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 adjusted non-GAAP financial measures:

						Three Months Ended June 30, 2022
						Net revenue						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						$	5,497					$	2,479					54.9		%				$	(220)					18.7		%				$	2,275					$	2.34
(Gains) losses on equity investments						**						**						**						117						(0.6)		%				113						0.12
Litigation provisions						**						(133)						2.4		%				**						0.7		%				89						0.09
Russia-related impacts						(6)						(33)						0.5		%				**						—		%				20						0.02
Adjusted - Non-GAAP						$	5,491					$	2,313					57.9		%				$	(104)					18.8		%				$	2,497					$	2.56

						Six Months Ended June 30, 2022
						Net revenue						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						$	10,664					$	4,696					56.0		%				$	(397)					11.9		%				$	4,906					$	5.02
(Gains) losses on equity investments						**						**						**						193						(0.2)		%				181						0.18
Litigation provisions						**						(133)						1.2		%				**						0.5		%				89						0.09
Russia-related impacts						(37)						(67)						0.5		%				**						0.1		%				24						0.02
Adjusted - Non-GAAP						$	10,627					$	4,496					57.7		%				$	(205)					12.3		%				$	5,199					$	5.32

						Three Months Ended June 30, 2021
						Net revenue						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						$	4,528					$	2,187					51.7		%				$	137					16.6		%				$	2,066					$	2.08
(Gains) losses on equity investments						**						**						**						(243)						(0.9)		%				(182)						(0.18)
Litigation provisions						**						$	(67)					1.5		%				**						0.2		%				52						0.05
Adjusted - Non-GAAP						$	4,528					$	2,121					53.2		%				$	(106)					15.9		%				$	1,937					$	1.95

						Six Months Ended June 30, 2021
						Net revenue						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						$	8,683					$	4,145					52.3		%				$	130					16.6		%				$	3,894					$	3.91
(Gains) losses on equity investments						**						**						**						(337)						(0.3)		%				(269)						(0.27)
Litigation provisions						**						(67)						0.8		%				**						0.1		%				52						0.05
Adjusted - Non-GAAP						$	8,683					$	4,079					53.0		%				$	(207)					16.4		%				$	3,678					$	3.69

Note: Tables may not sum due to rounding.

** Not applicable

34 MASTERCARD JUNE 30, 2022 FORM 10-Q

PART I

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

The following table represents the reconciliation of our growth rates reported under GAAP to our non-GAAP growth rates:

						Three Months Ended June 30, 2022 as compared to the Three Months Ended June 30, 2021
						Increase/(Decrease)
						Net revenue						Operating expenses						Operating margin						Effective income tax rate						Net income						Diluted earnings per share
Reported - GAAP						21%						13%						3.2 ppt						2.1 ppt						10%						13%
(Gains) losses on equity investments						**						**						**						0.3 ppt						17%						17%
Litigation provisions						**						(3)%						1.0 ppt						0.5 ppt						1%						1%
Russia-related impacts						—%						(2)%						0.5 ppt						— ppt						1%						1%
Adjusted - Non-GAAP						21%						9%						4.7 ppt						2.9 ppt						29%						31%
Currency impact 1						6%						3%						0.8 ppt						0.1 ppt						8%						9%
Adjusted - Non-GAAP - currency-neutral						27%						12%						5.4 ppt						3.1 ppt						37%						40%

						Six Months Ended June 30, 2022 as compared to the Six Months Ended June 30, 2021
						Increase/(Decrease)
						Net revenue						Operating expenses						Operating margin						Effective income tax rate						Net income						Diluted earnings per share
Reported - GAAP						23%						13%						3.7 ppt						(4.6) ppt						26%						28%
(Gains) losses on equity investments						**						**						**						0.1 ppt						14%						15%
Litigation provisions						**						(1)%						0.5 ppt						0.4 ppt						—%						1%
Russia-related impacts						—%						(2)%						0.5 ppt						0.1 ppt						1%						—%
Adjusted - Non-GAAP						22%						10%						4.7 ppt						(4.1) ppt						41%						44%
Currency impact 1						5%						2%						0.7 ppt						0.1 ppt						7%						8%
Adjusted - Non-GAAP - currency-neutral						27%						13%						5.3 ppt						(4.0) ppt						49%						52%

Note: Table 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 our volumes are reported. These exchange rates are calculated on a quarterly basis using the average exchange rate for each quarter. We report 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 Volume 2 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 Transactions 2 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.

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

MASTERCARD JUNE 30, 2022 FORM 10-Q 35

PART I

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

customers. Starting in the first quarter of 2022, data related to sanctioned Russian banks was not reported to us and therefore such amounts are not included. Subsequent to the suspension of our business operations in Russia in March 2022, there is no Russian data to be reported.

2 Growth rates are 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. In the fourth quarter of 2021, we began clearing and settling transactions and volumes on a daily basis.

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 six months ended June 30, 2022, GDV on a U.S. dollar-converted basis increased 8% and 10%, respectively, while GDV on a local currency basis increased 14% and 15%, respectively, versus the comparable periods in 2021. Further, the impact from transactional currency occurs in transaction processing revenue, other revenue and operating expenses when the transacting currency of these items is different than the functional currency of the entity.

To manage the impact of foreign currency variability on anticipated revenues and expenses, we may enter into foreign exchange derivative contracts and designate such derivatives as hedging instruments in a cash flow hedging relationship as discussed further in Note 17 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part I, Item 1.

Foreign Exchange Activity

We incur foreign currency gains and losses from remeasuring monetary assets and liabilities, including settlement assets and obligations, 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 currency 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 JUNE 30, 2022 FORM 10-Q

PART I

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

Financial Results

Revenue

For the three months ended June 30, 2022, net revenue increased 21% versus the comparable period in 2021. Excluding the impact of Special Items, adjusted net revenue increased 21%, or 27% on a currency-neutral basis, and includes 1 percentage point of growth from acquisitions. The remaining increase was primarily driven by domestic and cross-border transaction and volume growth and an increase in our Cyber & Intelligence and Data & Services solutions within other revenue. These increases were partially offset by an increase in rebates and incentives (contra-revenue) of 19%, or 23% on a currency-neutral basis, primarily due to increased volumes and transactions and new and renewed deals.

For the six months ended June 30, 2022, net revenue increased 23% versus the comparable period in 2021. Excluding the impact of Special Items, adjusted net revenue increased 22%, or 27% on a currency-neutral basis, and includes 2 percentage points of growth from acquisitions. The remaining increase was primarily driven by domestic and cross-border transaction and volume growth and an increase in our Cyber & Intelligence and Data & Services solutions within other revenue. These increases were partially offset by an increase in rebates and incentives (contra-revenue) of 22%, or 25% on a currency-neutral basis, primarily due to increased volumes and transactions and new and renewed deals, which includes a 1 percentage point reduction from Special Items.

See Note 3 (Revenue) 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, 2021 for a further discussion of how we recognize revenue.

The components of net revenue were as follows:

						Three Months Ended June 30,												Increase/ (Decrease)									Six Months Ended June 30,												Increase/ (Decrease)
						2022						2021												2022						2021
						($ in millions)
Domestic assessments						$	2,283					$	2,056					11%									$	4,417					$	3,854					15%
Cross-border volume fees						1,615						1,076						50%									3,010						2,008						50%
Transaction processing						3,061						2,612						17%									5,973						4,963						20%
Other revenues						1,745						1,475						18%									3,329						2,822						18%
Gross revenue						8,704						7,219						21%									16,729						13,647						23%
Rebates and incentives (contra-revenue)						(3,207)						(2,691)						19%									(6,065)						(4,964)						22%
Net revenue						5,497						4,528						21%									10,664						8,683						23%
Special Items 1						(6)						—						**									(37)						—						**
Adjusted net revenue (excluding Special Items 1)						$	5,491					$	4,528					21%									$	10,627					$	8,683					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 JUNE 30, 2022 FORM 10-Q 37

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

Drivers of Change

The following tables summarize the drivers of change in net revenue:

						Three Months Ended June 30, 2022
						Operational									Special Items 3												Acquisitions						Currency Impact 4												Total
Domestic assessments						13		%	1						—		%													—		%				(2)		%													11		%
Cross-border volume fees						61		%	1						—		%													—		%				(11)		%													50		%
Transaction processing						22		%	1, 2						—		%													—		%				(5)		%													17		%
Other revenues						20		%	2						—		%													3		%				(5)		%													18		%
Rebates and incentives (contra-revenue)						23		%							—		%													—		%				(3)		%													19		%
Net revenue						26		%							—		%													1		%				(6)		%													21		%

						Six Months Ended June 30, 2022
						Operational															Special Items 3						Acquisitions						Currency Impact 4												Total
Domestic assessments						17		%	1															—		%				—		%				(2)		%													15		%
Cross-border volume fees						59		%	1															—		%				—		%				(9)		%													50		%
Transaction processing						24		%	1, 2															—		%				—		%				(4)		%													20		%
Other revenues						17		%	2															—		%				5		%				(4)		%													18		%
Rebates and incentives (contra-revenue)						26		%																(1)		%				—		%				(3)		%													22		%
Net revenue						25		%																—		%				2		%				(5)		%													23		%

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 our cyber and intelligence solutions fees, data analytics and consulting fees and other value-added services.

