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,
						Increase/(Decrease)
						Operational																					Acquisitions												Currency Impact 3												Special Items 4												Total
						2023						2022																		2023						2022						2023						2022						2023						2022						2023															2022
Payment network						14		%	1			31		%	1															**						**						(1)		%				(6)		%				—		%				—		%				13		%													26		%
Value-added services and solutions						16		%	2			16		%	2															—		%				3		%				—		%				(5)		%				**						**						16		%													14		%
Net revenue						15		%				26		%																—		%				1		%				(1)		%				(6)		%				—		%				—		%				14		%													21		%

						Six Months Ended June 30,
						Increase/(Decrease)
						Operational																					Acquisitions												Currency Impact 3												Special Items 4												Total
						2023						2022																		2023						2022						2023						2022						2023						2022						2023															2022
Payment network						13		%	1			31		%	1															**						**						(2)		%				(5)		%				(1)		%				1		%				10		%													27		%
Value-added services and solutions						18		%	2			15		%	2															1		%				5		%				(1)		%				(4)		%				**						**						17		%													16		%
Net revenue						15		%				25		%																—		%				2		%				(2)		%				(5)		%				—		%				—		%				13		%													23		%

Note: Tables may not sum due to rounding.

** Not applicable.

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

2Includes 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.

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

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

Operating Expenses

For the three months ended June 30, 2023, operating expenses increased 5% versus the comparable period in 2022. Adjusted operating expenses increased 12%, or 13% on a currency-neutral basis, versus the comparable period in 2022, primarily due to higher personnel costs.

For the six months ended June 30, 2023, operating expenses increased 11% versus the comparable period in 2022. Adjusted operating expenses increased 11%, or 12% on a currency-neutral basis, versus the comparable period in 2022, which includes a 1 percentage point increase from acquisitions. The remaining increase was primarily due to higher personnel costs.

The components of operating expenses were as follows:

						Three Months Ended June 30,												Increase/ (Decrease)						Six Months Ended June 30,												Increase/ (Decrease)
						2023						2022									2023						2022
						($ in millions)
General and administrative						$	2,200					$	1,947					13%						$	4,243					$	3,791					12%
Advertising and marketing						201						210						(4)%						368						391						(6)%
Depreciation and amortization						192						189						2%						383						381						1%
Provision for litigation						20						133						**						231						133						**
Total operating expenses						2,613						2,479						5%						5,225						4,696						11%
Special Items 1						(20)						(166)						**						(231)						(200)						**
Adjusted total operating expenses (excluding Special Items 1)						$	2,592					$	2,313					12%						$	4,993					$	4,496					11%

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, 2023 FORM 10-Q 41

PART I

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

Drivers of Change

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

						Three Months Ended June 30, 2023
						Increase/(Decrease)
						Operational						Acquisitions						Currency Impact 1						Special Items 2						Total
General and administrative						15%						—%						(1)%						(2)%						13%
Advertising and marketing						(4)%						—%						—%						**						(4)%
Depreciation and amortization						1%						—%						—%						**						2%
Provision for litigation						**						**						**						**						**
Total operating expenses						12%						—%						(1)%						(7)%						5%

						Six Months Ended June 30, 2023
						Increase/(Decrease)
						Operational						Acquisitions						Currency Impact 1						Special Items 2						Total
General and administrative						14%						1%						(1)%						(2)%						12%
Advertising and marketing						(5)%						—%						(1)%						**						(6)%
Depreciation and amortization						1%						1%						(1)%						**						1%
Provision for litigation						**						**						**						**						**
Total operating expenses						11%						1%						(1)%						—%						11%

Note: Tables may not sum due to rounding.

** Not applicable/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

For the three months ended June 30, 2023, general and administrative expenses increased 13%, or 14% on a currency-neutral basis, versus the comparable period in 2022. The increase was primarily due to higher personnel costs to support our continued investment in our strategic initiatives across payments, services and new network capabilities, partially offset by a decrease of 2 percentage points from the Special Item for Russia-related impacts in 2022.

For the six months ended June 30, 2023, general and administrative expenses increased 12%, or 13% on a currency-neutral basis, versus the comparable period in 2022. Current period results include growth of 1 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 network capabilities, partially offset by a decrease of 2 percentage points from the Special Item for Russia-related impacts in 2022.

42 MASTERCARD JUNE 30, 2023 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)
						2023						2022									2023						2022
						($ in millions)
Personnel 1						$	1,495					$	1,319					13%						$	2,921					$	2,500					17%
Professional fees						114						109						5%						214						195						10%
Data processing and telecommunications						246						225						9%						481						460						5%
Foreign exchange activity 2						24						35						**						40						71						**
Other 1						321						259						24%						587						565						4%
Total general and administrative expenses						$	2,200					$	1,947					13%						$	4,243					$	3,791					12%

Note: Table may not sum due to rounding.

** Not meaningful.

1 For the three months ended June 30, 2022, total general and administrative expenses 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. For the six months ended June 30, 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 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, 2023, advertising and marketing expenses decreased 4% on both an as reported and a currency-neutral basis, versus the comparable period in 2022, primarily due to a decrease in spending on marketing campaigns and advertising, partially offset by an increase in spending on sponsorships. For the six months ended June 30, 2023, advertising and marketing expenses decreased 6%, or 5% on a currency-neutral basis, versus the comparable period in 2022, primarily due to a decrease in spending on marketing campaigns and advertising, partially offset by an increase in spending on sponsorships.

Depreciation and Amortization

For the three and six months ended June 30, 2023, depreciation and amortization expenses were relatively flat on both an as reported and a currency-neutral basis, versus the comparable periods in 2022.

Provision for Litigation

For the three months ended June 30, 2023, we recorded litigation provisions of $20 million as a result of settlements with a number of U.K. and Pan-European merchants. For the six months ended June 30, 2023, we recorded litigation provisions of $231 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 as well as settlements with a number of U.K. and Pan-European merchants. See Note 15 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part I, Item 1 of this Report and “Non-GAAP Financial Information” in this section for further discussion.

MASTERCARD JUNE 30, 2023 FORM 10-Q 43

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, 2023, other income (expense) was favorable $268 million, versus the comparable period in 2022, primarily due to net gains in the current year versus the net losses in the prior year related to unrealized fair market value adjustments on marketable equity securities. Adjusted other income (expense) was favorable $29 million versus the prior year, primarily due to an increase in our investment income, partially offset by increased interest expense related to our 2022 and 2023 debt issuances.

For the six months ended June 30, 2023, other income (expense) was favorable $162 million, versus the comparable period in 2022, primarily due to lower net losses in the current year versus the prior year related to unrealized fair market value adjustments on marketable and nonmarketable equity securities. Adjusted other income (expense) was favorable $59 million versus the prior year, primarily due to an increase in our investment income, partially offset by increased interest expense related to our 2022 and 2023 debt issuances.

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

						Three Months Ended June 30,												Increase/ (Decrease)						Six Months Ended June 30,												Increase/ (Decrease)
						2023						2022									2023						2022
						($ in millions)
Investment income						$	59					$	7					**						$	114					$	12					**
Gains (losses) on equity investments, net						123						(117)						**						(89)						(193)						**
Interest expense						(144)						(114)						27%						(276)						(224)						23%
Other income (expense), net						10						4						**						16						8						**
Total other income (expense)						48						(220)						**						(235)						(397)						**
(Gains) losses on equity investments 1						(123)						117						**						89						193						**
Adjusted total other income (expense) 1						$	(75)					$	(104)					(28)%						$	(146)					$	(205)					(29)%

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 23.2% and 18.7% for the three months ended June 30, 2023 and 2022, respectively. The adjusted effective income tax rates were 23.9% and 18.8% for the three months ended June 30, 2023 and 2022, respectively. Both the as reported and as adjusted effective income tax rates were higher versus the comparable period in 2022, primarily due to a $212 million discrete tax expense to establish a valuation allowance associated with the U.S. foreign tax credit carryforward deferred tax asset resulting from foreign tax legislation enacted in Brazil in the current period. The U.K. statutory tax rate increase, effective in 2023, also contributed to the higher as reported and as adjusted effective income tax rates for the current period.

The effective income tax rates were 20.6% and 11.9% for the six months ended June 30, 2023 and 2022, respectively. The adjusted effective income tax rates were 21.2% and 12.3% for the six months ended June 30, 2023 and 2022, respectively. Both the as reported and as adjusted effective income tax rates were higher versus the comparable period in 2022, primarily due to changes in the valuation allowance associated with the U.S. foreign tax credit carryforward deferred tax asset. In 2022, we recognized a discrete tax benefit related to final U.S. tax regulations published in the first quarter of 2022 (“2022 Regulations”), which resulted in a valuation allowance release of $333 million. In the second quarter of 2023, foreign tax legislation was enacted in Brazil which changed the treatment of foreign taxes paid under the 2022 Regulations. Therefore, we recognized a $212 million discrete tax expense in 2023 to establish the valuation allowance on the remaining U.S. foreign tax credit carryforward deferred tax asset. The foreign tax legislation allows us the ability to generate additional foreign tax credits going forward. The U.K. statutory tax rate increase, effective in 2023, also contributed to the higher effective income tax rate in 2023.

On July 21, 2023, the U.S. Department of Treasury released Notice 2023-55 (the “Notice”), providing taxpayers relief from certain aspects of the 2022 Regulations for 2022 and 2023. We are evaluating the impacts of the Notice to our effective tax rate, as well as deferred tax assets and corresponding valuation allowance.

44 MASTERCARD JUNE 30, 2023 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:

			June 30, 2023						December 31, 2022
			(in billions)
Cash, cash equivalents and investments 1			$	6.5					$	7.4
Unused line of credit			8.0						8.0

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 $2.2 billion at June 30, 2023 and December 31, 2022, 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 of our Annual Report on Form 10-K for the year ended December 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,
			2023						2022
			(in millions)
Net cash provided by operating activities			$	4,617					$	4,239
Net cash used in investing activities			(615)						(812)
Net cash used in financing activities			(4,734)						(4,975)

Net cash provided by operating activities increased $378 million for the six months ended June 30, 2023, versus the comparable period in 2022, primarily due to higher net income after adjusting for non-cash items and an increase in restricted security deposits held for customers, partially offset by higher employee incentives and customer incentive payments.

Net cash used in investing activities decreased $197 million for the six months ended June 30, 2023, versus the comparable period in 2022, primarily due to less cash paid for business acquisitions in the current year partially offset by an increase in capitalized software.

Net cash used in financing activities decreased $241 million for the six months ended June 30, 2023, versus the comparable period in 2022, primarily due to higher proceeds from debt issuances partially offset by higher repurchases of our Class A common stock in the current year.

MASTERCARD JUNE 30, 2023 FORM 10-Q 45

PART I

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

Debt and Credit Availability

In March 2023, we issued $750 million principal amount of notes due March 2028 and $750 million principal amount of notes due March 2033 (collectively the “2023 USD Notes”). The net proceeds from the issuance of the 2023 USD Notes, after deducting the original issue discount, underwriting discount and offering expenses, were $1.489 billion. In April 2023, we entered into an additional unsecured INR4.97 billion ($61 million as of June 30, 2023) term loan, originally due July 2023 (the “April 2023 INR Term Loan”). Our total debt outstanding was $15.6 billion and $14.0 billion at June 30, 2023 and December 31, 2022, respectively, with the earliest maturity of INR28 billion ($338 million as of June 30, 2023) of principal occurring in July 2023.

In July 2023, we modified and combined each of the 2022 INR Term Loan and April 2023 INR Term Loan, increasing the total amount of the unsecured loans to INR28 billion ($342 million as of the date of settlement), which was an increase of INR412 million ($5 million as of the date of settlement) due July 2024.

As of June 30, 2023, we have a commercial paper program (the “Commercial Paper Program”), under which we are authorized to issue up to $8 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 $8 billion revolving credit facility (the “Credit Facility”) which 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 June 30, 2023 and December 31, 2022.

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, 2022 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 $1,086 million for the six months ended June 30, 2023.

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 paid 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 was $541 million.

On June 26, 2023, our Board of Directors declared a quarterly cash dividend of $0.57 per share payable on August 9, 2023 to holders of record on July 7, 2023 of our Class A common stock and Class B common stock. The aggregate amount of this dividend is estimated to be $538 million.

Repurchased shares of our common stock are considered treasury stock. In December 2022 and November 2021, our Board of Directors approved share repurchase programs of our Class A common stock authorizing us to repurchase up to $9.0 billion and $8.0 billion, respectively. The program approved in 2022 became effective in April 2023 after the 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 June 30, 2023:

												(in millions, except average price data)
Remaining authorization at December 31, 2022																		$	12,174
Dollar-value of shares repurchased during the six months ended June 30, 2023 1																		$	5,294
Remaining authorization at June 30, 2023																		$	6,880
Shares repurchased during the six months ended June 30, 2023																		14.4
Average price paid per share during the six months ended June 30, 2023																		$	367.00

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

46 MASTERCARD JUNE 30, 2023 FORM 10-Q

PART I

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

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 rates is limited. Management monitors risk exposures on an ongoing basis and establishes and oversees the implementation of policies governing our funding, investments and use of derivative financial instruments to manage these risks.

Foreign currency and interest rate exposures are managed through our risk management activities, which are discussed further in Note 17 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part I, Item 1.

Foreign Exchange Risk

We enter into foreign exchange derivative contracts to manage currency exposure associated with anticipated receipts and disbursements occurring in a currency other than the functional currency of the entity. We may also enter into foreign currency derivative contracts to offset possible changes in value of assets and liabilities due to foreign exchange fluctuations. The objective of these activities is to reduce our exposure to transaction gains and losses resulting from fluctuations of foreign currencies against our functional currencies, principally the U.S. dollar and euro. The effect of a hypothetical 10% adverse change in the value of the functional currencies could result in a fair value gain of approximately $26 million and loss of approximately $94 million on our foreign exchange derivative contracts outstanding at June 30, 2023 and December 31, 2022, respectively, before considering the offsetting effect of the underlying hedged activity.

We are also subject to foreign exchange risk as part of our daily settlement activities. To manage this risk, we enter into short duration foreign exchange contracts based upon anticipated receipts and disbursements for the respective currency position. This risk is typically limited to a few days between when a payment transaction takes place and the subsequent settlement with our customers. A hypothetical 10% adverse change in the value of the functional currencies would not have a material impact to the fair value of our short duration foreign exchange derivative contracts outstanding at June 30, 2023 and December 31, 2022, respectively.

We are further exposed to foreign exchange rate risk related to translation of our net investment in foreign subsidiaries where the functional currency is different than our U.S. dollar reporting currency. To manage this risk, we may enter into foreign exchange derivative contracts to hedge a portion of our net investment in foreign subsidiaries. The effect of a hypothetical 10% adverse change in the value of the U.S. dollar could result in a fair value loss of approximately $251 million and $203 million on our foreign exchange derivative contracts designated as a net investment hedge at June 30, 2023 and December 31, 2022, respectively, before considering the offsetting effect of the underlying hedged activity.

Interest Rate Risk

Our available-for-sale debt investments include fixed and variable rate securities that are sensitive to interest rate fluctuations. Our policy is to invest in high quality securities, while providing adequate liquidity and maintaining diversification to avoid significant exposure. A hypothetical 100 basis point adverse change in interest rates would not have a material impact to the fair value of our investments at June 30, 2023 and December 31, 2022.

We are also exposed to interest rate risk related to our fixed-rate debt. To manage this risk, we may enter into interest rate derivative contracts to hedge a portion of our fixed-rate debt that is exposed to changes in fair value attributable to changes in a benchmark interest rate. The effect of a hypothetical 100 basis point adverse change in interest rates would not have a material impact to the fair value of our interest rate derivative contracts designated as a fair value hedge of our fixed-rate debt at June 30, 2023 and December 31, 2022, respectively, before considering the offsetting effect of the underlying hedged activity.