Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following tables reconcile our reported financial measures calculated in accordance with GAAP to the respective non-GAAP adjusted financial measures:


	Three Months Ended September 30, 2021
	Operating expenses		Operating margin		Other income (expense)		Effective income tax rate		Net income		Diluted earnings per share
	($ in millions, except per share data)
Reported - GAAP	$	2,268	54.5	%	$	99	14.3	%	$	2,414	$	2.44
(Gains) losses on equity investments	**		**		(197)		(0.2) %		(163)		(0.16)
Litigation provisions	(27)		0.6 %		**		0.1	%	22		0.02
Indirect tax matter	(82)		1.6	%	6		0.2	%	69		0.07
Non-GAAP	$	2,158	56.7	%	$	(92)	14.4	%	$	2,341	$	2.37


	Nine Months Ended September 30, 2021
	Operating expenses		Operating margin		Other income (expense)		Effective income tax rate		Net income		Diluted earnings per share
	($ in millions, except per share data)
Reported - GAAP	$	6,413	53.1	%	$	229	15.7	%	$	6,308	$	6.35
(Gains) losses on equity investments	**		**		(534)		(0.3) %		(432)		(0.43)
Litigation provisions	(94)		0.7 %		**		0.1	%	74		0.07
Indirect tax matter	(82)		0.6 %		6		0.1	%	69		0.07
Non-GAAP	$	6,237	54.4	%	$	(299)	15.6	%	$	6,018	$	6.06


	Three Months Ended September 30, 2020
	Operating expenses		Operating margin		Other income (expense)		Effective income tax rate		Net income		Diluted earnings per share
	($ in millions, except per share data)
Reported - GAAP	$	1,732	54.9	%	$	(190)	21.0	%	$	1,513	$	1.51
(Gains) losses on equity investments	**		**		91		(1.0) %		92		0.09

Non-GAAP	$	1,732	54.9	%	$	(99)	20.0	%	$	1,605	$	1.60


	Nine Months Ended September 30, 2020
	Operating expenses		Operating margin		Other income (expense)		Effective income tax rate		Net income		Diluted earnings per share
	($ in millions, except per share data)
Reported - GAAP	$	5,158	53.9	%	$	(431)	17.3	%	$	4,626	$	4.59
(Gains) losses on equity investments	**		**		190		(0.2) %		171		0.17
Litigation provisions	(28)		0.3 %		**		—	%	22		0.02
Non-GAAP	$	5,129	54.1	%	$	(241)	17.1	%	$	4,819	$	4.78

Note: Tables may not sum due to rounding.

** Not applicable

34 MASTERCARD SEPTEMBER 30, 2021 FORM 10-Q

PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following tables represent the reconciliation of our growth rates reported under GAAP to our non-GAAP growth rates:


	Three Months Ended September 30, 2021 as compared to the Three Months Ended September 30, 2020
	Increase/(Decrease)
	Net revenue	Operating expenses	Operating margin	Effective income tax rate	Net income	Diluted earnings per share
Reported - GAAP	30%	31%	(0.4) ppt	(6.7) ppt	59%	62%
(Gains) losses on equity investments	**	**	**	0.8 ppt	(20) %	(19) %
Litigation provisions	**	(2) %	0.6 ppt	0.1 ppt	1%	1%
Indirect tax matter	**	(5) %	1.6 ppt	0.2 ppt	5%	5%
Non-GAAP	30%	25%	1.8 ppt	(5.6) ppt	46%	48%
Currency impact 1	(1) %	(1) %	0.1 ppt	— ppt	(1) %	(1) %
Non-GAAP - currency-neutral	29%	23%	2.0 ppt	(5.6) ppt	45%	48%


	Nine Months Ended September 30, 2021 as compared to the Nine Months Ended September 30, 2020
	Increase/(Decrease)
	Net revenue	Operating expenses	Operating margin	Effective income tax rate	Net income	Diluted earnings per share
Reported - GAAP	22%	24%	(0.8) ppt	(1.6) ppt	36%	38%
(Gains) losses on equity investments	**	**	**	— ppt	(14) %	(14) %
Litigation provisions	**	(1) %	0.4 ppt	0.1 ppt	1%	1%
Indirect tax matter	**	(2) %	0.6 ppt	0.1 ppt	1%	2%
Non-GAAP	22%	22%	0.2 ppt	(1.4) ppt	25%	27%
Currency impact 1	(2) %	(2) %	0.1 ppt	— ppt	(2) %	(2) %
Non-GAAP - currency-neutral	20%	19%	0.4 ppt	(1.5) ppt	23%	25%

Note: Tables may not sum due to rounding.

** Not applicable

1 See “Non-GAAP Financial Information” for further information on Currency impact.

Key Metrics

In addition to the financial measures described above in “Financial Results Overview”, we review the following metrics to evaluate and identify trends in our business, measure our performance, prepare financial projections and make strategic decisions. We believe that the key metrics presented facilitate an understanding of our operating and financial performance and provide a meaningful comparison of our results between periods.

**Gross Dollar Volume (“GDV”)**1 measures dollar volume of activity on cards carrying our brands during the period, on a local currency basis and U.S. dollar-converted basis. GDV represents purchase volume plus cash volume and includes the impact of balance transfers and convenience checks; “purchase volume” means the aggregate dollar amount of purchases made with Mastercard-branded cards for the relevant period; and “cash volume” means the aggregate dollar amount of cash disbursements and includes the impact of balance transfers and convenience checks obtained with Mastercard-branded cards for the relevant period. Information denominated in U.S. dollars relating to GDV is calculated by applying an established U.S. dollar/local currency exchange rate for each local currency in which Mastercard volumes are reported. These exchange rates are calculated on a quarterly basis using the average exchange rate for each quarter. Mastercard reports period-over-period rates of change in purchase volume and cash volume on the basis of local currency information, in order to eliminate the impact of changes in the value of currencies against the U.S. dollar in calculating such rates of change.

Cross-border Volume2 measures cross-border dollar volume initiated and switched through our network during the period, on a local currency basis and U.S. dollar-converted basis, for all Mastercard-branded programs.

Switched Transactions2 measures the number of transactions switched by Mastercard, which is defined as the number of transactions initiated and switched through our network during the period.

MASTERCARD SEPTEMBER 30, 2021 FORM 10-Q 35

PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Operating Margin measures how much profit we make on each dollar of sales after our operating costs but before other income (expense) and income tax expense. Operating margin is calculated by dividing our operating income by net revenue.

1 Data used in the calculation of GDV is provided by Mastercard customers and is subject to verification by Mastercard and partial cross-checking against information provided by Mastercard’s transaction switching systems. All data is subject to revision and amendment by Mastercard or Mastercard’s customers.

2 Normalized to eliminate the effects of differing switching and carryover days between periods. Carryover days are those where transactions and volumes from days where the company does not clear and settle are processed.

Foreign Currency

Currency Impact

Our primary revenue functional currencies are the U.S. dollar, euro, Brazilian real and the British pound. Our overall operating results are impacted by currency translation, which represents the effect of translating operating results where the functional currency is different than our U.S. dollar reporting currency.

Our operating results are also impacted by transactional currency. The impact of the transactional currency represents the effect of converting revenue and expense transactions occurring in a currency other than the functional currency. Changes in currency exchange rates directly impact the calculation of gross dollar volume (“GDV”) and gross euro volume (“GEV”), which are used in the calculation of our domestic assessments, cross-border volume fees and certain volume-related rebates and incentives. In most non-European regions, GDV is calculated based on local currency spending volume converted to U.S. dollars using average exchange rates for the period. In Europe, GEV is calculated based on local currency spending volume converted to euros using average exchange rates for the period. As a result, certain of our domestic assessments, cross-border volume fees and volume-related rebates and incentives are impacted by the strengthening or weakening of the U.S. dollar versus non-European local currencies and the strengthening or weakening of the euro versus other European local currencies. For example, our billing in Australia is in the U.S. dollar, however, consumer spend in Australia is in the Australian dollar. The currency transactional impact of converting Australian dollars to our U.S. dollar billing currency will have an impact on the revenue generated. The strengthening or weakening of the U.S. dollar is evident when GDV growth on a U.S. dollar-converted basis is compared to GDV growth on a local currency basis. For the three and nine months ended September 30, 2021, GDV on a U.S. dollar-converted basis increased 21% and 22%, respectively, while GDV on a local currency basis increased 20% for each of the periods, versus the comparable periods in 2020. Further, the impact from transactional currency occurs in transaction processing revenue, other revenue and operating expenses when the local currency of these items is different than the functional currency of the entity.

Through December 31, 2020, our approach to manage our transactional currency exposure consisted of hedging a portion of anticipated revenues impacted by transactional currencies by entering into foreign exchange derivative contracts, and recording the related changes in fair value in general and administrative expenses on the consolidated statement of operations. During the first quarter of 2021, we started to formally designate certain newly-executed foreign exchange derivative contracts, which meet the established accounting criteria, as cash flow hedges. Gains and losses resulting from changes in fair value of these designated contracts will be deferred in accumulated other comprehensive income (loss) and subsequently recognized in the respective financial statement line item on the statement of operations when the underlying forecasted transactions impact earnings.

Foreign Exchange Activity

We incur foreign currency gains and losses from remeasuring monetary assets and liabilities, including settlement receivables and payables with our customers, that are denominated in a currency other than the functional currency of the entity. To manage this foreign exchange risk, we may enter into foreign exchange derivative contracts to economically hedge the foreign currency exposure of a portion of our nonfunctional monetary assets and liabilities. The gains or losses resulting from the changes in fair value of these contracts are intended to reduce the potential effect of the underlying hedged exposure and are recorded net within general and administrative expenses on the consolidated statement of operations. The impact of this foreign exchange activity, including the related hedging activities, has not been eliminated in our currency-neutral results.

Our foreign exchange risk management activities are discussed further in Note 17 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part I, Item 1.

Risk of Currency Devaluation

We are exposed to currency devaluation in certain countries. In addition, we are subject to exchange control regulations that restrict the conversion of financial assets into U.S. dollars. While these revenues and assets are not material to us on a consolidated basis, we can be negatively impacted should there be a continued and sustained devaluation of local currencies relative to the U.S. dollar and/or a continued and sustained deterioration of economic conditions in these countries.

36 MASTERCARD SEPTEMBER 30, 2021 FORM 10-Q

PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Results

Revenue

Primary drivers of net revenue, versus the comparable periods in 2020, were as follows:

For the three months ended September 30, 2021, gross revenue increased 32%, or 31% on a currency-neutral basis, which includes growth of 2 percentage points from acquisitions. The remaining increase was primarily driven by transaction and volume growth and an increase in our value-added products and services. Rebates and incentives increased 35%, or 34% on a currency-neutral basis, primarily due to increased volumes and transactions and new and renewed deals. Net revenue increased 30%, or 29% on a currency-neutral basis, and includes 3 percentage points of growth from our acquisitions.

For the nine months ended September 30, 2021, gross revenue increased 25%, or 23% on a currency-neutral basis, which includes growth of 1 percentage point from acquisitions. The remaining increase was primarily driven by transaction and volume growth and an increase in our value-added products and services. Rebates and incentives increased 30%, or 28% on a currency-neutral basis, primarily due to increased volumes and transactions and new and renewed deals. Net revenue increased 22%, or 20% on a currency-neutral basis, and includes 2 percentage points of growth from our acquisitions.

