Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net revenue from our payment network increased 21%, or 20% on a currency-neutral basis, in 2021 versus 2020. The increase was primarily driven by growth in domestic and cross-border dollar volumes and an increase in the number of switched transactions, reflecting trends of growth in our key drivers. Net revenue from our payment network include $10,476 million of rebates and incentives provided to customers, which increased 31%, or 30% on a currency-neutral basis, in 2021 versus 2020, primarily due to an increase in our key drivers as well as new and renewed deals.

Net revenue from our value-added services and solutions increased 28%, or 27% on a currency-neutral basis, in 2021 versus 2020, which includes a 6 percentage point increase from acquisitions. The remaining increase was primarily driven by our cyber and intelligence and data and services solutions.

See Note 3 (Revenue) to the consolidated financial statements included in Part II, Item 8 for a further discussion of how we recognize revenue.

Drivers of Change

The following table summarizes the drivers of change in net revenue:

						For the Years Ended December 31,
						Operational												Acquisitions												Currency Impact 3																		Special Items 4												Total
						2022						2021						2022						2021						2022						2021																		2022						2021						2022						2021
Payment network						26%			1			20%			1			—%						—%						(6)%						1%																		—%						—%						20		%				21		%
Value-added services and solutions						15%			2			21%			2			4%						6%						(4)%						1%																		**						—%						14		%				28		%
Net revenue						22%						20%						1%						2%						(5)%						1%																		—%						—%						18		%				23		%

Note: Table may not sum due to rounding

1Includes impacts from our key drivers and metrics, offset by rebates and incentives.

2 Includes impacts from cyber and intelligence, data and services, processing and gateway, ACH batch and real-time account-based domestic and cross-border payments and solutions, opening banking and digital identity, offset by rebates and incentives.

3 Includes the translational and transactional impact of currency and the related impact of our foreign exchange derivative contracts designated as cash flow hedging instruments.

4 See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.

No individual country, other than the United States, generated more than 10% of net revenue in any such period. A significant portion of our net revenue is concentrated among our five largest customers. In 2022, the net revenue from these customers was approximately $4.7 billion, or 21%, of total net revenue. The loss of any of these customers or their significant card programs could adversely impact our revenue.

Operating Expenses

Operating expenses increased 13% in 2022 versus the prior year. Adjusted operating expenses increased 11%, or 14% on a currency-neutral basis, versus the prior year, which includes a 4 percentage point increase from acquisitions. The remaining increase was primarily due to higher personnel costs, travel and meeting costs and unfavorable foreign exchange activity.

The components of operating expenses were as follows:

						For the Years Ended December 31,																		Increase (Decrease)
						2022						2021						2020						2022						2021
						($ in millions)
General and administrative						$	8,078					$	7,087					$	5,910					14		%				20		%
Advertising and marketing						789						895						657						(12)		%				36		%
Depreciation and amortization						750						726						580						3		%				25		%
Provision for litigation						356						94						73						**						**
Total operating expenses						9,973						8,802						7,220						13		%				22		%
Special Items 1						(423)						(176)						(73)						**						**
Adjusted operating expenses (excluding Special Items 1)						$	9,549					$	8,627					$	7,147					11		%				21		%

Note: Table may not sum due to rounding.

** Not meaningful

1See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table summarizes the drivers of changes in operating expenses:

						For the Years Ended December 31,
						Operational												Acquisitions												Currency Impact 1												Special Items 2												Total
						2022						2021						2022						2021						2022						2021						2022						2021						2022						2021
General and administrative						13%						11		%				4		%				6		%				(3)		%				2		%				—		%				1		%				14		%				20		%
Advertising and marketing						(9)%						35		%				1		%				1		%				(4)		%				1		%				**						**						(12)		%				36		%
Depreciation and amortization						(1)%						3		%				8		%				20		%				(4)		%				2		%				**						**						3		%				25		%
Provision for litigation						**						**						**						**						**						**						**						**						**						**
Total operating expenses						10%						12		%				4		%				7		%				(3)		%				2		%				3		%				1		%				13		%				22		%

Note: Table may not sum due to rounding.

** Not meaningful

1Represents the translational and transactional impact of currency.

2See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.

General and Administrative

General and administrative expenses increased 14%, or 17% on a currency-neutral basis, in 2022 versus the prior year. Current year results include growth of 4 percentage points from acquisitions. The remaining increase was primarily due to higher personnel costs to support our continued investment in our strategic initiatives across payments, services and new networks, increased travel and meeting costs and balance sheet remeasurement losses due to unfavorable foreign exchange activity.