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

4 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 JUNE 30, 2022 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 June 30,																								Six Months Ended June 30,
						2022												2021												2022												2021
						Increase/(Decrease)																								Increase/(Decrease)
						USD						Local						USD						Local						USD						Local						USD						Local
Mastercard-branded GDV 1						8%						14%						39%						33%						10%						15%						23%						20%
United States						10%						10%						34%						34%						12%						12%						24%						24%
Worldwide less United States						7%						16%						41%						33%						9%						17%						23%						18%
Cross-border volume 1						46%						58%						70%						58%						45%						56%						18%						11%
Mastercard-branded GDV 1 adjusted for Russia 2						12%						19%						38%						32%						14%						20%						23%						19%
Worldwide less United States adjusted for Russia 2						14%						25%						41%						32%						15%						24%						23%						17%
Cross-border volume 1 adjusted for Russia 2						50%						64%						69%						57%						48%						59%						17%						11%

						Three Months Ended June 30,												Six Months Ended June 30,
						2022						2021						2022						2021
						Increase/(Decrease)												Increase/(Decrease)
Switched transactions						12%						41%						16%						24%
Switched transactions adjusted for Russia 2						22%						39%						23%						23%

1 Excludes volume generated by Maestro and Cirrus cards.

2 Starting in the first quarter of 2022, as a result of imposed sanctions and the suspension of our business operations in Russia, we have provided adjusted growth rates for our key operating metrics excluding activity from Russian issued cards from the current and prior periods.

Operating Expenses

For the three months ended June 30, 2022, operating expenses increased 13% versus the comparable period in 2021. Adjusted operating expenses increased 9%, or 12% on a currency-neutral basis, versus the comparable period in 2021, which includes a 5 percentage point increase from acquisitions. The remaining increase was primarily due to higher personnel costs to support our continued investment in our strategic initiatives and unfavorable foreign exchange activity.

For the six months ended June 30, 2022, operating expenses increased 13% versus the comparable period in 2021. Adjusted operating expenses increased 10%, or 13% on a currency-neutral basis, versus the comparable period in 2021, which includes a 5 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 unfavorable foreign exchange activity.

MASTERCARD JUNE 30, 2022 FORM 10-Q 39

PART I

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

The components of operating expenses were as follows:

						Three Months Ended June 30,												Increase/ (Decrease)						Six Months Ended June 30,												Increase/ (Decrease)
						2022						2021									2022						2021
						($ in millions)
General and administrative						$	1,947					$	1,718					13%						$	3,791					$	3,394					12%
Advertising and marketing						210						216						(2)%						391						335						17%
Depreciation and amortization						189						186						2%						381						349						9%
Provision for litigation						133						67						**						133						67						**
Total operating expenses						2,479						2,187						13%						4,696						4,145						13%
Special Items 1						(166)						(67)						**						(200)						(67)						**
Adjusted total operating expenses (excluding Special Items 1)						$	2,313					$	2,121					9%						$	4,496					$	4,079					10%

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.

Drivers of Change

The following tables summarize the drivers of changes in operating expenses:

						Three Months Ended June 30, 2022
						Operational						Special Items 1						Acquisitions						Currency Impact 2						Total
General and administrative						9%						2%						5%						(3)%						13%
Advertising and marketing						1%						**						1%						(4)%						(2)%
Depreciation and amortization						**						**						6%						(4)%						2%
Provision for litigation						**						**						**						**						**
Total operating expenses						8%						4%						5%						(3)%						13%

						Six Months Ended June 30, 2022
						Operational						Special Items 1						Acquisitions						Currency Impact 2						Total
General and administrative						7%						2%						5%						(2)%						12%
Advertising and marketing						20%						**						1%						(5)%						17%
Depreciation and amortization						1%						**						11%						(3)%						9%
Provision for litigation						**						**						**						**						**
Total operating expenses						8%						3%						5%						(2)%						13%

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 Represents the translational and transactional impact of currency.

General and Administrative

For the three months ended June 30, 2022, general and administrative expenses increased 13%, or 16% on a currency-neutral basis, versus the comparable period in 2021. Current period results include growth of 5 percentage points from acquisitions and 2 percentage points from Special Items. For the six months ended June 30, 2022, general and administrative expenses increased 12%, or 14% on a currency-neutral basis, versus the comparable period in 2021. Current period results include growth of 5 percentage points from acquisitions and 2 percentage points from Special Items. The remaining increase for both the three and six months ended June 30, 2022 was primarily due to higher personnel costs to support our continued investment in our strategic initiatives and balance sheet remeasurement losses due to unfavorable foreign exchange activity.

40 MASTERCARD JUNE 30, 2022 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 June 30,												Increase/ (Decrease)						Six Months Ended June 30,												Increase/(Decrease)
						2022						2021									2022						2021
						($ in millions)
Personnel 1						$	1,319					$	1,130					17%						$	2,500					$	2,234					12%
Professional fees						109						106						3%						195						203						(4)%
Data processing and telecommunications						225						215						5%						460						415						11%
Foreign exchange activity 2						35						8						**						71						16						**
Other 1						259						259						—%						565						526						7%
Total general and administrative expenses						$	1,947					$	1,718					13%						$	3,791					$	3,394					12%

Note: Table may not sum due to rounding.

** Not meaningful.

1 Total general and administrative expenses for the three months ended June 30, 2022 includes a Special Item for Russia-related impacts of $33 million, of which $31 million is included within Personnel and $2 million is included within Other. Total general and administrative expenses for the six months ended June 30, 2022 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 17 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part I, Item 1 for further discussion.

Advertising and Marketing

For the three months ended June 30, 2022, advertising and marketing expenses decreased 2%, or increased 2% on a currency-neutral basis, versus the comparable period in 2021. For the six months ended June 30, 2022, advertising and marketing expenses increased 17%, or 21% on a currency-neutral basis, primarily due to an increase in spending on marketing campaigns, advertising and sponsorships.

Depreciation and Amortization

For the three and six months ended June 30, 2022, depreciation and amortization expenses increased 2% and 9%, or 6% and 12% on a currency-neutral basis, versus the comparable period in 2021, which includes growth of 6 and 11 percentage points from acquisitions, respectively, due to the amortization of acquired intangible assets.

Provision for Litigation

For the three and six months ended June 30, 2022, we recorded litigation provisions of $133 million as a result of a change in estimate related to the claims of merchants who opted out of the U.S. merchant class litigation. For the three and six months ended June 30, 2021, we recorded litigation provisions of $67 million related to litigation settlements and estimated attorneys’ fees with U.K. merchants. See “Non-GAAP Financial Information” in this section for further discussion.

MASTERCARD JUNE 30, 2022 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 June 30, 2022, other income (expense) was unfavorable $357 million, versus the comparable period in 2021, primarily due to net losses in the current period versus net gains in the prior period related to unrealized fair market value adjustments on marketable and non-marketable equity securities. Adjusted other income (expense) was favorable $2 million versus the prior year.

For the six months ended June 30, 2022, other income (expense) was unfavorable $527 million, versus the comparable period in 2021, primarily due to net losses in the current period versus net gains in the prior period related to unrealized fair market value adjustments on marketable and non-marketable equity securities. Adjusted other income (expense) was favorable $2 million versus the prior year.

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

						Three Months Ended June 30,												Increase/ (Decrease)						Six Months Ended June 30,												Increase/ (Decrease)
						2022						2021									2022						2021
						($ in millions)
Investment income						$	7					$	3					**						$	12					$	4					**
Gains (losses) on equity investments, net						(117)						243						**						(193)						337						**
Interest expense						(114)						(106)						7%						(224)						(213)						5%
Other income (expense), net						4						(3)						**						8						2						**
Total other income (expense)						(220)						137						**						(397)						130						**
(Gains) losses on equity investments 1						117						(243)						**						193						(337)						**
Adjusted total other income (expense) 1						$	(104)					$	(106)					(2)%						$	(205)					$	(207)					(1)%

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 were 18.7% and 16.6% for the three months ended June 30, 2022 and 2021, respectively. The adjusted effective income tax rates were 18.8% and 15.9% for the three months ended June 30, 2022 and 2021, respectively. Both the as reported and as adjusted effective income tax rates were higher versus the comparable period in 2021, primarily due to a discrete tax benefit in the prior year 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.