MASTERCARD SEPTEMBER 30, 2021 FORM 10-Q 37

PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The components of net revenue were as follows:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,					Increase/ (Decrease)
	2021		2020			2021			2020
	($ in millions)
Domestic assessments	$	2,139	$	1,750	22%		$	5,993		$	4,907	22%
Cross-border volume fees	1,276		791		61%		3,284			2,645		24%
Transaction processing	2,849		2,251		27%		7,812			6,352		23%
Other revenues	1,562		1,143		37%		4,384			3,286		33%
Gross revenues	7,826		5,935		32%		21,473			17,190		25%
Rebates and incentives (contra-revenue)	(2,841)		(2,098)		35%		(7,805)			(6,009)		30%
Net revenue	$	4,985	$	3,837	30%		$	13,668		$	11,181	22%

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


	Three Months Ended September 30, 2021
	Operational			Acquisitions			Currency Impact 3			Total
Domestic assessments	21	%	1		—	%		1	%		22	%
Cross-border volume fees	59	%	1		—	%		2	%		61	%
Transaction processing	26	%	1		—	%		1	%		27	%
Other revenues	26	%	2		10	%		1	%		37	%
Rebates and incentives (contra-revenue)	34	%			—	%		1	%		35	%
Net revenue	26	%			3	%		1	%		30	%


	Nine Months Ended September 30, 2021
	Operational			Acquisitions			Currency Impact 3			Total
Domestic assessments	21	%	1		—	%		1	%		22	%
Cross-border volume fees	20	%	1		—	%		4	%		24	%
Transaction processing	21	%	1		—	%		2	%		23	%
Other revenues	24	%	2		7	%		2	%		33	%
Rebates and incentives (contra-revenue)	28	%			—	%		2	%		30	%
Net revenue	18	%			2	%		2	%		22	%

Note: Tables may not sum due to rounding.

1 Includes impacts from our key metrics, other non-volume based fees, pricing and mix.

2 Includes impacts from cyber and intelligence fees, data analytics and consulting fees and other payment-related products and services.

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.

38 MASTERCARD SEPTEMBER 30, 2021 FORM 10-Q

PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following tables provide a summary of the trend in volumes and transactions:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	Increase/(Decrease)				Increase/(Decrease)
	USD	Local	USD	Local	USD	Local	USD	Local
Mastercard-branded GDV 1	21%	20%	—%	1%	22%	20%	(3)%	(0.4)%
Asia Pacific/Middle East/Africa	11%	10%	(2)%	(1)%	16%	12%	(5)%	(3)%
Canada	24%	17%	(4)%	(3)%	24%	14%	(6)%	(4)%
Europe	28%	27%	2%	3%	27%	24%	(2)%	1%
Latin America	39%	34%	(22)%	(7)%	26%	26%	(18)%	(3)%
United States	20%	20%	4%	4%	22%	22%	2%	2%
Cross-border volume 1	54%	52%	(35)%	(36)%	30%	25%	(29)%	(29)%

1 Excludes volume generated by Maestro and Cirrus cards.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
	Increase/(Decrease)		Increase/(Decrease)
Switched transactions	25%	5%	24%	2%

Operating Expenses

For the three months ended September 30, 2021, operating expenses increased 31% versus the comparable period in 2020. Adjusted operating expenses increased 25%, or 23% on a currency-neutral basis, versus the comparable period in 2020, which includes an 8 percentage point increase from acquisitions. The remaining increase was primarily due to higher personnel costs to support our continued investment in our strategic initiatives, increased spending on advertising and marketing and increased data processing costs.

For the nine months ended September 30, 2021, operating expenses increased 24% versus the comparable period in 2020. Adjusted operating expenses increased 22%, or 19% on a currency-neutral basis, versus the comparable period in 2020, which includes a 6 percentage point increase from acquisitions. The remaining increase was primarily due to higher personnel costs to support our continued investment in our strategic initiatives, increased spending on advertising and marketing and increased data processing costs.

The components of operating expenses were as follows:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,					Increase/ (Decrease)
	2021		2020			2021			2020
	($ in millions)
General and administrative	$	1,831	$	1,423	29%		$	5,225		$	4,285	22%
Advertising and marketing	222		168		32%		557			415		34%
Depreciation and amortization	188		141		33%		537			430		25%
Provision for litigation	27		—		**		94			28		**
Total operating expenses	2,268		1,732		31%		6,413			5,158		24%
Special Items 1	(109)		—		**		(176)			(28)		**
Adjusted total operating expenses (excluding Special Items 1)	$	2,158	$	1,732	25%		$	6,237		$	5,129	22%

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.

MASTERCARD SEPTEMBER 30, 2021 FORM 10-Q 39

PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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


	Three Months Ended September 30, 2021
	Operational	Special Items 1	Acquisitions	Currency Impact 2	Total
General and administrative	15%	6%	7%	1%	29%
Advertising and marketing	30%	**	1%	1%	32%
Depreciation and amortization	5%	**	26%	2%	33%
Provision for litigation	**	**	**	**	**
Total operating expenses	16%	6%	8%	1%	31%


	Nine Months Ended September 30, 2021
	Operational	Special Items 1	Acquisitions	Currency Impact 2	Total
General and administrative	12%	2%	6%	2%	22%
Advertising and marketing	31%	**	1%	2%	34%
Depreciation and amortization	3%	**	19%	3%	25%
Provision for litigation	**	**	**	**	**
Total operating expenses	13%	3%	6%	2%	24%

Note: Tables 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.

2 Includes translational and transactional impact of currency.

General and Administrative

For the three months ended September 30, 2021, general and administrative expenses increased 29%, or 28% on a currency-neutral basis, versus the comparable period in 2020. Current period results include growth of 7 percentage points from acquisitions and 6 percentage points from Special Items. The remaining increase was primarily due to higher personnel costs to support our continued investment in our strategic initiatives and increased data processing costs.

For the nine months ended September 30, 2021, general and administrative expenses increased 22%, or 20% on a currency-neutral basis, versus the comparable period in 2020. Current period results include growth of 6 percentage points from acquisitions and 2 percentage points from Special Items. The remaining increase was primarily due to higher personnel costs to support our continued investment in our strategic initiatives and increased data processing costs.

40 MASTERCARD SEPTEMBER 30, 2021 FORM 10-Q

PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The components of general and administrative expenses were as follows:


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,					Increase/(Decrease)
	2021		2020			2021			2020
	($ in millions)
Personnel	$	1,166	$	940	24%		$	3,400		$	2,817	21%
Professional fees	95		81		17%		298			258		16%
Data processing and telecommunications	228		195		17%		643			551		17%
Foreign exchange activity 1	19		23		(14)%		35			(10)		**
Other 2	323		184		76%		849			669		27%
Total general and administrative expenses	$	1,831	$	1,423	29%		$	5,225		$	4,285	22%

Note: Table may not sum due to rounding.

** Not meaningful.

1 Foreign exchange activity includes gains and losses on foreign exchange derivative contracts and the impact of remeasurement of assets and liabilities denominated in foreign currencies. See Note 17 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part I, Item 1 for further discussion.

2 Includes a special item related to a foreign indirect tax matter of $82 million, pre-tax, recorded during the three and nine months ended September 30, 2021. See “Non-GAAP Financial Information” for further information on our non-GAAP adjustments and the reconciliation to GAAP reported amounts.

Advertising and Marketing

For the three months ended September 30, 2021, advertising and marketing expenses increased 32%, or 31% on a currency-neutral basis, versus the comparable periods in 2020, primarily due to an increase in spending on certain marketing campaigns.

For the nine months ended September 30, 2021, advertising and marketing expenses increased 34%, or 32% on a currency-neutral basis, versus the comparable periods in 2020, primarily due to an increase in advertising and sponsorship spend driven by the reinstatement of sponsored events.

Depreciation and Amortization

For the three and nine months ended September 30, 2021, depreciation and amortization expenses increased 33% and 25%, or 31% and 22% on a currency-neutral basis, respectively, versus the comparable periods in 2020, which includes growth of 26 and 19 percentage points from acquisitions, respectively, due to the amortization of acquired intangible assets.

Provision for Litigation

We recorded litigation provisions of $27 million and $94 million during the three and nine months ended September 30, 2021, respectively, as well as $28 million during the nine months ended September 30, 2020, related to various litigation settlements and legal costs. See “Non-GAAP Financial Information” in this section for further discussion.

MASTERCARD SEPTEMBER 30, 2021 FORM 10-Q 41

PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Other Income (Expense)

For the three months ended September 30, 2021, other income (expense) was favorable $289 million, versus the comparable period in 2020, primarily due to net gains in the current period versus net losses in the prior period related to unrealized fair market value adjustments on marketable and non-marketable equity securities. Adjusted other income (expense) was favorable $7 million versus the year-ago period.

For the nine months ended September 30, 2021, other income (expense) was favorable $660 million, versus the comparable period in 2020, primarily due to net gains in the current period versus net losses in the prior period related to unrealized fair market value adjustments on marketable and non-marketable equity securities. Adjusted other income (expense) was unfavorable $58 million versus the year-ago period, primarily due to increased interest expense related to our recent debt issuances and a decrease in our investment income.

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


	Three Months Ended September 30,				Increase (Decrease)		Nine Months Ended September 30,					Increase/ (Decrease)
	2021		2020			2021			2020
	($ in millions)
Investment income	$	5	$	3	**		$	9		$	27	(66)%
Gains (losses) on equity investments, net	197		(91)		**		534			(190)		**
Interest expense	(110)		(105)		5%		(323)			(275)		17%
Other income (expense), net	7		3		**		9			7		23%
Total other income (expense)	$	99	$	(190)	**		$	229		$	(431)	**
(Gains) losses on equity investments 1	(197)		91		**		(534)			190		**
Special Items 1	6		—		**		6			—		**
Adjusted total other income (expense) 1	$	(92)	$	(99)	(7)%		$	(299)		$	(241)	24%

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

For the three months ended September 30, 2021, the effective income tax rate was 14.3% versus 21.0% for the comparable period in 2020, primarily due to the recognition of U.S. tax benefits in the current period, the majority of which were discrete, resulting from a higher foreign derived intangible income deduction and greater utilization of foreign tax credits in the U.S. In addition, there were certain gains on equity investments that did not result in tax expense in the current period which also contributed to the lower effective tax rate. The adjusted effective income tax rate was 14.4% versus 20.0% for the comparable period in 2020, primarily due to the recognition of U.S. tax benefits in the current period, 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.

For the nine months ended September 30, 2021, the effective income tax rate was 15.7% versus 17.3%, for the comparable period in 2020, primarily due to the recognition of U.S. tax benefits in the third quarter of 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. In addition, there were certain gains on equity investments that did not result in tax expense in the current period which also contributed to the lower effective tax rate. These benefits were partially offset by a lower discrete tax benefit related to share-based payments and a change in our geographic mix of earnings. The adjusted effective income tax rate was 15.6% versus 17.1%, for the comparable period in 2020, primarily due to the recognition of U.S. tax benefits in the third quarter of 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., partially offset by a lower discrete tax benefit related to share-based payments and a change in our geographic mix of earnings.

42 MASTERCARD SEPTEMBER 30, 2021 FORM 10-Q

PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

We rely on existing liquidity, cash generated from operations and access to capital to fund our global operations, 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:


	September 30, 2021		December 31, 2020
	(in billions)
Cash, cash equivalents and investments 1	$	6.9	$	10.6
Unused line of credit	6.0		6.0

1 Investments include available-for-sale securities and held-to-maturity securities. This amount excludes restricted cash and restricted cash equivalents of $2.4 billion and $2.3 billion at September 30, 2021 and December 31, 2020, 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 16 (Settlement and Other Risk Management) to the consolidated financial statements in Part I, Item 1 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 and Part II, Item 7 (Business Environment) of our Annual Report on Form 10-K for the year ended December 31, 2020 and Note 15 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part I, Item 1.

Cash Flow

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


	Nine Months Ended September 30,
	2021		2020
	(in millions)
Net cash provided by operating activities	$	6,274	$	4,971
Net cash used in investing activities	(4,834)		(825)
Net cash used in financing activities	(4,938)		(777)

Net cash provided by operating activities increased $1,303 million for the nine months ended September 30, 2021, versus the comparable period in 2020, primarily due to higher net income adjusted for non-cash items and the timing of customer incentive payments, partially offset by higher outstanding accounts receivable in the current period due to increased volumes.

Net cash used in investing activities increased $4,009 million for the nine months ended September 30, 2021, versus the comparable period in 2020, primarily due to increased acquisition activity in the current year.

Net cash used in financing activities increased $4,161 million for the nine months ended September 30, 2021, versus the comparable period in 2020, primarily due to lower net debt proceeds and higher repurchases of our Class A common stock in the current period.

Debt and Credit Availability

In March 2021, we issued $600 million principal amount of notes due March 2031 and $700 million principal amount of notes due March 2051 (collectively the “2021 USD Notes”). Our total debt outstanding was $13.9 billion and $12.7 billion at September 30, 2021 and December 31, 2020, respectively, with the earliest maturity of $650 million of principal occurring in November 2021 which was repaid in October 2021 to reduce interest expense. The proceeds of the 2021 USD Notes due March 2031 are to be used to fund eligible green and social projects, examples of which are described in the Use of Proceeds section of the Prospectus Supplement filed on March 4, 2021. All other notes are to be used for general corporate purposes.

MASTERCARD SEPTEMBER 30, 2021 FORM 10-Q 43

PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As of September 30, 2021, 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. In conjunction with the Commercial Paper Program, we have a committed unsecured $6 billion revolving credit facility (the “Credit Facility”) which expires in November 2025.

Borrowings under the Commercial Paper Program and the Credit Facility are 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 September 30, 2021 and December 31, 2020.

See Note 10 (Debt) to the consolidated financial statements included in Part I, Item 1 for further discussion on our debt and Note 15 (Debt) to the consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020 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.

Aggregate payments for quarterly dividends totaled $1,307 million for the nine months ended September 30, 2021.

On December 8, 2020, our Board of Directors declared a quarterly cash dividend of $0.44 per share paid on February 9, 2021 to holders of record on January 8, 2021 of our Class A common stock and Class B common stock. The aggregate amount of this dividend was $439 million.

On February 8, 2021, our Board of Directors declared a quarterly cash dividend of $0.44 per share paid on May 7, 2021 to holders of record on April 9, 2021 of our Class A common stock and Class B common stock. The aggregate amount of this dividend was $434 million.

On June 21, 2021, our Board of Directors declared a quarterly cash dividend of $0.44 per share paid on August 9, 2021 to holders of record on July 9, 2021 of our Class A common stock and Class B common stock. The aggregate amount of this dividend was $434 million.

On September 20, 2021, our Board of Directors declared a quarterly cash dividend of $0.44 per share payable on November 9, 2021 to holders of record on October 8, 2021 of our Class A common stock and Class B common stock. The aggregate amount of this dividend is estimated to be $433 million.

Repurchased shares of our common stock are considered treasury stock. In December 2020 and 2019, our Board of Directors approved share repurchase programs authorizing us to repurchase up to $6.0 billion and $8.0 billion, respectively, of our Class A common stock under each plan. The program approved in 2020 became effective in August 2021 after completion of the share repurchase program authorized in 2019. 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 September 30, 2021:




	(in millions, except average price data)
Remaining authorization at December 31, 2020		$	9,831
Dollar value of shares repurchased during the nine months ended September 30, 2021		$	4,628
Remaining authorization at September 30, 2021		$	5,203
Shares repurchased during the nine months ended September 30, 2021		12.8
Average price paid per share during the nine months ended September 30, 2021		$	360.87

Recent Accounting Pronouncements

For a description of recent accounting pronouncements, if any, and the potential impact of these pronouncements refer to Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements included in Part I, Item 1.

Item 3. Quantitative and qualitative disclosures about market risk

Market risk is the potential for economic losses to be incurred on market risk sensitive instruments arising from adverse changes in factors such as interest rates and foreign currency exchange rates. Our exposure to market risk from changes in interest rates and foreign exchange

44 MASTERCARD SEPTEMBER 30, 2021 FORM 10-Q

PART I

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