The components of general and administrative expenses were as follows:

						For the Years Ended December 31,																		Increase (Decrease)
						2022						2021						2020						2022						2021
						($ in millions)
Personnel 1						$	5,263					$	4,489					$	3,787					17%						19%
Professional fees						480						433						384						11%						13%
Data processing and telecommunications						926						898						756						3%						19%
Foreign exchange activity 2						102						51						9						**						**
Other 1, 3						1,307						1,216						974						7%						25%
Total general and administrative expenses						$	8,078					$	7,087					$	5,910					14%						20%

Note: Table may not sum due to rounding.

** Not meaningful

1For the year ended December 31, 2022, total general and administrative expenses includes a Special Item for Russia-related impacts of $67 million, of which $35 million is included within Personnel and $32 million is included within Other. See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.

2 Foreign exchange activity includes the impact of remeasurement of assets and liabilities denominated in foreign currencies net of the impact of gains and losses on foreign exchange derivative contracts. See Note 23 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part II, Item 8 for further discussion.

3 Includes a Special Item related to a foreign indirect tax matter of $82 million for the year ended December 31, 2021. See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.

Advertising and Marketing

Advertising and marketing expenses decreased 12%, or 8% on a currency-neutral basis, in 2022 versus the prior year, primarily due to lower spending on marketing campaigns.

Depreciation and Amortization

Depreciation and amortization expenses increased 3%, or 7% on a currency-neutral basis, in 2022 versus the prior year, due to the amortization of acquired intangible assets from acquisitions.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Provision for Litigation

In 2022, 2021 and 2020, we recorded $356 million, $94 million and $73 million, respectively, related to various legal proceedings. See “Non-GAAP Financial Information” in this section and Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for further discussion.

Other Income (Expense)

Other income (expense) was unfavorable $757 million in 2022 versus the prior year, primarily due to net losses in the current year versus net gains in the prior year related to unrealized fair market value adjustments on marketable and nonmarketable equity securities and realized gains on sales of marketable equity securities in 2021. Adjusted other income (expense) was favorable $26 million versus the prior year, primarily due to an increase in our investment income, partially offset by increased interest expense related to our 2022 debt issuances.

The components of other income (expense) were as follows:

						For the Years Ended December 31,																		Increase (Decrease)
						2022						2021						2020						2022						2021
						($ in millions)
Investment income						$	61					$	11					$	24					**						(52)		%
Gains (losses) on equity investments, net						(145)						645						30						**						**
Interest expense						(471)						(431)						(380)						9		%				13		%
Other income (expense), net						23						—						5						**						**
Total other income (expense)						(532)						225						(321)						**						**
(Gains) losses on equity investments 1						145						(645)						(30)						**						**
Special Items 1						—						6						—						**						**
Adjusted total other income (expense) 1						$	(387)					$	(413)					$	(351)					(6)		%				18		%

Note: Table may not sum due to rounding.

** Not meaningful

1 See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.

Income Taxes

The effective income tax rates for the years ended December 31, 2022 and 2021 were 15.4% and 15.7%, respectively. The adjusted effective income tax rates for the years ended December 31, 2022 and 2021 were 15.7% and 15.4%, respectively. The effective income tax rate was lower in 2022 primarily due to a discrete tax benefit in the first quarter of 2022 related to final U.S. tax regulations published in the current year. These regulations resulted in a valuation allowance release of $333 million associated with the U.S. foreign tax credit carryforward deferred tax asset. The regulations limit Mastercard’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 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 our net deferred tax asset in the U.K. due to an enacted tax rate change in 2021

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

The adjusted effective income tax rate was higher in 2022 primarily due to:

• 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 our 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

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All of the above impacts were partially offset by a discrete tax benefit in the first quarter of 2022 related to final U.S. tax regulations published in the current year. These regulations resulted in a valuation allowance release of $333 million associated with the U.S. foreign tax credit carryforward deferred tax asset. The regulations limit Mastercard’s ability to generate foreign tax credits starting in 2022 for certain foreign taxes paid, resulting in additional U.S. tax expense.

See Note 20 (Income Taxes) to the consolidated financial statements included in Part II, Item 8 for further discussion.

In August 2022, the U.S. enacted the Inflation Reduction Act (the “IRA”). The IRA includes a corporate alternative minimum tax of 15% on the adjusted financial statement income of corporations for years beginning after December 31, 2022, and an excise tax of 1% on the fair market value of annual net stock repurchases made after December 31, 2022. We continue to analyze the impacts of the IRA, however, it is not expected to have a material impact on our financial statements.

Liquidity and Capital Resources

We rely on existing liquidity, cash generated from operations and access to capital to fund our global operations, credit and settlement exposure, capital expenditures, investments in our business and current and potential obligations. The following table summarizes the cash, cash equivalents, investments and credit available to us at December 31:

						2022						2021
						(in billions)
Cash, cash equivalents and investments 1						$	7.4					$	7.9
Unused line of credit						8.0						6.0

1Investments include available-for-sale securities and held-to-maturity securities. This amount excludes restricted cash and restricted cash equivalents of $2.2 billion and $2.5 billion at December 31, 2022 and 2021, respectively.

