What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-13 compared with 2023-02-14 · 121 added, 222 removed, 373 unchanged (48% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and notes of Mastercard Incorporated and its consolidated subsidiaries, including Mastercard International Incorporated (“Mastercard International”) (together, “Mastercard” or the “Company”), included elsewhere in this Report.

Percentage changes provided throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” were calculated on amounts rounded to the nearest thousand.

For discussion related to the results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, please see Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.

During 2022, the Company updated its disaggregated net revenue presentation by category and geography to reflect the nature of its payment services and to align such information with the way in which management will prospectively view its categories of net revenue.

Prior period amounts have been reclassified to conform to the 2022 presentation.

The reclassification had no impact on previously reported total net revenue, operating income or net income.

Business Overview

Mastercard is a technology company in the global payments industry.

We connect consumers, financial institutions, merchants, governments, digital partners, businesses and other organizations worldwide by enabling electronic payments instead of cash and checks and making those payment transactions safe, simple, smart, and accessible.

We make payments easier and more efficient by providing a wide range of payment solutions and services using our family of well-known and trusted brands, including Mastercard®, Maestro® and Cirrus®.

We operate a multi-rail payments network that provides choice and flexibility for consumers, merchants and our customers.

Through our unique and proprietary core global payments network, we switch (authorize, clear and settle) payment transactions.

We have additional payment capabilities that include automated clearing house (“ACH”) transactions (both batch and real-time account-based payments).

Using these capabilities, we offer integrated payment products and services and capture new payment flows.

Our value-added services include, among others, cyber and intelligence solutions to allow all parties to transact easily and with confidence, as well as other services that provide proprietary insights, drawing on our principled use of secure consumer and merchant data.

Our investments in new networks, such as open banking solutions and digital identity capabilities, support and strengthen our payments and services solutions.

Our franchise model sets the standards and ground-rules for our core global payments network that balance value and risk across all stakeholders and allows for interoperability among them.

Our payment solutions are designed to ensure safety and security for the global payments ecosystem.

Mastercard is not a financial institution.

We do not issue cards, extend credit, determine or receive revenue from interest rates or other fees charged to account holders by issuers, or establish the rates charged by acquirers in connection with merchants’ acceptance of our products.

In most cases, account holder relationships belong to, and are managed by, our customers.

Russia and Ukraine

Beginning in February 2022, in response to the Russian invasion of Ukraine, the United States, the European Union and other governments imposed sanctions and other restrictive measures on certain Russian-related entities and individuals and, in March 2022, we suspended our business operations in Russia 1 .

We have taken steps necessary to ensure compliance with all applicable regulatory restrictions with sanctioned entities and individuals and have suspended our business operations with non-sanctioned customers in Russia.

Throughout this process, our priority has been the safety and well-being of our employees and their families.

These actions have impacted our full year 2022 performance.

As a point of reference, for the year ended December 31, 2021, approximately 4% of our net revenues were derived from business conducted within, into and out of Russia.

Additional financial implications directly related to these actions include, but are not limited to, incremental employee-related costs, reserves on uncollectible balances with certain customers and impacts to net revenue, primarily related to rebates and incentives as a result of revised estimates of customer performance through the date of the suspension of our business operations.

We continue to monitor the effects of the Russian invasion of Ukraine and the related impacts to regional and global economies.

The full extent to which this matter affects our business, results of operations and financial condition will depend on future developments, including the duration of the invasion and the impacts on regional and global economies, which are uncertain, and cannot be predicted at this time.

1 As a result of the suspension of our business operations, which included the suspension of our network services, cards issued by Russian banks are no longer supported by the Mastercard network regardless of where the cards are used, inside or outside of Russia.

In addition, any Mastercard issued outside of Russia will not work at merchants or ATMs located in Russia.

