date of grant using a Black-Scholes option pricing model. The following table presents the weighted-average assumptions used in the valuation and the resulting weighted-average fair value per Option granted for the years ended December 31:

						2021						2020						2019
Risk-free rate of return						0.9		%				1.0		%				2.6		%
Expected term (in years)						6.00						6.00						6.00
Expected volatility						26.1		%				19.3		%				19.6		%
Expected dividend yield						0.5		%				0.6		%				0.6		%
Weighted-average fair value per Option granted						$	91.70					$	80.92					$	53.09

The risk-free rate of return was based on the U.S. Treasury yield curve in effect on the date of grant. The expected term and the expected volatility were based on historical Mastercard information. The expected dividend yields were based on the Company’s expected annual dividend rate on the date of grant.

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

						Options						Weighted-Average Exercise Price						Weighted-Average Remaining Contractual Term						Aggregate Intrinsic Value
						(in millions)												(in years)						(in millions)
Outstanding at January 1, 2021						5.7						$	137
Granted						0.3						$	363
Exercised						(0.6)						$	96
Forfeited/expired						—						$	259
Outstanding at December 31, 2021						5.4						$	152					5.3						$	1,109
Exercisable at December 31, 2021						4.2						$	122					4.6						$	986
Options vested and expected to vest at December 31, 2021						5.3						$	152					5.3						$	1,109

As of December 31, 2021, there was $26 million of total unrecognized compensation cost related to non-vested Options. The cost is expected to be recognized over a weighted-average period of 1.9 years.

98 MASTERCARD 2021 FORM 10-K

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. A participant’s unvested awards are forfeited upon termination of employment. In the event of termination due to job elimination (as defined by the Company), however, a participant will retain a pro-rata portion of the unvested awards for services performed through the date of termination. In the event a participant terminates employment due to disability or retirement more than seven months after receiving the award, the participant retains all of their awards without providing additional service to the Company. 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.

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

						Units						Weighted-Average Grant-Date Fair Value						Aggregate Intrinsic Value
						(in millions)												(in millions)
Outstanding at January 1, 2021						2.5						$	231
Granted						0.8						$	358
Converted						(1.0)						$	199
Forfeited						(0.1)						$	282
Outstanding at December 31, 2021						2.2						$	291					$	781
RSUs expected to vest at December 31, 2021						2.1						$	289					$	751

The fair value of each RSU is the closing stock price on the New York Stock Exchange of the Company’s Class A common stock on the date of grant, adjusted for the exclusion of dividend equivalents. Upon vesting, a portion of the RSU award may be withheld to satisfy the minimum statutory withholding taxes. 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. The cost is expected to be recognized over a weighted-average period of 2.6 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. A participant’s unvested awards are forfeited upon termination of employment. In the event of termination due to job elimination (as defined by the Company), however, a participant will retain a pro-rata portion of the unvested awards for services performed through the date of termination. In the event a participant terminates employment due to disability or retirement more than seven months after receiving the award, the participant retains all of their awards without providing additional service to the Company.

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

						Units						Weighted-Average Grant-Date Fair Value						Aggregate Intrinsic Value
						(in millions)												(in millions)
Outstanding at January 1, 2021						0.4						$	259
Granted						0.2						$	385
Converted						(0.1)						$	226
Other						(0.1)						$	231
Outstanding at December 31, 2021						0.4						$	334					$	128
PSUs expected to vest at December 31, 2021						0.4						$	334					$	128

Since 2013, PSUs containing performance and market conditions have been issued. Performance measures used to determine the actual number of shares that vest after three years include net revenue growth, EPS growth and relative total shareholder return (“TSR”). Relative TSR is considered a market condition, while net revenue and EPS growth are considered performance conditions. The Monte Carlo simulation valuation model is used to determine the grant-date fair value.

MASTERCARD 2021 FORM 10-K 99

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 (“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.

Additional Information

The following table includes additional share-based payment information for each of the years ended December 31:

						2021						2020						2019
						(in millions, except weighted-average fair value)
Share-based compensation expense: Options, RSUs and PSUs						$	273					$	254					$	250
Income tax benefit recognized for equity awards						57						53						53
Income tax benefit realized related to Options exercised						36						68						69
Options:
Total intrinsic value of Options exercised						169						317						317
RSUs:
Weighted-average grant-date fair value of awards granted						358						288						226
Total intrinsic value of RSUs converted into shares of Class A common stock						360						330						394
PSUs:
Weighted-average grant-date fair value of awards granted						385						291						231
Total intrinsic value of PSUs converted into shares of Class A common stock						32						92						85

Note 19. Commitments

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)
2022																								$	424
2023																								202
2024																								114
2025																								48
2026																								3
Thereafter																								1
Total																								$	792

100 MASTERCARD 2021 FORM 10-K

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20. Income Taxes

Components of Income and Income Tax Expense

The domestic and foreign components of income before income taxes for the years ended December 31 are as follows:

						2021						2020						2019
						(in millions)
United States						$	4,261					$	3,304					$	4,213
Foreign						6,046						4,456						5,518
Income before income taxes						$	10,307					$	7,760					$	9,731

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

						2021						2020						2019
						(in millions)
Current
Federal						$	663					$	439					$	642
State and local						51						56						81
Foreign						976						781						897
						1,690						1,276						1,620
Deferred
Federal						(31)						106						40
State and local						(4)						9						—
Foreign						(35)						(42)						(47)
						(70)						73						(7)
Income tax expense						$	1,620					$	1,349					$	1,613

Effective Income Tax Rate

A reconciliation of the effective income tax rate to the U.S. federal statutory income tax rate for the years ended December 31, is as follows:

						2021												2020												2019
						Amount						Percent						Amount						Percent						Amount						Percent
						(in millions, except percentages)
Income before income taxes						$	10,307											$	7,760											$	9,731
Federal statutory tax						2,164						21.0		%				1,630						21.0		%				2,044						21.0		%
State tax effect, net of federal benefit						60						0.6		%				57						0.7		%				65						0.7		%
Foreign tax effect						(283)						(2.7)		%				(193)						(2.5)		%				(208)						(2.1)		%
U.S. tax benefits 1						(132)						(1.3)		%				—						—		%				—						—		%
Windfall benefit						(67)						(0.7)		%				(119)						(1.5)		%				(129)						(1.3)		%
Other, net 2						(122)						(1.2)		%				(26)						(0.3)		%				(159)						(1.7)		%
Income tax expense						$	1,620					15.7		%				$	1,349					17.4		%				$	1,613					16.6		%

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

2Included 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 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.

MASTERCARD 2021 FORM 10-K 101

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

In connection with the expansion of the Company’s operations in the Asia Pacific, Middle East and Africa region, the Company’s subsidiary in Singapore, Mastercard Asia Pacific Pte. Ltd. (“MAPPL”) received an incentive grant from the Singapore Ministry of Finance in 2010. The incentive had provided MAPPL with, among other benefits, a reduced income tax rate for the 10-year period commencing January 1, 2010 on taxable income in excess of a base amount. The Company continued to explore business opportunities in this region, resulting in an expansion of the incentives being granted by the Ministry of Finance, including a further reduction to the income tax rate on taxable income in excess of a revised fixed base amount commencing July 1, 2011 and continuing through December 31, 2025. Without the incentive grant, MAPPL would have been subject to the statutory income tax rate on its earnings. For 2021, 2020 and 2019, the impact of the incentive grant received from the Ministry of Finance resulted in a reduction of MAPPL’s income tax liability of $300 million, or $0.30 per diluted share, $260 million, or $0.26 per diluted share, and $300 million, or $0.29 per diluted share, respectively.

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.

102 MASTERCARD 2021 FORM 10-K

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Taxes

Deferred tax assets and liabilities represent the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. The components of deferred tax assets and liabilities at December 31 are as follows:

						2021						2020
						(in millions)
Deferred Tax Assets
Accrued liabilities						$	497					$	324
Compensation and benefits						260						218
State taxes and other credits						40						47
Net operating and capital losses						136						147
Unrealized gain/loss - 2015 EUR Notes						24						58
U.S. foreign tax credits						333						276
Intangible assets						206						182
Other items						137						142
Less: Valuation allowance						(415)						(353)
Total Deferred Tax Assets						1,218						1,041
Deferred Tax Liabilities
Prepaid expenses and other accruals						114						78
Gains on equity investments						153						60
Goodwill and intangible assets						571						216
Property, plant and equipment						174						183
Previously taxed earnings and profits						3						61
Other items						112						38
Total Deferred Tax Liabilities						1,127						636
Net Deferred Tax Assets						$	91					$	405

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.

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

						2021						2020						2019
						(in millions)
Beginning balance						$	388					$	203					$	164
Additions:
Current year tax positions						17						19						22
Prior year tax positions						4						192						37
Reductions:
Prior year tax positions						(31)						(10)						(11)
Settlements with tax authorities						(15)						(12)						(2)
Expired statute of limitations						(3)						(4)						(7)
Ending balance						$	360					$	388					$	203

MASTERCARD 2021 FORM 10-K 103

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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. Uncertain tax positions are reviewed on an ongoing basis and are adjusted after considering facts and circumstances, including progress of tax audits, developments in case law and closing of statutes of limitation. Within the next twelve months, the Company believes that the resolution of certain federal, foreign and state and local examinations are reasonably possible and that a change in estimate, reducing unrecognized tax benefits, may occur. While such a change may be significant, it is not possible to provide a range of the potential change until the examinations progress further or the related statutes of limitation expire. The Company has effectively settled its U.S. federal income tax obligations through 2011. With limited exception, the Company is no longer subject to state and local or foreign examinations by tax authorities for years before 2010.

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.

Note 21. Legal and Regulatory Proceedings

Mastercard is a party to legal and regulatory proceedings with respect to a variety of matters in the ordinary course of business. Some of these proceedings are based on complex claims involving substantial uncertainties and unascertainable damages. Accordingly, except as discussed below, it is not possible to determine the probability of loss or estimate damages, and therefore, Mastercard has not established reserves for any of these proceedings. When the Company determines that a loss is both probable and reasonably estimable, Mastercard records a liability and discloses the amount of the liability if it is material. When a material loss contingency is only reasonably possible, Mastercard does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Unless otherwise stated below with respect to these matters, Mastercard cannot provide an estimate of the possible loss or range of loss based on one or more of the following reasons: (1) actual or potential plaintiffs have not claimed an amount of monetary damages or the amounts are unsupportable or exaggerated, (2) the matters are in early stages, (3) there is uncertainty as to the outcome of pending appeals or motions, (4) there are significant factual issues to be resolved, (5) the existence in many such proceedings of multiple defendants or potential defendants whose share of any potential financial responsibility has yet to be determined and/or (6) there are novel legal issues presented. Furthermore, except as identified with respect to the matters below, Mastercard does not believe that the outcome of any individual existing legal or regulatory proceeding to which it is a party will have a material adverse effect on its results of operations, financial condition 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. In addition, an adverse outcome in a regulatory proceeding could lead to the filing of civil damage claims and possibly result in significant damage awards. Any of these events could have a material adverse effect on Mastercard’s results of operations, financial condition and overall business.

Interchange Litigation and Regulatory Proceedings

Mastercard’s interchange fees and other practices are subject to regulatory, legal review and/or challenges in a number of jurisdictions, including the proceedings described below. When taken as a whole, the resulting decisions, regulations and legislation with respect to interchange fees and acceptance practices may have a material adverse effect on the Company’s prospects for future growth and its overall results of operations, financial position and cash flows.

United States. In June 2005, the first of a series of complaints were filed on behalf of merchants (the majority of the complaints were styled as class actions, although a few complaints were filed on behalf of individual merchant plaintiffs) against Mastercard International, Visa U.S.A., Inc., Visa International Service Association and a number of financial institutions. Taken together, the claims in the complaints were generally brought under both Sections 1 and 2 of the Sherman Act, which prohibit monopolization and attempts or conspiracies to monopolize a particular industry, and some of these complaints contain unfair competition law claims under state law. The complaints allege, among other things, that Mastercard, Visa, and certain financial institutions conspired to set the price of interchange fees, enacted point of sale acceptance rules (including the no surcharge rule) in violation of antitrust laws and engaged in unlawful tying and bundling of certain products and services, resulting in merchants paying excessive costs for the acceptance of Mastercard and Visa credit and debit cards. The cases were consolidated for pre-trial proceedings in the U.S. District Court for the Eastern District of New York in MDL No. 1720. The plaintiffs filed a consolidated class action complaint that seeks treble damages.

104 MASTERCARD 2021 FORM 10-K

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In July 2006, the group of purported merchant class plaintiffs filed a supplemental complaint alleging that Mastercard’s initial public offering of its Class A Common Stock in May 2006 (the “IPO”) and certain purported agreements entered into between Mastercard and financial institutions in connection with the IPO: (1) violate U.S. antitrust laws and (2) constituted a fraudulent conveyance because the financial institutions allegedly attempted to release, without adequate consideration, Mastercard’s right to assess them for Mastercard’s litigation liabilities. The class plaintiffs sought treble damages and injunctive relief including, but not limited to, an order reversing and unwinding the IPO.

In February 2011, Mastercard and Mastercard International entered into each of: (1) an omnibus judgment sharing and settlement sharing agreement with Visa Inc., Visa U.S.A. Inc. and Visa International Service Association and a number of financial institutions; and (2) a Mastercard settlement and judgment sharing agreement with a number of financial institutions. The agreements provide for the apportionment of certain costs and liabilities which Mastercard, the Visa parties and the financial institutions may incur, jointly and/or severally, in the event of an adverse judgment or settlement of one or all of the merchant litigation cases. Among a number of scenarios addressed by the agreements, in the event of a global settlement involving the Visa parties, the financial institutions and Mastercard, Mastercard would pay 12% of the monetary portion of the settlement. In the event of a settlement involving only Mastercard and the financial institutions with respect to their issuance of Mastercard cards, Mastercard would pay 36% of the monetary portion of such settlement.

In October 2012, the parties entered into a definitive settlement agreement with respect to the merchant class litigation (including with respect to the claims related to the IPO) and the defendants separately entered into a settlement agreement with the individual merchant plaintiffs. The settlements included cash payments that were apportioned among the defendants pursuant to the omnibus judgment sharing and settlement sharing agreement described above. Mastercard also agreed to provide class members with a short-term reduction in default credit interchange rates and to modify certain of its business practices, including its “no surcharge” rule. The court granted final approval of the settlement in December 2013, and objectors to the settlement appealed that decision to the U.S. Court of Appeals for the Second Circuit. In June 2016, the court of appeals vacated the class action certification, reversed the settlement approval and sent the case back to the district court for further proceedings. The court of appeals’ ruling was based primarily on whether the merchants were adequately represented by counsel in the settlement. As a result of the appellate court ruling, the district court divided the merchants’ claims into two separate classes - monetary damages claims (the “Damages Class”) and claims seeking changes to business practices (the “Rules Relief Class”). The court appointed separate counsel for each class.

In September 2018, the parties to the Damages Class litigation entered into a class settlement agreement to resolve the Damages Class claims. The time period during which Damages Class members were permitted to opt out of the class settlement agreement ended in July 2019 with merchants representing slightly more than 25% of the Damages Class interchange volume choosing to opt out of the settlement. The district court granted final approval of the settlement in December 2019. The district court’s settlement approval order has been appealed and oral argument on the appeal is scheduled for March 2022. Mastercard has commenced settlement negotiations with a number of the opt-out merchants and has reached settlements and/or agreements in principle to settle a number of these claims. The Damages Class settlement agreement does not relate to the Rules Relief Class claims. Separate settlement negotiations with the Rules Relief Class are ongoing. Briefing on summary judgment motions in the Rules Relief Class and opt-out merchant cases was completed in December 2020. In September 2021, the district court granted the Rules Relief Class’s motion for class certification.

As of December 31, 2021 and 2020, Mastercard had accrued a liability of $783 million as a reserve for both the Damages Class litigation and the opt-out merchant cases. As of December 31, 2021 and 2020, Mastercard had $586 million in a qualified cash settlement fund related to the Damages Class litigation and classified as restricted cash on its consolidated balance sheet. The reserve as of December 31, 2021 for both the Damages Class litigation and the opt-out merchants represents Mastercard’s best estimate of its probable liabilities in these matters. The portion of the accrued liability relating to both the opt-out merchants and the Damages Class litigation settlement does not represent an estimate of a loss, if any, if the matters were litigated to a final outcome. Mastercard cannot estimate the potential liability if that were to occur.

Europe. Since May 2012, a number of United Kingdom (“U.K.”) merchants filed claims or threatened litigation against Mastercard seeking damages for excessive costs paid for acceptance of Mastercard credit and debit cards arising out of alleged anti-competitive conduct with respect to, among other things, Mastercard’s cross-border interchange fees and its U.K. and Ireland domestic interchange fees (the “U.K. Merchant claimants”). In addition, Mastercard, has faced similar filed or threatened litigation by merchants with respect to interchange rates in other countries in Europe (the “Pan-European Merchant claimants”). Mastercard has resolved a substantial amount of these damages claims through settlement or judgment. Approximately £1 billion (approximately $1.2 billion as of December 31, 2021) of unresolved damages claims remain.

In January 2017, Mastercard received a liability judgment in its favor on all significant matters in a separate action brought by ten of the U.K. Merchant claimants. Three of the U.K. Merchant claimants appealed the judgment, and these appeals were combined with Mastercard’s appeal of a 2016 judgment in favor of one U.K. merchant. In July 2018, the U.K. appellate court heard the appeals of

MASTERCARD 2021 FORM 10-K 105

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the four merchant claimants and ruled against both Mastercard and Visa on two of the three legal issues being considered. The parties appealed the rulings to the U.K. Supreme Court. In June 2020, the U.K. Supreme Court ruled against Mastercard and Visa with respect to one of the liability issues being considered by the Court related to U.K domestic interchange fees. Additionally, the U.K Supreme Court set out the legal standard that should be applied by lower trial courts with respect to determining whether interchange was exemptible under applicable law, and provided guidance to lower courts with regard to the legal standard that should be applied in assessing merchants’ damages claims. The U.K. Supreme Court sent three of the merchant cases back to the trial court solely for the purpose of determining damages issues which is scheduled to commence in January 2023.

Mastercard continues to litigate with the remaining U.K. and Pan-European Merchant claimants and it has submitted statements of defense disputing liability and damages claims. The majority of these merchant claims generally had been stayed pending the decision of the U.K. Supreme Court, and a number of those matters are now progressing with motion practice and discovery. In one of the actions involving multiple merchant plaintiff claims, in November 2021 the trial court denied the plaintiffs’ motion for summary judgment on certain liability issues. The plaintiffs were granted permission to appeal that ruling. In 2021 and 2020, Mastercard incurred charges of $94 million and $28 million, respectively, to reflect both the litigation settlements and estimated attorneys’ fees with a number of U.K. merchants as well as settlements with a number of Pan-European merchants.

In September 2016, a proposed collective action was filed in the United Kingdom on behalf of U.K. consumers seeking damages for intra-EEA and domestic U.K. interchange fees that were allegedly passed on to consumers by merchants between 1992 and 2008. The complaint, which seeks to leverage the European Commission’s 2007 decision on intra-EEA interchange fees, claims damages in an amount that exceeds £14 billion (approximately $19 billion as of December 31, 2021). In July 2017, the trial court denied the plaintiffs’ application for the case to proceed as a collective action. In April 2019, the U.K. appellate court granted the plaintiffs’ appeal of the trial court’s decision and sent the case back to the trial court for a re-hearing on the plaintiffs’ collective action application. In December 2020, the U.K. Supreme Court rejected Mastercard’s appeal of this ruling. In March 2021, the trial court held a re-hearing on the plaintiffs’ collective action application, during which Mastercard sought to narrow the scope of the proposed class. In August 2021, the trial court issued a decision in which it granted class certification but agreed with Mastercard’s argument and narrowed the scope of the class. The plaintiffs did not appeal the trial court’s decision narrowing the class.

ATM Non-Discrimination Rule Surcharge Complaints

In October 2011, a trade association of independent Automated Teller Machine (“ATM”) operators and 13 independent ATM operators filed a complaint styled as a class action lawsuit in the U.S. District Court for the District of Columbia against both Mastercard and Visa (the “ATM Operators Complaint”). Plaintiffs seek to represent a class of non-bank operators of ATM terminals that operate in the United States with the discretion to determine the price of the ATM access fee for the terminals they operate. Plaintiffs allege that Mastercard and Visa have violated Section 1 of the Sherman Act by imposing rules that require ATM operators to charge non-discriminatory ATM surcharges for transactions processed over Mastercard’s and Visa’s respective networks that are not greater than the surcharge for transactions over other networks accepted at the same ATM. Plaintiffs seek both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the alleged violations and their costs of suit, including attorneys’ fees.

Subsequently, multiple related complaints were filed in the U.S. District Court for the District of Columbia alleging both federal antitrust and multiple state unfair competition, consumer protection and common law claims against Mastercard and Visa on behalf of putative classes of users of ATM services (the “ATM Consumer Complaints”). The claims in these actions largely mirror the allegations made in the ATM Operators Complaint, although these complaints seek damages on behalf of consumers of ATM services who pay allegedly inflated ATM fees at both bank and non-bank ATM operators as a result of the defendants’ ATM rules. Plaintiffs seek both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the alleged violations and their costs of suit, including attorneys’ fees.

In January 2012, the plaintiffs in the ATM Operators Complaint and the ATM Consumer Complaints filed amended class action complaints that largely mirror their prior complaints. In February 2013, the district court granted Mastercard’s motion to dismiss the complaints for failure to state a claim. On appeal, the Court of Appeals reversed the district court’s order in August 2015 and sent the case back for further proceedings. In September 2019, the plaintiffs filed their motions for class certification in which the plaintiffs, in aggregate, allege over $1 billion in damages against all of the defendants. In August 2021, the trial court issued an order granting the plaintiffs’ request for class certification. Visa and Mastercard’s request for permission to appeal the certification decision to the appellate court was granted. Briefing on the appeal is expected to take place over the course of 2022. Mastercard intends to vigorously defend against both the plaintiffs’ liability and damages claims.

106 MASTERCARD 2021 FORM 10-K

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Liability Shift Litigation

In March 2016, a proposed U.S. merchant class action complaint was filed in federal court in California alleging that Mastercard, Visa, American Express and Discover (the “Network Defendants”), EMVCo and a number of issuing banks (the “Bank Defendants”) engaged in a conspiracy to shift fraud liability for card present transactions from issuing banks to merchants not yet in compliance with the standards for EMV chip cards in the United States (the “EMV Liability Shift”), in violation of the Sherman Act and California law. Plaintiffs allege damages equal to the value of all chargebacks for which class members became liable as a result of the EMV Liability Shift on October 1, 2015. The plaintiffs seek treble damages, attorney’s fees and costs and an injunction against future violations of governing law, and the defendants have filed a motion to dismiss. In September 2016, the district court denied the Network Defendants’ motion to dismiss the complaint, but granted such a motion for EMVCo and the Bank Defendants. In May 2017, the district court transferred the case to New York so that discovery could be coordinated with the U.S. merchant class interchange litigation described above. In August 2020, the district court issued an order granting the plaintiffs’ request for class certification. In January 2021, the Network Defendants’ request for permission to appeal the district court’s certification decision to the appellate court was denied. The plaintiffs have submitted expert reports that allege aggregate damages in excess of $1 billion against the four Network Defendants. The Network Defendants have submitted expert reports rebutting both liability and damages. Briefing on summary judgment is expected to occur in 2022.

Telephone Consumer Protection Class Action

Mastercard is a defendant in a Telephone Consumer Protection Act (“TCPA”) class action pending in Florida. The plaintiffs are individuals and businesses who allege that approximately 381,000 unsolicited faxes were sent to them advertising a Mastercard co-brand card issued by First Arkansas Bank (“FAB”). The TCPA provides for uncapped statutory damages of $500 per fax. Mastercard has asserted various defenses to the claims, and has notified FAB of an indemnity claim that it has (which FAB has disputed). In June 2018, the district court granted Mastercard’s motion to stay the proceedings until the Federal Communications Commission makes a decision on the application of the TCPA to online fax services. In December 2019, the FCC issued a declaratory ruling clarifying that the TCPA does not apply to faxes sent to online fax services that are received via e-mail. As a result of the ruling, the stay of the litigation was lifted in January 2020. In January 2021, the magistrate judge serving on the district court issued an opinion recommending that the district court judge deny plaintiffs’ class certification motion. In light of an appellate court decision, issued subsequent to the magistrate’s recommendation, the district court judge instructed the parties to re-brief the motion for class certification, and the motion has been fully briefed. In December 2021, the trial court narrowed the scope of the potential class as it denied the plaintiffs’ motion for class certification of a class of all fax recipients (both stand-alone faxes and online faxes sent via email). However, the court granted class certification for a narrower class of online fax recipients only. Mastercard has filed a motion for reconsideration of the part of the trial court’s order granting partial certification.

U.S. Federal Trade Commission Investigation

In June 2020, the U.S. Federal Trade Commission’s Bureau of Competition (“FTC”) informed Mastercard that it has initiated a formal investigation into compliance with the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act. In particular, the investigation focuses on Mastercard’s compliance with the debit routing provisions of the Durbin Amendment. The FTC has issued a subpoena and Mastercard is cooperating with it in the investigation.

U.K. Prepaid Cards Matter

In 2019, Mastercard was informed by the U.K. Payment Systems Regulator (“PSR”) that Mastercard was a target of its investigation into alleged anti-competitive conduct by public sector prepaid card program managers in the U.K. This matter focused exclusively on historic behavior. In March 2021, the PSR announced the resolution and settlement of this investigation. As part of the resolution, Mastercard agreed to pay a maximum fine of £32 million. This matter has no prospective impact on Mastercard’s on-going business. In connection with this matter, in the fourth quarter of 2020, Mastercard recorded a litigation charge of $45 million. In January 2022, the PSR issued a decision which concludes the matter and which requires that Mastercard pay its previously agreed fine in March 2022.

Note 22. Settlement and Other Risk Management

Mastercard’s rules guarantee the settlement of many of the transactions between its customers (“settlement risk”). Settlement exposure is the settlement risk to customers under Mastercard’s rules due to the difference in timing between the payment transaction date and subsequent settlement. While the term and amount of the guarantee are unlimited, the duration of settlement exposure is short term and typically limited to a few days.

Gross settlement exposure is estimated using the average daily payment volume during the three months prior to period end multiplied by the estimated number of days of exposure. The Company has global risk management policies and procedures, which

MASTERCARD 2021 FORM 10-K 107

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

include risk standards, to provide a framework for managing the Company’s settlement risk and exposure. In the event of a failed customer, Mastercard may pursue one or more remedies available under the Company’s rules to recover potential losses. Historically, the Company has experienced a low level of losses from customer failures.

As part of its policies, Mastercard requires certain customers that are not in compliance with the Company’s risk standards to enter into risk mitigation arrangements, including cash collateral and/or other forms of credit enhancement such as letters of credit and guarantees. This requirement is based on a review of the individual risk circumstances for each customer. Mastercard monitors its credit risk portfolio and the adequacy of its risk mitigation arrangements on a regular basis. Additionally, from time to time, the Company reviews its risk management methodology and standards. As such, the amounts of estimated settlement exposure are revised as necessary.

The Company’s estimated settlement exposure was as follows at December 31:

						2021						2020
						(in millions)
Gross settlement exposure						$	59,571					$	52,360
Risk mitigation arrangements applied to settlement exposure						(7,710)						(6,021)
Net settlement exposure						$	51,861					$	46,339

Mastercard also provides guarantees to customers and certain other counterparties indemnifying them from losses stemming from failures of third parties to perform duties. This includes guarantees of Mastercard-branded travelers cheques issued, but not yet cashed of $361 million and $370 million at December 31, 2021 and 2020, respectively, of which the Company has risk mitigation arrangements for $287 million and $294 million at December 31, 2021 and 2020, respectively. In addition, the Company 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. Certain indemnifications do not provide a stated maximum exposure. As the extent of the Company’s obligations under these agreements depends entirely upon the occurrence of future events, the Company’s potential future liability under these agreements is not determinable. Historically, payments made by the Company under these types of contractual arrangements have not been material.

Note 23. Derivative and Hedging Instruments

The Company monitors and manages its foreign currency and interest rate exposures as part of its overall risk management program which focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results. A primary objective of the Company’s risk management strategies is to reduce the financial impact that may arise from volatility in foreign currency exchange rates principally through the use of both foreign exchange derivative contracts and foreign currency denominated debt. In addition, the Company may enter into interest rate derivative contracts to manage the effects of interest rate movements on the Company’s aggregate liability portfolio, including potential future debt issuances.

Cash Flow Hedges

The Company may enter into foreign exchange derivative contracts, including forwards and options, to manage the impact of foreign currency variability on anticipated revenues and expenses, which fluctuate based on currencies other than the functional currency of the entity. The objective of these hedging activities is to reduce the effect of movement in foreign exchange rates for a portion of revenues and expenses forecasted to occur. As these contracts are designated as cash flow hedging instruments, gains and losses resulting from changes in fair value of these contracts are deferred in accumulated other comprehensive income (loss) and subsequently reclassified to the consolidated statement of operations when the underlying hedged transactions impact earnings.

In addition, the Company may enter into interest rate derivative contracts to manage the effects of interest rate movements on the Company’s aggregate liability portfolio, including potential future debt issuances, and designate such derivatives as hedging instruments in a cash flow hedging relationship. 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 at a loss of $136 million, after tax, in accumulated other comprehensive income (loss). As of December 31, 2021, a cumulative loss of $128 million, after tax, remains in accumulated other comprehensive income (loss) associated with these contracts and will be reclassified as an adjustment to interest expense over the respective terms of the 2020 USD Notes due in March 2030 and March 2050.

108 MASTERCARD 2021 FORM 10-K

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Hedges

The Company may enter into interest rate derivative contracts, including interest rate swaps, to manage the effects of interest rate movements on the fair value of the Company's fixed-rate debt and designate such derivatives as hedging instruments in a fair value hedging relationship. Changes in fair value of these contracts and changes in fair value of fixed-rate debt attributable to changes in the hedged benchmark interest rate generally offset each other and are recorded in interest expense on the consolidated statement of operations. Gains or losses related to the net settlements of interest rate swaps are also recorded in interest expense on the consolidated statement of operations. The periodic cash settlements are included in operating activities on the consolidated statement of cash flows.

During the fourth quarter of 2021, the Company entered into an interest rate swap designated as a fair value hedge related to $1.0 billion of the 3.850% Senior Notes due March 2050. In effect, the interest rate swap synthetically converts the fixed interest rate on this debt to a variable interest rate based on the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap Rate. The net impact to interest expense for the year ended December 31, 2021 was not material.

Net Investment Hedges

The Company may use foreign currency denominated debt and/or foreign exchange derivative contracts to hedge a portion of its net investment in foreign subsidiaries against adverse movements in exchange rates. The effective portion of the net investment hedge is recorded as a currency translation adjustment in accumulated other comprehensive income (loss). Forward points are designated as an excluded component and recognized in general and administrative expenses on the consolidated statement of operations over the hedge period. The amounts recognized in earnings related to forward points for 2021 were not material.

In 2015, the Company designated its €1.65 billion euro-denominated debt as a net investment hedge for a portion of its net investment in its European operations. During 2021, 2020 and 2019 the Company recorded a pre-tax net foreign currency gain of $155 million, loss of $177 million and gain of $36 million, respectively, in other comprehensive income (loss).

As of December 31, 2021 and 2020, the Company had a net foreign currency gain of $34 million and loss of $175 million, after tax, respectively, in accumulated other comprehensive income (loss) associated with this hedging activity.

Non-designated Derivatives

The Company may also enter into foreign exchange derivative contracts to serve as economic hedges, such as to offset possible changes in the value of monetary assets and liabilities due to foreign exchange fluctuations, without designating these derivative contracts as hedging instruments. In addition, the Company is subject to foreign exchange risk as part of its daily settlement activities. This risk is typically limited to a few days between when a payment transaction takes place and the subsequent settlement with customers. To manage this risk, the Company may enter into short duration foreign exchange derivative contracts based upon anticipated receipts and disbursements for the respective currency position. The objective of these activities is to reduce the Company’s exposure to volatility arising from gains and losses resulting from fluctuations of foreign currencies against its functional currencies. Gains and losses resulting from changes in fair value of these contracts are recorded in general and administrative expenses on the consolidated statement of operations, net, along with the foreign currency gains and losses on monetary assets and liabilities.

MASTERCARD 2021 FORM 10-K 109

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the fair value of the Company’s derivative financial instruments and the related notional amounts:

						December 31, 2021												December 31, 2020
						Notional						Fair Value						Notional						Fair Value
						(in millions)
Derivative assets:
Derivatives designated as hedging instruments
Foreign exchange contracts in a cash flow hedge 1						$	102					$	7					$	—					$	—
Interest rate contracts in a fair value hedge 2						**						6						—						—
Derivatives not designated as hedging instruments
Foreign exchange contracts 1						124						1						483						19
Total Derivative Assets						$	226					$	14					$	483					$	19
Derivative liabilities:
Derivatives designated as hedging instruments
Foreign exchange contracts in a cash flow hedge 1						$	104					$	3					$	—					$	—
Interest rate contracts in a fair value hedge 2						1,000						8						—						—
Foreign exchange contracts in a net investment hedge 1						1,473						4						—						—
Derivatives not designated as hedging instruments
Foreign exchange contracts 1						406						8						1,016						28
Total Derivative Liabilities						$	2,983					$	23					$	1,016					$	28

1Foreign exchange derivative assets and liabilities are recorded at fair value and are included within prepaid expenses and other current assets and other current liabilities, respectively, on the consolidated balance sheet.

2Interest rate derivative assets and liabilities are recorded at fair value and are included within prepaid and other current assets and other liabilities, respectively, on the consolidated balance sheet.

** As of December 31, 2021, the total notional of interest rate contracts in a fair value hedge is $1.0 billion.

The pre-tax gain (loss) related to the Company's derivative financial instruments designated as hedging instruments are as follows:

						Gain (Loss) Recognized in OCI																								Gain (Loss) Reclassified from AOCI
						Year ended December 31,																		Location of Gain (Loss) Reclassified from AOCI into Earnings						Year ended December 31,
						2021						2020						2019									2021						2020						2019
						(in millions)																					(in millions)
Derivative financial instruments in a cash flow hedge relationship:
Foreign exchange contracts						$	6					$	—					$	—					Net revenue						$	1					$	—					$	—
Interest rate contracts						$	—					$	(189)					$	14					Interest expense						$	(6)					$	(4)					$	—
Derivative financial instruments in a net investment hedge relationship:
Foreign exchange contracts						$	114					$	—					$	—

The Company estimates that $1 million, pre-tax, of the net deferred loss on cash flow hedges recorded in accumulated other comprehensive income (loss) at December 31, 2021 will be reclassified into the consolidated statement of operations within the next 12 months. The term of the foreign exchange derivative contracts designated in hedging relationships are generally less than 18 months.

110 MASTERCARD 2021 FORM 10-K

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amount of gain (loss) recognized on the consolidated statement of operations for non-designated derivative contracts is summarized below:

						Year ended December 31,
Derivatives not designated as hedging instruments:						2021						2020						2019
						(in millions)
Foreign exchange derivative contracts
General and administrative						$	(10)					$	40					$	(39)

The Company’s derivative financial instruments are subject to both market and counterparty credit risk. Market risk is the potential for economic losses to be incurred on market risk sensitive instruments arising from adverse changes in market factors such as foreign currency exchange rates, interest rates and other related variables. Counterparty credit risk is the risk of loss due to failure of the counterparty to perform its obligations in accordance with contractual terms. The Company’s derivative contracts are subject to enforceable master netting arrangements, which contain various netting and setoff provisions. To mitigate counterparty credit risk, the Company enters into derivative contracts with a diversified group of selected financial institutions based upon their credit ratings and other factors. Generally, the Company does not obtain collateral related to derivatives because of the high credit ratings of the counterparties.

Note 24. Segment Reporting

Mastercard has concluded it has one reportable operating segment, “Payment Solutions.” Mastercard’s Chief Executive Officer has been identified as the chief operating decision-maker. All of the Company’s activities are interrelated, and each activity is dependent upon and supportive of the other. Accordingly, all significant operating decisions are based upon analysis of Mastercard at the consolidated level.

Revenue by geographic market is based on the location of the Company’s customer that issued the card, the location of the merchant acquirer where the card is being used or the location of the customer receiving services. Revenue generated in the U.S. was approximately 32% of total revenue in 2021, 33% in 2020 and 32% in 2019. No individual country, other than the U.S., generated more than 10% of total revenue in those periods. Mastercard did not have any individual customer that generated greater than 10% of net revenue in 2021, 2020 or 2019.

The following table reflects the geographical location of the Company’s property, equipment and right-of-use assets, net, as of December 31:

						2021						2020						2019
						(in millions)
United States						$	1,117					$	1,185					$	1,147
Other countries						790						717						681
Total						$	1,907					$	1,902					$	1,828

MASTERCARD 2021 FORM 10-K 111

PART II

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE