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

148K characters. Original on sec.gov · Markdown

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

Note 8. Fair Value Measurements

The Company’s financial instruments are carried at fair value, cost or amortized cost on the consolidated balance sheet. The Company classifies its fair value measurements of financial instruments into a three-level hierarchy (the “Valuation Hierarchy”).

Financial Instruments - Carried at Fair Value

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

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, 2023								December 31, 2022
	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:

Government and agency securities	33		53		—		86		35		54		—		89
Corporate securities	—		200		—		200		—		183		—		183


Derivative instruments 2:
Foreign exchange contracts	—		36		—		36		—		108		—		108

Marketable securities 3:
Equity securities	506		—		—		506		399		—		—		399
Deferred compensation plan 4:
Deferred compensation assets	93		—		—		93		74		—		—		74

Liabilities
Derivative instruments 2:
Foreign exchange contracts	$	—	$	104	$	—	$	104	$	—	$	21	$	—	$	21
Interest rate contracts	—		79		—		79		—		105		—		105
Deferred compensation plan 5:
Deferred compensation liabilities	91		—		—		91		73		—		—		73

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 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 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.

87 MASTERCARD 2023 FORM 10-K

PART II

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

Nonrecurring Measurements

Nonmarketable Securities

The Company’s Nonmarketable securities are recorded at fair value on a nonrecurring basis in periods after initial recognition under the equity method or measurement alternative method. Nonmarketable securities are classified within Level 3 of the Valuation Hierarchy due to the absence of quoted market prices, the inherent lack of liquidity and unobservable inputs used to measure fair value that require management’s judgment. 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.

Financial Instruments - Not Carried at Fair Value

Debt

Debt instruments are carried on the consolidated balance sheet at amortized cost. The Company estimates the fair value of its debt based on either market quotes or observable market data. Debt is classified as Level 2 of the Valuation Hierarchy as it is generally not traded in active markets. At December 31, 2023, the carrying value and fair value of debt was $15.7 billion and $14.7 billion, respectively. At December 31, 2022, the carrying value and fair value of debt was $14.0 billion and $12.7 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:


	2023		2022
	(in millions)
Customer incentives	$	1,570	$	1,392
Other	1,073		954
Total prepaid expenses and other current assets	$	2,643	$	2,346

Other assets consisted of the following at December 31:


	2023		2022
	(in millions)
Customer incentives	$	5,170	$	4,578
Equity investments	1,729		1,730
Income taxes receivable	783		633
Other	643		639
Total other assets	$	8,325	$	7,580

Customer incentives represent payments made to customers under business agreements. Payments made directly related to entering into such an agreement are generally capitalized and amortized over the life of the agreement.

MASTERCARD 2023 FORM 10-K 88

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:


	2023		2022
	(in millions)
Buildings, building equipment and land	$	678	$	652
Equipment	1,940		1,711
Furniture and fixtures	90		96
Leasehold improvements	398		376
Operating lease right-of-use assets	1,192		1,075
Property, equipment and right-of-use assets	4,298		3,910
Less: Accumulated depreciation and amortization	(2,237)		(1,904)
Property, equipment and right-of-use assets, net	$	2,061	$	2,006

Depreciation and amortization expense for the above property, equipment and right-of-use assets was $482 million, $473 million and $424 million for 2023, 2022 and 2021, respectively.

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


	2023		2022
	(in millions)
Balance sheet location
Property, equipment and right-of-use assets, net	$	686	$	679
Other current liabilities	142		140
Other liabilities	633		630

Operating lease amortization expense was $141 million, $137 million and $122 million for 2023, 2022 and 2021, respectively. As of December 31, 2023 and 2022, the weighted-average remaining lease term of operating leases was 8.2 years and 8.4 years and the weighted-average discount rate for operating leases was 3.3% and 2.5%, respectively.

The useful lives of the Company’s assets are as follows:


Asset Category						Estimated Useful Life
Buildings						30 years
Building equipment						10 - 15 years
Equipment and furniture and fixtures						3 - 5 years
Leasehold improvements						Shorter of life of improvement or lease term
Right-of-use assets						Shorter of life of the asset or lease term

89 MASTERCARD 2023 FORM 10-K

PART II

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

The following table summarizes the maturity of the Company’s operating lease liabilities at December 31, 2023 based on lease term:


	Operating Leases
	(in millions)
2024	$	163
2025	129
2026	110
2027	87
2028	70
Thereafter	325
Total operating lease payments	884
Less: Interest	(109)
Present value of operating lease liabilities	$	775

Note 11. Goodwill

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


	2023		2022
	(in millions)
Beginning balance	$	7,522	$	7,662
Additions	46		200
Foreign currency translation	92		(340)

Ending balance	$	7,660	$	7,522

The Company performed its annual qualitative assessment of goodwill during the fourth quarter of 2023 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, 2023.

Note 12. Other Intangible Assets

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


	2023						2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(in millions)
Finite-lived intangible assets
Capitalized software 1	$	3,917	$	(1,530)	$	2,387	$	3,448	$	(1,402)	$	2,046
Customer relationships	2,165		(641)		1,524		2,161		(521)		1,640
Other	51		(38)		13		54		(37)		17
Total	6,133		(2,209)		3,924		5,663		(1,960)		3,703
Indefinite-lived intangible assets
Customer relationships	162		—		162		156		—		156
Total	$	6,295	$	(2,209)	$	4,086	$	5,819	$	(1,960)	$	3,859

1Includes technology acquired in business combinations.

The increase in the gross carrying amount of finite-lived intangible assets in 2023 was primarily related to software additions to support the continued growth of the Company. 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 2023, it was determined that the Company’s indefinite-lived intangible assets were not impaired.