45 MASTERCARD 2022 FORM 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Results Overview

The following table provides a summary of our key GAAP operating results, as reported:

Year ended December 31, 2022

(Decrease) 2021

2022 2021 2020

($ in millions, except per share data)

Net revenue $ 22,237 $ 18,884 $ 15,301 18% 23%

Operating expenses $ 9,973 $ 8,802 $ 7,220 13% 22%

Operating income $ 12,264 $ 10,082 $ 8,081 22% 25%

Operating margin 55.2 % 53.4 % 52.8 % 1.8 ppt 0.6 ppt

Income tax expense $ 1,802 $ 1,620 $ 1,349 11% 20%

Effective income tax rate 15.4 % 15.7 % 17.4 % (0.4) ppt (1.7) ppt

Net income $ 9,930 $ 8,687 $ 6,411 14% 35%

Diluted earnings per share $ 10.22 $ 8.76 $ 6.37 17% 38%

Diluted weighted-average shares outstanding 971 992 1,006 (2)% (1)%

The following table provides a summary of our key non-GAAP operating results 1 , adjusted to exclude the impact of gains and losses on our equity investments, Special Items (which represent litigation judgments and settlements and certain one-time items) and the related tax impacts on our non-GAAP adjustments.

In addition, we have presented growth rates, adjusted for the impact of currency:

Year ended December 31, 2022

Increase/(Decrease) 2021

Increase/(Decrease)

2022 2021 2020 As adjusted Currency-neutral As adjusted Currency-neutral

($ in millions, except per share data)

Adjusted net revenue $ 22,200 $ 18,884 $ 15,301 18% 23% 23% 22%

Adjusted operating expenses $ 9,549 $ 8,627 $ 7,147 11% 14% 21% 19%

Adjusted operating margin 57.0 % 54.3 % 53.3 % 2.7 ppt 3.4 ppt 1.0 ppt 1.2 ppt

Adjusted effective income tax rate 15.7 % 15.4 % 17.2 % 0.3 ppt 0.5 ppt (1.8) ppt (1.8) ppt

Adjusted net income $ 10,342 $ 8,333 $ 6,463 24% 32% 29% 28%

Adjusted diluted earnings per share $ 10.65 $ 8.40 $ 6.43 27% 34% 31% 30%

Tables may not sum due to rounding.

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

MASTERCARD 2022 FORM 10-K 46

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Key highlights for 2022 as compared to 2021 were as follows:

Net revenue Adjusted net revenue

GAAP Non-GAAP

(currency-neutral) Adjusted net revenue increased 23% on a currency-neutral basis.

The increase was attributable to our payment network and our value-added services and solutions, which increased 26% and 18%, on a currency-neutral basis, respectively.

up 18% up 23%

Operating expenses Adjusted

operating expenses

GAAP Non-GAAP

(currency-neutral) Adjusted operating expenses increased 14% on a currency-neutral basis, which includes 4 percentage points of growth due to acquisitions.

The remaining increase was primarily due to higher personnel costs, travel and meeting costs, and unfavorable foreign exchange activity.

up 13% up 14%

Effective income tax rate

Adjusted effective income tax rate

GAAP Non-GAAP

(currency-neutral) The adjusted effective income tax rate of 15.7% was higher than prior year due to the recognition of U.S.

tax benefits in 2021 (the majority of which were discrete), a discrete tax benefit in 2021 related to the remeasurement of our net deferred tax asset in the U.K.

and a discrete tax expense related to an unfavorable court ruling in 2022, all of which were partially offset by a discrete tax benefit in the first quarter of 2022 due to final U.S.

tax regulations published in the current year.

Other 2022 financial highlights were as follows:

• We generated net cash flows from operations of $11.2 billion.

• We completed the acquisition of a business for total consideration of $0.3 billion.

• We repurchased 25.7 million shares of our common stock for $8.8 billion and paid dividends of $1.9 billion.

• We completed a euro-denominated debt offering for an aggregate principal amount of $0.8 billion and entered into an Indian rupee-denominated term loan for $0.3 billion.

Non-GAAP Financial Information

2 unchanged sentences

Our non-GAAP financial measures also exclude the impact of special items, where applicable, which represent litigation judgments and settlements and certain one-time items, as well as the related tax impacts (“Special Items”).

We also present growth rates adjusted for the impact of currency, which is a non-GAAP financial measure.

We believe that the non-GAAP financial measures presented facilitate an understanding of our operating performance and provide a meaningful comparison of our results between periods.

We use non-GAAP financial measures to, among other things, evaluate our ongoing operations in relation to historical results, for internal planning and forecasting purposes and in the calculation of performance-based compensation.

We excluded these items because management evaluates the underlying operations and performance of the Company separately from these recurring and nonrecurring items.

Net revenue, operating expenses, operating margin, other income (expense), effective income tax rate, net income and diluted earnings per share adjusted for the impact of gains and losses on our equity investments, Special Items and/or the impact of currency should not be relied upon as substitutes for measures calculated in accordance with GAAP.

Our non-GAAP financial measures for the comparable periods exclude the impact of the following:

Gains and Losses on Equity Investments

• During 2022, 2021 and 2020, we recorded net losses of $145 million ($126 million after tax, or $0.13 per diluted share), net gains of $645 million ($497 million after tax, or $0.50 per diluted share) and net gains of $30 million ($15 million after tax, or $0.01 per diluted share), respectively.

• During 2023, 2022 and 2021, we recorded net pre-tax losses of $61 million ($36 million after tax, or $0.04 per diluted share), net pre-tax losses of $145 million ($126 million after tax, or $0.13 per diluted share) and net pre-tax gains of $645 million ($497 million after tax, or $0.50 per diluted share), respectively.

These net gains and losses were primarily related to unrealized fair market value adjustments on marketable and nonmarketable equity securities.

In addition, in 2021, net gains also included realized gains on sales of marketable equity securities.

47 MASTERCARD 2022 FORM 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Items

1 unchanged sentence

• During 2023, we recorded pre-tax charges of $539 million ($376 million after tax, or $0.40 per diluted share) related to litigation provisions, which included pre-tax charges of:

◦ $344 million as a result of changes in the estimate related to the claims of merchants who opted out of the U.S.

merchant class litigation, and

◦ $195 million as a result of settlements with a number of U.K.

and Pan-European merchants.

• During 2022, we recorded pre-tax charges of $356 million ($263 million after tax, or $0.27 per diluted share) related to litigation provisions, which included pre-tax charges of:

◦ $223 million as a result of settlements (both final and agreements in principle) with a number of U.K.

4 unchanged sentences

and Pan-European merchants.

• During 2020, we recorded pre-tax charges of $73 million ($67 million after tax, or $0.07 per diluted share) related to litigation provisions which included pre-tax charges of:

◦ $45 million related to a legal matter associated with our prepaid cards in the U.K., and

◦ $28 million related to estimated attorneys’ fees and litigation settlements with U.K.

and Pan-European merchants.

Russia-related impacts

• During 2022, we recorded a net charge of $30 million ($24 million after tax, or $0.02 per diluted share), directly related to imposed sanctions and the suspension of our business operations in Russia.

The net charge is comprised of general and administrative expenses of $67 million, primarily related to incremental employee-related costs and reserves on uncollectible balances with certain sanctioned customers.

These charges are offset by net benefits of $37 million in net revenue, primarily related to a reduction in rebates and incentives liabilities as a result of lower estimates of customer performance for certain customer business agreements due to the suspension of our business operations in Russia.

• During 2022, we recorded a net pre-tax charge of $30 million ($24 million after tax, or $0.02 per diluted share), directly related to imposed sanctions and the suspension of our business operations in Russia.

The net charge was comprised of general and administrative expenses of $67 million, primarily related to incremental employee-related costs and reserves on uncollectible balances with certain sanctioned customers.

This charge was offset by net benefits of $37 million in net revenue, primarily related to a reduction in payment network rebates and incentives liabilities as a result of lower estimates of customer performance for certain customer business agreements due to the suspension of our business operations in Russia.

Indirect tax matter

• During 2021, we recorded a charge of $88 million ($69 million after tax, or $0.07 per diluted share) to resolve a foreign indirect tax matter for 2015 through 2021 and the related interest expense.

The charge is comprised of general and administrative expenses of $82 million and other income (expense) of $6 million.

See Note 7 (Investments) and Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 and “Key Developments” above for further discussion related to certain of our non-GAAP financial measures.

We excluded these items because management evaluates the underlying operations and performance of the Company separately from these recurring and nonrecurring items.

We believe that the non-GAAP financial measures presented facilitate an understanding of our operating performance and provide a meaningful comparison of our results between periods.

• During 2021, we recorded a pre-tax charge of $88 million ($69 million after tax, or $0.07 per diluted share) to resolve a foreign indirect tax matter for 2015 through 2021 and the related interest expense.

The charge was comprised of general and administrative expenses of $82 million and other income (expense) of $6 million.

MASTERCARD 2023 FORM 10-K 50

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

See Note 7 (Investments) and Note 21 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 of this Report for further discussion related to certain of our non-GAAP financial measures.

Currency-neutral Growth Rates

We present growth rates adjusted for the impact of currency, which is a non-GAAP financial measure.

Currency-neutral growth rates are calculated by remeasuring the prior period’s results using the current period’s exchange rates for both the translational and transactional impacts on operating results.

The impact of currency translation represents the effect of translating operating results where the functional currency is different than our U.S.

3 unchanged sentences

We believe the presentation of currency-neutral growth rates provides relevant information to facilitate an understanding of our operating results.

The translational and transactional impact of currency and the related impact of our foreign exchange derivative contracts designated as cash flow hedging instruments (“Currency impact”) has been excluded from our currency-neutral growth rates and has been identified in our “Drivers of Change” tables.

See “Foreign Currency - Currency Impact” for further information on our currency impacts and “Financial Results - Revenue and Operating Expenses” for our “Drivers of Change” tables.

MASTERCARD 2022 FORM 10-K 48

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

currency, are non-GAAP financial measures and should not be relied upon as substitutes for measures calculated in accordance with GAAP.

See “Foreign Currency - Currency Impact” for further information on our currency impacts and “Financial Results - Net Revenue” and “Financial Results - Operating Expenses” for our “Drivers of Change” tables.

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

5 unchanged sentences

Litigation provisions ** (539) 2.1 % ** 0.5 % 376 0.40

Russia-related impacts (37) (67) 0.2 % ** — % 24 0.02

Adjusted - Non-GAAP $ 25,098 $ 10,551 58.0 % $ (308) 18.5 % $ 11,607 $ 12.26

7 unchanged sentences

Litigation provisions ** (356) 1.6 % ** 0.3 % 263 0.27

Indirect tax matter ** (82) 0.4 % 6 0.1 % 69 0.07

Russia-related impacts (37) (67) 0.2 % ** — % 24 0.02

Adjusted - Non-GAAP $ 22,200 $ 9,549 57.0 % $ (387) 15.7 % $ 10,342 $ 10.65

7 unchanged sentences

Litigation provisions ** (94) 0.5 % ** 0.1 % 74 0.07

Indirect tax matter ** (82) 0.4 % 6 0.1 % 69 0.07

Adjusted - Non-GAAP $ 18,884 $ 8,627 54.3 % $ (413) 15.4 % $ 8,333 $ 8.40

11 unchanged sentences

Russia-related impacts — % 1 % (0.1) ppt — ppt — % — %

Indirect tax matter ** 1 % (0.4) ppt (0.1) ppt (1) % (1) %

Adjusted - Non-GAAP 13 % 10 % 1.0 ppt 2.8 ppt 12 % 15 %

Currency impact 1

5 % 3 % 0.8 ppt 0.2 ppt 8 % 8 %

Currency impact — % — % (0.1) ppt (0.1) ppt — % — %

Adjusted - Non-GAAP - currency-neutral 13 % 11 % 0.9 ppt 2.7 ppt 12 % 15 %

5 unchanged sentences

Litigation provisions ** (3) % 1.1 ppt 0.3 ppt 2 % 2 %

Russia-related impacts — % (1) % 0.2 ppt — ppt — % — %

Indirect tax matter ** 1 % (0.4) ppt (0.1) ppt (1) % (1) %

Adjusted - Non-GAAP 18 % 11 % 2.7 ppt 0.3 ppt 24 % 27 %

Currency impact 1

(1) % (2) % 0.2 ppt — ppt (1) % (1) %

Currency impact 5 % 3 % 0.8 ppt 0.2 ppt 8 % 8 %

Adjusted - Non-GAAP - currency-neutral 23 % 14 % 3.4 ppt 0.5 ppt 32 % 34 %

1 unchanged sentence

** Not applicable

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

Key Metrics and Drivers

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.

22 unchanged sentences

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.

2 Growth rates are normalized to eliminate the effects of differing switching and carryover days between periods, as needed.

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.

The following tables provide a summary of the growth trends in our key drivers.

19 unchanged sentences

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 drivers excluding activity from Russian issued cards from the current and prior periods.

Key Metrics related to the Payment Network

15 unchanged sentences

These assessments can also include connectivity services and network access which are based on the volume of data transmitted and the number of authorization and settlement messages.

• Other network assessments are charges for licensing, implementation and other franchise fees.

• Other network assessments are primarily charges for licensing, implementation and other franchise fees.

The following table provides a summary of our key metrics related to the payment network.

Year ended December 31, 2023 2022

2022 2021 2020 Increase/(Decrease) Currency-neutral Increase/(Decrease) Increase/(Decrease) Currency-neutral Increase/(Decrease)

Increase/(Decrease)

2023 2022 2021 As reported

Currency-neutral

($ in millions)

6 unchanged sentences

Our primary revenue functional currencies are the U.S.

dollar, euro, Brazilian real and the British pound.

dollar, euro, British pound and the Brazilian real.

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.

2 unchanged sentences

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 key metrics related to domestic assessments and cross-border assessments as well as 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.

Changes in currency exchange rates directly impact the calculation of gross dollar volume (“GDV”), which are used in the calculation of our key metrics related to domestic assessments and cross-border assessments as well as certain volume-related rebates and incentives.

GDV is calculated based on local currency spending volume converted to U.S.

dollars and euros using average exchange rates for the period.

As a result, our key metrics related to domestic assessments and cross-border assessments as well as certain 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.

dollar and euro versus 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.

The transactional currency impact of converting Australian dollars to our U.S.

dollar billing currency will have an impact on the revenue generated.

6 unchanged sentences

dollar-converted basis increased 5.9%, while GDV on a local currency basis increased 12.3% versus 2021.

Further, the impact from transactional currency occurs in transaction processing revenue, other revenue and operating expenses when the local currency of these items is different than the functional currency of the entity.

Through December 31, 2020, our approach to managing transactional currency exposure consisted of hedging a portion of anticipated revenues impacted by transactional currencies by entering into foreign exchange derivative contracts, and recording the related changes in fair value in general and administrative expenses on the consolidated statement of operations.

During the first quarter of 2021, we started to formally designate certain newly-executed foreign exchange derivative contracts, which meet the established accounting criteria, as cash flow hedges.

Gains and losses resulting from changes in fair value of these designated

MASTERCARD 2022 FORM 10-K 52

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

contracts are deferred in accumulated other comprehensive income (loss) and subsequently recognized in the respective component of net revenue when the underlying forecasted transactions impact earnings.

Further, the impact from transactional currency occurs in our key metric related to transaction processing assessments as well as value-added services and solutions 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 23 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part II, Item 8.

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.

To manage this foreign exchange risk, we may enter into foreign exchange derivative contracts to economically hedge the foreign currency exposure of our

MASTERCARD 2023 FORM 10-K 54

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

The impact of this foreign exchange activity, along with the related hedging activities, is included in our currency-neutral results.

Our foreign exchange risk management activities are discussed further in Note 23 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part II, Item 8.

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.

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.

Financial Results

5 unchanged sentences

Value-added services and solutions 9,274 7,879 6,941 18% 14%

Net revenue $ 22,237 $ 18,884 $ 15,301 18% 23%

Total net revenue 25,098 22,237 18,884 13% 18%

Special Items 1

— (37) — ** **

Adjusted net revenue

$ 25,098 $ 22,200 $ 18,884 13% 18%

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.

For the year ended December 31, 2023, net revenue increased 13% versus the comparable period in 2022.

Adjusted net revenue increased 18%, or 23% on a currency-neutral basis.

The increase in net revenue was attributable to both our payment network and our value-added services and solutions and included 1 percentage point of growth from acquisitions.

Net revenue includes $13,084 million of rebates and incentives provided to our customers, an increase of 19%, or 23% on a currency-neutral basis, in 2022 versus 2021.

Net revenue from our payment network increased 20%, or 26% on a currency-neutral basis, in 2022 versus 2021.

On both an as adjusted and currency-neutral basis, net revenue increased 13%.

The increase in net revenue on both an as reported and as adjusted basis was attributable to growth in our payment network and value-added services and solutions.

Net revenue from our payment network increased 10%, on both an as reported and currency neutral basis, in 2023 versus 2022.

The increase was primarily driven by growth in domestic and cross-border dollar volumes and an increase in the number of switched transactions, reflecting trends of growth in our key drivers.

Net revenue from our payment network includes $12,445 million of rebates and incentives provided to customers, which increased 19%, or 23% on a currency-neutral basis, in 2022 versus 2021, primarily due to an increase in our key drivers as well as new and renewed deals.

Net revenue from our value-added services and solutions increased 14%, or 18% on a currency-neutral basis, in 2022 versus 2021, which includes a 4 percentage point increase from acquisitions.

The remaining increase was primarily driven by our cyber and intelligence and data and services solutions.

For the year ended December 31, 2021, net revenue increased 23%, or 22% on a currency neutral basis, versus the comparable period in 2020.

The increase in net revenue was attributable to both our payment network and our value-added services and solutions and included 2 percentage points of growth from acquisitions.

Net revenue includes $10,961 million of rebates and incentives provided to our customers, an increase of 32%, or 31% on a currency-neutral basis, in 2021 versus 2020.

Net revenue from our payment network includes $15,182 million of rebates and incentives provided to customers, which increased 22% on both an as reported and currency-neutral basis, in 2023 versus 2022, primarily due to an increase in our key drivers as well as new and renewed deals.

Net revenue from our value-added services and solutions increased 18%, or 17% on a currency-neutral basis, in 2023 versus 2022.

The increase was driven primarily by the continued growth of (i) our cyber and intelligence solutions, driven by our underlying key drivers and the scaling of our fraud and security solutions, as well as (ii) our consulting, marketing and loyalty solutions.

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

55 MASTERCARD 2023 FORM 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net revenue from our payment network increased 21%, or 20% on a currency-neutral basis, in 2021 versus 2020.

The increase was primarily driven by growth in domestic and cross-border dollar volumes and an increase in the number of switched transactions, reflecting trends of growth in our key drivers.

Net revenue from our payment network include $10,476 million of rebates and incentives provided to customers, which increased 31%, or 30% on a currency-neutral basis, in 2021 versus 2020, primarily due to an increase in our key drivers as well as new and renewed deals.

Net revenue from our value-added services and solutions increased 28%, or 27% on a currency-neutral basis, in 2021 versus 2020, which includes a 6 percentage point increase from acquisitions.

The remaining increase was primarily driven by our cyber and intelligence and data and services solutions.

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

Drivers of Change

8 unchanged sentences

Table may not sum due to rounding

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

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

** Not applicable

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

7 unchanged sentences

Adjusted operating expenses increased 10%, or 11% on a currency-neutral basis, versus the prior year, which includes a 1 percentage point increase from acquisitions.

The remaining increase was primarily due to higher personnel costs, travel and meeting costs and unfavorable foreign exchange activity.

On both an as reported and as adjusted basis, the increase was primarily due to higher personnel costs to support the continued investment in our business and the delivery of services to our customers.

The components of operating expenses were as follows:

9 unchanged sentences

(539) (423) (176) ** **

Adjusted operating expenses (excluding Special Items 1 )

Adjusted total operating expenses

$ 10,551 $ 9,549 $ 8,627 10 % 11 %

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Drivers of Change

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

8 unchanged sentences

Table may not sum due to rounding.

** Not meaningful

** Not applicable/meaningful

1 Represents the translational and transactional impact of currency.

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

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

General and Administrative

General and administrative expenses increased 14%, or 17% on a currency-neutral basis, in 2022 versus the prior year.

Current year results include growth of 4 percentage points from acquisitions.

The remaining increase was primarily due to higher personnel costs to support our continued investment in our strategic initiatives across payments, services and new networks, increased travel and meeting costs and balance sheet remeasurement losses due to unfavorable foreign exchange activity.

General and administrative expenses increased 11% on an as reported and currency-neutral basis, in 2023 versus the prior year.

Current year results include growth of 1 percentage point from acquisitions.

The remaining increase was primarily due to higher personnel costs resulting from incremental headcount to support the continued investment in our business and the delivery of services to our customers.

The components of general and administrative expenses were as follows:

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See Note 23 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part II, Item 8 for further discussion.

3 Includes a Special Item related to a foreign indirect tax matter of $82 million for the year ended December 31, 2021.

3 The year ended December 31, 2021 includes a Special Item related to a foreign indirect tax matter of $82 million.

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

Advertising and Marketing

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

Advertising and marketing expenses increased 5%, or 4% on a currency-neutral basis, in 2023 versus the prior year, primarily due to an increase in spending on sponsorships, partially offset by a decrease in media spending.

Depreciation and Amortization

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

Depreciation and amortization expenses increased 7%, or 6% on a currency-neutral basis, in 2023 versus the prior year, primarily due to increased software capitalization to support the continued growth of our business.

57 MASTERCARD 2023 FORM 10-K

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Other Income (Expense)

Other income (expense) was unfavorable $757 million in 2022 versus the prior year, primarily due to net losses in the current year versus net gains in the prior year related to unrealized fair market value adjustments on marketable and nonmarketable equity securities and realized gains on sales of marketable equity securities in 2021.

Adjusted other income (expense) was favorable $26 million versus the prior year, primarily due to an increase in our investment income, partially offset by increased interest expense related to our 2022 debt issuances.

Other income (expense) decreased $163 million in 2023 versus the prior year, primarily due to an increase in our investment income and lower mark-to-market losses on our equity investments in 2023, partially offset by increased interest expense related to our debt portfolio as well as losses on sales of certain assets.

Adjusted other income (expense) decreased $79 million versus the prior year, primarily due to an increase in our investment income, partially offset by increased interest expense related to our debt portfolio as well as losses on sales of certain assets.

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

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The adjusted effective income tax rates for the years ended December 31, 2023 and 2022 were 18.5% and 15.7%, respectively.

The effective income tax rate was lower in 2022 primarily due to a discrete tax benefit in the first quarter of 2022 related to final U.S.

tax regulations published in the current year.

These regulations resulted in a valuation allowance release of $333 million associated with the U.S.

foreign tax credit carryforward deferred tax asset.

The regulations limit Mastercard’s ability to generate foreign tax credits starting in 2022 for certain foreign taxes paid, resulting in additional U.S.

Additionally, a more favorable geographic mix of earnings in 2022 contributed to the lower effective tax rate.

The lower effective income tax rate was partially offset by:

• the recognition of U.S.

tax benefits in 2021 (the majority of which were discrete) resulting from a higher foreign derived intangible income deduction and greater utilization of foreign tax credits in the U.S.

• a discrete tax benefit in 2021 related to the remeasurement of the our net deferred tax asset in the U.K.

due to an enacted tax rate change in 2021

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

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

• the recognition of U.S.

tax benefits in 2021 (the majority of which were discrete) resulting from a higher foreign derived intangible income deduction and greater utilization of foreign tax credits in the U.S.

• a discrete tax benefit in 2021 related to the remeasurement of the our net deferred tax asset in the U.K.

due to an enacted tax rate change in 2021

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

Both the as reported and as adjusted effective income tax rates were higher in 2023, 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 Notice 2023-55 (the “Notice”), released by the U.S.

Department of Treasury (“Treasury”).

Therefore, we recognized a total $327 million discrete tax expense in 2023 to establish the valuation allowance.

The discrete tax expense recognized in 2023 was partially offset by our ability to claim more U.S.

foreign tax credits generated in 2022 and 2023 due to the Notice released by Treasury.

The Organization for Economic Co-operation and Development (“OECD”) Pillar 2 guidelines published to date include transition and safe harbor rules around the implementation of the Pillar 2 global minimum tax of 15%.

Based on current enacted legislation effective in 2024 and our structure, we do not expect a material impact in 2024.

We are monitoring developments and evaluating the impacts these new rules will have on our future effective income tax rate, tax payments, financial condition and results of operations.

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

MASTERCARD 2023 FORM 10-K 58

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All of the above impacts were partially offset by a discrete tax benefit in the first quarter of 2022 related to final U.S.

tax regulations published in the current year.

These regulations resulted in a valuation allowance release of $333 million associated with the U.S.

foreign tax credit carryforward deferred tax asset.

The regulations limit Mastercard’s ability to generate foreign tax credits starting in 2022 for certain foreign taxes paid, resulting in additional U.S.

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

In August 2022, the U.S.

enacted the Inflation Reduction Act (the “IRA”).

The IRA includes a corporate alternative minimum tax of 15% on the adjusted financial statement income of corporations for years beginning after December 31, 2022, and an excise tax of 1% on the fair market value of annual net stock repurchases made after December 31, 2022.

We continue to analyze the impacts of the IRA, however, it is not expected to have a material impact on our financial statements.

Liquidity and Capital Resources

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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.

however, historical trends may not be indicative 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 and market conditions, including, but not limited to the health of the financial institutions in a country or region.

See Note 22 (Settlement and Other Risk Management) to the consolidated financial statements in Part II, Item 8 for a description of these guarantees.

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Net cash used in financing activities (9,488) (10,328) (6,555)

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

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

Net cash provided by operating activities increased $0.8 billion in 2023 versus the prior year, 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 restricted cash paid for litigation settlement, higher employee incentives paid and higher customer incentives payments.

Net cash used in investing activities decreased $0.1 billion in 2023 versus the prior year, primarily due to less cash paid for business acquisitions in the current year, partially offset by an increase in purchases of investments in time deposits.

Net cash used in financing activities decreased $0.8 billion in 2023 versus the prior year, primarily due to lower debt payments and higher proceeds from debt issuances in the current year, partially offset by higher repurchases of our Class A common stock and higher dividend payments.

59 MASTERCARD 2023 FORM 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Debt and Credit Availability

In February 2022, we issued €750 million ($800 million as of December 31, 2022) principal amount of notes due February 2029 (the “2022 EUR Notes”).

In July 2022, we entered into an unsecured INR22.7 billion ($275 million as of December 31, 2022) term loan due July 2023 (the “INR Term Loan”).

During 2022, €700 million ($724 million as of the maturity date) of principal related to the 2015 Euro Notes matured and was paid.

Our total debt outstanding was $14.0 billion at December 31, 2022, with the earliest maturity of INR22.7 billion ($275 million as of December 31, 2022) of principal occurring in July 2023.

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 existing 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 $15.7 billion at December 31, 2023, with the earliest maturity of $1.0 billion of principal occurring in April 2024.

As of December 31, 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.

On January 27, 2023, we increased our Commercial Paper Program from $6 billion to $8 billion.

In conjunction with the Commercial Paper Program, we have a committed unsecured $8 billion revolving credit facility (the “Credit Facility”) which now expires in November 2028.

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Repurchased shares of our common stock are considered treasury stock.

In December 2022, November 2021 and December 2020, our Board of Directors approved share repurchase programs of our Class A common stock authorizing us to repurchase up to $9.0 billion, $8.0 billion and $6.0 billion, respectively.

The program approved in 2022 will become effective after completion of the share repurchase program approved in 2021.

In December 2023, 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 $11.0 billion, $9.0 billion and $8.0 billion, respectively.

The program approved in 2023 will become effective after the completion of the share repurchase program approved in 2022.

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.

6 unchanged sentences

Average price paid per share in 2023 $ 379.49

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.

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

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Although we believe that our estimates and judgments discussed herein are reasonable, actual results may be materially different than the estimated amounts.

61 MASTERCARD 2023 FORM 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.

1 unchanged sentence

In assessing the need for a valuation allowance, we consider all sources of taxable income, including projected future taxable income, reversing taxable temporary differences and ongoing tax planning strategies.

If it is determined that we are able to realize deferred tax assets in excess of the net carrying value

59 MASTERCARD 2022 FORM 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

If it is determined that we are able to realize deferred tax assets in excess of the net carrying value or to the extent we are unable to realize a deferred tax asset, we would adjust the valuation allowance in the period in which such a determination is made, with a corresponding increase or decrease to earnings.

We record tax liabilities for uncertain tax positions taken, or expected to be taken, which may not be sustained or may only be partially sustained, upon examination by the relevant taxing authorities.

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Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.

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 23 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part II, Item 8.

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 exchange 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 loss of approximately $414 million and $94 million on our foreign exchange derivative contracts outstanding at December 31, 2023 and 2022, respectively, before considering the offsetting effect of the underlying hedged activity.

MASTERCARD 2023 FORM 10-K 62

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis