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 September 30,
						Increase/(Decrease)
						Operational																					Acquisitions												Currency Impact 3												Special Items 4												Total
						2023						2022																		2023						2022						2023						2022						2023						2022						2023															2022
Payment network						10		%	1			24		%	1															**						**						2		%				(8)		%				**						—		%				12		%													16		%
Value-added services and solutions						13		%	2			19		%	2															—		%				2		%				3		%				(7)		%				**						**						17		%													14		%
Net revenue						11		%				22		%																—		%				1		%				2		%				(7)		%				—		%				—		%				14		%													15		%

						Nine Months Ended September 30,
						Increase/(Decrease)
						Operational																					Acquisitions												Currency Impact 3												Special Items 4												Total
						2023						2022																		2023						2022						2023						2022						2023						2022						2023															2022
Payment network						12		%	1			29		%	1															**						**						—		%				(6)		%				**						—		%				11		%													23		%
Value-added services and solutions						16		%	2			16		%	2															1		%				4		%				1		%				(5)		%				**						**						17		%													15		%
Net revenue						13		%				24		%																—		%				1		%				—		%				(6)		%				—		%				—		%				13		%													20		%

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, open 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 September 30, 2023, operating expenses increased 2% versus the comparable period in 2022. Adjusted operating expenses increased 10%, or 9% on a currency-neutral basis, versus the comparable period in 2022, which included a 1 percentage point increase from acquisitions. The remaining increase was primarily due to higher personnel costs.

For the nine months ended September 30, 2023, operating expenses increased 8% versus the comparable period in 2022. Operating expenses increased 11%, on both an as-adjusted and currency-neutral basis, versus the comparable period in 2022, which included 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 September 30,												Increase/ (Decrease)						Nine Months Ended September 30,												Increase/ (Decrease)
						2023						2022									2023						2022
						($ in millions)
General and administrative						$	2,285					$	2,069					10%						$	6,528					$	5,860					11%
Advertising and marketing						193						182						6%						561						573						(2)%
Depreciation and amortization						211						185						14%						594						566						5%
Provision for litigation						—						208						**						231						341						**
Total operating expenses						2,689						2,644						2%						7,914						7,340						8%
Special Items 1						—						(208)						**						(231)						(408)						**
Adjusted total operating expenses (excluding Special Items 1)						$	2,689					$	2,437					10%						$	7,683					$	6,932					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.

42 MASTERCARD SEPTEMBER 30, 2023 FORM 10-Q

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 September 30, 2023
						Increase/(Decrease)
						Operational						Acquisitions						Currency Impact 1						Special Items 2, 3						Total
General and administrative						9%						1%						1%						**						10%
Advertising and marketing						4%						—%						2%						**						6%
Depreciation and amortization						11%						—%						3%						**						14%
Provision for litigation						**						**						**						**						**
Total operating expenses						9%						1%						1%						(9)%						2%

						Nine Months Ended September 30, 2023
						Increase/(Decrease)
						Operational						Acquisitions						Currency Impact 1						Special Items 2						Total
General and administrative						12%						1%						(1)%						(1)%						11%
Advertising and marketing						(2)%						—%						—%						**						(2)%
Depreciation and amortization						4%						1%						—%						**						5%
Provision for litigation						**						**						**						**						**
Total operating expenses						10%						1%						—%						(3)%						8%

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.

3The Special Items driver impact related to provision for litigation is reflected in total operating expenses.

General and Administrative

For the three months ended September 30, 2023, general and administrative expenses increased 10%, or 9% on a currency-neutral basis, versus the comparable period in 2022. Current period results included growth of 1 percentage points from acquisitions. 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.

For the nine months ended September 30, 2023, general and administrative expenses increased 11%, or 12% on a currency-neutral basis, versus the comparable period in 2022. Current period results included 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 1 percentage point from the Special Item for Russia-related impacts in 2022.

MASTERCARD SEPTEMBER 30, 2023 FORM 10-Q 43

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)
						2023						2022									2023						2022
						($ in millions)
Personnel 1						$	1,573					$	1,382					14%						$	4,494					$	3,882					16%
Professional fees						118						118						—%						332						313						6%
Data processing and telecommunications						262						228						15%						743						688						8%
Foreign exchange activity 2						25						38						**						65						109						**
Other 1						307						303						2%						894						868						3%
Total general and administrative expenses						$	2,285					$	2,069					10%						$	6,528					$	5,860					11%

Note: Table may not sum due to rounding.

** Not meaningful.

1 For the nine months ended September 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 September 30, 2023, advertising and marketing expenses increased 6%, or 4% on a currency-neutral basis, versus the comparable period in 2022, primarily due to an increase in spending on sponsorships.

For the nine months ended September 30, 2023, advertising and marketing expenses decreased 2% 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.

Depreciation and Amortization

For the three months ended September 30, 2023, depreciation and amortization expenses increased 14%, or 11% on a currency-neutral basis, versus the comparable period in 2022, primarily due to increased software capitalization.

For the nine months ended September 30, 2023, depreciation and amortization expenses increased 5% on both an as reported and currency-neutral basis, versus the comparable period in 2022, primarily due to increased software capitalization.

Provision for Litigation

For the nine months ended September 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.

44 MASTERCARD SEPTEMBER 30, 2023 FORM 10-Q

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, 2023, other income (expense) was unfavorable $43 million, versus the comparable period in 2022, primarily due to net losses in the current year versus net gains in the prior year related to unrealized fair market value adjustments on marketable equity securities, partially offset by higher net investment income in the current year. Adjusted other income (expense) was favorable $21 million versus the prior year, primarily due to an increase in our investment income, partially offset by increased interest expense related to our 2023 debt issuances.

For the nine months ended September 30, 2023, other income (expense) was favorable $119 million, versus the comparable period in 2022, primarily due to an increase in our investment income and lower mark-to-market losses in 2023. Adjusted other income (expense) was favorable $80 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 September 30,												Increase/ (Decrease)						Nine Months Ended September 30,												Increase/ (Decrease)
						2023						2022									2023						2022
						($ in millions)
Investment income						$	71					$	16					**						$	185					$	28					**
Gains (losses) on equity investments, net						(6)						60						**						(95)						(133)						**
Interest expense						(151)						(120)						25%						(427)						(344)						24%
Other income (expense), net						3						4						**						19						12						**
Total other income (expense)						(83)						(40)						**						(318)						(437)						**
(Gains) losses on equity investments 1						6						(60)						**						95						133						**
Adjusted total other income (expense) 1						$	(78)					$	(99)					(21)%						$	(223)					$	(303)					(26)%

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 15.0% and 18.6% for the three months ended September 30, 2023 and 2022, respectively. The adjusted effective income tax rates were 15.0% and 19.4% for the three months ended September 30, 2023 and 2022, respectively. Both the as reported and as adjusted effective income tax rates were lower versus the comparable period in 2022, primarily due to our ability to now claim more U.S. foreign tax credits generated in 2022 and 2023 resulting from Notice 2023-55 (the “Notice”), released by the U.S. Department of Treasury (“Treasury”) in the current period, partially offset by a $115 million discrete tax expense to establish a valuation allowance on the deferred tax asset related to U.S. foreign tax credits generated prior to 2022.

The effective income tax rates were 18.6% and 14.3% for the nine months ended September 30, 2023 and 2022, respectively. The adjusted effective income tax rates were 19.0% and 14.8% for the nine months ended September 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 deferred tax asset related to U.S. foreign tax credits. In 2022, we recognized a discrete tax benefit of $333 million to release the valuation allowance resulting from U.S. tax regulations published in the first quarter of 2022 (the “2022 Regulations”). In 2023, the treatment of foreign taxes paid under the 2022 Regulations changed due to the foreign tax legislation enacted in Brazil and the Notice released by Treasury. Therefore, we recognized a total $327 million discrete tax expense in 2023 to establish the valuation allowance. The discrete tax expense recognized in the nine months ended September 30, 2023 was partially offset by our ability to now claim more U.S. foreign tax credits generated in 2022 and 2023 due to the Notice.

As of September 30, 2023, the deferred tax asset related to U.S. foreign tax credits and corresponding valuation allowance is $575 million due to foreign tax legislation enacted in Brazil and the Notice. The valuation allowance relates to our ability to recognize future tax benefits associated with the carryforward of U.S. foreign tax credits generated in the current and prior periods. The recognition of the U.S. foreign tax credits is dependent upon the realization of future foreign source income in the appropriate foreign tax credit basket in accordance with U.S. federal income tax law.

MASTERCARD SEPTEMBER 30, 2023 FORM 10-Q 45

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, 2023						December 31, 2022
			(in billions)
Cash, cash equivalents and investments 1			$	7.5					$	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 $1.9 billion and $2.2 billion at September 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 Flows

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

			Nine Months Ended September 30,
			2023						2022
			(in millions)
Net cash provided by operating activities			$	7,850					$	8,095
Net cash used in investing activities			(1,137)						(1,120)
Net cash used in financing activities			(7,138)						(6,714)

Net cash provided by operating activities decreased $245 million for the nine months ended September 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, more than offset by restricted cash paid for litigation settlement, higher employee incentives paid, higher customer incentive payments and timing of settlement with customers.

Net cash used in investing activities increased $17 million for the nine months ended September 30, 2023, versus the comparable period in 2022, primarily due to an increase in capitalized software and purchases of investments in time deposits partially offset by less cash paid for business acquisitions in the current year.

Net cash used in financing activities increased $424 million for the nine months ended September 30, 2023, versus the comparable period in 2022, primarily due to higher repurchases of our Class A common stock in the current year partially offset by higher proceeds from debt issuances.

46 MASTERCARD SEPTEMBER 30, 2023 FORM 10-Q

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

Our total debt outstanding was $15.6 billion and $14.0 billion at September 30, 2023 and December 31, 2022, respectively, with the earliest maturity of $1 billion of principal occurring in April 2024.

As of September 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 September 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 $1,624 million for the nine months ended September 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 was $538 million.

On September 19, 2023 our Board of Directors declared a quarterly cash dividend of $0.57 per share payable on November 9, 2023 to holders of record on October 9, 2023 of our Class A common stock and Class B common stock. The aggregate amount of this dividend is estimated to be $536 million.

MASTERCARD SEPTEMBER 30, 2023 FORM 10-Q 47

PART I

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

Repurchased shares of our common stock are considered treasury stock. In December 2022 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 September 30, 2023:

												(in millions, except average price data)
Remaining authorization at December 31, 2022																		$	12,174
Dollar-value of shares repurchased during the nine months ended September 30, 2023 1																		$	7,200
Remaining authorization at September 30, 2023																		$	4,974
Shares repurchased during the nine months ended September 30, 2023																		19.2
Average price paid per share during the nine months ended September 30, 2023																		$	375.34

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

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.