MASTERCARD 2023 FORM 10-K 90

PART II

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

Amortization on the finite-lived intangible assets above amounted to $457 million, $414 million and $424 million in 2023, 2022 and 2021, respectively. The following table sets forth the estimated future amortization expense on finite-lived intangible assets on the consolidated balance sheet at December 31, 2023 for the years ending December 31:


	(in millions)
2024	$	507
2025	532
2026	518
2027	434
2028	387
Thereafter	1,546
Total	$	3,924

Note 13. Accrued Expenses and Accrued Litigation

Accrued expenses consisted of the following at December 31:


	2023		2022
	(in millions)
Customer incentives	$	6,219	$	5,600
Personnel costs	1,258		1,322
Income and other taxes	486		279
Other	554		600
Total accrued expenses	$	8,517	$	7,801

Customer incentives represent amounts to be paid to customers under business agreements. As of December 31, 2023 and 2022, long-term customer incentives included in other liabilities were $2,777 million and $2,293 million, respectively.

As of December 31, 2023 and 2022, the Company’s provision for litigation was $723 million and $1,094 million, respectively. These amounts are separately reported as accrued litigation on the consolidated balance sheet. The decrease during 2023 is primarily due to a $600 million decrease in the Company’s provision for litigation and corresponding restricted cash after a settlement became final in August 2023. This decrease was partially offset by the provisions for other litigation. 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 $253 million, $204 million and $175 million in 2023, 2022 and 2021, 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 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”).

91 MASTERCARD 2023 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
	2023			2022			2023			2022
	($ in millions)
Change in benefit obligation
Benefit obligation at beginning of year	$	392		$	596		$	43		$	62

Service cost	14			12			1			1
Interest cost	18			9			2			2
Actuarial (gain) loss	(15)			(156)			6			(16)
Benefits paid	(16)			(16)			(6)			(6)
Transfers in	8			5			—			—
Foreign currency translation	19			(58)			—			—

Benefit obligation at end of year	420			392			46			43

Change in plan assets
Fair value of plan assets at beginning of year	430			688			—			—

Actual gain/(loss) on plan assets	(8)			(203)			—			—
Employer contributions	16			25			6			6
Benefits paid	(16)			(16)			(6)			(6)
Transfers in	5			5			—			—
Foreign currency translation	22			(69)			—			—

Fair value of plan assets at end of year	449			430			—			—
Funded status at end of year	$	29		$	38		$	(46)		$	(43)

Amounts recognized on the consolidated balance sheet consist of:
Noncurrent assets	$	38		$	44		$	—		$	—
Other liabilities, short-term	—			—			(3)			(3)
Other liabilities, long-term	(9)			(6)			(43)			(40)
Net amounts recognized on the consolidated balance sheet	$	29		$	38		$	(46)		$	(43)

Accumulated other comprehensive income consists of:
Net actuarial (gain) loss	$	34		$	23		$	(8)		$	(14)
Prior service credit	1			1			—			(1)
Balance at end of year	$	35		$	24		$	(8)		$	(15)

Weighted-average assumptions used to determine end of year benefit obligations
Discount rate
Non-U.S. Plans	4.20		%	3.80		%	*			*
Vocalink Plan	5.15		%	4.80		%	*			*
Postretirement Plan	*			*			5.00		%	5.50		%

Rate of compensation increase
Non-U.S. Plans	1.50		%	1.50		%	*			*
Vocalink Plan	2.75		%	2.70		%	*			*
Postretirement Plan	*			*			3.00		%	3.00		%

Not applicable

MASTERCARD 2023 FORM 10-K 92

PART II

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

At December 31, 2023 and 2022, the Company’s aggregated Pension Plan assets exceeded the benefit obligations. For plans where the benefit obligations exceeded plan assets, the projected benefit obligation, the accumulated benefit obligation and plan assets were not material at December 31, 2023 and 2022, respectively. Information on the Pension Plans were as follows as of December 31:


	2023		2022
	(in millions)
Projected benefit obligation	$	420	$	392
Accumulated benefit obligation	419		388
Fair value of plan assets	449		430

For the year ended December 31, 2023, the Company’s projected benefit obligation related to its Pension Plans increased $28 million, primarily attributable to foreign currency translation. For the year ended December 31, 2022, the Company’s projected benefit obligation related to its Pension Plans decreased $204 million, primarily attributable to actuarial gains related to higher discount rate assumptions.

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
	2023		2022		2021		2023		2022		2021
	(in millions)
Service cost	$	14	$	12	$	14	$	1	$	1	$	1
Interest cost	18		9		9		2		2		2
Expected return on plan assets	(18)		(14)		(19)		—		—		—

Amortization of actuarial loss	—		—		(1)		—		—		—
Amortization of prior service credit	—		—		—		(1)		(1)		(1)

Net periodic benefit cost	$	14	$	7	$	3	$	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
	2023		2022		2021		2023		2022		2021
	(in millions)

Current year actuarial loss (gain)	$	11	$	61	$	(50)	$	6	$	(16)	$	(7)

Amortization of prior service credit	$	—	$	—	$	—	$	1	$	1	$	2

Total other comprehensive loss (income)	$	11	$	61	$	(50)	$	7	$	(15)	$	(5)
Total net periodic benefit cost and other comprehensive loss (income)	$	25	$	68	$	(47)	$	9	$	(13)	$	(3)

93 MASTERCARD 2023 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
	2023		2022		2021		2023		2022		2021
Discount rate
Non-U.S. Plans	3.80	%	0.90	%	0.70	%	*		*		*
Vocalink Plan	4.80	%	1.75	%	1.55	%	*		*		*
Postretirement Plan	*		*		*		5.50	%	2.75	%	2.50	%
Expected return on plan assets
Non-U.S. Plans	1.80	%	1.60	%	1.60	%	*		*		*
Vocalink Plan	5.25	%	2.30	%	3.20	%	*		*		*
Rate of compensation increase
Non-U.S. Plans	1.50	%	1.50	%	1.50	%	*		*		*
Vocalink Plan	2.70	%	3.20	%	2.75	%	*		*		*
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:


	2023		2022
Healthcare cost trend rate assumed for next year	7.00	%	6.50	%
Ultimate trend rate	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	8		6

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 13%, U.K. government securities 35%, fixed income 34%, equity 7% and real estate 11%. 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 2023 FORM 10-K 94

PART II

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

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


	December 31, 2023								December 31, 2022
	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	$	43	$	—	$	—	$	43	$	43	$	—	$	—	$	43

Mutual funds 2	124		109		—		233		106		128		—		234
Insurance contracts 3	—		124		—		124		—		114		—		114


Total	$	167	$	233	$	—	$	400	$	149	$	242	$	—	$	391

Investments at Net Asset Value (“NAV”) 4							49								39
Total Plan Assets							$	449							$	430

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, 2023) through 2033 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)
2024	$	35	$	3
2025	18		3
2026	16		4
2027	22		4
2028	22		4
2029 - 2033	133		20

95 MASTERCARD 2023 FORM 10-K

PART II

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

Note 15. Debt

Debt consisted of the following at December 31:


				2023		2022		Effective Interest Rate
				(in millions)
Senior Notes

2023 USD Notes	4.875	%	Senior Notes due March 2028	$	750	$	—	5.003	%
	4.850	%	Senior Notes due March 2033	750		—		4.923	%

2022 EUR Notes 1	1.000	%	Senior Notes due February 2029	830		800		1.138	%

2021 USD Notes	2.000	%	Senior Notes due November 2031	750		750		2.112	%
	1.900	%	Senior Notes due March 2031	600		600		1.981	%
	2.950	%	Senior Notes due March 2051	700		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	2.950	%	Senior Notes due November 2026	750		750		3.044	%
	3.800	%	Senior Notes due November 2046	600		600		3.893	%

2015 EUR Notes 2	2.100	%	Senior Notes due December 2027	885		854		2.189	%
	2.500	%	Senior Notes due December 2030	166		160		2.562	%

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

Other Debt

2023 INR Term Loan 3	9.430	%	Term Loan due July 2024	338		—		9.780	%

2022 INR Term Loan 4	8.640	%	Term Loan due July 2023	—		275		9.090	%

				15,869		14,239
Less: Unamortized discount and debt issuance costs				(109)		(111)
Less: Cumulative hedge accounting fair value adjustments 5				(79)		(105)
Total debt outstanding				15,681		14,023
Less: Short-term debt 6				(1,337)		(274)
Long-term debt				$	14,344	$	13,749

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

2€950 million euro-denominated debt remaining of the €1.650 billion issued in December 2015.

3INR28.1 billion Indian rupee-denominated loan issued in July 2023.

4INR22.7 billion Indian rupee-denominated loan issued in July 2022.

5The Company has an interest rate swap which is accounted for as a fair value hedge. See Note 23 (Derivative and Hedging Instruments) for additional information.

6The 2014 USD Notes due April 2024 and the INR Term Loan due July 2024 are classified as short-term debt, net of unamortized discount and debt issuance costs, on the consolidated balance sheet as of December 31, 2023. The 2022 INR Term Loan due July 2023 was classified as short-term debt, net of unamortized issuance costs, on the consolidated balance sheet as of December 31, 2022.

MASTERCARD 2023 FORM 10-K 96

PART II

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

Scheduled annual maturities of the principal portion of long-term debt outstanding at December 31, 2023 are summarized below.


	(in millions)
2024	$	1,338
2025	750
2026	750
2027	1,885
2028	1,250
Thereafter	9,896
Total	$	15,869

Senior Notes

In March 2023, the Company issued $750 million principal amount of notes due March 2028 and $750 million principal amount of notes due March 2033 (collectively the “2023 USD Notes”). The net proceeds from the issuance of the 2023 USD Notes, after deducting the original issue discount, underwriting discount and offering expenses, were $1.489 billion.

In February 2022, the Company issued €750 million ($830 million and $800 million as of December 31, 2023 and 2022, respectively) principal amount of notes due February 2029 (the “2022 EUR Notes”). The net proceeds from the issuance of the 2022 EUR Notes, after deducting the original issue discount, underwriting discount and offering expenses, were €743 million ($843 million as of the date of settlement).

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.

The Senior Notes described above are not subject to any financial covenants and may be redeemed in whole, or in part, at the Company’s option at any time for a specified make-whole amount. These notes are senior unsecured obligations and would rank equally with any future unsecured and unsubordinated indebtedness.

Indian Rupee (“INR”) Term Loan

In July 2022, the Company entered into an unsecured INR22.7 billion term loan originally due July 2023 (the “2022 INR Term Loan”). The net proceeds of the 2022 INR Term Loan, after deducting issuance costs, were INR22.6 billion ($284 million as of the date of settlement).

In April 2023, the Company entered into an additional unsecured INR4.97 billion term loan, also originally due July 2023 (the “April 2023 INR Term Loan”). The stated interest rate and effective interest rate were 9.480% and 9.705%, respectively. The net proceeds of the April 2023 INR Term Loan, after deducting issuance costs, were INR4.96 billion ($61 million as of the date of settlement).

In July 2023, the Company modified and combined the 2022 INR Term Loan and April 2023 INR Term Loan (the “2023 INR Term Loan”), increasing the total unsecured loans to INR28.1 billion ($342 million as of the date of settlement). The 2023 INR Term Loan is due July 2024.

The Company obtained the INR Term Loans to serve as economic hedges to offset possible changes in the value of INR-denominated monetary assets due to foreign exchange fluctuations. The INR Term Loans are not subject to any financial covenants and they may be repaid in whole at the Company’s option at any time for a specified make-whole amount.

Commercial Paper Program and Credit Facility

As of December 31, 2023, the Company has a commercial paper program (the “Commercial Paper Program”) under which the Company is authorized to issue up to $8 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 $8 billion revolving credit facility (the “Credit Facility”). The Credit Facility, which previously was set to expire on November 10, 2027, was extended and now expires on November 8, 2028. 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

97 MASTERCARD 2023 FORM 10-K

PART II

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

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, 2023 and 2022.

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 for business continuity purposes. The Company had no borrowings under the Credit Facility or the Commercial Paper Program at December 31, 2023 and 2022.

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, 2023 and 2022. Dividend and voting rights are to be determined by the Board of Directors of the Company upon issuance.

Dividends

The Company declared a quarterly cash dividend on its Class A and Class B Common Stock during each of the four quarters of 2023, 2022 and 2021. The total per share dividends declared during the years ended December 31 is summarized below:


		2023		2022		2021
	(in millions, except per share data)
Dividends declared per share		$	2.37	$	2.04	$	1.81
Total dividends declared		$	2,231	$	1,968	$	1,781

Ownership and Governance Structure

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


	2023				2022
	Equity Ownership		General Voting Power		Equity Ownership		General Voting Power
Public Investors (Class A stockholders)	88.8	%	89.5	%	88.5	%	89.3	%
Mastercard Foundation (Class A stockholders)	10.4	%	10.5	%	10.7	%	10.7	%
Principal or Affiliate Customers (Class B stockholders)	0.8	%	—	%	0.8	%	—	%

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 2023 FORM 10-K 98

PART II

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

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. Historically, Mastercard Foundation had been restricted from selling or otherwise transferring its shares of Class A common stock prior to May 1, 2027, except to the extent necessary to satisfy its charitable disbursement requirements. In July 2023, pursuant to an application in consultation with the Company, Mastercard Foundation received court approval to advance that date to January 1, 2024. As a result, Mastercard Foundation is now permitted to sell all or part of its remaining shares, subject to certain conditions. Mastercard Foundation would do so pursuant to an orderly and structured plan to diversify its Mastercard shares over a seven-year period, while remaining a long-term Mastercard stockholder and retaining a significant holding of Mastercard shares in its portfolio.

Common Stock Activity

The following table presents the changes in the Company’s outstanding Class A and Class B common stock:


	Outstanding Shares
	Class A	Class B
	(in millions)
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
Purchases of treasury stock	(25.7)	—
Share-based payments	1.8	—
Conversion of Class B to Class A common stock	0.2	(0.2)
Balance at December 31, 2022	948.4	7.6
Purchases of treasury stock	(23.8)	—
Share-based payments	2.3	—
Conversion of Class B to Class A common stock	0.4	(0.4)
Balance at December 31, 2023	927.3	7.2

The Company’s Board of Directors have approved share repurchase programs of its Class A Common Stock authorizing the Company to repurchase shares. The following table summarizes the Company’s share repurchase authorizations of its Class A common stock for the years ended December 31:


	2023		2022		2021
	(In millions, except per share data)
Board authorization	$	11,000	$	9,000	$	8,000
Dollar-value of shares repurchased 1	$	9,032	$	8,753	$	5,904
Shares repurchased	23.8		25.7		16.5
Average price paid per share	$	379.49	$	340.60	$	356.82

1The dollar-value of shares repurchased does not include a 1% excise tax that became effective January 1, 2023. The incremental tax is recorded in treasury stock on the consolidated balance sheet and is payable annually beginning in 2024.

As of December 31, 2023, the remaining authorization under the share repurchase programs approved by the Company’s Board of Directors was $14.1 billion.

99 MASTERCARD 2023 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, 2023 and 2022 were as follows:


	December 31, 2022		Increase / (Decrease)		Reclassifications		December 31, 2023
	(in millions)
Foreign currency translation adjustments 1	$	(1,414)	$	295	$	—	$	(1,119)
Translation adjustments on net investment hedges 2	309		(128)		—		181
Cash flow hedges

Foreign exchange contracts 3	(8)		(31)		22		(17)
Interest rate contracts	(123)		—		5		(118)
Defined benefit pension and other postretirement plans 4	(11)		(13)		(1)		(25)
Investment securities available-for-sale	(6)		5		—		(1)
Accumulated other comprehensive income (loss)	$	(1,253)	$	128	$	26	$	(1,099)


	December 31, 2021		Increase / (Decrease)		Reclassifications		December 31, 2022
	(in millions)
Foreign currency translation adjustments 1	$	(739)	$	(675)	$	—	$	(1,414)
Translation adjustments on net investment hedges 2	34		275		—		309
Cash flow hedges
Foreign exchange contracts 3	4		1		(13)		(8)
Interest rate contracts	(128)		—		5		(123)
Defined benefit pension and other postretirement plans 4	21		(31)		(1)		(11)
Investment securities available-for-sale	(1)		(5)		—		(6)
Accumulated other comprehensive income (loss)	$	(809)	$	(435)	$	(9)	$	(1,253)

1During 2023, 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 against the U.S. dollar. During 2022, the increase in the accumulated other comprehensive loss related to foreign currency translation adjustments was driven primarily by the depreciation of the euro and British pound against the U.S. dollar.

2During 2023, the decrease in the accumulated other comprehensive income related to the net investment hedges was driven by the appreciation of the euro against the U.S. dollar. During 2022, 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. See Note 23 (Derivative and Hedging Instruments) for additional information.

3Certain 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.

4During 2023, the increase in the accumulated other comprehensive loss related to the Plans was driven primarily by a net actuarial loss within the Pension Plans. During 2022, the increase in the accumulated other comprehensive loss related to the Plans was driven primarily by a net actuarial loss within the Pension Plans. See Note 14 (Pension, Postretirement and Savings Plans) for additional information.

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 22, 2021 (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.

MASTERCARD 2023 FORM 10-K 100

PART II

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

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 three years for awards granted on or after March 1, 2022. For awards granted before March 1, 2022, they vest ratably over four years. For Options granted, a participant’s unvested awards are forfeited upon termination. 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:


	2023			2022			2021
Risk-free rate of return	4.2		%	1.6		%	0.9		%
Expected term (in years)	6.00			6.00			6.00
Expected volatility	29.5		%	24.6		%	26.1		%
Expected dividend yield	0.6		%	0.6		%	0.5		%
Weighted-average fair value per Option granted	$	123.22		$	86.92		$	91.70

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, 2023:


	Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in millions)			(in years)	(in millions)
Outstanding at January 1, 2023	4.7	$	173
Granted	0.3	$	354
Exercised	(1.9)	$	124
Forfeited	(0.1)	$	338
Expired	0.0	$	283
Outstanding at December 31, 2023	3.0	$	217	5.0	$	632
Exercisable at December 31, 2023	2.4	$	184	4.2	$	581
Options vested and expected to vest at December 31, 2023	3.0	$	217	5.0	$	632

As of December 31, 2023, there was $16 million of total unrecognized compensation cost related to non-vested Options. The cost is expected to be recognized over a weighted-average period of 1.6 years.

101 MASTERCARD 2023 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, 2022, the awards generally vest ratably over three years. For RSUs granted on or after March 1, 2020 but before March 1, 2022, the awards generally vest ratably over four years. A participant’s unvested awards are forfeited upon termination of employment. 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, 2023:


	Units	Weighted-Average Grant-Date Fair Value		Aggregate Intrinsic Value
	(in millions)			(in millions)
Outstanding at January 1, 2023	1.8	$	335
Granted	1.2	$	350
Converted	(0.7)	$	331
Forfeited	(0.1)	$	343
Outstanding at December 31, 2023	2.2	$	344	$	945
RSUs expected to vest at December 31, 2023	2.1	$	344	$	913

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, 2023, there was $372 million of total unrecognized compensation cost related to non-vested RSUs. The cost is expected to be recognized over a weighted-average period of 1.7 years.

Performance Stock Units

PSUs vest after three years and are subject to a mandatory one-year post-vest hold, during which they are eligible for dividend equivalents. A participant’s unvested awards are forfeited upon termination of employment. 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, 2023:


	Units	Weighted-Average Grant-Date Fair Value		Aggregate Intrinsic Value
	(in millions)			(in millions)
Outstanding at January 1, 2023	0.4	$	352
Granted	0.2	$	365
Converted	(0.1)	$	296
Other	0.1	$	386
Outstanding at December 31, 2023	0.6	$	365	$	271
PSUs expected to vest at December 31, 2023	0.6	$	365	$	266

MASTERCARD 2023 FORM 10-K 102

PART II

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

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.

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. As of December 31, 2023, 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 1.6 years.

Additional Information

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


	2023		2022		2021
	(in millions, except weighted-average fair value)
Share-based compensation expense: Options, RSUs and PSUs	$	460	$	295	$	273
Income tax benefit recognized for equity awards	99		61		57
Income tax benefit realized related to Options exercised	95		49		36

Options
Total intrinsic value of Options exercised	487		231		169
RSUs
Weighted-average grant-date fair value of awards granted	350		340		358
Total grant-date fair value of awards vested	235		305		202
Total intrinsic value of RSUs converted into shares of Class A common stock	253		420		360
PSUs
Weighted-average grant-date fair value of awards granted	365		335		385
Total grant-date fair value of awards vested	12		—		20
Total intrinsic value of PSUs converted into shares of Class A common stock	14		—		32

Note 19. Commitments

At December 31, 2023, 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 $21 million of these future payments as of December 31, 2023.


	(in millions)
2024	$	668
2025	634
2026	442
2027	327
2028	171
Thereafter	1
Total	$	2,243

103 MASTERCARD 2023 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 were as follows:


	2023		2022		2021
	(in millions)
United States	$	4,506	$	4,228	$	4,261
Foreign	9,133		7,504		6,046
Income before income taxes	$	13,639	$	11,732	$	10,307

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


	2023		2022		2021
	(in millions)
Current
Federal	$	991	$	1,024	$	663
State and local	127		133		51
Foreign	1,563		1,296		976
	2,681		2,453		1,690
Deferred
Federal	(180)		(661)		(31)
State and local	(18)		(40)		(4)
Foreign	(39)		50		(35)
	(237)		(651)		(70)
Income tax expense	$	2,444	$	1,802	$	1,620

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:


	2023				2022				2021
	Amount		Percent		Amount		Percent		Amount		Percent
	($ in millions)
Income before income taxes	$	13,639			$	11,732			$	10,307

Federal statutory tax	2,864		21.0	%	2,464		21.0	%	2,164		21.0	%
State tax effect, net of federal benefit	82		0.6	%	72		0.6	%	60		0.6	%
Foreign tax effect	(393)		(2.9)	%	(347)		(3.0)	%	(283)		(2.7)	%
Valuation allowance - U.S. foreign tax credit	327		2.4	%	(333)		(2.8)	%	—		—	%
U.S. tax expense on foreign operations	39		0.3	%	111		0.9	%	63		0.6	%
Foreign-derived intangible income deduction	(144)		(1.1)	%	(129)		(1.1)	%	(69)		(0.7)	%
U.S. tax benefits	—		—	%	—		—	%	(132)		(1.3)	%
Windfall benefit	(88)		(0.6)	%	(68)		(0.6)	%	(67)		(0.7)	%
Other, net	(243)		(1.8)	%	32		0.3	%	(116)		(1.1)	%
Income tax expense	$	2,444	17.9	%	$	1,802	15.4	%	$	1,620	15.7	%

Note: Table may not sum due to rounding.

The effective income tax rates for the years ended December 31, 2023, 2022 and 2021 were 17.9%, 15.4% and 15.7%, respectively. The effective income tax rate for 2023 was higher than the effective income tax rate for 2022, primarily due to changes in the valuation allowance associated with the deferred tax asset related to U.S. foreign tax credits. In 2022, the Company recognized a discrete tax benefit of $333 million to release the valuation allowance resulting from U.S. tax regulations published in the first

MASTERCARD 2023 FORM 10-K 104

PART II

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

quarter of 2022 (the “2022 Regulations”). In 2023, the treatment of foreign taxes paid under the 2022 Regulations changed due to foreign tax legislation enacted in Brazil and Notice 2023-55 (the “Notice”), released by the U.S. Department of Treasury (“Treasury”). Therefore, the Company recognized a total $327 million discrete tax expense in 2023 to establish the valuation allowance. The discrete tax expense recognized in 2023 was partially offset by the Company’s ability to claim more U.S. foreign tax credits generated in 2022 and 2023 due to the Notice released by Treasury.

The effective income tax rate for 2022 was lower than the effective income tax rate for 2021, primarily due to a discrete tax benefit in the first quarter of 2022 related to final U.S. tax regulations published in 2022. These regulations resulted in a valuation allowance release of $333 million associated with the U.S. foreign tax credit carryforward deferred tax asset. The regulations limited the Company’s ability to generate foreign tax credits starting in 2022 for certain foreign taxes paid, resulting in additional U.S. tax expense. Additionally, a more favorable geographic mix of earnings in 2022 contributed to the lower effective tax rate. The lower effective income tax rate in 2022 was partially offset by:

the recognition of U.S. tax benefits in 2021 (the majority of which were discrete) resulting from a higher foreign derived intangible income deduction and greater utilization of foreign tax credits in the U.S.
a discrete tax benefit in 2021 related to the remeasurement of the Company’s net deferred tax asset in the U.K. due to an enacted tax rate change in 2021
a discrete tax expense related to an unfavorable court ruling in 2022

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 2023, 2022 and 2021, the impact of the incentive grant received from the Ministry of Finance resulted in a reduction of MAPPL’s income tax liability of $571 million, or $0.60 per diluted share, $454 million, or $0.47 per diluted share, and $300 million, or $0.30 per diluted share, respectively.

Indefinite Reinvestment

As of December 31, 2023 the Company does not accrue taxes on $3.6 billion of foreign earnings which remain permanently reinvested outside the U.S. The Company expects that taxes associated with any future repatriation of these earnings are immaterial.

105 MASTERCARD 2023 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 were as follows:


	2023		2022
	(in millions)
Deferred Tax Assets
Accrued liabilities	$	863	$	697
Compensation and benefits	335		316
State taxes and other credits	47		43
Net operating losses	149		156
U.S. foreign tax credits	635		274
Property and equipment	277		52
Intangible assets	182		186
Lease liabilities	158		65
Other items	156		155
Less: Valuation allowance	(758)		(114)
Total Deferred Tax Assets	2,044		1,830

Deferred Tax Liabilities
Prepaid expenses and other accruals	211		186
Gains on equity investments	112		132
Goodwill and intangible assets	518		561
Right-of-use lease assets	138		58
Other items	79		135
Total Deferred Tax Liabilities	1,058		1,072

Net Deferred Tax Assets	$	986	$	758

The changes in the Company’s valuation allowance on deferred tax assets were as follows:


	Balance at December 31, 2020		Changes to Related Gross Deferred Tax Assets		Change/(Release)		Balance at December 31, 2021		Changes to Related Gross Deferred Tax Assets		Change/(Release)		Balance at December 31, 2022		Changes to Related Gross Deferred Tax Assets		Change/(Release)		Balance at December 31, 2023
	(in millions)
U.S. foreign tax credit carryforward 1	$	276	$	57	$	—	$	333	$	—	$	(333)	$	—	$	308	$	327	$	635
Net operating and capital losses 2	77		11		(6)		82		23		9		114		12		(3)		123
Total	$	353	$	68	$	(6)	$	415	$	23	$	(324)	$	114	$	320	$	324	$	758

1The 2022 activity resulted in a full release of the valuation allowance associated with the U.S. foreign tax credit carryforward due to final U.S. tax regulations published in 2022. The 2023 activity resulted in the establishment of the valuation allowance associated with the U.S. foreign tax credit carryforward due to foreign tax legislation enacted in Brazil and the Notice released by Treasury.

2Capital losses are included within other items in the deferred tax assets section of the components of the Deferred Taxes table above.

MASTERCARD 2023 FORM 10-K 106

PART II

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

The recognition of 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 net operating and capital losses is dependent on the timing and character of future taxable income in the applicable jurisdictions. As of December 31, 2023, the Company had a foreign tax credit carryforward and tax effected net operating loss carryforwards of $635 million and $149 million, respectively. The foreign tax credits begin to expire in 2029 and the majority of the net operating losses can be carried forward indefinitely.

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


	2023		2022		2021
	(in millions)
Beginning balance	$	414	$	360	$	388
Additions:
Current year tax positions	23		22		17
Prior year tax positions1	16		65		4
Reductions:
Prior year tax positions1	(7)		(14)		(31)
Settlements with tax authorities	—		(13)		(15)
Expired statute of limitations	(15)		(6)		(3)
Ending balance	$	431	$	414	$	360

1Includes immaterial translational impact of currency.

As of December 31, 2023, the amount of unrecognized tax benefit was $431 million. This amount, if recognized, would reduce income tax expense by $378 million.

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 is reasonably possible and that a change in estimate, reducing unrecognized tax benefits, may occur. While such a change may be significant, it is not possible to provide a range of the potential change until the examinations progress further or the related statutes of limitation expire. The Company has effectively settled its U.S. federal income tax obligations through 2014. With limited exception, the Company is no longer subject to state and local or foreign examinations by tax authorities for years before 2014.

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, it is not possible to determine the probability of loss or estimate damages, and therefore, Mastercard has not established liabilities for any of these proceedings, except as discussed below. 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 proceedings involve 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 and 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.

107 MASTERCARD 2023 FORM 10-K

PART II

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

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 and financial condition.

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 “U.S. MDL Litigation Cases”). The plaintiffs filed a consolidated class action complaint seeking treble damages.

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

In February 2011, Mastercard and Mastercard International entered into each of: (1) an omnibus judgment sharing and settlement sharing agreement with Visa Inc., Visa U.S.A. 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 U.S. MDL 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 U.S. MDL Litigation Cases (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. Following an appeal by objectors and as a result of a reversal by the U.S. Court of Appeals for the Second Circuit, 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, with merchants representing slightly more than 25% of the Damages Class interchange volume ultimately choosing to opt out of the settlement. The district court granted final approval of the Damages Class settlement in December 2019, which was upheld by the appellate court in March 2023 and became final in August 2023 pursuant to the terms of the agreement. 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.

Separately, 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. In January 2024, the district court denied certain of the defendants’ motions for summary judgment and the parties are awaiting decisions on the remaining motions.

As of December 31, 2023 and 2022, Mastercard had accrued a liability of $596 million and $894 million, respectively, for the U.S. MDL Litigation Cases. During 2023, Mastercard reduced both the accrued liability and restricted cash for litigation settlement by $600 million, including accrued interest, as the Damages Class settlement became final in August 2023. As such, as of December 31,

MASTERCARD 2023 FORM 10-K 108

PART II

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

2023, Mastercard had no balance remaining in a qualified cash settlement fund related to the Damages Class litigation. As of December 31, 2022, the Company had $589 million in a qualified cash settlement fund classified as restricted cash on its consolidated balance sheet. During 2023, Mastercard recorded additional accruals of $344 million as a result of changes in the estimate with respect to the claims of merchants who opted out of the Damages Class litigation. The liability as of December 31, 2023 for the opt-out merchants represents Mastercard’s best estimate of its probable liabilities in these matters and 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. During 2023, Mastercard incurred charges of $195 million as a result of settlements with a number of U.K. and Pan-European merchants. During 2022, Mastercard incurred charges of $223 million as a result of settlements (both final and agreements in principle) with a number of U.K. merchants. During 2021, Mastercard incurred charges of $94 million to reflect both the litigation settlements and estimated attorneys’ fees with a number of U.K. and Pan-European merchants. Following these settlements, approximately £1 billion (approximately $1.3 billion as of December 31, 2023) of unresolved damages claims remain.

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. A number of those matters are now progressing with motion practice and discovery. A hearing involving multiple merchant cases is scheduled for February 2024 concerning certain liability issues with respect to merchant claims for damages related to post-Interchange Fee Regulation consumer interchange fees as well as commercial and inter-regional interchange fees.

In a separate matter, Mastercard and Visa were served with a proposed collective action complaint in the U.K. on behalf of merchants seeking damages for commercial card transactions in both the U.K. and the European Union. In June 2023, the court denied the plaintiffs’ collective action application. In December 2023, the plaintiffs filed a revised application claiming damages against Mastercard in excess of £1 billion (approximately $1.3 billion as of December 31, 2023) and the court has scheduled a hearing on this application for April 2024.

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 £10 billion (approximately $13 billion as of December 31, 2023). Following various hearings since July 2017 regarding collective action and scope, in August 2021, the trial court issued a decision in which it granted class certification to the plaintiffs but narrowed the scope of the class. Since January 2023, the trial court has held hearings on various issues, including whether any causal connection existed between the levels of Mastercard’s intra-EEA interchange fees and U.K. domestic interchange fees and regarding Mastercard’s request to narrow the number of years of damages sought by the plaintiffs on statute of limitations grounds.

Mastercard has been named as a defendant in a proposed consumer collective action filed in Portugal on behalf of Portuguese consumers. The complaint, which seeks to leverage the 2019 resolution of the European Commission’s investigation of Mastercard’s central acquiring rules and interregional interchange fees, claims damages of approximately €0.4 billion (approximately $0.4 billion as of December 31, 2023) for interchange fees that were allegedly passed on to consumers by Portuguese merchants for a period of approximately 20 years. Mastercard has submitted a statement of defense that disputes both liability and damages.

In April 2023, the Serbian Competition Commission issued a Statement of Objections (“SO”) against Mastercard. The SO covers historic domestic interchange fees from 2013 to 2018. The SO seeks monetary fines and costs but no business practices changes.

Australia. In May 2022, the Australian Competition & Consumer Commission (“ACCC”) filed a complaint targeting certain agreements entered into by Mastercard and certain Australian merchants related to Mastercard’s debit program. The ACCC alleges that by entering into such agreements, Mastercard engaged in conduct with the purpose of substantially lessening competition in the supply of debit card acceptance services. The ACCC seeks both declaratory relief and monetary fines and costs. A hearing on liability issues has been scheduled for March 2025.

109 MASTERCARD 2023 FORM 10-K

PART II

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

ATM Non-Discrimination Rule Surcharge Complaints

United States. 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 September 2019, the plaintiffs filed with the district court 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. In July 2023, the D.C. Circuit Court affirmed the district court order granting class certification. In January 2024, the defendants requested that the U.S. Supreme Court hear the defendants’ appeal of the certification decision.

Europe. Mastercard was named as a defendant in an action brought by Euronet 360 Finance Limited, Euronet Polska Spolka z.o.o. and Euronet Services spol. s.r.o. (“Euronet”) alleging that certain rules affecting ATM access fees in Poland, the Czech Republic and Greece by Visa and Mastercard, and certain of their subsidiaries, breach various competition laws. Euronet sought damages, costs and injunctive relief to prevent the defendants from enforcing these rules. The matter was resolved via a settlement in October 2023.

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 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. MDL Litigation Cases described above. In August 2020, the district court issued an order granting the plaintiffs’ request for class certification and in January 2021, the Network Defendants’ request for permission to appeal that decision 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 and all briefs on summary judgment have been submitted.

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 December 2019, the Federal Communications Commission (“FCC”) issued a declaratory ruling clarifying that the TCPA does not apply to faxes sent to online fax services that are received online via email. In December 2021, the trial court granted plaintiffs’ request for class certification, but narrowed the scope of the class to stand alone fax recipients only. Mastercard’s request to appeal that decision was denied. Briefing on plaintiffs’ motion to amend the class definition and Mastercard’s cross-motion to decertify the stand alone fax recipient class was completed in April 2023.

MASTERCARD 2023 FORM 10-K 110

PART II

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

U.S. Federal Trade Commission Investigation

In June 2020, the U.S. Federal Trade Commission’s Bureau of Competition (“FTC”) informed Mastercard that it 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 focused on Mastercard’s compliance with the debit routing provisions of the Durbin Amendment. In December 2022, the FTC voted to issue an administrative complaint and accept a consent agreement with Mastercard. Pursuant to this agreement, Mastercard agreed to provide primary account numbers (PANs) so that merchants can route tokenized online debit transactions to alternative networks. The consent agreement does not include any monetary penalty. Following a public comment period, the FTC finalized the consent agreement in May 2023.

U.S. Department of Justice Investigation

In March 2023, Mastercard received a Civil Investigative Demand (“CID”) from the U.S. Department of Justice Antitrust Division (“DOJ”) seeking documents and information regarding a potential violation of Sections 1 or 2 of the Sherman Act. The CID focuses on Mastercard’s U.S. debit program and competition with other payment networks and technologies. Mastercard is cooperating with the DOJ in connection with the CID.

Note 22. Settlement and Other Risk Management

Mastercard’s rules guarantee the settlement of many of the payment network 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. For those transactions the Company guarantees, the guarantee will cover the full amount of the settlement obligation to the extent the settlement obligation is not otherwise satisfied. The duration of the settlement exposure is short-term and generally 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 include risk standards, to provide a framework for managing the Company’s settlement risk and exposure. In the event of failed settlement by a 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 settlement failures.

As part of its policies, Mastercard requires certain customers that do not meet the Company’s risk standards to enter into risk mitigation arrangements, including cash collateral and/or 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:


	2023		2022
	(in millions)
Gross settlement exposure	$	75,023	$	64,885
Risk mitigation arrangements applied to settlement exposure 1	(12,167)		(9,224)
Net settlement exposure 1	$	62,856	$	55,661

1The Company corrected its estimated net settlement exposure as of December 31, 2022. The correction was not material to the net settlement exposures previously reported and had no impact to any of the Company’s financial statement line items.

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 $340 million and $342 million at December 31, 2023 and 2022, respectively, of which the Company has risk mitigation arrangements for $272 million and $273 million at December 31, 2023 and 2022, 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.

111 MASTERCARD 2023 FORM 10-K

PART II

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

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. The Company does not enter into derivatives for speculative purposes.

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 are 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. Gains and losses resulting from changes in fair value of these contracts are deferred in accumulated other comprehensive income (loss) and are subsequently reclassified as an adjustment to interest expense over the respective terms of the hedged debt issuances. As of December 31, 2023, a cumulative loss of $118 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.

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 and 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.

In 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 years ended December 31, 2023, 2022 and 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 excluded from the effectiveness assessment and are 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 2023, 2022 and 2021 were not material.

In 2015 and 2022, the Company designated its €1,650 million and €750 million euro-denominated debt, respectively, as hedges of a portion of its net investment in its European operations. In 2022, €700 million of the 2015 euro-denominated debt matured and was de-designated as a net investment hedge. In 2023, the Company de-designated an aggregate notional amount of €2,825 million foreign exchange derivative contracts and €109 million of the euro-denominated debt as net investment hedges to effectively manage changes in its net investment exposures in foreign subsidiaries. The Company accounts for the de-designated foreign exchange derivative contracts as economic hedges as of the de-designation date. The foreign currency transaction gains and losses on the euro-denominated debt that is not designated as a hedging instrument for accounting purposes are recorded in general and administrative expenses on the consolidated statement of operations, net as of the de-designation date. The de-designated foreign exchange derivative contracts and euro-denominated debt will serve as economic hedges to offset possible changes in monetary assets due to foreign exchange fluctuations.

MASTERCARD 2023 FORM 10-K 112

PART II

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

As of December 31, 2023 and 2022, the Company had €1.6 billion and €1.7 billion euro-denominated debt outstanding designated as hedges of a portion of its net investment in its European operations, respectively. During 2023, 2022 and 2021 the Company recorded a pre-tax net foreign currency loss of $67 million, gain of $176 million and gain of $155 million, respectively, in other comprehensive income (loss).

As of December 31, 2023 and 2022, the Company had net foreign currency gains of $181 million and $309 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.

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


	December 31, 2023						December 31, 2022
	Notional		Derivative Assets		Derivative Liabilities		Notional		Derivative Assets		Derivative Liabilities
	(in millions)
Derivatives designated as hedging instruments
Foreign exchange contracts in a cash flow hedge 1	$	1,006	$	2	$	25	$	642	$	4	$	15
Interest rate contracts in a fair value hedge 2	1,000		—		79		1,000		—		105
Foreign exchange contracts in a net investment hedge 1	—		—		—		1,814		103		4
Derivatives not designated as hedging instruments
Foreign exchange contracts 1	5,424		34		79		521		1		2
Total derivative assets/liabilities	$	7,430	$	36	$	183	$	3,977	$	108	$	126

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

2Interest rate derivative liabilities are included within other current liabilities and other liabilities on the consolidated balance sheet.

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,
	2023		2022		2021			2023			2022			2021
	(in millions)							(in millions)
Derivative financial instruments in a cash flow hedge relationship:
Foreign exchange contracts	$	(41)	$	1	$	6	Net revenue		$	(29)		$	16		$	1
Interest rate contracts	$	—	$	—	$	—	Interest expense		$	(6)		$	(6)		$	(6)

Derivative financial instruments in a net investment hedge relationship:
Foreign exchange contracts	$	(98)	$	177	$	114

The Company estimates that the pre-tax amount of the net deferred loss on cash flow hedges recorded in accumulated other comprehensive income (loss) at December 31, 2023 that will be reclassified into the consolidated statement of operations within the next 12 months is not material. The term of the foreign exchange derivative contracts designated in hedging relationships are generally less than 18 months.

113 MASTERCARD 2023 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:	2023		2022		2021
	(in millions)
Foreign exchange contracts
General and administrative	$	42	$	21	$	(10)

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. However, the Company has elected to present derivative assets and liabilities on a gross basis on the consolidated balance sheet. 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 30% of net revenue in 2023, 33% in 2022 and 32% in 2021. No individual country, other than the U.S., generated more than 10% of net revenue in those periods. Mastercard did not have any individual customer that generated greater than 10% of net revenue in 2023, 2022 or 2021.

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


	2023		2022		2021
	(in millions)
United States	$	1,027	$	1,123	$	1,117
Other countries	1,034		883		790
Total	$	2,061	$	2,006	$	1,907

MASTERCARD 2023 FORM 10-K 114

PART II

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

Previous: Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK · Next: Item 9. Changes in and disagreements with accountants on accounting and financial disclosure