The effective income tax rates were 11.9% and 16.6% for the six months ended June 30, 2022 and 2021, respectively. The adjusted effective income tax rates were 12.3% and 16.4% for the six months ended June 30, 2022 and 2021, respectively. Both the as reported and as adjusted effective income tax rates were lower versus the comparable period in 2021, primarily due to a discrete tax benefit related to final U.S. tax regulations published in the current year, partially offset by a discrete tax benefit in the prior year 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. The U.S. tax 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 our ability to generate foreign tax credits starting in 2022 for certain foreign taxes paid, resulting in additional U.S. tax expense.

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:

			June 30, 2022						December 31, 2021
			(in billions)
Cash, cash equivalents and investments 1			$	6.4					$	7.9
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 $2.2 billion and $2.5 billion at June 30, 2022 and December 31, 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.

42 MASTERCARD JUNE 30, 2022 FORM 10-Q

PART I

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

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 of our Annual Report on Form 10-K for the year ended December 31, 2021, Part II, Item 1A - Risk Factors of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 and Note 15 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part I, Item 1 of this Report.

Cash Flow

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

			Six Months Ended June 30,
			2022						2021
			(in millions)
Net cash provided by operating activities			$	4,239					$	3,731
Net cash used in investing activities			(812)						(4,702)
Net cash used in financing activities			(4,975)						(2,801)

Net cash provided by operating activities increased $508 million for the six months ended June 30, 2022, versus the comparable period in 2021, primarily due to higher net income adjusted for non-cash items, partially offset by higher customer incentive payments.

Net cash used in investing activities decreased $3,890 million for the six months ended June 30, 2022, versus the comparable period in 2021, primarily due to lower business acquisition activity in the current year.

Net cash used in financing activities increased $2,174 million for the six months ended June 30, 2022, versus the comparable period in 2021, primarily due to higher repurchases of our Class A common stock and lower proceeds from debt issuances in the current year.

Debt and Credit Availability

In February 2022, we issued €750 million ($788 million as of June 30, 2022) principal amount of notes due February 2029 (the “2022 EUR Notes”). Our total debt outstanding was $14.5 billion and $13.9 billion at June 30, 2022 and December 31, 2021, respectively, with the earliest maturity of €700 million ($735 million as of June 30, 2022) of principal occurring in December 2022.

In July 2022, the Company entered into an unsecured INR22.7 billion ($285 million as of the date of settlement) term loan due July 2023 (the “INR Term Loan”).

As of June 30, 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. In conjunction with the Commercial Paper Program, we have a committed unsecured $6 billion revolving credit facility (the “Credit Facility”) which expires in November 2026.

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 June 30, 2022 and December 31, 2021.

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, 2021 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 $956 million for the six months ended June 30, 2022.

MASTERCARD JUNE 30, 2022 FORM 10-Q 43

PART I

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

On November 30, 2021, our Board of Directors declared a quarterly cash dividend of $0.49 per share paid on February 9, 2022 to holders of record on January 7, 2022 of our Class A common stock and Class B common stock. The aggregate amount of this dividend was $479 million.

On February 8, 2022, our Board of Directors declared a quarterly cash dividend of $0.49 per share paid on May 9, 2022 to holders of record on April 8, 2022 of our Class A common stock and Class B common stock. The aggregate amount of this dividend was $477 million.

On June 20, 2022, our Board of Directors declared a quarterly cash dividend of $0.49 per share payable on August 9, 2022 to holders of record on July 8, 2022 of our Class A common stock and Class B common stock. The aggregate amount of this dividend is estimated to be $474 million.

Repurchased shares of our common stock are considered treasury stock. In 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 $8.0 billion and $6.0 billion, respectively. The program approved in 2021 became effective in May 2022 after completion of the share repurchase program authorized in 2020. 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 June 30, 2022:

												(in millions, except average price data)
Remaining authorization at December 31, 2021																		$	11,927
Dollar value of shares repurchased during the six months ended June 30, 2022																		$	4,788
Remaining authorization at June 30, 2022																		$	7,139
Shares repurchased during the six months ended June 30, 2022																		13.7
Average price paid per share during the six months ended June 30, 2022																		$	350.10

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.