We believe that our existing cash, cash equivalents and investment securities balances, our cash flow generating capabilities, and our access to capital resources are sufficient to satisfy our future operating cash needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations and potential obligations which include litigation provisions and credit and settlement exposure.

Our liquidity and access to capital could be negatively impacted by global credit market conditions. We guarantee the settlement of many of the transactions between our customers. Historically, payments under these guarantees have not been significant; however, historical trends may not be an indication of potential future losses. The risk of loss on these guarantees is specific to individual customers, but may also be driven by regional or global economic conditions, including, but not limited to the health of the financial institutions in a country or region. See Note 22 (Settlement and Other Risk Management) to the consolidated financial statements in Part II, Item 8 for a description of these guarantees.

Our liquidity and access to capital could also be negatively impacted by the outcome of any of the legal or regulatory proceedings to which we are a party. For additional discussion of these and other risks facing our business, see Part I, Item 1A - Risk Factors - Legal and Regulatory Risks and Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8.

Cash Flow

The table below shows a summary of the cash flows from operating, investing and financing activities:

						For the Years Ended December 31,
						2022						2021						2020
						(in millions)
Net cash provided by operating activities						$	11,195					$	9,463					$	7,224
Net cash used in investing activities						(1,470)						(5,272)						(1,879)
Net cash used in financing activities						(10,328)						(6,555)						(2,152)

Net cash provided by operating activities increased $1.7 billion in 2022 versus the prior year, primarily due to higher net income adjusted for non-cash items and timing of settlement with customers.

Net cash used in investing activities decreased $3.8 billion in 2022 versus the prior year, primarily due to lower business acquisition activity in the current year.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net cash used in financing activities increased $3.8 billion in 2022 versus the prior year, primarily due to higher repurchases of our Class A common stock in the current year.

Debt and Credit Availability

In February 2022, we issued €750 million ($800 million as of December 31, 2022) principal amount of notes due February 2029 (the “2022 EUR Notes”). In July 2022, we entered into an unsecured INR22.7 billion ($275 million as of December 31, 2022) term loan due July 2023 (the “INR Term Loan”). During 2022, €700 million ($724 million as of the maturity date) of principal related to the 2015 Euro Notes matured and was paid. Our total debt outstanding was $14.0 billion at December 31, 2022, with the earliest maturity of INR22.7 billion ($275 million as of December 31, 2022) of principal occurring in July 2023.

As of December 31, 2022, we have a commercial paper program (the “Commercial Paper Program”), under which we are authorized to issue up to $6 billion in outstanding notes, with maturities up to 397 days from the date of issuance. On January 27, 2023, we increased our Commercial Paper Program from $6 billion to $8 billion. In conjunction with the Commercial Paper Program, we have a committed unsecured $8 billion revolving credit facility (the “Credit Facility”) which now expires in November 2027.

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 our customers. In addition, we may borrow and repay amounts under these facilities for business continuity purposes. We had no borrowings outstanding under the Commercial Paper Program or the Credit Facility at December 31, 2022.

See Note 15 (Debt) to the consolidated financial statements included in Part II, Item 8 for further discussion on our debt, the Commercial Paper Program and the Credit Facility.

Dividends and Share Repurchases

We have historically paid quarterly dividends on our outstanding Class A common stock and Class B common stock. Subject to legally available funds, we intend to continue to pay a quarterly cash dividend. The declaration and payment of future dividends is at the sole discretion of our Board of Directors after taking into account various factors, including our financial condition, operating results, available cash and current and anticipated cash needs.

The following table summarizes the annual, per share dividends paid in the years reflected:

						For the Years Ended December 31,
						2022						2021						2020
						(in millions, except per share data)
Cash dividend, per share						$	1.96					$	1.76					$	1.60
Cash dividends paid						$	1,903					$	1,741					$	1,605

On December 6, 2022, our Board of Directors declared a quarterly cash dividend of $0.57 per share paid on February 9, 2023 to holders of record on January 9, 2023 of our Class A common stock and Class B common stock. The aggregate amount of this dividend was $545 million.

On February 14, 2023, our Board of Directors declared a quarterly cash dividend of $0.57 per share payable on May 9, 2023 to holders of record on April 7, 2023 of our Class A common stock and Class B common stock. The aggregate amount of this dividend is estimated to be $543 million.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Repurchased shares of our common stock are considered treasury stock. In December 2022, November 2021 and December 2020, our Board of Directors approved share repurchase programs of our Class A common stock authorizing us to repurchase up to $9.0 billion, $8.0 billion and $6.0 billion, respectively. The program approved in 2022 will become effective after completion of the share repurchase program approved in 2021. The timing and actual number of additional shares repurchased will depend on a variety of factors, including cash requirements to meet the operating needs of the business, legal requirements, as well as the share price and economic and market conditions. The following table summarizes our share repurchase authorizations and repurchase activity of our Class A common stock through December 31, 2022:

						(in millions, except per share data)
Remaining authorization at December 31, 2021						$	11,927
Dollar-value of shares repurchased in 2022						$	8,753
Remaining authorization at December 31, 2022						$	12,174
Shares repurchased in 2022						25.7
Average price paid per share in 2022						$	340.60

See Note 16 (Stockholders' Equity) to the consolidated financial statements included in Part II, Item 8 for further discussion.

Critical Accounting Estimates

The application of GAAP requires us to make estimates and assumptions about certain items and future events that directly affect our reported financial condition. Our significant accounting policies, including recent accounting pronouncements, are described in Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements included in Part II, Item 8.

Revenue Recognition - Rebates and Incentives

We enter into business agreements with certain customers that provide for rebates and incentives when customers meet certain volume thresholds or other incentives tied to customer performance. We consider various factors in estimating customer performance, including forecasted transactions, card issuance and card conversion volumes, expected payments and historical experience with that customer. Rebates and incentives are recorded within net revenue based on these estimates primarily when volume- and transaction- based revenues are recognized over the contractual term. Differences between actual results and our estimates are adjusted in the period the customer reports actual performance. If our customers’ actual performance is not consistent with our estimates of their performance, net revenue may be materially different.

Loss Contingencies

We are currently involved in various claims and legal proceedings. We regularly review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required in both the determination of probability and whether an exposure is reasonably estimable. Our judgments are subjective based on the status of the legal or regulatory proceedings, the merits of our defenses and consultation with in-house and outside legal counsel. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may revise our estimates. Due to the inherent uncertainties of the legal and regulatory process in the multiple jurisdictions in which we operate, our judgments may be materially different than the actual outcomes.

Income Taxes

In calculating our effective income tax rate, estimates are required regarding the timing and amount of taxable and deductible items which will adjust the pretax income earned in various tax jurisdictions. Through our interpretation of local tax regulations, adjustments to pretax income for income earned in various tax jurisdictions are reflected within various tax filings. Although we believe that our estimates and judgments discussed herein are reasonable, actual results may be materially different than the estimated amounts.

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. Significant judgment is required in determining the valuation allowance. In assessing the need for a valuation allowance, we consider all sources of taxable income, including projected future taxable income, reversing taxable temporary differences and ongoing tax planning strategies. If it is determined that we are able to realize deferred tax assets in excess of the net carrying value

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

or to the extent we are unable to realize a deferred tax asset, we would adjust the valuation allowance in the period in which such a determination is made, with a corresponding increase or decrease to earnings.

We record tax liabilities for uncertain tax positions taken, or expected to be taken, which may not be sustained or may only be partially sustained, upon examination by the relevant taxing authorities. We consider all relevant facts and current authorities in the tax law in assessing whether any benefit resulting from an uncertain tax position is more likely than not to be sustained and, if so, how current law impacts the amount reflected within these financial statements. If upon examination, we realize a tax benefit which is not fully sustained or is more favorably sustained, this would generally increase earnings in the period. In certain situations, we will have offsetting tax credits or taxes in other jurisdictions.

Deferred taxes are established on the estimated foreign exchange gains or losses for foreign earnings that are not considered permanently reinvested, which will be recognized through cumulative translation adjustments as incurred. Ultimately, the working capital requirements of foreign affiliates will determine the amount of cash to be remitted from respective jurisdictions.

Business Combinations

We account for our business combinations using the acquisition method of accounting. The acquisition purchase price, including contingent consideration, if any, is allocated to the underlying identified, tangible and intangible assets, liabilities assumed and any non-controlling interest in the acquiree, based on their respective estimated fair values on the acquisition date. Any excess of purchase price over the fair value of net assets acquired, including identifiable intangible assets, is recorded as goodwill. The amounts and useful lives assigned to acquisition-related tangible and intangible assets impact the amount and timing of future amortization expense. We use various valuation techniques to determine fair value, primarily discounted cash flows analysis, relief-from-royalty and multi-period excess earnings for estimating the value of intangible assets. These valuation techniques include comparable company multiples, discount rates, growth projections and other assumptions of future business conditions. Determining the fair value of assets acquired, liabilities assumed, any non-controlling interest in the acquiree and the expected useful lives, requires management’s judgment. The significance of management’s estimates and assumptions is relative to the size of the acquisition. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.