UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2021~~March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-32877

Mastercard Incorporated

(Exact name of registrant as specified in its charter)


Delaware		13-4172551
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

2000 Purchase Street		10577
Purchase,	NY	(Zip Code)
(Address of principal executive offices)

(914) 249-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange of which registered

Class A Common Stock, par value $0.0001 per share

New York Stock Exchange

1.1% Notes due 2022

MA22

New York Stock Exchange

2.1% Notes due 2027

MA27

New York Stock Exchange

1.0% Notes due 2029

MA29A

New York Stock Exchange

2.5% Notes due 2030

MA30

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)

Yes

☐

☒

As of ~~July 26, 2021,~~April 25, 2022, there were ~~978,828,818~~964,920,839 shares outstanding of the registrant’s Class A common stock, par value $0.0001 per share; and ~~7,946,224~~7,723,884 shares outstanding of the registrant’s Class B common stock, par value $0.0001 per share.

MASTERCARD INCORPORATED FORM 10-Q

TABLE OF CONTENTS

2 MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q

In this Report on Form 10-Q (“Report”), references to the “Company,” “Mastercard,” “we,” “us” or “our” refer to the business conducted by Mastercard Incorporated and its consolidated subsidiaries, including our operating subsidiary, Mastercard International Incorporated, and to the Mastercard brand.

Forward-Looking Statements

This Report contains forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts may be forward-looking statements. When used in this Report, the words “believe”, “expect”, “could”, “may”, “would”, “will”, “trend” and similar words are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements that relate to the Company’s future prospects, developments and business strategies.

Many factors and uncertainties relating to our operations and business environment, all of which are difficult to predict and many of which are outside of our control, influence whether any forward-looking statements can or will be achieved. Any one of those factors could cause our actual results to differ materially from those expressed or implied in writing in any forward-looking statements made by Mastercard or on its behalf, including, but not limited to, the following factors:

•regulation directly related to the payments industry (including regulatory, legislative and litigation activity with respect to interchange rates and surcharging)

•the impact of preferential or protective government actions

•regulation of privacy, data, security and the digital economy

•regulation that directly or indirectly applies to us based on our participation in the global payments industry (including anti-money laundering, counter financing of terrorism, economic sanctions and ~~anti-corruption;~~anti-corruption, account-based ~~payment systems;~~payments systems, and issuer and acquirer practice regulation)

•the impact of changes in tax laws, as well as regulations and interpretations of such laws or challenges to our tax positions

•potential or incurred liability and limitations on business related to any litigation or litigation settlements

•the impact of the global ~~coronavirus (COVID-19)~~COVID-19 pandemic and measures taken in response

•the impact of competition in the global payments industry (including disintermediation and pricing pressure)

•the challenges relating to rapid technological developments and changes

•the challenges relating to operating a real-time account-based ~~payment~~payments system and to working with new customers and end users

•the impact of information security incidents, account data breaches or service disruptions

•issues related to our relationships with our stakeholders (including loss of substantial business from significant customers, competitor relationships with our customers, ~~banking industry~~ consolidation amongst our customers, merchants’ continued focus on acceptance costs and unique risks from our work with governments)

•exposure to loss or illiquidity due to our role as guarantor and other contractual obligations

•the impact of global economic, political, financial and societal events and conditions, including adverse currency fluctuations and foreign exchange controls

•events and resulting actions related to the Russian invasion of Ukraine

•reputational impact, including impact related to brand perception and lack of visibility of our brands in products and services

•the inability to attract, hire and retain a highly qualified and diverse workforce, or maintain our corporate culture

•issues related to acquisition integration, strategic investments and entry into new businesses

•issues related to our Class A common stock and corporate governance structure

Please see a complete discussion of these risk factors in Part I, Item 1A - Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021 and in Part II, Item 1A - Risk Factors of this Report. We caution you that the important factors referenced above may not contain all of the factors that are important to you. Our forward-looking statements speak only as of the date of this Report or as of the date they are made, and we undertake no obligation to update our forward-looking statements.

MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q 3

PART I

Item 1. Consolidated financial statements (unaudited)

Item 2. Management’s discussion and analysis of financial condition and results of operations

Item 3. Quantitative and qualitative disclosures about market risk

Item 4. Controls and procedures

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Item 1. Consolidated financial statements (unaudited)

Mastercard Incorporated

Index to consolidated financial statements (unaudited)


						Page
Consolidated Statement of Operations — Three ~~and Six~~ Months Ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021						6
Consolidated Statement of Comprehensive Income — Three ~~and Six~~ Months Ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021						7
Consolidated Balance Sheet — ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021						8
Consolidated Statement of Changes in Equity — Three ~~and Six~~ Months Ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021						9
Consolidated Statement of Cash Flows — ~~Six~~Three Months Ended ~~June 30, 2021~~March 31, 2022 and ~~2020~~2021						1110
Notes to consolidated financial statements						1211

MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q 5

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Consolidated Statement of Operations (Unaudited)	Consolidated Statement of Operations (Unaudited)									Consolidated Statement of Operations (Unaudited)
		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
		(in millions, except per share data)										(in millions, except per share data)
Net Revenue	Net Revenue	$	4,528	$	3,335	$	8,683	$	7,344	Net Revenue		$	5,167	$	4,155
Operating Expenses
Operating Expenses:										Operating Expenses:
General and administrative	General and administrative	1,718		1,368		3,394		2,862		General and administrative		1,844		1,676
Advertising and marketing	Advertising and marketing	216		93		335		247		Advertising and marketing		181		119
Depreciation and amortization	Depreciation and amortization	186		145		349		289		Depreciation and amortization		192		163
Provision for litigation		67		22		67		28

Total operating expenses	Total operating expenses	2,187		1,628		4,145		3,426		Total operating expenses		2,217		1,958
Operating income	Operating income	2,341		1,707		4,538		3,918		Operating income		2,950		2,197
Other Income (Expense)
Other Income (Expense):										Other Income (Expense):
Investment income	Investment income	3		8		4		24		Investment income		5		1
Gains (losses) on equity investments, net	Gains (losses) on equity investments, net	243		75		337		(99)		Gains (losses) on equity investments, net		(76)		94
Interest expense	Interest expense	(106)		(101)		(213)		(170)		Interest expense		(110)		(107)
Other income (expense), net	Other income (expense), net	(3)		1		2		4		Other income (expense), net		4		5
Total other income (expense)	Total other income (expense)	137		(17)		130		(241)		Total other income (expense)		(177)		(7)
Income before income taxes	Income before income taxes	2,478		1,690		4,668		3,677		Income before income taxes		2,773		2,190
Income tax expense	Income tax expense	412		270		774		564		Income tax expense		142		362
Net Income	Net Income	$	2,066	$	1,420	$	3,894	$	3,113	Net Income		$	2,631	$	1,828
Basic Earnings per Share	Basic Earnings per Share	$	2.09	$	1.41	$	3.93	$	3.10	Basic Earnings per Share		$	2.69	$	1.84
Basic weighted-average shares outstanding	Basic weighted-average shares outstanding	990		1,004		992		1,005		Basic weighted-average shares outstanding		977		994
Diluted Earnings per Share	Diluted Earnings per Share	$	2.08	$	1.41	$	3.91	$	3.08	Diluted Earnings per Share		$	2.68	$	1.83
Diluted weighted-average shares outstanding	Diluted weighted-average shares outstanding	994		1,008		996		1,009		Diluted weighted-average shares outstanding		981		998

The accompanying notes are an integral part of these consolidated financial statements.

6 MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Consolidated Statement of Comprehensive Income (Unaudited)	Consolidated Statement of Comprehensive Income (Unaudited)									Consolidated Statement of Comprehensive Income (Unaudited)
		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
		(in millions)										(in millions)
Net Income	Net Income	$	2,066	$	1,420	$	3,894	$	3,113	Net Income		$	2,631	$	1,828
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Foreign currency translation adjustments	Foreign currency translation adjustments	143		36		(55)		(245)		Foreign currency translation adjustments		(64)		(198)
Income tax effect	Income tax effect	(9)		15		24		29		Income tax effect		12		33
Foreign currency translation adjustments, net of income tax effect	Foreign currency translation adjustments, net of income tax effect	134		51		(31)		(216)		Foreign currency translation adjustments, net of income tax effect		(52)		(165)

Translation adjustments on net investment hedges	Translation adjustments on net investment hedges	(61)		(29)		72		(9)		Translation adjustments on net investment hedges		86		133
Income tax effect	Income tax effect	14		6		(16)		2		Income tax effect		(19)		(30)
Translation adjustments on net investment hedges, net of income tax effect	Translation adjustments on net investment hedges, net of income tax effect	(47)		(23)		56		(7)		Translation adjustments on net investment hedges, net of income tax effect		67		103

Cash flow hedges	Cash flow hedges	(4)		0		(1)		(189)		Cash flow hedges		1		3
Income tax effect	Income tax effect	1		3		0		42		Income tax effect		—		(1)
Reclassification adjustments for cash flow hedges	Reclassification adjustments for cash flow hedges	3		1		4		1		Reclassification adjustments for cash flow hedges		(5)		1
Income tax effect	Income tax effect	(1)		0		(1)		0		Income tax effect		1		—
Cash flow hedges, net of income tax effect	Cash flow hedges, net of income tax effect	(1)		4		2		(146)		Cash flow hedges, net of income tax effect		(3)		3

Defined benefit pension and other postretirement plans		0		0		0		0
Income tax effect		0		0		0		0
Reclassification adjustment for defined benefit pension and other postretirement plans		(1)		(1)		(1)		(1)
Income tax effect		0		0		0		0
Defined benefit pension and other postretirement plans, net of income tax effect		(1)		(1)		(1)		(1)

Investment securities available-for-sale	Investment securities available-for-sale	1		4		2		(3)		Investment securities available-for-sale		(2)		1
Income tax effect	Income tax effect	(1)		(2)		(1)		0		Income tax effect		1		—
Investment securities available-for-sale, net of income tax effect	Investment securities available-for-sale, net of income tax effect	0		2		1		(3)		Investment securities available-for-sale, net of income tax effect		(1)		1

Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	85		33		27		(373)		Other comprehensive income (loss), net of tax		11		(58)
Comprehensive Income	Comprehensive Income	$	2,151	$	1,453	$	3,921	$	2,740	Comprehensive Income		$	2,642	$	1,770

The accompanying notes are an integral part of these consolidated financial statements.

MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q 7

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


Consolidated Balance Sheet (unaudited)
Consolidated Balance Sheet (Unaudited)						Consolidated Balance Sheet (Unaudited)
		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in millions, except per share data)					(in millions, except per share data)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	6,216	$	10,113	Cash and cash equivalents	$	6,879	$	7,421
Restricted cash for litigation settlement	Restricted cash for litigation settlement	586		586		Restricted cash for litigation settlement	585		586
Investments	Investments	544		483		Investments	449		473
Accounts receivable	Accounts receivable	2,773		2,646		Accounts receivable	2,889		3,006
Settlement due from customers		937		1,706
Settlement assets						Settlement assets	1,101		1,319
Restricted security deposits held for customers	Restricted security deposits held for customers	1,806		1,696		Restricted security deposits held for customers	1,730		1,873
Prepaid expenses and other current assets	Prepaid expenses and other current assets	2,217		1,883		Prepaid expenses and other current assets	2,320		2,271
Total current assets	Total current assets	15,079		19,113		Total current assets	15,953		16,949
Property, equipment and right-of-use assets, net of accumulated depreciation and amortization of $1,508 and $1,390, respectively		1,839		1,902
Property, equipment and right-of-use assets, net of accumulated depreciation and amortization of $1,679 and $1,614, respectively						Property, equipment and right-of-use assets, net of accumulated depreciation and amortization of $1,679 and $1,614, respectively	1,957		1,907
Deferred income taxes	Deferred income taxes	454		491		Deferred income taxes	795		486
Goodwill	Goodwill	7,661		4,960		Goodwill	7,625		7,662
Other intangible assets, net of accumulated amortization of $1,638 and $1,489, respectively		3,613		1,753
Other intangible assets, net of accumulated amortization of $1,819 and $1,755, respectively						Other intangible assets, net of accumulated amortization of $1,819 and $1,755, respectively	3,675		3,671
Other assets	Other assets	6,265		5,365		Other assets	7,158		6,994
Total Assets	Total Assets	$	34,911	$	33,584	Total Assets	$	37,163	$	37,669
Liabilities, Redeemable Non-controlling Interests and Equity	Liabilities, Redeemable Non-controlling Interests and Equity					Liabilities, Redeemable Non-controlling Interests and Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	547	$	527	Accounts payable	$	666	$	738
Settlement due to customers		569		1,475
Settlement obligations						Settlement obligations	547		913
Restricted security deposits held for customers	Restricted security deposits held for customers	1,806		1,696		Restricted security deposits held for customers	1,730		1,873
Accrued litigation	Accrued litigation	906		842		Accrued litigation	797		840
Accrued expenses	Accrued expenses	5,564		5,430		Accrued expenses	5,954		6,642
Current portion of long-term debt	Current portion of long-term debt	649		649		Current portion of long-term debt	778		792
Other current liabilities	Other current liabilities	1,256		1,228		Other current liabilities	1,456		1,364
Total current liabilities	Total current liabilities	11,297		11,847		Total current liabilities	11,928		13,162
Long-term debt	Long-term debt	13,250		12,023		Long-term debt	13,868		13,109
Deferred income taxes	Deferred income taxes	394		86		Deferred income taxes	386		395
Other liabilities	Other liabilities	3,401		3,111		Other liabilities	3,851		3,591
Total Liabilities	Total Liabilities	28,342		27,067		Total Liabilities	30,033		30,257
Commitments and Contingencies	Commitments and Contingencies	0		0		Commitments and Contingencies	0		0
Redeemable Non-controlling Interests	Redeemable Non-controlling Interests	29		29		Redeemable Non-controlling Interests	28		29
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,397 and 1,396 shares issued and 980 and 987 shares outstanding, respectively		0		0
Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,398 and 1,397 shares issued and 967 and 972 shares outstanding, respectively						Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,398 and 1,397 shares issued and 967 and 972 shares outstanding, respectively	—		—
Class B common stock, $0.0001 par value; authorized 1,200 shares, 8 shares issued and outstanding	Class B common stock, $0.0001 par value; authorized 1,200 shares, 8 shares issued and outstanding	0		0		Class B common stock, $0.0001 par value; authorized 1,200 shares, 8 shares issued and outstanding	—		—
Additional paid-in-capital	Additional paid-in-capital	5,053		4,982		Additional paid-in-capital	5,026		5,061
Class A treasury stock, at cost, 417 and 409 shares, respectively		(39,729)		(36,658)
Class A treasury stock, at cost, 432 and 425 shares, respectively						Class A treasury stock, at cost, 432 and 425 shares, respectively	(44,994)		(42,588)
Retained earnings	Retained earnings	41,771		38,747		Retained earnings	47,800		45,648
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(653)		(680)		Accumulated other comprehensive income (loss)	(798)		(809)
Mastercard Incorporated Stockholders' Equity	Mastercard Incorporated Stockholders' Equity	6,442		6,391		Mastercard Incorporated Stockholders' Equity	7,034		7,312
Non-controlling interests	Non-controlling interests	98		97		Non-controlling interests	68		71
Total Equity	Total Equity	6,540		6,488		Total Equity	7,102		7,383
Total Liabilities, Redeemable Non-controlling Interests and Equity	Total Liabilities, Redeemable Non-controlling Interests and Equity	$	34,911	$	33,584	Total Liabilities, Redeemable Non-controlling Interests and Equity	$	37,163	$	37,669

The accompanying notes are an integral part of these consolidated financial statements.

8 MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Changes in Equity (Unaudited)
Three Months Ended June 30, 2021
Stockholders’ Equity
Common Stock Additional
Paid-In
Capital Class A
Treasury
Stock Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Mastercard Incorporated Stockholders’ Equity Non-
Controlling
Interests Total Equity
Class A Class B
(in millions)
Balance at March 31, 2021 $ 0 $ 0 $ 4,949 $ (38,024) $ 40,140 $ (738) $ 6,327 $ 98 $ 6,425
Net income — — — — 2,066 — 2,066 — 2,066
Activity related to non-controlling interests — — — — — — — 0 0
Redeemable non-controlling interest adjustments — — — — (1) — (1) — (1)
Other comprehensive income (loss) — — — — — 85 85 — 85
Dividends — — — — (434) — (434) — (434)
Purchases of treasury stock — — — (1,705) — — (1,705) — (1,705)
Share-based payments — — 104 0 — — 104 — 104
Balance at June 30, 2021 $ 0 $ 0 $ 5,053 $ (39,729) $ 41,771 $ (653) $ 6,442 $ 98 $ 6,540


Consolidated Statement of Changes in Equity (Unaudited)																																Consolidated Statement of Changes in Equity (Unaudited)
																																			Three Months Ended March 31, 2022
		Six Months Ended June 30, 2021																																	Stockholders’ Equity
		Stockholders’ Equity																																	Common Stock				Additional Paid-In Capital				Class A Treasury Stock				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Mastercard Incorporated Stockholders' Equity				Non- Controlling Interests				Total Equity
		Common Stock				Additional Paid-In Capital				Class A Treasury Stock				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Mastercard Incorporated Stockholders' Equity				Non- Controlling Interests				Total Equity					Class A		Class B
		Class A		Class B																												(in millions)
		(in millions)
Balance at December 31, 2020		$	0	$	0			$	4,982			$	(36,658)			$	38,747			$	(680)			$	6,391			$	97				$	6,488
Balance at December 31, 2021																																Balance at December 31, 2021			$	—	$	—			$	5,061			$	(42,588)			$	45,648			$	(809)			$	7,312			$	71			$	7,383
Net income	Net income	—		—		—				—				3,894				—				3,894				—				3,894		Net income			—		—		—				—				2,631				—				2,631				—				2,631
Activity related to non-controlling interests	Activity related to non-controlling interests	—		—		—				—				—				—				—				1				1		Activity related to non-controlling interests			—		—		—				—				—				—				—				(3)				(3)
Redeemable non-controlling interest adjustments	Redeemable non-controlling interest adjustments	—		—		—				—				(2)				—				(2)				—				(2)		Redeemable non-controlling interest adjustments			—		—		—				—				(2)				—				(2)				—				(2)
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—				—				—				27				27				—				27		Other comprehensive income (loss)			—		—		—				—				—				11				11				—				11
Dividends	Dividends	—		—		—				—				(868)				—				(868)				—				(868)		Dividends			—		—		—				—				(477)				—				(477)				—				(477)
Purchases of treasury stock	Purchases of treasury stock	—		—		—				(3,075)				—				—				(3,075)				—				(3,075)		Purchases of treasury stock			—		—		—				(2,411)				—				—				(2,411)				—				(2,411)
Share-based payments	Share-based payments	—		—		71				4				—				—				75				—				75		Share-based payments			—		—		(35)				5				—				—				(30)				—				(30)
Balance at June 30, 2021		$	0	$	0	$	5,053			$	(39,729)			$	41,771			$	(653)			$	6,442			$	98			$	6,540
Balance at March 31, 2022																																Balance at March 31, 2022			$	—	$	—	$	5,026			$	(44,994)			$	47,800			$	(798)			$	7,034			$	68			$	7,102


	Three Months Ended March 31, 2021
	Stockholders’ Equity
	Common Stock				Additional Paid-In Capital		Class A Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Mastercard Incorporated Stockholders' Equity		Non- Controlling Interests		Total Equity
	Class A		Class B
	(in millions)
Balance at December 31, 2020	$	—	$	—	$	4,982	$	(36,658)	$	38,747	$	(680)	$	6,391	$	97	$	6,488
Net income	—		—		—		—		1,828		—		1,828		—		1,828
Activity related to non-controlling interests	—		—		—		—		—		—		—		1		1
Redeemable non-controlling interest adjustments	—		—		—		—		(1)		—		(1)		—		(1)
Other comprehensive income (loss)	—		—		—		—		—		(58)		(58)		—		(58)
Dividends	—		—		—		—		(434)		—		(434)		—		(434)
Purchases of treasury stock	—		—		—		(1,370)		—		—		(1,370)		—		(1,370)
Share-based payments	—		—		(33)		4		—		—		(29)		—		(29)
Balance at March 31, 2021	$	—	$	—	$	4,949	$	(38,024)	$	40,140	$	(738)	$	6,327	$	98	$	6,425

The accompanying notes are an integral part of these consolidated financial statements.

MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q 9

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Changes in Equity (Unaudited) - (Continued)
Three Months Ended June 30, 2020
Stockholders’ Equity
Common Stock Additional
Paid-In
Capital Class A
Treasury
Stock Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Mastercard Incorporated Stockholders’ Equity Non-
Controlling
Interests Total Equity
Class A Class B
(in millions)
Balance at March 31, 2020 $ 0 $ 0 $ 4,735 $ (33,531) $ 35,273 $ (1,079) $ 5,398 $ 25 $ 5,423
Net income — — — — 1,420 — 1,420 — 1,420
Activity related to non-controlling interests — — — — — — — 3 3
Redeemable non-controlling interest adjustments — — — — (3) — (3) — (3)
Other comprehensive income (loss) — — — — — 33 33 — 33
Dividends — — — — (402) — (402) — (402)
Purchases of treasury stock — — — (75) — — (75) — (75)
Share-based payments — — 97 2 — — 99 — 99
Balance at June 30, 2020 $ 0 $ 0 $ 4,832 $ (33,604) $ 36,288 $ (1,046) $ 6,470 $ 28 $ 6,498

Six Months Ended June 30, 2020
Stockholders’ Equity

Common Stock Additional
Paid-In
Capital Class A
Treasury
Stock Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Mastercard Incorporated Stockholders' Equity Non-
Controlling
Interests Total
Equity
Class A Class B
(in millions)
Balance at December 31, 2019 $ 0 $ 0 $ 4,787 $ (32,205) $ 33,984 $ (673) $ 5,893 $ 24 $ 5,917
Net income — — — — 3,113 — 3,113 — 3,113
Activity related to non-controlling interests — — — — — — — 4 4
Redeemable non-controlling interest adjustments — — — — (5) — (5) — (5)
Other comprehensive income (loss) — — — — — (373) (373) — (373)
Dividends — — — — (804) — (804) — (804)
Purchases of treasury stock — — — (1,405) — — (1,405) — (1,405)
Share-based payments — — 45 6 — — 51 — 51
Balance at June 30, 2020 $ 0 $ 0 $ 4,832 $ (33,604) $ 36,288 $ (1,046) $ 6,470 $ 28 $ 6,498


Consolidated Statement of Cash Flows (Unaudited)
	Three Months Ended March 31,
	2022		2021
	(in millions)
Operating Activities
Net income	$	2,631	$	1,828
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of customer and merchant incentives	430		338
Depreciation and amortization	192		163
(Gains) losses on equity investments, net	76		(94)
Share-based compensation	74		65
Deferred income taxes	(320)		33
Other	5		11
Changes in operating assets and liabilities:
Accounts receivable	134		(70)

Settlement assets	218		28
Prepaid expenses	(441)		(562)
Accrued litigation and legal settlements	(43)		(2)
Restricted security deposits held for customers	(144)		63
Accounts payable	(56)		(15)
Settlement obligations	(366)		(178)

Accrued expenses	(746)		(163)
Net change in other assets and liabilities	138		18
Net cash provided by operating activities	1,782		1,463
Investing Activities
Purchases of investment securities available-for-sale	(58)		(155)
Purchases of investments held-to-maturity	(37)		(38)
Proceeds from sales of investment securities available-for-sale	8		23
Proceeds from maturities of investment securities available-for-sale	70		72
Proceeds from maturities of investments held-to-maturity	43		79
Purchases of property and equipment	(146)		(65)
Capitalized software	(148)		(79)
Purchases of equity investments	(24)		(42)

Acquisition of businesses, net of cash acquired	—		(3,364)

Other investing activities	5		9
Net cash used in investing activities	(287)		(3,560)
Financing Activities
Purchases of treasury stock	(2,408)		(1,356)
Dividends paid	(479)		(439)
Proceeds from debt, net	843		1,282




Tax withholdings related to share-based payments	(132)		(121)
Cash proceeds from exercise of stock options	28		23
Other financing activities	(6)		5
Net cash used in financing activities	(2,154)		(606)
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents	(28)		(101)
Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents	(687)		(2,804)
Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period	9,902		12,419
Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period	$	9,215	$	9,615

The accompanying notes are an integral part of these consolidated financial statements.

10 MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q

~~PART I~~

~~ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Consolidated Statement of Cash Flows (Unaudited)
Six Months Ended June 30,
2021 2020
(in millions)
Operating Activities
Net income $ 3,894 $ 3,113
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of customer and merchant incentives 651 468
Depreciation and amortization 349 289
(Gains) losses on equity investments, net (337) 99
Share-based compensation 152 127
Deferred income taxes (15) 29
Other 32 (32)
Changes in operating assets and liabilities:
Accounts receivable (158) 299
Settlement due from customers 769 1,213
Prepaid expenses (995) (679)
Accrued litigation and legal settlements 63 (61)
Restricted security deposits held for customers 110 178
Accounts payable (92) (82)
Settlement due to customers (906) (1,187)
Accrued expenses 27 (855)
Net change in other assets and liabilities 187 398
Net cash provided by operating activities 3,731 3,317
Investing Activities
Purchases of investment securities available-for-sale (261) (78)
Purchases of investments held-to-maturity (173) (82)
Proceeds from sales of investment securities available-for-sale 140 256
Proceeds from maturities of investment securities available-for-sale 69 100
Proceeds from maturities of investments held-to-maturity 156 84
Purchases of property and equipment (146) (201)
Capitalized software (191) (191)
Purchases of equity investments (87) (150)
Acquisition of businesses, net of cash acquired (4,200) (183)
Settlement of interest rate derivative contracts 0 (175)
Other investing activities (9) (6)
Net cash used in investing activities (4,702) (626)
Financing Activities
Purchases of treasury stock (3,067) (1,383)
Dividends paid (873) (804)
Proceeds from debt, net 1,282 3,959
Contingent consideration paid (64) 0
Tax withholdings related to share-based payments (125) (141)
Cash proceeds from exercise of stock options 44 65
Other financing activities 2 (5)
Net cash (used in) provided by financing activities (2,801) 1,691
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents (24) (49)
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents (3,796) 4,333
Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period 12,419 8,969
Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period $ 8,623 $ 13,302

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~MASTERCARD JUNE 30, 2021 FORM 10-Q~~ 11

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to consolidated financial statements (unaudited)

Note 1. Summary of Significant Accounting Policies

Organization

Mastercard Incorporated and its consolidated subsidiaries, including Mastercard International Incorporated (“Mastercard International” and together with Mastercard Incorporated, “Mastercard” or the “Company”), is a technology company in the global payments industry that connects consumers, financial institutions, merchants, governments, digital partners, businesses and other organizations worldwide, enabling them to use electronic forms of payment instead of cash and checks.

Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Mastercard and its majority-owned and controlled entities, including any variable interest entities (“VIEs”) for which the Company is the primary beneficiary. Investments in VIEs for which the Company is not considered the primary beneficiary are not consolidated and are accounted for as marketable equity method or measurement alternative method investments and recorded in other assets on the consolidated balance sheet. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, there were no significant VIEs which required consolidation and the investments were not considered material to the consolidated financial statements. The Company consolidates acquisitions as of the date inon which the Company has obtained a controlling financial interest. Intercompany transactions and balances have been eliminated in consolidation. ~~Certain~~The Company corrected prior period ~~amounts have been reclassified to conform to~~classifications of certain line items within investing activities on the ~~2021 presentation.~~consolidated statement of cash flows with no impact on total net cash used in investing activities. The Company follows accounting principles generally accepted in the United States of America (“GAAP”).

The balance sheet as of December 31, ~~2020~~2021 was derived from the audited consolidated financial statements as of December 31, ~~2020.~~2021. The consolidated financial statements for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ and as of ~~June 30, 2021~~March 31, 2022 are unaudited, and in the opinion of management, include all normal recurring adjustments that are necessary to present fairly the results for interim periods. The results of operations for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 are not necessarily indicative of the results to be expected for the full year.

The accompanying unaudited consolidated financial statements are presented in accordance with the U.S. Securities and Exchange Commission (“SEC”) requirements for Quarterly Reports on Form 10-Q. Reference should be made to ~~the~~ Mastercard’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 for additional disclosures, including a summary of the Company’s significant accounting policies.

Key Developments

~~Note 2. Acquisitions~~

~~During~~Beginning in February 2022, in response to the ~~six months ended June 30, 2021,~~Russian invasion of Ukraine, the United States and other governments imposed sanctions and other restrictive measures on certain Russian-related entities and individuals and, in March 2022, the Company ~~acquired businesses for $4.4 billion~~suspended business operations in ~~cash consideration. These acquisitions align with the Company’s strategy to grow, diversify and build the Company’s business.~~

On March 5, 2021, Mastercard acquired a majority of the Corporate Services business of Nets Denmark A/S for €3.0 billion (approximately $3.6 billion as of the date of acquisition) in cash consideration based on a €2.85 billion enterprise value, adjusted for cash and net working capital at closing.Russia. The business acquired is primarily comprised of clearing and instant payment services and e-billing solutions. In relation to this acquisition, the Company’s preliminary estimate of net assets acquired primarily relates to intangible assets, including goodwill of $2.1 billion, of which $0.8 billion is expected to be deductible for local tax purposes. The goodwill arising from this acquisition is primarily attributable to the synergies expected to arise through geographic, product and customer expansion, the underlying technology and workforce acquired.

On June 9, 2021, Mastercard acquired a 100% equity interest in Ekata, Inc. (“Ekata”) for cash consideration of $861 million, based on an $850 million enterprise value, adjusted for cash and net working capital at closing. The acquisition of Ekata is expected to broaden the Company’s digital identity verification capabilities. The residual value allocated to goodwill is primarily attributable to the synergies expected to arise after the acquisition date and none of the goodwill is expected to be deductible for local tax purposes.

~~Refer to Note 1 (Summary of Significant Accounting Policies) to the consolidated~~ financial statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for the valuation techniques Mastercard utilizes to fair value the respective components of business combinations.

12 ~~MASTERCARD JUNE 30, 2021 FORM 10-Q~~

~~PART I~~

~~ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The Company is in the process of obtaining additional information necessary to finalize the valuation of the acquired assets and liabilities assumed as of the acquisition dates for the Nets and Ekata acquisitions. Therefore, the preliminary fair values set forth below use information available as of June 30, 2021 and are subject to adjustment as additional information is obtained and the valuations are completed. The initial purchase price allocation, as of the acquisition dates, is noted below:


	~~(in millions)~~






~~Assets:~~
~~Cash and cash equivalents~~	$	~~228~~
~~Other current assets~~	27
~~Other intangible assets~~	~~1,917~~
~~Goodwill~~	~~2,692~~

~~Other assets~~	15
~~Total assets~~	~~4,879~~

~~Liabilities:~~

~~Other current liabilities~~	81
~~Deferred income taxes~~	~~359~~
~~Other liabilities~~	11
~~Total liabilities~~	~~451~~

~~Net assets acquired~~	$	~~4,428~~

~~The following table summarizes the identified intangible assets acquired during the six months ended June 30, 2021:~~

Acquisition Date Fair Value Weighted-Average Useful Life
(in millions) (in years)
Developed technologies $ 366 12.3
Customer relationships 1,530 19.0
Other 21 8.0
Other intangible assets $ 1,917 17.6

~~Proforma information~~impacts related to these ~~acquisitions was~~actions were not ~~included because the impact on~~material to the Company’s ~~consolidated~~overall financial results ~~of operations was~~for the current period.

Note 2. Acquisitions

During the three months ended March 31, 2022, the Company did not ~~considered to be material.~~

acquire any businesses. In ~~2020,~~2021, the Company acquired several businesses in separate transactions for total consideration of ~~$1.1~~$4.7 billion. As of ~~June 30, 2021,~~March 31, 2022, the Company had finalized the purchase accounting ~~for $185 million~~for $3.6 billion of the businesses acquired and is evaluating and finalizing the purchase accounting for the remainder of businesses acquired during ~~2020.~~2021. For the preliminary estimated and final fair values of the purchase price allocations, as of the acquisition dates, refer to Note 2 (Acquisitions) to the consolidated financial statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Pending Acquisition

As of March 31, 2022, Mastercard has entered into a definitive agreement to acquire Dynamic Yield LTD. This acquisition subsequently closed in April 2022. The Company will begin consolidating the acquisition as of the date acquired.

MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q 1311

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Revenue

The Company’s disaggregated net revenue by source and geographic region were as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
		(in millions)										(in millions)
Revenue by source:	Revenue by source:									Revenue by source:
Domestic assessments	Domestic assessments	$	2,056	$	1,474	$	3,854	$	3,157	Domestic assessments		$	2,134	$	1,798
Cross-border volume fees	Cross-border volume fees	1,076		637		2,008		1,854		Cross-border volume fees		1,395		932
Transaction processing	Transaction processing	2,612		1,901		4,963		4,101		Transaction processing		2,912		2,351
Other revenues	Other revenues	1,475		1,081		2,822		2,143		Other revenues		1,584		1,347
Gross revenue	Gross revenue	7,219		5,093		13,647		11,255		Gross revenue		8,025		6,428
Rebates and incentives (contra-revenue)	Rebates and incentives (contra-revenue)	(2,691)		(1,758)		(4,964)		(3,911)		Rebates and incentives (contra-revenue)		(2,858)		(2,273)
Net revenue	Net revenue	$	4,528	$	3,335	$	8,683	$	7,344	Net revenue		$	5,167	$	4,155
Net revenue by geographic region:	Net revenue by geographic region:									Net revenue by geographic region:
North American Markets	North American Markets	$	1,605	$	1,243	$	3,096	$	2,577	North American Markets		$	1,703	$	1,491
International Markets	International Markets	2,879		2,042		5,497		4,675		International Markets		3,385		2,618
Other 1	Other 1	44		50		90		92		Other 1		79		46
Net revenue	Net revenue	$	4,528	$	3,335	$	8,683	$	7,344	Net revenue		$	5,167	$	4,155

1 Includes revenues managed by corporate functions.

The Company’s customers are generally billed weekly, however, the frequency is dependent upon the nature of the performance obligation and the underlying contractual terms. The Company does not typically offer extended payment terms to customers. The following table sets forth the location of the amounts recognized on the consolidated balance sheet from contracts with customers:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in millions)					(in millions)
Receivables from contracts with customers	Receivables from contracts with customers					Receivables from contracts with customers
Accounts receivable	Accounts receivable	$	2,593	$	2,505	Accounts receivable	$	2,680	$	2,829
Contract assets	Contract assets					Contract assets
Prepaid expenses and other current assets	Prepaid expenses and other current assets	75		59		Prepaid expenses and other current assets	148		134
Other assets	Other assets	321		245		Other assets	530		487
Deferred revenue 1	Deferred revenue 1					Deferred revenue 1
Other current liabilities	Other current liabilities	430		355		Other current liabilities	586		482
Other liabilities	Other liabilities	206		143		Other liabilities	203		180

1 Revenue recognized from performance obligations satisfied during the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ was ~~$291~~$335 million and ~~$471 million and $206 million and $395~~$180 million, respectively.

1412 MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Earnings Per Share

The components of basic and diluted earnings per share (“EPS”) for common shares were as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
		(in millions, except per share data)										(in millions, except per share data)
Numerator	Numerator									Numerator
Net income	Net income	$	2,066	$	1,420	$	3,894	$	3,113	Net income		$	2,631	$	1,828
Denominator	Denominator									Denominator
Basic weighted-average shares outstanding	Basic weighted-average shares outstanding	990		1,004		992		1,005		Basic weighted-average shares outstanding		977		994
Dilutive stock options and stock units	Dilutive stock options and stock units	4		4		4		4		Dilutive stock options and stock units		4		4
Diluted weighted-average shares outstanding 1	Diluted weighted-average shares outstanding 1	994		1,008		996		1,009		Diluted weighted-average shares outstanding 1		981		998
Earnings per Share	Earnings per Share									Earnings per Share
Basic	Basic	$	2.09	$	1.41	$	3.93	$	3.10	Basic		$	2.69	$	1.84
Diluted	Diluted	$	2.08	$	1.41	$	3.91	$	3.08	Diluted		$	2.68	$	1.83

1 For the periods presented, the calculation of diluted EPS excluded a minimal amount of anti-dilutive share-based payment awards.

Note 5. Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents

The following table provides a reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents reported on the consolidated balance sheet that total to the amounts shown on the consolidated statement of cash flows.


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in millions)					(in millions)
Cash and cash equivalents	Cash and cash equivalents	$	6,216	$	10,113	Cash and cash equivalents	$	6,879	$	7,421
Restricted cash and restricted cash equivalents	Restricted cash and restricted cash equivalents					Restricted cash and restricted cash equivalents
Restricted cash for litigation settlement	Restricted cash for litigation settlement	586		586		Restricted cash for litigation settlement	585		586
Restricted security deposits held for customers	Restricted security deposits held for customers	1,806		1,696		Restricted security deposits held for customers	1,730		1,873
Prepaid expenses and other current assets	Prepaid expenses and other current assets	15		24		Prepaid expenses and other current assets	21		22

Cash, cash equivalents, restricted cash and restricted cash equivalents	Cash, cash equivalents, restricted cash and restricted cash equivalents	$	8,623	$	12,419	Cash, cash equivalents, restricted cash and restricted cash equivalents	$	9,215	$	9,902

Note 6. Investments

The Company’s investments on the consolidated balance sheet include both available-for-sale and held-to-maturity debt securities (see Investments section below). The Company classifies its investments in equity securities of publicly traded and privately held companies within other assets on the consolidated balance sheet (see Equity Investments section below).

Investments

Investments on the consolidated balance sheet consisted of the following:

June 30,
2021 December 31,
2020
(in millions)
Available-for-sale securities $ 365 $ 321
Held-to-maturity securities 179 162
Total investments $ 544 $ 483


	March 31, 2022		December 31, 2021
	(in millions)
Available-for-sale securities 1	$	289	$	314
Held-to-maturity securities 2	160		159
Total investments	$	449	$	473

1See Available-for-Sale Securities section below for further detail.

2The cost of these securities approximates fair value.

MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q 1513

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Available-for-Sale-Securities~~Available-for-Sale Securities

The major classes of the Company’s available-for-sale investment securities and their respective amortized cost basis and fair values were as follows:


		June 30, 2021								December 31, 2020									March 31, 2022								December 31, 2021
		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value			Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
		(in millions)																	(in millions)
Municipal securities	Municipal securities	$	6	$	0	$	0	$	6	$	10	$	0	$	0	$	10	Municipal securities	$	1	$	—	$	—	$	1	$	2	$	—	$	—	$	2
Government and agency securities	Government and agency securities	133		0		0		133		64		0		0		64		Government and agency securities	85		—		—		85		98		—		—		98
Corporate securities	Corporate securities	223		3		0		226		246		1		0		247		Corporate securities	205		—		(2)		203		214		—		—		214

Total	Total	$	362	$	3	$	0	$	365	$	320	$	1	$	0	$	321	Total	$	291	$	—	$	(2)	$	289	$	314	$	—	$	—	$	314

The Company’s corporate and municipal available-for-sale investment securities held at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 primarily carried a credit rating of A- or better. Corporate securities are comprised of commercial paper and corporate bonds. Municipal securities are comprised of state tax-exempt bonds and are diversified across states and sectors. Government and agency securities include U.S. government bonds, U.S. government sponsored agency bonds and foreign government bonds which are denominated in the national currency of the issuing country. Unrealized gains and losses are recorded as a separate component of other comprehensive income (loss) on the consolidated statement of comprehensive income.

The maturity distribution based on the contractual terms of the Company’s available-for-sale investment securities at ~~June 30, 2021~~March 31, 2022 was as follows:


		Available-For-Sale
		Amortized Cost		Fair Value			Amortized Cost		Fair Value
		(in millions)					(in millions)
Due within 1 year	Due within 1 year	$	167	$	167	Due within 1 year	$	134	$	134
Due after 1 year through 5 years	Due after 1 year through 5 years	195		198		Due after 1 year through 5 years	157		155

Total	Total	$	362	$	365	Total	$	291	$	289

Investment income on the consolidated statement of operations primarily consists of interest income generated from cash, cash equivalents, time deposits and available-for-sale investment securities, as well as realized gains and losses on the Company’s investment securities. The realized gains and losses from the sales of available-for-sale securities for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ were not ~~significant.~~

~~Held-to-Maturity Securities~~

The Company classifies time deposits with maturities greater than three months but less than one year as held-to-maturity. Time deposits are carried at amortized cost on the consolidated balance sheet and are intended to be held until maturity. The cost of these securities approximates fair value.material.

Equity Investments

Included in other assets on the consolidated balance sheet are equity investments with readily determinable fair values (“Marketable securities”) and equity investments without readily determinable fair values (“Nonmarketable securities”). Marketable securities are equity interests in publicly traded companies and are measured using unadjusted quoted prices in their respective active markets. Nonmarketable securities that do not qualify for equity method accounting are measured at cost, less any impairment and adjusted for changes resulting from observable price changes in orderly transactions for the identical or similar investments of the same issuer (“~~measurement~~Measurement alternative”).

The following table is a summary of the activity related to the Company’s equity investments:


		Balance at December 31, 2020		Purchases (Sales), net		Changes in Fair Value 1		Other 2		Balance at June 30, 2021			Balance at December 31, 2021		Purchases		Sales		Changes in Fair Value 1		Other 2		Balance at March 31, 2022
		(in millions)											(in millions)
Marketable securities	Marketable securities	$	476	$	0	$	145	$	40	$	661	Marketable securities	$	627	$	—	$	—	$	(162)	$	(5)	$	460
Nonmarketable securities	Nonmarketable securities	696		82		192		(36)		934		Nonmarketable securities	1,207		24		—		86		(5)		1,312
Total equity investments	Total equity investments	$	1,172	$	82	$	337	$	4	$	1,595	Total equity investments	$	1,834	$	24	$	—	$	(76)	$	(10)	$	1,772

1Recorded in gains (losses) on equity investments, net on the consolidated statement of operations.

2Includes ~~transfers between equity investment categories due to changes to the existence of readily determinable fair values and~~ translational impact of currency.

1614 MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the components of the Company’s Nonmarketable securities:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in millions)					(in millions)
Measurement alternative 1		$	718	$	539
Measurement alternative						Measurement alternative	$	1,038	$	952
Equity method	Equity method	216		157		Equity method	274		255
Total Nonmarketable securities	Total Nonmarketable securities	$	934	$	696	Total Nonmarketable securities	$	1,312	$	1,207

1 ~~Cumulative impairments and downward fair~~The following table summarizes the total carrying value ~~adjustments on measurement~~of the Company’s Measurement alternative investments, w~~ere $15 million~~including cumulative unrealized gains and ~~cumulative upward fair~~losses through March 31, 2022:


	March 31, 2022
	(in millions)
Initial cost basis	$	457
Cumulative adjustments:
Upward adjustments	594
Downward adjustments (including impairment)	(13)
Carrying amount, end of period	$	1,038

The following table summarizes the unrealized gains and losses included in the carrying value ~~adjustments were $235 million as~~ of ~~June 30, 2021.~~the Company’s Measurement alternative investments and Marketable securities for the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
	2022		2021
	(in millions)
Measurement alternative investments:
Upward adjustments	$	86	$	41
Downward adjustments (including impairment)	—		—
Marketable securities:
Unrealized gains/(losses), net	(162)		54

Note 7. Fair Value Measurements

The Company classifies its fair value measurements of financial instruments into a three-level hierarchy (the “Valuation Hierarchy”). Financial instruments are categorized for fair value measurement purposes as recurring or non-recurring in nature. ~~Transfers made among the three levels in the Valuation Hierarchy for the three and six months ended June 30, 2021 were not material.~~

MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q 1715

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Instruments - Recurring Measurements

The distribution of the Company’s financial instruments measured at fair value on a recurring basis within the Valuation Hierarchy were as follows:


		June 30, 2021								December 31, 2020									March 31, 2022								December 31, 2021
		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
		(in millions)																	(in millions)
Assets	Assets																	Assets
Investment securities available for sale 1:
Investment securities available-for-sale 1:																		Investment securities available-for-sale 1:
Municipal securities	Municipal securities	$	0	$	6	$	0	$	6	$	0	$	10	$	0	$	10	Municipal securities	$	—	$	1	$	—	$	1	$	—	$	2	$	—	$	2
Government and agency securities	Government and agency securities	41		92		0		133		26		38		0		64		Government and agency securities	33		52		—		85		35		63		—		98
Corporate securities	Corporate securities	0		226		0		226		0		247		0		247		Corporate securities	—		203		—		203		—		214		—		214

Derivative instruments 2:	Derivative instruments 2:																	Derivative instruments 2:
Foreign exchange contracts	Foreign exchange contracts	0		30		0		30		0		19		0		19		Foreign exchange contracts	—		43		—		43		—		8		—		8
Interest rate contracts																		Interest rate contracts	—		—		—		—		—		6		—		6
Marketable securities 3:	Marketable securities 3:																	Marketable securities 3:
Equity securities	Equity securities	661		0		0		661		476		0		0		476		Equity securities	460		—		—		460		627		—		—		627
Deferred compensation plan 4:	Deferred compensation plan 4:																	Deferred compensation plan 4:
Deferred compensation assets	Deferred compensation assets	85		0		0		85		78		0		0		78		Deferred compensation assets	77		—		—		77		89		—		—		89

Liabilities	Liabilities																	Liabilities
Derivative instruments 2:	Derivative instruments 2:																	Derivative instruments 2:
Foreign exchange derivative liabilities		$	0	$	(7)	$	0	$	(7)	$	0	$	(28)	$	0	$	(28)

Foreign exchange contracts																		Foreign exchange contracts	$	—	$	7	$	—	$	7	$	—	$	15	$	—	$	15
Interest rate contracts																		Interest rate contracts	—		53		—		53		—		8		—		8
Deferred compensation plan 5:	Deferred compensation plan 5:																	Deferred compensation plan 5:
Deferred compensation liabilities	Deferred compensation liabilities	(84)		0		0		(84)		(81)		0		0		(81)		Deferred compensation liabilities	84		—		—		84		89		—		—		89

1The Company’s U.S. government securities are classified within Level 1 of the Valuation Hierarchy as the fair values are based on unadjusted quoted prices for identical assets in active markets. The fair value of the Company’s available-for-sale municipal securities, non-U.S. government and agency securities and corporate securities are based on observable inputs such as quoted prices, benchmark yields and issuer spreads for similar assets in active markets and are therefore included in Level 2 of the Valuation Hierarchy.

2The Company’s foreign exchange and interest rate derivative asset and liability contracts have been classified within Level 2 of the Valuation Hierarchy as the fair value is based on observable inputs such as broker quotes ~~relating to foreign exchange~~ for similar derivative instruments. See Note 17 (Derivative and Hedging Instruments) for further details.

3The Company’s Marketable securities are publicly held and classified within Level 1 of the Valuation Hierarchy as the fair values are based on unadjusted quoted prices in their respective active markets.

4The Company has a nonqualified deferred compensation plan where assets are invested primarily in mutual funds held in a rabbi trust, which is restricted for payments to participants of the plan. The Company has elected to use the fair value option for these mutual funds, which are measured using quoted prices of identical instruments in active markets and are included in prepaid expenses and other current assets on the consolidated balance sheet.

5The deferred compensation liabilities are measured at fair value based on the quoted prices of identical instruments to the investment vehicles selected by the participants. These are included in other liabilities on the consolidated balance sheet.

Financial Instruments - Non-Recurring Measurements

Nonmarketable Securities

The Company’s Nonmarketable securities are recorded at fair value on a non-recurring basis in periods after initial recognition under the equity method or measurement alternative method. Nonmarketable securities are classified within Level 3 of the Valuation Hierarchy due to the absence of quoted market prices, the inherent lack of liquidity and unobservable inputs used to measure fair value that require management’s judgment. The Company uses discounted cash flows and market assumptions to estimate the fair value of its Nonmarketable securities when certain events or circumstances indicate that impairment may exist. See Note 6 (Investments) for further details.

1816 MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Debt

The Company estimates the fair value of its long-term debt based on market quotes. These debt securities are classified as Level 2 of the Valuation Hierarchy as they are not traded in active markets. At ~~June 30, 2021,~~March 31, 2022, the carrying value and fair value of total long-term debt (including the current portion) was ~~$13.9~~$14.6 billion and ~~$15.5~~$15.0 billion, respectively. At December 31, ~~2020,~~2021, the carrying value and fair value of long-term debt (including the current portion) was ~~$12.7~~$13.9 billion and ~~$14.8~~$15.3 billion, respectively. See Note 10 (Debt) for further details.

Other Financial Instruments

Certain other financial instruments are carried on the consolidated balance sheet at cost or amortized cost basis, which approximates fair value due to their short-term, highly liquid nature. These instruments include cash and cash equivalents, restricted cash, time deposits, accounts receivable, settlement ~~due from customers,~~assets, restricted security deposits held for customers, accounts payable, settlement ~~due to customers~~obligations and other accrued liabilities.

Note 8. Prepaid Expenses and Other Assets

Prepaid expenses and other current assets consisted of the following:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in millions)					(in millions)
Customer and merchant incentives	Customer and merchant incentives	$	1,225	$	1,086	Customer and merchant incentives	$	1,325	$	1,326
Prepaid income taxes	Prepaid income taxes	152		78		Prepaid income taxes	61		92
Other	Other	840		719		Other	934		853
Total prepaid expenses and other current assets	Total prepaid expenses and other current assets	$	2,217	$	1,883	Total prepaid expenses and other current assets	$	2,320	$	2,271

Other assets consisted of the following:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in millions)					(in millions)
Customer and merchant incentives	Customer and merchant incentives	$	3,609	$	3,220	Customer and merchant incentives	$	3,935	$	3,798
Equity investments	Equity investments	1,595		1,172		Equity investments	1,772		1,834
Income taxes receivable	Income taxes receivable	563		553		Income taxes receivable	684		645
Other	Other	498		420		Other	767		717
Total other assets	Total other assets	$	6,265	$	5,365	Total other assets	$	7,158	$	6,994

Customer and merchant incentives represent payments made to customers and merchants under business agreements. ~~Costs~~Payments directly related to entering into such an agreement are generally deferred and amortized over the life of the agreement.

Note 9. Accrued Expenses and Accrued Litigation

Accrued expenses consisted of the following:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in millions)					(in millions)
Customer and merchant incentives	Customer and merchant incentives	$	4,244	$	3,998	Customer and merchant incentives	$	4,476	$	4,730
Personnel costs	Personnel costs	614		727		Personnel costs	496		980
Income and other taxes	Income and other taxes	208		208		Income and other taxes	445		337
Other	Other	498		497		Other	537		595
Total accrued expenses	Total accrued expenses	$	5,564	$	5,430	Total accrued expenses	$	5,954	$	6,642

Customer and merchant incentives represent amounts to be paid to customers under business agreements. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, long-term customer and merchant incentives included in other liabilities were $2,025 million and $1,835 million, respectively.

As of March 31, 2022 and December 31, 2021, the Company’s provision for litigation was ~~$906~~$797 million and ~~$842~~$840 million, respectively. These amounts are not included in the accrued expenses table above and are separately reported as accrued litigation on the consolidated balance sheet. See Note 15 (Legal and Regulatory Proceedings) for additional information regarding the Company’s accrued litigation.

MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q 1917

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Debt

Long-term debt consisted of the following:


					June 30, 2021		December 31, 2020		Effective Interest Rate						March 31, 2022		December 31, 2021		Effective Interest Rate
					(in millions)										(in millions)
2022 EUR Notes 1											2022 EUR Notes 1	1.000	%	Senior Notes due February 2029	$	834	$	—	1.138	%

2021 USD Notes	2021 USD Notes	1.900	%	Senior Notes due March 2031	$	600	$	0	1.981	%	2021 USD Notes	2.000	%	Senior Notes due November 2031	750		750		2.112	%
												1.900	%	Senior Notes due March 2031	600		600		1.981	%
		2.950	%	Senior Notes due March 2051	700		0		3.013	%		2.950	%	Senior Notes due March 2051	700		700		3.013	%

2020 USD Notes	2020 USD Notes	3.300	%	Senior Notes due March 2027	1,000		1,000		3.420	%	2020 USD Notes	3.300	%	Senior Notes due March 2027	1,000		1,000		3.420	%
		3.350	%	Senior Notes due March 2030	1,500		1,500		3.430	%		3.350	%	Senior Notes due March 2030	1,500		1,500		3.430	%
		3.850	%	Senior Notes due March 2050	1,500		1,500		3.896	%		3.850	%	Senior Notes due March 2050	1,500		1,500		3.896	%

2019 USD Notes	2019 USD Notes	2.950	%	Senior Notes due June 2029	1,000		1,000		3.030	%	2019 USD Notes	2.950	%	Senior Notes due June 2029	1,000		1,000		3.030	%
		3.650	%	Senior Notes due June 2049	1,000		1,000		3.689	%		3.650	%	Senior Notes due June 2049	1,000		1,000		3.689	%
		2.000	%	Senior Notes due March 2025	750		750		2.147	%		2.000	%	Senior Notes due March 2025	750		750		2.147	%

2018 USD Notes	2018 USD Notes	3.500	%	Senior Notes due February 2028	500		500		3.598	%	2018 USD Notes	3.500	%	Senior Notes due February 2028	500		500		3.598	%
		3.950	%	Senior Notes due February 2048	500		500		3.990	%		3.950	%	Senior Notes due February 2048	500		500		3.990	%

2016 USD Notes	2016 USD Notes	2.000	%	Senior Notes due November 2021	650		650		2.236	%	2016 USD Notes	2.950	%	Senior Notes due November 2026	750		750		3.044	%
		2.950	%	Senior Notes due November 2026	750		750		3.044	%		3.800	%	Senior Notes due November 2046	600		600		3.893	%
		3.800	%	Senior Notes due November 2046	600		600		3.893	%

2015 EUR Notes 1		1.100	%	Senior Notes due December 2022	833		859		1.265	%
2015 EUR Notes 2											2015 EUR Notes 2	1.100	%	Senior Notes due December 2022	778		793		1.265	%
		2.100	%	Senior Notes due December 2027	953		982		2.189	%		2.100	%	Senior Notes due December 2027	890		906		2.189	%
		2.500	%	Senior Notes due December 2030	178		184		2.562	%		2.500	%	Senior Notes due December 2030	167		170		2.562	%

2014 USD Notes	2014 USD Notes	3.375	%	Senior Notes due April 2024	1,000		1,000		3.484	%	2014 USD Notes	3.375	%	Senior Notes due April 2024	1,000		1,000		3.484	%

					14,014		12,775								14,819		14,019
Less: Unamortized discount and debt issuance costs	Less: Unamortized discount and debt issuance costs				(115)		(103)				Less: Unamortized discount and debt issuance costs				(120)		(116)
Less: Cumulative hedge accounting fair value adjustments 3											Less: Cumulative hedge accounting fair value adjustments 3				(53)		(2)
Total debt outstanding	Total debt outstanding				13,899		12,672				Total debt outstanding				14,646		13,901
Less: Current portion2					(649)		(649)
Less: Current portion 4											Less: Current portion 4				(778)		(792)
Long-term debt	Long-term debt				$	13,250	$	12,023			Long-term debt				$	13,868	$	13,109

1€~~1.650~~750 million euro-denominated debt issued in February 2022.

2 €1.650 billion euro-denominated debt issued in December 2015.

23~~2016 USD~~ In 2021, the Company entered into an interest rate swap which is accounted for as a fair value hedge. See Note 17 (Derivative and Hedging Instruments) for additional information.

4 2015 EUR Notes due ~~in November 2021~~December 2022 are classified as current portion of long-term debt on the consolidated balance sheet as ~~current portion~~ of ~~long-term debt.~~March 31, 2022 and December 31, 2021.

In ~~March 2021,~~February 2022, the Company issued ~~$600~~€750 million ($834 million as of March 31, 2022) principal amount of notes due ~~March 2031 and $700 million principal amount of notes due March 2051 (collectively the “2021 USD~~February 2029 (the “2022 EUR Notes”). The net proceeds from the issuance of the ~~2021 USD~~2022 EUR Notes, after deducting the original issue discount, underwriting discount and offering expenses, were ~~$1.282 billion.~~$843 million (as of the date of settlement).

The outstanding debt described above is not subject to any financial covenants and it may be redeemed in whole, or in part, at the Company’s option at any time for a specified make-whole amount. These notes are senior unsecured obligations and would rank equally with any future unsecured and unsubordinated indebtedness.

18 MASTERCARD JUNE 30, 2020 FORM 10-Q

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Stockholders' Equity

Dividends

The Company declared quarterly cash dividends on its Class A and Class B ~~Common Stock during the three and six months ended June 30, 2021 and 2020~~common stock as summarized below:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020		2021		2020				2022		2021
		(in millions, except per share data)										(in millions, except per share data)
Dividends declared per share	Dividends declared per share	$	0.44	$	0.40	$	0.88	$	0.80	Dividends declared per share		$	0.49	$	0.44
Total dividends declared	Total dividends declared	$	434	$	402	$	868	$	804	Total dividends declared		$	477	$	434

20 ~~MASTERCARD JUNE 30, 2021 FORM 10-Q~~

~~PART I~~

~~ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Common Stock Activity

The following table presents the changes in the Company’s outstanding Class A and Class B common ~~stock for the six months ended June 30, 2021:~~stock:


		Outstanding Shares			Three Months Ended March 31,
		Class A	Class B		2022		2021
		(in millions)			Outstanding Shares		Outstanding Shares
Balance at December 31, 2020		986.9	8.3
					Class A	Class B	Class A	Class B
					(in millions)
Balance at beginning of period				Balance at beginning of period	972.1	7.8	986.9	8.3
Purchases of treasury stock	Purchases of treasury stock	(8.5)	0	Purchases of treasury stock	(6.8)	—	(3.9)	—
Share-based payments	Share-based payments	1.1	0	Share-based payments	1.1	—	0.8	—
Conversion of Class B to Class A common stock	Conversion of Class B to Class A common stock	0.3	(0.3)	Conversion of Class B to Class A common stock	0.1	(0.1)	0.1	(0.1)
Balance at June 30, 2021		979.8	8.0
Balance at end of period				Balance at end of period	966.5	7.7	983.9	8.2

In November 2021 and December 2020, ~~and 2019,~~ the Company’s Board of Directors approved share repurchase programs of its Class A common stock authorizing the Company to repurchase up to $8.0 billion and $6.0 billion, ~~and $8.0 billion, respectively,~~respectively. The following table summarizes the Company’s share repurchases of its Class A common ~~stock~~stock:


	Three Months Ended March 31,
	2022		2021
	(In millions, except per share data)
Dollar-value of shares repurchased	$	2,408	$	1,356
Shares repurchased	6.8		3.9
Average price paid per share	$	355.13	$	346.49

As of March 31, 2022, the remaining authorization under ~~each plan. The program approved in 2020 will become effective after completion of~~ the share repurchase ~~program authorized in 2019. During~~programs approved by the ~~six months ended June 30, 2021, the Company repurchased 8.5 million shares~~Company’s Board of ~~its common stock for $3.1 billion at an average price of $359.66. As of June 30, 2021 the remaining authorization~~Directors was ~~$6.8~~$9.5 billion.

MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q 2119

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12. Accumulated Other Comprehensive Income (Loss)

The changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ were as follows:


		December 31, 2020		Increase / (Decrease)		Reclassifications		June 30, 2021			December 31, 2021		Increase / (Decrease)		Reclassifications		March 31, 2022
		(in millions)									(in millions)
Foreign currency translation adjustments 1	Foreign currency translation adjustments 1	$	(352)	$	(31)	$	0	$	(383)	Foreign currency translation adjustments 1	$	(739)	$	(52)	$	—	$	(791)
Translation adjustments on net investment hedges 2	Translation adjustments on net investment hedges 2	(175)		56		0		(119)		Translation adjustments on net investment hedges 2	34		67		—		101
Cash flow hedges	Cash flow hedges									Cash flow hedges
Foreign exchange contracts 3	Foreign exchange contracts 3	0		(1)		1		0		Foreign exchange contracts 3	4		1		(5)		—
Interest rate contracts 4		(133)		0		2		(131)
Interest rate contracts										Interest rate contracts	(128)		—		1		(127)
Defined benefit pension and other postretirement plans	Defined benefit pension and other postretirement plans	(20)		0		(1)		(21)		Defined benefit pension and other postretirement plans	21		—		—		21
Investment securities available-for-sale	Investment securities available-for-sale	0		1		0		1		Investment securities available-for-sale	(1)		(1)		—		(2)
Accumulated Other Comprehensive Income (Loss)		$	(680)	$	25	$	2	$	(653)
Accumulated other comprehensive income (loss)										Accumulated other comprehensive income (loss)	$	(809)	$	15	$	(4)	$	(798)


		December 31, 2019		Increase / (Decrease)		Reclassifications		June 30, 2020			December 31, 2020		Increase / (Decrease)		Reclassifications		March 31, 2021
		(in millions)									(in millions)
Foreign currency translation adjustments1	Foreign currency translation adjustments1	$	(638)	$	(216)	$	0	$	(854)	Foreign currency translation adjustments 1	$	(352)	$	(165)	$	—	$	(517)
Translation adjustments on net investment hedges 2	Translation adjustments on net investment hedges 2	(38)		(7)		0		(45)		Translation adjustments on net investment hedges 2	(175)		103		—		(72)
Cash flow hedges	Cash flow hedges									Cash flow hedges

Interest rate contracts 4		11		(147)		1		(135)
Foreign exchange contracts 3										Foreign exchange contracts 3	—		2		—		2
Interest rate contracts										Interest rate contracts	(133)		—		1		(132)
Defined benefit pension and other postretirement plans	Defined benefit pension and other postretirement plans	(9)		0		(1)		(10)		Defined benefit pension and other postretirement plans	(20)		—		—		(20)
Investment securities available-for-sale	Investment securities available-for-sale	1		(3)		0		(2)		Investment securities available-for-sale	—		1		—		1
Accumulated Other Comprehensive Income (Loss)		$	(673)	$	(373)	$	0	$	(1,046)
Accumulated other comprehensive income (loss)										Accumulated other comprehensive income (loss)	$	(680)	$	(59)	$	1	$	(738)

1.1During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, the increase in the accumulated other comprehensive loss related to foreign currency translation adjustments was driven primarily by the depreciation of the euro and British pound against the U.S. dollar, partially offset by the appreciation of the Brazilian real against the U.S. dollar. During the three months ended March 31, 2021, the increase in the accumulated other comprehensive loss related to foreign currency translation adjustments was driven primarily by the depreciation of the euro against the U.S. dollar.

2During the ~~six~~three months ended ~~June 30, 2020,~~ March 31, 2022, the increase in the accumulated other comprehensive ~~loss~~gain related to ~~foreign currency translation adjustments~~the net investment hedges was driven ~~primarily~~ by the depreciation ~~of the British pound and Brazilian real against the U.S. dollar, partially offset by the appreciation~~ of the euro against the U.S. dollar.

2.~~During~~During the ~~six~~three months ended ~~June 30,~~March 31, 2021, ~~the~~the decrease in the accumulated other comprehensive loss related to the net investment hedges was driven by the depreciation of the euro against the U.S. dollar. During the six months ended June 30, 2020, the increase in the accumulated other comprehensive loss related to the net investment hedge was driven by the appreciation of the euro against the U.S. dollar. See Note 17 (Derivative and Hedging Instruments) for additional information.

3.3~~Beginning in 2021, certain~~Certain foreign exchange derivative contracts are designated as cash flow hedging instruments. Gains and losses resulting from changes in the fair value of these contracts are deferred in accumulated other comprehensive income (loss) and subsequently reclassified to the consolidated statement of operations when the underlying hedged transactions impact earnings. See Note 17 (Derivative and Hedging Instruments) for additional information.

4.In 2019, the Company entered into treasury rate locks which are accounted for as cash flow hedges. In the first quarter of 2020, in connection with the issuance of the 2020 USD Notes, these contracts were settled for a loss of $175 million, or $136 million net of tax, recorded in accumulated other comprehensive income (loss). The cumulative loss will be reclassified as an adjustment to interest expense over the respective terms of the 2020 USD Notes. See Note 17 (Derivative and Hedging Instruments) for additional information.

Note 13. Share-Based Payments

During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, the Company granted the following awards under the Mastercard Incorporated 2006 Long Term Incentive Plan, as amended and restated as of June ~~5, 2012~~22, 2021 (the “LTIP”). The LTIP is a stockholder-approved plan that permits the grant of various types of equity awards to employees.

Grants in 2021 Weighted-Average
Grant-Date
Fair Value
(in millions) (per option/unit)
Non-qualified stock options 0.3 $ 92
Restricted stock units 0.8 358
Performance stock units 0.2 385

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~~ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~


	Grants in 2022	Weighted-Average Grant-Date Fair Value
	(in millions)	(per option/unit)
Non-qualified stock options	0.3	$	87
Restricted stock units	0.9	341
Performance stock units	0.2	335

The Company used the Black-Scholes option pricing model to determine the grant-date fair value of stock options and calculated the expected life and the expected volatility based on historical Mastercard information. The expected life of stock options granted in ~~2021~~2022 was estimated to be six years, while the expected volatility was determined to be ~~26.1%~~24.6%. ~~Stock options generally vest in 4 equal annual installments beginning one year after the date of grant and~~These awards expire ten years from the date of ~~grant.~~grant and vest ratably over three years.

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The fair value of restricted stock units (“RSUs”) is determined and fixed on the grant date based on the Company’s Class A common stock price, adjusted for the exclusion of dividend equivalents. ~~The shares underlying~~For RSUs granted between January 1, 2022 and February 28, 2022, the ~~RSUs will~~awards generally vest ~~in 4 equal annual installments beginning one year~~ratably over four years and for RSUs granted on or after March 1, 2022, the ~~date of grant.~~awards generally vest ratably over three years.

The Company used the Monte Carlo simulation valuation model to determine the grant-date fair value of performance stock units (“PSUs”) granted. ~~Shares underlying the~~ PSUs ~~will~~ vest after three years from the date of grant and are subject to a mandatory one-year deferral period, during which vested PSUs are eligible for dividend equivalents.

Compensation expense is recorded net of estimated forfeitures over the shorter of the vesting period or the date the individual becomes eligible to retire under the LTIP. The Company uses the straight-line method of attribution over the requisite service period for expensing equity awards.

Note 14. Income Taxes

The effective income tax rates were ~~16.6%~~5.1% and ~~16.0%~~16.5% for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, and 16.6% and 15.4% for the six months ended June 30, 2021 and 2020,~~ respectively. The ~~higher~~lower effective income tax ~~rates~~rate for the three months ended ~~June 30, 2021 and six months ended June 30, 2021,~~March 31, 2022, versus the comparable ~~periods~~period in ~~2020, were~~2021, was primarily due to ~~a change in the Company’s geographic mix of earnings and a lower discrete tax benefit related to share-based payments, partially offset by~~ a discrete tax benefit related to final U.S. tax regulations published in the ~~remeasurement~~current period, resulting in a valuation allowance release of $333 million associated with the U.S. foreign tax credit carryforward deferred tax asset. The regulations limit the Company’s ~~net deferred~~ability to generate foreign tax ~~asset~~credits starting in ~~the U.K. due to a recently enacted~~2022 for certain foreign taxes paid resulting in additional U.S. tax ~~rate.~~expense.

The Company is subject to tax in the United States, Belgium, Singapore, the United Kingdom and various other foreign jurisdictions, as well as state and local jurisdictions. Uncertain tax positions are reviewed on an ongoing basis and are adjusted after considering facts and circumstances, including progress of tax audits, developments in case law and closing of statutes of limitation. Within the next twelve months, the Company believes that the resolution of certain federal, foreign and state and local examinations are reasonably possible and that a change in estimate, reducing unrecognized tax benefits, may occur. While such a change may be significant, it is not possible to provide a range of the potential change until the examinations progress further or the related statutes of limitation expire. The Company has effectively settled its U.S. federal income tax obligations through 2011. With limited exception, the Company is no longer subject to state and local or foreign examinations by tax authorities for years before 2010.

Note 15. Legal and Regulatory Proceedings

Mastercard is a party to legal and regulatory proceedings with respect to a variety of matters in the ordinary course of business. Some of these proceedings are based on complex claims involving substantial uncertainties and unascertainable damages. Accordingly, except as discussed below, it is not possible to determine the probability of loss or estimate damages, and therefore, Mastercard has not established reserves for any of these proceedings. When the Company determines that a loss is both probable and reasonably estimable, Mastercard records a liability and discloses the amount of the liability if it is material. When a material loss contingency is only reasonably possible, Mastercard does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Unless otherwise stated below with respect to these matters, Mastercard cannot provide an estimate of the possible loss or range of loss based on one or more of the following reasons: (1) actual or potential plaintiffs have not claimed an amount of monetary damages or the amounts are unsupportable or exaggerated, (2) the matters are in early stages, (3) there is uncertainty as to the outcome of pending appeals or motions, (4) there are significant factual issues to be resolved, (5) the existence in many such proceedings of multiple defendants or potential defendants whose share of any potential financial responsibility has yet to be determined and/or (6) there are novel legal issues presented. Furthermore, except as identified with respect to the matters below, Mastercard does not believe that the outcome of any individual existing legal or regulatory proceeding to which it is a party will have a material adverse effect on its results of operations, financial condition or overall business. However, an adverse judgment or other outcome or settlement with respect to any proceedings discussed below could result in fines or payments by Mastercard and/or could require Mastercard to change its business practices. In addition, an adverse outcome in a regulatory proceeding could lead to the filing of civil damage claims and possibly result in significant damage awards. Any of these events could have a material adverse effect on Mastercard’s results of operations, financial condition and overall business.

Interchange Litigation and Regulatory Proceedings

Mastercard’s interchange fees and other practices are subject to regulatory, legal review and/or challenges in a number of jurisdictions, including the proceedings described below. When taken as a whole, the resulting decisions, regulations and legislation with respect to interchange fees and acceptance practices may have a material adverse effect on the Company’s prospects for future growth and its overall results of operations, financial position and cash flows.

~~MASTERCARD JUNE 30, 2021 FORM 10-Q~~ 23

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~~ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

United States. In June 2005, the first of a series of complaints were filed on behalf of merchants (the majority of the complaints were styled as class actions, although a few complaints were filed on behalf of individual merchant plaintiffs) against Mastercard International, Visa U.S.A., Inc., Visa International Service Association and a number of financial institutions. Taken together, the claims in the complaints were generally brought under both Sections 1 and 2 of the Sherman Act, which prohibit monopolization and attempts or conspiracies to monopolize a particular industry, and some of these complaints contain unfair competition law claims under state law. The complaints allege, among other things, that Mastercard, Visa, and certain financial institutions conspired to set the price of interchange fees, enacted

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point of sale acceptance rules (including the ~~no surcharge~~“no surcharge” rule) in violation of antitrust laws and engaged in unlawful tying and bundling of certain products and services, resulting in merchants paying excessive costs for the acceptance of Mastercard and Visa credit and debit cards. The cases were consolidated for pre-trial proceedings in the U.S. District Court for the Eastern District of New York in MDL No. 1720. The plaintiffs filed a consolidated class action complaint ~~that seeks~~seeking treble damages.

In July 2006, the group of purported merchant class plaintiffs filed a supplemental complaint alleging that Mastercard’s initial public offering of its Class A Common Stock in May 2006 (the “IPO”) and certain purported agreements entered into between Mastercard and financial institutions in connection with the IPO: (1) violate U.S. antitrust laws and (2) constituted a fraudulent conveyance because the financial institutions allegedly attempted to release, without adequate consideration, Mastercard’s right to assess them for Mastercard’s litigation liabilities. The class plaintiffs sought treble damages and injunctive relief including, but not limited to, an order reversing and unwinding the IPO.

In February 2011, Mastercard and Mastercard International entered into each of: (1) an omnibus judgment sharing and settlement sharing agreement with Visa Inc., Visa U.S.A. Inc. and Visa International Service Association and a number of financial institutions; and (2) a Mastercard settlement and judgment sharing agreement with a number of financial institutions. The agreements provide for the apportionment of certain costs and liabilities which Mastercard, the Visa parties and the financial institutions may incur, jointly and/or severally, in the event of an adverse judgment or settlement of one or all of the merchant litigation cases. Among a number of scenarios addressed by the agreements, in the event of a global settlement involving the Visa parties, the financial institutions and Mastercard, Mastercard would pay 12% of the monetary portion of the settlement. In the event of a settlement involving only Mastercard and the financial institutions with respect to their issuance of Mastercard cards, Mastercard would pay 36% of the monetary portion of such settlement.

In October 2012, the parties entered into a definitive settlement agreement with respect to the merchant class litigation (including with respect to the claims related to the IPO) and the defendants separately entered into a settlement agreement with the individual merchant plaintiffs. The settlements included cash payments that were apportioned among the defendants pursuant to the omnibus judgment sharing and settlement sharing agreement described above. Mastercard also agreed to provide class members with a short-term reduction in default credit interchange rates and to modify certain of its business practices, including its ~~“no surcharge”~~no surcharge rule. The court granted final approval of the settlement in December 2013, and objectors to the settlement appealed that decision to the U.S. Court of Appeals for the Second Circuit. In June 2016, the court of appeals vacated the class action certification, reversed the settlement approval and sent the case back to the district court for further proceedings. The court of appeals’ ruling was based primarily on whether the merchants were adequately represented by counsel in the settlement. As a result of the appellate court ruling, the district court divided the merchants’ claims into two separate classes - monetary damages claims (the “Damages Class”) and claims seeking changes to business practices (the “Rules Relief Class”). The court appointed separate counsel for each class.

In September 2018, the parties to the Damages Class litigation entered into a class settlement agreement to resolve the Damages Class claims. The time period during which Damages Class members were permitted to opt out of the class settlement agreement ended in July 2019 with merchants representing slightly more than 25% of the Damages Class interchange volume choosing to opt out of the settlement. The district court granted final approval of the settlement in December 2019. The district court’s settlement approval order has been appealed and oral argument on the appeal ~~is scheduled for October 2021.~~was heard in March 2022. Mastercard has commenced settlement negotiations with a number of the opt-out merchants and has reached settlements and/or agreements in principle to settle a number of these claims. The Damages Class settlement agreement does not relate to the Rules Relief Class claims. Separate settlement negotiations with the Rules Relief Class are ongoing. ~~In December 2020, the Rules Relief Class filed a motion for class certification.~~ Briefing on summary judgment motions in the Rules Relief Class and opt-out merchant cases was completed in December 2020. In September 2021, the district court granted the Rules Relief Class’s motion for class certification.

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, Mastercard had accrued a liability of $782 million and $783 million, respectively, as a reserve for both the Damages Class litigation and the opt-out merchant cases. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, Mastercard had $585 million and $586 million, respectively, in a qualified cash settlement fund related to the Damages Class litigation and classified as restricted cash on its consolidated balance sheet. The reserve as of ~~June 30, 2021~~March 31, 2022 for both the Damages Class litigation and the opt-out merchants represents Mastercard’s best estimate of its probable liabilities in these matters. The portion of the accrued liability relating to both the opt-out merchants and the Damages Class litigation settlement does not represent an estimate of a loss, if any, if the matters were litigated to a final outcome. Mastercard cannot estimate the potential liability if that were to occur.

Europe. Since May 2012, a number of United Kingdom (“U.K.”) merchants filed claims or threatened litigation against Mastercard seeking damages for excessive costs paid for acceptance of Mastercard credit and debit cards arising out of alleged anti-competitive conduct with respect to, among other things, Mastercard’s cross-border interchange fees and its U.K. and Ireland domestic interchange fees (the “U.K. Merchant claimants”). In addition, Mastercard, has faced similar filed or threatened litigation by merchants with respect to interchange

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~~ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

rates in other countries in Europe (the “Pan-European Merchant claimants”). Mastercard has resolved ~~over £2 billion (approximately $3 billion as of June 30, 2021)~~a substantial amount of these damages claims through settlement or judgment. Approximately £1 billion (approximately ~~$1.5~~$1.3 billion as of ~~June 30, 2021)~~March 31, 2022) of unresolved damages claims remain.

In January 2017, Mastercard received a liability judgment in its favor on all significant matters in a separate action brought by 10 of the U.K. Merchant claimants. NaN of the U.K. Merchant claimants appealed the judgment, and these appeals were combined with Mastercard’s

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appeal of a 2016 judgment in favor of 1 U.K. merchant. In July 2018, the U.K. appellate court heard the appeals of the 4 merchant claimants and ruled against both Mastercard and Visa on 2 of the 3 legal issues being considered. The parties appealed the rulings to the U.K. Supreme Court. In June 2020, the U.K. Supreme Court ruled against Mastercard and Visa with respect to one of the liability issues being considered by the Court related to U.K. domestic interchange fees. Additionally, the U.K Supreme Court set out the legal standard that should be applied by lower trial courts with respect to determining whether interchange was exemptible under applicable law, and provided guidance to lower courts with regard to the legal standard that should be applied in assessing merchants’ damages claims. The U.K. Supreme Court sent 13 of the 4 merchant cases back to the trial court solely for ~~a determination~~the purpose of ~~liability and~~determining damages issues ~~and sent the remaining 3 merchant cases back~~which is scheduled to ~~the trial court for a determination of damages issues only. A hearing~~commence in one of these merchant cases on liability and damages issues is expected to be scheduled for the fourth quarter of 2021, while a trial on damages for the other three merchant claims is not expected to occur untilJanuary 2023.

Mastercard continues to litigate with the remaining U.K. and Pan-European Merchant claimants and it has submitted statements of defense disputing liability and damages claims. The majority of these merchant claims generally had been stayed pending the decision of the U.K. Supreme Court, and a number of those matters are now progressing with motion practice and discovery. In one of the actions involving multiple merchant plaintiff claims, in ~~May~~November 2021 the U.K. trial court ~~heard oral argument with respect to~~denied the plaintiffs’ motion for summary judgment on certain liability issues. ~~For the three months ended~~The plaintiffs were granted permission to appeal that ruling. In a separate matter filed in Belgium involving multiple merchants from Czechoslovakia, a hearing on liability issues has been scheduled for June 30, 2021 Mastercard incurred charges of $67 million related to litigation settlements and estimated attorneys’ fees with a number of U.K. merchants. For the three months ended June 30, 2020, Mastercard incurred charges of $22 million to reflect both the estimated attorneys’ fees incurred by the 4 merchant claimants in the U.K. Supreme Court appeal, as well as settlements with a number of Pan-European merchants.2022.

In September 2016, a proposed collective action was filed in the United Kingdom on behalf of U.K. consumers seeking damages for intra-EEA and domestic U.K. interchange fees that were allegedly passed on to consumers by merchants between 1992 and 2008. The complaint, which seeks to leverage the European Commission’s 2007 decision on intra-EEA interchange fees, claims damages in an amount that exceeds £14 billion (approximately ~~$19~~$18 billion as of ~~June 30, 2021)~~March 31, 2022). In July 2017, the trial court denied the plaintiffs’ application for the case to proceed as a collective action. In April 2019, the U.K. appellate court granted the plaintiffs’ appeal of the trial court’s decision and sent the case back to the trial court for a re-hearing on the plaintiffs’ collective action application. In December 2020, the U.K. Supreme Court rejected Mastercard’s appeal of this ruling. In March 2021, the trial court held a re-hearing on the plaintiffs’ collective action application, ~~and had not~~during which Mastercard sought to narrow the scope of the proposed class. In August 2021, the trial court issued a decision asin which it granted class certification but agreed with Mastercard’s argument and narrowed the scope of the ~~filing date of this Report.~~class. The plaintiffs did not appeal the trial court’s decision narrowing the class.

Australia. The Australian Competition & Consumer Commission (“ACCC”) is investigating certain agreements entered into by Mastercard and certain Australian merchants related to Mastercard’s debit program. The investigation focuses on historic behavior. Mastercard is cooperating with the ACCC.

ATM Non-Discrimination Rule Surcharge Complaints

In October 2011, a trade association of independent Automated Teller Machine (“ATM”) operators and 13 independent ATM operators filed a complaint styled as a class action lawsuit in the U.S. District Court for the District of Columbia against both Mastercard and Visa (the “ATM Operators Complaint”). Plaintiffs seek to represent a class of non-bank operators of ATM terminals that operate in the United States with the discretion to determine the price of the ATM access fee for the terminals they operate. Plaintiffs allege that Mastercard and Visa have violated Section 1 of the Sherman Act by imposing rules that require ATM operators to charge non-discriminatory ATM surcharges for transactions processed over Mastercard’s and Visa’s respective networks that are not greater than the surcharge for transactions over other networks accepted at the same ATM. Plaintiffs seek both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the alleged violations and their costs of suit, including attorneys’ fees.

Subsequently, multiple related complaints were filed in the U.S. District Court for the District of Columbia alleging both federal antitrust and multiple state unfair competition, consumer protection and common law claims against Mastercard and Visa on behalf of putative classes of users of ATM services (the “ATM Consumer Complaints”). The claims in these actions largely mirror the allegations made in the ATM Operators Complaint, although these complaints seek damages on behalf of consumers of ATM services who pay allegedly inflated ATM fees at both bank and non-bank ATM operators as a result of the defendants’ ATM rules. Plaintiffs seek both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the alleged violations and their costs of suit, including attorneys’ fees.

In January 2012, the plaintiffs in the ATM Operators Complaint and the ATM Consumer Complaints filed amended class action complaints that largely mirror their prior complaints. In February 2013, the district court granted Mastercard’s motion to dismiss the complaints for failure to state a claim. On appeal, the Court of Appeals reversed the district court’s order in August 2015 and sent the case back for further proceedings. In September 2019, the plaintiffs filed their motions for class certification in which the plaintiffs, in aggregate, allege over $1 billion in damages against all of the defendants. In August 2021, the trial court issued an order granting the plaintiffs’ request for class certification. Visa and Mastercard’s request for permission to appeal the certification decision to the appellate court was granted. Briefing on the appeal is expected to take place over the course of 2022. Mastercard intends to vigorously defend against both the plaintiffs’ liability and damages ~~claims and has opposed class certification. Briefing on class certification is complete.~~

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claims.

U.S. Liability Shift Litigation

In March 2016, a proposed U.S. merchant class action complaint was filed in federal court in California alleging that Mastercard, Visa, American Express and Discover (the “Network Defendants”), EMVCo, and a number of issuing banks (the “Bank Defendants”) engaged in a

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conspiracy to shift fraud liability for card present transactions from issuing banks to merchants not yet in compliance with the standards for EMV chip cards in the United States (the “EMV Liability Shift”), in violation of the Sherman Act and California law. Plaintiffs allege damages equal to the value of all chargebacks for which class members became liable as a result of the EMV Liability Shift on October 1, 2015. The plaintiffs seek treble damages, attorney’s fees and costs and an injunction against future violations of governing law, and the defendants have filed a motion to dismiss. In September 2016, the district court denied the Network Defendants’ motion to dismiss the complaint, but granted such a motion for EMVCo and the Bank Defendants. In May 2017, the district court transferred the case to New York so that discovery could be coordinated with the U.S. merchant class interchange litigation described above. In August 2020, the district court issued an order granting the plaintiffs’ request for class certification. In January 2021, the Network Defendants’ request for permission to appeal the district court’s certification decision to the appellate court was denied. The ~~plaintiffs’~~plaintiffs have submitted expert reports that allege aggregate damages in excess of $1 billion against the 4 Network Defendants. The Network Defendants have submitted expert reports rebutting both liability and damages. Briefing on summary ~~judgement~~judgment is expected to occur in 2022.

Telephone Consumer Protection Class Action

Mastercard is a defendant in a Telephone Consumer Protection Act (“TCPA”) class action pending in Florida. The plaintiffs are individuals and businesses who allege that approximately 381,000 unsolicited faxes were sent to them advertising a Mastercard co-brand card issued by First Arkansas Bank (“FAB”). The TCPA provides for uncapped statutory damages of $500 per fax. Mastercard has asserted various defenses to the claims, and has notified FAB of an indemnity claim that it has (which FAB has disputed). In June 2018, the district court granted Mastercard’s motion to stay the proceedings until the Federal Communications Commission makes a decision on the application of the TCPA to online fax services. In December 2019, the FCC issued a declaratory ruling clarifying that the TCPA does not apply to faxes sent to online fax services that are received via e-mail. As a result of the ruling, the stay of the litigation was lifted in January 2020. In January 2021, the magistrate judge serving on the district court issued an opinion recommending that the district court judge deny plaintiffs’ class certification motion. In light of an appellate court decision, issued subsequent to the magistrate’s recommendation, the district court judge instructed the parties to re-brief the motion for class certification, and the motion has ~~now~~ been fully briefed. In December 2021, the trial court narrowed the scope of the potential class as it denied the plaintiffs’ motion for class certification of a class of all fax recipients (both stand-alone faxes and online faxes sent via email). However, the court granted class certification for a narrower class of stand-alone fax recipients only. Mastercard’s request to appeal that decision was denied.

U.S. Federal Trade Commission Investigation

In June 2020, the U.S. Federal Trade Commission’s Bureau of Competition (“FTC”) informed Mastercard that it has initiated a formal investigation into compliance with the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act. In particular, the investigation focuses on Mastercard’s compliance with the debit routing provisions of the Durbin Amendment. The FTC has issued a subpoena and Mastercard is cooperating with it in the investigation.

U.K. Prepaid Cards Matter

In 2019, Mastercard was informed by the U.K. Payment Systems Regulator ~~(PSR)~~(“PSR”) that Mastercard was a target of its ~~confidential~~ investigation into alleged anti-competitive conduct by public sector prepaid card program managers in the U.K. This matter focused exclusively on historic behavior. In March 2021, the PSR announced the resolution and settlement of this investigation. As part of the resolution, Mastercard ~~has~~ agreed to pay a maximum fine of £32 million. This matter has no prospective impact on Mastercard’s on-going business. In connection with this matter, in the fourth quarter of 2020, Mastercard recorded a litigation charge of $45 million. Mastercard paid the agreed fine in March 2022.

Note 16. Settlement and Other Risk Management

Mastercard’s rules guarantee the settlement of many of the transactions between its customers (“settlement risk”). Settlement exposure is the settlement risk to customers under Mastercard’s rules due to the difference in timing between the payment transaction date and subsequent settlement. While the term and amount of the guarantee are unlimited, the duration of settlement exposure is short term and typically limited to a few days.

Gross settlement exposure is estimated using the average daily payment volume during the three months prior to period end multiplied by the estimated number of days of exposure. The Company has global risk management policies and procedures, which include risk standards, to provide a framework for managing the Company’s settlement risk and exposure. In the event of failed settlement by a ~~failed~~ customer, Mastercard may pursue one or more remedies available under the Company’s rules to recover potential losses. Historically, the Company has experienced a low level of losses from customer settlement failures.

As part of its policies, Mastercard requires certain customers that are not in compliance with the Company’s risk standards to enter into risk mitigation arrangements, including cash collateral and/or other forms of credit enhancement such as letters of credit and guarantees. This requirement is based on a review of the individual risk circumstances for each customer. Mastercard monitors its credit risk portfolio ~~on a regular basis~~ and the adequacy of its risk mitigation ~~arrangements.~~arrangements on a regular basis. Additionally, from time to time, the Company reviews its risk management methodology and standards. As such, the amounts of estimated settlement exposure are revised as necessary.

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The Company’s estimated settlement exposure was as follows:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in millions)					(in millions)
Gross settlement exposure	Gross settlement exposure	$	59,303	$	52,360	Gross settlement exposure	$	56,214	$	59,571
Risk mitigation arrangements applied to settlement exposure	Risk mitigation arrangements applied to settlement exposure	(6,739)		(6,021)		Risk mitigation arrangements applied to settlement exposure	(7,884)		(7,710)
Net settlement exposure	Net settlement exposure	$	52,564	$	46,339	Net settlement exposure	$	48,330	$	51,861

Mastercard also provides guarantees to customers and certain other counterparties indemnifying them from losses stemming from failures of third parties to perform duties. This includes guarantees of Mastercard-branded travelers cheques issued, but not yet cashed of ~~$367~~$359 million and ~~$370~~$361 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, of which the Company has risk mitigation arrangements for ~~$292~~$285 million and ~~$294~~$287 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. In addition, the Company enters into agreements in the ordinary course of business under which the Company agrees to indemnify third parties against damages, losses and expenses incurred in connection with legal and other proceedings arising from relationships or transactions with the Company. Certain indemnifications do not provide a stated maximum exposure. As the extent of the Company’s obligations under these agreements depends entirely upon the occurrence of future events, the Company’s potential future liability under these agreements is not determinable. Historically, payments made by the Company under these types of contractual arrangements have not been material.

Note 17. Derivative and Hedging Instruments

The Company monitors and manages its foreign currency and interest rate exposures as part of its overall risk management program which focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results. A primary objective of the Company’s risk management strategies is to reduce the financial impact that may arise from volatility in foreign currency exchange rates principally through the use of both foreign exchange derivative contracts and foreign currency denominated debt. In addition, the Company may enter into interest rate derivative contracts to manage the effects of interest rate movements on the Company’s aggregate liability portfolio, including potential future debt issuances.

Cash Flow Hedges

The Company may enter into foreign exchange derivative contracts, including forwards and options, to manage the impact of foreign currency variability on anticipated revenues and expenses, which fluctuate based on currencies other than the functional currency of the entity. The objective of these hedging activities is to reduce the effect of movement in foreign exchange rates for a portion of revenues and expenses forecasted to occur. As these contracts are designated as cash flow hedging instruments, gains and losses resulting from changes in fair value of these contracts are deferred in accumulated other comprehensive income (loss) and subsequently reclassified to the consolidated statement of operations when the underlying hedged transactions impact earnings.

In addition, the Company may enter into interest rate derivative contracts to manage the effects of interest rate movements on the Company’s aggregate liability portfolio, including potential future debt issuances, and designate such derivatives as hedging instruments in a cash flow hedging relationship. ~~In 2019, the Company entered into treasury rate locks which are accounted for as cash flow hedges. In the first quarter~~Gains and losses resulting from changes in fair value of ~~2020, in connection with the issuance of the 2020 USD Notes,~~ these contracts ~~were settled at a loss of $136 million after tax,~~are deferred in accumulated other comprehensive income (loss)~~. As of June 30, 2021, a cumulative loss of $131 million after tax, remains in accumulated other comprehensive income (loss) associated with these contracts~~ and ~~will be~~are subsequently reclassified as an adjustment to interest expense over the respective terms of the ~~2020 USD Notes.~~hedged debt issuances.

Fair Value Hedges

The Company may enter into interest rate derivative contracts, including interest rate swaps, to manage the effects of interest rate movements on the fair value of the Company's fixed-rate debt and designate such derivatives as hedging instruments in a fair value hedging relationship. Changes in fair value of these contracts and changes in fair value of fixed-rate debt attributable to changes in the hedged benchmark interest rate generally offset each other and are recorded in interest expense on the consolidated statement of operations. Gains or losses related to the net settlements of interest rate swapsare alsorecorded in interest expense on the consolidated statement of operations. The periodic cash settlements are included in operating activities on the consolidated statement of cash flows.

During the fourth quarter of 2021, the Company entered into an interest rate swap designated as a fair value hedge related to $1.0 billion of the 3.850% Senior Notes due March 2050. In effect, the interest rate swap synthetically converts the fixed interest rate on this debt to a variable interest rate based on the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap Rate. The net impact to interest expense for the three months ended March 31, 2022 was not material.

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Net Investment Hedges

The Company may use foreign currency denominated debt and/or foreign exchange derivative contracts to hedge a portion of its net investment in foreign subsidiaries against adverse movements in exchange rates. The effective portion of the net investment hedge is recorded as a currency translation adjustment in accumulated other comprehensive income (loss). Forward points are ~~designated as an~~ excluded ~~component~~from the effectiveness assessment and are recognized in general and administrative expenses on the consolidated statement of operations over the hedge period. The amounts recognized in earnings related to forward points for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 were not material.

In 2015 and 2022, the Company designated its ~~€1.65 billion~~€1,650 million and €750 million euro-denominated debt, respectively, as ~~a net investment hedge for~~hedges of a portion of its net investment in its European operations. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, the Company recorded a pre-tax net foreign currency ~~loss~~gains of ~~$27~~$51 million and ~~pre-tax net foreign currency gain of $60~~$87 million, respectively, in other comprehensive income (loss).

As of ~~June 30,~~March 31, 2022 and December 31, 2021, the Company had a net foreign currency ~~loss~~gains of ~~$119~~$101 million and $34 million, respectively, after tax, in accumulated other comprehensive income (loss) associated with this hedging activity.

Non-designated Derivatives

The Company may also enter into foreign exchange derivative contracts to serve as economic hedges, such as to offset possible changes in the value of monetary assets and liabilities due to foreign exchange fluctuations, without designating these derivative contracts as hedging

~~MASTERCARD JUNE 30, 2021 FORM 10-Q~~ 27

~~PART I~~

~~ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

instruments. In addition, the Company is subject to foreign exchange risk as part of its daily settlement activities. This risk is typically limited to a few days between when a payment transaction takes place and the subsequent settlement with customers. To manage this risk, the Company may enter into short duration foreign exchange derivative contracts based upon anticipated receipts and disbursements for the respective currency position. The objective of these activities is to reduce the Company’s exposure to volatility arising from gains and losses resulting from fluctuations of foreign currencies against its functional currencies. Gains and losses resulting from changes in fair value of these contracts are recorded in general and administrative expenses on the consolidated statement of operations, net, along with the foreign currency gains and losses on monetary assets and liabilities.

The following table summarizes the fair value of the Company’s derivative financial instruments and the related notional amounts:

June 30, 2021 December 31, 2020
Notional Fair Value Notional Fair Value
(in millions)
Derivative assets:
Derivatives designated as hedging instruments
Foreign exchange contracts in a cash flow hedge 1
$ 137 $ 2 $ 0 $ 0
Foreign exchange contracts in a net investment hedge 1
1,923 25 0 0
Derivatives not designated as hedging instruments
Foreign exchange contracts 1
314 3 483 19
Total Derivative Assets $ 2,374 $ 30 $ 483 $ 19
Derivative liabilities:
Derivatives designated as hedging instruments
Foreign exchange contracts in a cash flow hedge 2
$ 122 $ (2) $ 0 $ 0
Derivatives not designated as hedging instruments
Foreign exchange contracts 2
449 (5) 1,016 (28)
Total Derivative Liabilities $ 571 $ (7) $ 1,016 $ (28)


	March 31, 2022						December 31, 2021
	Notional		Derivative assets		Derivative liabilities		Notional		Derivative assets		Derivative liabilities
	(in millions)
Derivatives designated as hedging instruments
Foreign exchange contracts in a cash flow hedge 1	$	247	$	3	$	4	$	206	$	7	$	3
Interest rate contracts in a fair value hedge 2	1,000		—		53		1,000		6		8
Foreign exchange contracts in a net investment hedge 1	2,836		36		—		1,473		—		4
Derivatives not designated as hedging instruments
Foreign exchange contracts 1	557		4		3		530		1		8
Total derivative assets/liabilities	$	4,640	$	43	$	60	$	3,209	$	14	$	23

1.1Foreign exchange derivative assets and liabilities are included within prepaid expenses and other current assets and other current liabilities, respectively, on the consolidated balance ~~sheet~~sheet.

2.2~~Foreign exchange~~As of March 31, 2022, interest rate derivative liabilities are included within other current liabilities and other liabilities on the consolidated balance ~~sheet~~sheet. As of December 31, 2021, interest rate derivative assets and liabilities are included within prepaid expenses and other current assets and other liabilities, respectively, on the consolidated balance sheet.

2826 MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The pre-tax gain (loss) related to the Company's derivative financial instruments designated as hedging instruments are as follows:

Gain (Loss)
Recognized in OCI Gain (Loss)
Reclassified from AOCI
Three Months Ended June 30, Location of Gain (Loss) Reclassified from AOCI into Earnings Three Months Ended June 30,
2021 2020 2021 2020
(in millions) (in millions)
Derivative financial instruments in a cash flow hedge relationship:
Foreign exchange contracts $ (4) $ 0 Net revenue $ (1) $ 0
Interest rate contracts $ 0 $ 0 Interest expense $ (2) $ (1)
Derivative financial instruments in a net investment hedge relationship:
Foreign exchange contracts $ (34) $ 0


		Gain (Loss) Recognized in OCI						Gain (Loss) Reclassified from AOCI										Gain (Loss) Recognized in OCI										Gain (Loss) Reclassified from AOCI
		Six Months Ended June 30,				Location of Gain (Loss) Reclassified from AOCI into Earnings		Six Months Ended June 30,										Three Months Ended March 31,								Location of Gain (Loss) Reclassified from AOCI into Earnings		Three Months Ended March 31,
		2021		2020			2021			2020						2022				2021							2022			2021
		(in millions)					(in millions)									(in millions)											(in millions)
Derivative financial instruments in a cash flow hedge relationship:	Derivative financial instruments in a cash flow hedge relationship:																Derivative financial instruments in a cash flow hedge relationship:
Foreign exchange contracts	Foreign exchange contracts	$	(1)	$	0		Net revenue			$	(1)			$	0		Foreign exchange contracts			$	1			$	3		Net revenue			$	7			$	—
Interest rate contracts	Interest rate contracts	$	0	$	(189)	Interest expense		$	(3)			$	(1)	Interest rate contracts				$	—			$	—			Interest expense		$	(2)			$	(1)

Derivative financial instruments in a net investment hedge relationship:	Derivative financial instruments in a net investment hedge relationship:													Derivative financial instruments in a net investment hedge relationship:
Foreign exchange contracts	Foreign exchange contracts	$	12	$	0									Foreign exchange contracts				$	35			$	46

The Company estimates t~~hat~~ $7that $7 million,, pre-tax, of the net deferred loss on cash flow hedges recorded in accumulated other comprehensive income (loss) at ~~June 30, 2021~~March 31, 2022 will be reclassified into the consolidated statement of operations within the next 12 months. The term of the foreign exchange derivative contracts designated in hedging relationships are generally less than 18 months.

The amount of gain (loss) recognized on the consolidated statement of operations for non-designated derivative contracts is summarized below:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:	2021		2020		2021		2020		Derivatives not designated as hedging instruments:		2022		2021
		(in millions)										(in millions)
Foreign exchange derivative contracts	Foreign exchange derivative contracts									Foreign exchange derivative contracts
General and administrative	General and administrative	$	(7)	$	(24)	$	(3)	$	83	General and administrative		$	1	$	4

The Company’s derivative financial instruments are subject to both market and counterparty credit risk. Market risk is the potential for economic losses to be incurred on market risk sensitive instruments arising from adverse changes in market factors such as foreign currency exchange rates, interest rates and other related variables. Counterparty credit risk is the risk of loss due to failure of the counterparty to perform its obligations in accordance with contractual terms. The Company’s derivative contracts are subject to enforceable master netting arrangements, which contain various netting and setoff provisions. To mitigate counterparty credit risk, the Company enters into derivative contracts with a diversified group of selected financial institutions based upon their credit ratings and other factors. Generally, the Company does not obtain collateral related to derivatives because of the high credit ratings of the counterparties.

MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q 2927

PART I

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

Item 2. Management’s discussion and analysis of financial condition and results of operations

The following supplements management's discussion and analysis of Mastercard Incorporated for the year ended December 31, ~~2020~~2021 as contained in the Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on February ~~12, 2021.~~11, 2022. It also should be read in conjunction with the consolidated financial statements and notes of Mastercard Incorporated and its consolidated subsidiaries, including Mastercard International Incorporated (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.

~~COVID-19~~Key Developments

~~While~~Beginning in February 2022, in response to the ~~coronavirus (“COVID-19”) outbreak continues~~Russian invasion of Ukraine, the United States 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 Russia1. We have taken steps necessary to ~~affect~~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 2022 performance to date ~~growth rates for our key metrics~~and are expected to continue to ~~improve. In~~impact our full year 2022 performance. As a point of reference, for the ~~second quarter~~year ended December 31, 2021, approximately 4% of ~~2021,~~ our ~~growth rates, which~~net revenues were derived from business conducted within, into and out of Russia. Additional financial implications directly related to these actions include, but are ~~at various stages~~not limited to, reserves on uncollectible balances with certain customers and impacts to rebates and incentives as a result of ~~recovery, increased significantly as compared to~~revised estimates of customer performance through the ~~respective year-ago periods as we lap the initial effects~~date of the ~~pandemic. The following table provides a summary~~suspension of ~~trends in~~ our ~~quarterly key metrics since early 2020 as compared to the respective year-ago periods to provide context of the effects of the pandemic:~~business operations.

2020 Quarter Ended 2021 Quarter Ended
March 31 June 30 September 30
December 31
March 31 June 30
Increase/(Decrease)
Gross dollar volume (local currency basis) 8 % (10) % 1 % 1 % 8 % 33 %
Cross-border volume (local currency basis) (1) % (45) % (36) % (29) % (17) % 58 %
Switched transactions 13 % (10) % 5 % 4 % 9 % 41 %

The COVID-19 pandemic continues to have negative effects on the global economy. This outbreak has affected business activity, adversely impacting consumers, our customers, suppliers and business partners, as well as our workforce. We continue to monitor the effects of the ~~pandemic and actions taken by governments as they relate to travel restrictions, social distancing measures and restrictions on business operations, as well as the continued impact~~Russian invasion of these actions on consumers and businesses. While these governmental measures have eased in jurisdictions primarily where vaccination levels are rising, the extent to which current measures are removed or new measures are put in place will depend upon how the pandemic evolves, including the impact of COVID-19 variantsUkraine and the ~~resulting resurgence of infections, as well as the progress of the ongoing~~related impacts to regional and global ~~administration of vaccines.~~

economies. The full extent to which ~~the pandemic, and measures taken in response, affect~~this matter affects our business, results of operations and financial condition will depend on future developments, including the duration of the ~~pandemic~~invasion and ~~its impact~~the impacts on ~~the~~regional and global ~~economy,~~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.

Financial Results Overview

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


		Three Months Ended June 30,						Increase/(Decrease)		Six Months Ended June 30,										Increase/(Decrease)					Three Months Ended March 31,					Increase/(Decrease)
		2021			2020				2021				2020											2022		2021
		($ in millions, except per share data)																									($ in millions, except per share data)
Net revenue	Net revenue	$	4,528		$	3,335			36%				$	8,683				$	7,344			18%	Net revenue							$	5,167		$	4,155	24%
Operating expenses	Operating expenses	$	2,187		$	1,628		34%		$	4,145				$	3,426				21%	Operating expenses						$	2,217		$	1,958		13%
Operating income	Operating income	$	2,341		$	1,707		37%		$	4,538				$	3,918				16%	Operating income						$	2,950		$	2,197		34%
Operating margin	Operating margin	51.7		%	51.2		%	0.5 ppt		52.3		%			53.3		%			(1.1) ppt	Operating margin						57.1		%	52.9		%	4.2 ppt
Income tax expense	Income tax expense	$	412		$	270		52%		$	774				$	564				37%	Income tax expense						$	142		$	362		(61)%
Effective income tax rate	Effective income tax rate	16.6		%	16.0		%	0.6 ppt		16.6		%			15.4		%			1.2 ppt	Effective income tax rate						5.1		%	16.5		%	(11.4) ppt
Net income	Net income	$	2,066		$	1,420		46%		$	3,894				$	3,113				25%	Net income						$	2,631		$	1,828		44%
Diluted earnings per share	Diluted earnings per share	$	2.08		$	1.41		48%		$	3.91				$	3.08				27%	Diluted earnings per share						$	2.68		$	1.83		46%
Diluted weighted-average shares outstanding	Diluted weighted-average shares outstanding	994			1,008			(1)%		996					1,009					(1)%	Diluted weighted-average shares outstanding						981			998			(2)%

3028 MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q

PART I

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

The following table provides a summary of our key non-GAAP operating results1, adjusted to exclude the impact of gains and losses on our equity investments, ~~special items~~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:


		Three Months Ended June 30,						Increase/(Decrease)		Six Months Ended June 30,						Increase/(Decrease)			Three Months Ended March 31,	Increase/(Decrease)
		2021			2020			As adjusted	Currency-neutral	2021			2020			As adjusted	Currency-neutral			2022			2021			As adjusted	Currency-neutral
		($ in millions, except per share data)																		($ in millions, except per share data)
Net revenue		$	4,528		$	3,335		36%	31%	$	8,683		$	7,344		18%	16%
Adjusted net revenue																		Adjusted net revenue		$	5,136		$	4,155		24%	27%
Adjusted operating expenses	Adjusted operating expenses	$	2,121		$	1,606		32%	28%	$	4,079		$	3,398		20%	17%	Adjusted operating expenses		$	2,182		$	1,958		11%	13%
Adjusted operating margin	Adjusted operating margin	53.2		%	51.8		%	1.3 ppt	1.0 ppt	53.0		%	53.7		%	(0.7) ppt	(0.6) ppt	Adjusted operating margin		57.5		%	52.9		%	4.6 ppt	5.2 ppt
Adjusted effective income tax rate	Adjusted effective income tax rate	15.9		%	16.3		%	(0.4) ppt	(0.6) ppt	16.4		%	15.5		%	0.9 ppt	0.8 ppt	Adjusted effective income tax rate		5.3		%	16.9		%	(11.6) ppt	(11.6) ppt
Adjusted net income	Adjusted net income	$	1,937		$	1,370		41%	36%	$	3,678		$	3,214		14%	12%	Adjusted net income		$	2,702		$	1,741		55%	61%
Adjusted diluted earnings per share	Adjusted diluted earnings per share	$	1.95		$	1.36		43%	37%	$	3.69		$	3.19		16%	14%	Adjusted diluted earnings per share		$	2.76		$	1.74		59%	65%

Note: 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.

Key highlights for the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, during which we suspended our business operations in Russia, versus the comparable ~~periods~~period in ~~2020, were as follows:~~2021:


Net revenue	Adjusted net revenue













Three Months Ended ~~June 30, 2021~~March 31, 2022		~~For the three months ended June 30, 2021,~~Adjusted net revenue increased ~~31%~~27% on a currency-neutral basis, ~~and~~which includes ~~a 3~~2 percentage ~~point benefit~~points of growth from acquisitions. ~~The primary~~Primary drivers ~~were:~~of the increase were as follows:
GAAP	Non-GAAP (currency-neutral)
up ~~36%~~24%	up ~~31%~~27%
		- Gross dollar volume growth of ~~33%~~17% on a local currency basis
		- Cross-border volume growth of ~~58%~~53% on a local currency basis
		- Switched transactions growth of ~~41%~~22%
		- Other revenues increased ~~37%. On~~18%, or 20% on a currency-neutral basis, ~~other revenues~~which
		~~increased 32%, which~~ includes 97 percentage points of growth due to acquisitions. The remaining growth
		~~The remaining growth~~ was driven primarily by our Cyber & Intelligence and Data &
		Services solutions.
		~~These increases to net revenue were partially offset by:~~

		- Rebates and incentives ~~growth of 53%~~(contra-revenue) increased 26%, or ~~49%~~29% on a ~~currency-neutral basis primarily~~currency-
		neutral basis, primarily due to increased volumes and transactions and new ~~and renewed deals~~

~~Six Months Ended June 30, 2021~~		~~For the six months ended June 30, 2021, net revenue increased 16% on a currency-neutral basis, and includes a 2 percentage point benefit from acquisitions. The primary drivers of net revenue were:~~
~~GAAP~~	Non-GAAP (currency-neutral)
~~up 18%~~	~~up 16%~~
		~~- Gross dollar volume growth of 19% on a local currency basis~~
		~~- Cross-border volume growth of 11% on a local currency basis~~
		~~- Switched transactions growth of 24%~~
		~~- Other revenues increased 32%. On a currency-neutral basis, other revenues~~
		~~increased 29%,~~and renewed deals, which includes 6a 1 percentage ~~points of growth due to acquisitions.~~
		~~The remaining growth was driven primarily by our Cyber & Intelligence and Data &~~
		~~Services solutions.~~
		~~These increases to net revenue were partially offset by:~~
		~~- Rebates and incentives growth of 27%, or 24% on a currency-neutral basis primarily~~
		~~due to increased volumes and transactions and new and renewed deals~~point reduction from Special Items.

~~MASTERCARD JUNE 30, 2021 FORM 10-Q~~ 31

~~PART I~~

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


Operating expenses	Adjusted operating expenses




Three Months Ended ~~June 30, 2021~~March 31, 2022		~~For the three months ended June 30, 2021, adjusted~~Adjusted operating expenses increased ~~28%~~13% on a currency-neutral basis, which ~~included an 8~~includes 6 percentage ~~point increase~~points of growth due to acquisitions. The remaining increase was primarily due to ~~higher personnel costs,~~ increased spending on advertising and marketing and ~~increased~~higher personnel and data processing costs.
~~GAAP~~	~~Non-GAAP~~ ~~(currency-neutral)~~
~~up 34%~~	~~up 28%~~

~~Six Months Ended June 30, 2021~~		For the six months ended June 30, 2021, adjusted operating expenses increased 17% on a currency-neutral basis, which included a 6 percentage point increase due to acquisitions. The remaining increase was primarily due to higher personnel costs, increased spending on advertising and marketing and the lapping of a favorable hedging gain in the prior year.
GAAP	Non-GAAP (currency-neutral)
up ~~21%~~13%	up ~~17%~~13%

Effective income
tax rate
Adjusted effective
income tax rate
Three Months Ended June 30, 2021 For the three months ended June 30, 2021, the adjusted effective income tax rate of 15.9% was lower than prior year, primarily due to a discrete tax benefit related to the remeasurement of our net deferred tax asset in the U.K. due to a recently enacted tax rate, partially offset by a change in our geographic mix of earnings.
GAAP
Non-GAAP
(currency-neutral)
16.6% 15.9%
Six Months Ended June 30, 2021 For the six months ended June 30, 2021, the adjusted effective income tax rate of 16.4% was higher than prior year, primarily due to a lower discrete tax benefit related to share-based payments and a change in our geographic mix of earnings, partially offset by a discrete tax benefit related to the remeasurement of our net deferred tax asset in the U.K. due to a recently enacted tax rate.
GAAP Non-GAAP
(currency-neutral)
16.6% 16.4%


Effective income tax rate	Adjusted effective income tax rate




Three Months Ended March 31, 2022		The adjusted effective income tax rate of 5.3% was lower than prior year due to an 11.7 percentage point discrete tax benefit related to final U.S. tax regulations published in the current period resulting in a valuation allowance release of $333 million associated with the U.S. foreign tax credit carryforward deferred tax asset.
GAAP	Non-GAAP (currency-neutral)
5.1%	5.3%

MASTERCARD MARCH 31, 2022 FORM 10-Q 29

PART I

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

Other financial highlights for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 were as follows:

•We generated net cash flows from operations of ~~$3.7 billion.~~

•~~We completed the acquisitions of businesses for total consideration of $4.4~~$1.8 billion.

•We repurchased ~~8.5~~6.8 million shares of our common stock for ~~$3.1~~$2.4 billion and paid dividends of ~~$0.9~~$0.5 billion.

•We completed a euro-denominated debt offering for an aggregate principal amount of ~~$1.3~~$0.8 billion.

Non-GAAP Financial Information

Non-GAAP financial information is defined as a numerical measure of a company’s performance that excludes or includes amounts so as to be different than the most comparable measure calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Our non-GAAP financial measures exclude the impact of gains and losses on our equity investments which ~~primarily~~ includes mark-to-market fair value adjustments, impairments and gains and losses upon disposition ~~as well as~~and the related tax impacts. 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”). Our non-GAAP financial measures for the comparable periods exclude the impact of the following:

Gains and Losses on Equity Investments

•In the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, we recorded ~~pre-tax~~ net ~~gains~~losses of ~~$243~~$76 million ($~~182~~67 million after tax, or ~~$0.18~~$0.07 per diluted share) and ~~$337~~net gains of $94 million ($~~269~~87 million after tax, or ~~$0.27 per diluted share), respectively, primarily related to unrealized fair market value adjustments on marketable and non-marketable equity securities.~~

•~~In the three and six months ended June 30, 2020, we recorded pre-tax net gains of~~ ~~$75 million ($67 million~~ ~~after tax, or $0.07~~ ~~per diluted share) and pre-tax net losses of~~ ~~$99 million ($80 million~~ ~~after tax, or~~ ~~$0.08~~$0.09 per diluted share), respectively, primarily related to unrealized fair market value adjustments on marketable and non-marketable equity securities.

Special Items

~~Litigation provisions~~Russia-related impacts

•In the ~~second quarter of 2021,~~three months ended March 31, 2022, we recorded ~~pre-tax charges~~a net charge of ~~$67~~$4 million ($523 million after tax, or ~~$0.05 per diluted share) related to litigation settlements and estimated attorneys’ fees with U.K. merchants.~~

32 ~~MASTERCARD JUNE 30, 2021 FORM 10-Q~~

~~PART I~~

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

•In the second quarter of 2020, we recorded pre-tax charges of $22 million ($17 million after tax, or $0.02 per diluted share) related to estimated attorneys’ fees and litigation settlements with U.K. and Pan-European merchants.

•~~In the first quarter of 2020, we recorded pre-tax charges of $6 million ($5 million after tax, and~~ an immaterial impact per diluted share) directly related to ~~litigation settlements~~imposed sanctions and the suspension of our business operations. The net charge is comprised of general and administrative expenses of $34 million primarily related to reserves on uncollectible balances with ~~U.K. merchants.~~certain sanctioned customers, offset by a net benefit of $30 million in rebates and incentives (contra-revenue) primarily related to a reduction in 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.

See Note 6 (Investments) ~~and Note 15 (Legal and Regulatory Proceedings)~~ to the consolidated financial statements included in Part I, Item 1 and “Key Developments” above for further ~~discussion.~~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. 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.

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 as well as removing the related impact of our designated foreign exchange derivative contracts related to our cash flow hedging activities.~~results. The impact of currency translation represents the effect of translating operating results where the functional currency is different than our U.S. dollar reporting currency. The impact of the transactional currency represents the effect of converting revenue and expenses occurring in a currency other than the functional currency of the entity. The impact of the related realized gains and losses resulting from our foreign exchange derivative contracts designated as cash flow hedging instruments is recognized in the respective financial statement line item on the statement of operations when the underlying forecasted transactions impact earnings. 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~~“Drivers of ~~change impact~~Change” tables. See “Foreign Currency - Currency Impact” for further information on our currency impacts and “Financial Results - Revenue and Operating Expenses” for our ~~drivers~~"Drivers of ~~change impact~~Change” tables.

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

30 MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q33

PART I

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

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

Three Months Ended June 30, 2021
Operating expenses Operating margin Other income (expense) Effective income tax rate Net income Diluted earnings per share
($ in millions, except per share data)
Reported - GAAP $ 2,187 51.7 % $ 137 16.6 % $ 2,066 $ 2.08
(Gains) losses on equity investments ** ** (243) (0.9) % (182) $ (0.18)
Litigation provisions (67) 1.5 % ** 0.2 % 52 0.05
Non-GAAP $ 2,121 53.2 % $ (106) 15.9 % $ 1,937 $ 1.95


	Three Months Ended March 31, 2022
	Net revenue		Operating expenses		Operating margin		Other income (expense)		Effective income tax rate		Net income		Diluted earnings per share
	($ in millions, except per share data)
Reported - GAAP	$	5,167	$	2,217	57.1	%	$	(177)	5.1	%	$	2,631	$	2.68
(Gains) losses on equity investments	**		**		**		76		0.2	%	67		0.07

Russia-related impacts	(30)		(34)		0.4	%	**		—	%	3		—
Adjusted - Non-GAAP	$	5,136	$	2,182	57.5	%	$	(101)	5.3	%	$	2,702	$	2.76

Six Months Ended June 30, 2021
Operating expenses Operating margin Other income (expense) Effective income tax rate Net income Diluted earnings per share
($ in millions, except per share data)
Reported - GAAP $ 4,145 52.3 % $ 130 16.6 % $ 3,894 $ 3.91
(Gains) losses on equity investments ** ** (337) (0.3) % (269) (0.27)
Litigation provisions (67) 0.8 % ** 0.1 % 52 0.05
Non-GAAP $ 4,079 53.0 % $ (207) 16.4 % $ 3,678 $ 3.69

Three Months Ended June 30, 2020
Operating expenses Operating margin Other income (expense) Effective income tax rate Net income Diluted earnings per share
($ in millions, except per share data)
Reported - GAAP $ 1,628 51.2 % $ (17) 16.0 % $ 1,420 $ 1.41
(Gains) losses on equity investments ** ** (75) 0.2 % (67) $ (0.07)
Litigation provisions $ (22) 0.7 % ** 0.1 % 17 0.02
Non-GAAP $ 1,606 51.8 % $ (92) 16.3 % $ 1,370 $ 1.36


		Six Months Ended June 30, 2020													Three Months Ended March 31, 2021
		Operating expenses		Operating margin		Other income (expense)		Effective income tax rate		Net income		Diluted earnings per share			Net revenue		Operating expenses		Operating margin		Other income (expense)		Effective income tax rate		Net income		Diluted earnings per share
		($ in millions, except per share data)													($ in millions, except per share data)
Reported - GAAP	Reported - GAAP	$	3,426	53.3	%	$	(241)	15.4	%	$	3,113	$	3.08	Reported - GAAP	$	4,155	$	1,958	52.9	%	$	(7)	16.5	%	$	1,828	$	1.83
(Gains) losses on equity investments	(Gains) losses on equity investments	**		**		99		0.1	%	80		0.08		(Gains) losses on equity investments	**		**		**		(94)		0.4	%	(87)		(0.09)
Litigation provisions		(28)		0.4	%	**		—	%	22		0.02
Non-GAAP		$	3,398	53.7	%	$	(142)	15.5	%	$	3,214	$	3.19

Adjusted - Non-GAAP														Adjusted - Non-GAAP	$	4,155	$	1,958	52.9	%	$	(101)	16.9	%	$	1,741	$	1.74

Note: Tables may not sum due to rounding.

** Not applicable

34 ~~MASTERCARD JUNE 30, 2021 FORM 10-Q~~

~~PART I~~

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

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

Three Months Ended June 30, 2021 as compared to the Three Months Ended June 30, 2020
Increase/(Decrease)
Net revenue Operating expenses Operating margin Effective income tax rate Net income Diluted earnings per share
Reported - GAAP 36% 34% 0.5 ppt 0.6 ppt 46% 48%
(Gains) losses on equity investments ** ** ** (1.1) ppt (6)% (6)%
Litigation provisions ** (2)% 0.8 ppt 0.1 ppt 2% 1%
Non-GAAP 36% 32% 1.3 ppt (0.4) ppt 41% 43%
Currency impact 1
(4.5)% (4)% (0.3) ppt (0.2) ppt (6)% (6)%
Non-GAAP - currency-neutral 31% 28% 1.0 ppt (0.6) ppt 36% 37%


		Six Months Ended June 30, 2021 as compared to the Six Months Ended June 30, 2020							Three Months Ended March 31, 2022 as compared to the Three Months Ended March 31, 2021
		Increase/(Decrease)							Increase/(Decrease)
		Net revenue	Operating expenses	Operating margin	Effective income tax rate	Net income	Diluted earnings per share		Net revenue	Operating expenses	Operating margin	Effective income tax rate	Net income	Diluted earnings per share
Reported - GAAP	Reported - GAAP	18%	21%	(1.1) ppt	1.2 ppt	25%	27%	Reported - GAAP	24%	13%	4.2 ppt	(11.4) ppt	44%	46%
(Gains) losses on equity investments	(Gains) losses on equity investments	**	**	**	(0.4) ppt	(11)%	(12)%	(Gains) losses on equity investments	**	**	**	(0.2) ppt	11%	12%
Litigation provisions		**	(1)%	0.4 ppt	— ppt	1%	—%
Non-GAAP		18%	20%	(0.7) ppt	0.9 ppt	14%	16%

Russia-related impacts								Russia-related impacts	(1)%	(2)%	0.4 ppt	— ppt	—%	—%
Adjusted - Non-GAAP								Adjusted - Non-GAAP	24%	11%	4.6 ppt	(11.6) ppt	55%	59%
Currency impact 1	Currency impact 1	(3)%	(3)%	0.1 ppt	(0.1) ppt	(2)%	(2)%	Currency impact 1	3%	2%	0.7 ppt	0.1 ppt	6%	6%
Non-GAAP - currency-neutral		16%	17%	(0.6) ppt	0.8 ppt	12%	14%
Adjusted - Non-GAAP - currency-neutral								Adjusted - Non-GAAP - currency-neutral	27%	13%	5.2 ppt	(11.6) ppt	61%	65%

Note: ~~Tables~~Table may not sum due to rounding.

** Not applicable

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

Key Metrics

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

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

MASTERCARD MARCH 31, 2022 FORM 10-Q 31

PART I

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

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

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

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

1 Data used in the calculation of GDV is provided by Mastercard customers and is subject to verification by Mastercard and partial cross-checking against information provided by Mastercard’s transaction switching systems. All data is subject to revision and amendment by Mastercard or Mastercard’s customers. In the first quarter of 2022, data related to sanctioned Russian banks was not reported to us and therefore such amounts are not included.

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

~~MASTERCARD JUNE 30,~~ In the fourth quarter of 2021, ~~FORM 10-Q~~ we began clearing and settling transactions and volumes on a daily basis.35

~~PART I~~

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

Foreign Currency

Currency Impact

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

Our operating results are also impacted by transactional currency. The impact of the transactional currency represents the effect of converting revenue and expense transactions occurring in a currency other than the functional currency. Changes in currency exchange rates directly impact the calculation of gross dollar volume (“GDV”) and gross euro volume (“GEV”), which are used in the calculation of our domestic assessments, cross-border volume fees and certain volume-related rebates and incentives. In most non-European regions, GDV is calculated based on local currency spending volume converted to U.S. dollars using average exchange rates for the period. In Europe, GEV is calculated based on local currency spending volume converted to euros using average exchange rates for the period. As a result, certain of our domestic assessments, cross-border volume fees and volume-related rebates and incentives are impacted by the strengthening or weakening of the U.S. dollar versus non-European local currencies and the strengthening or weakening of the euro versus other European local currencies. For example, our billing in Australia is in the U.S. dollar, however, consumer spend in Australia is in the Australian dollar. The currency transactional impact of converting Australian dollars to our U.S. dollar billing currency will have an impact on the revenue generated. The strengthening or weakening of the U.S. dollar is evident when GDV growth on a U.S. dollar-converted basis is compared to GDV growth on a local currency basis. For the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, GDV on a U.S. dollar-converted basis ~~increased 38%~~ and ~~23%, respectively, while GDV~~ on a local currency basis increased ~~33%~~12% and ~~19%~~17%, respectively, versus the comparable ~~periods~~period in ~~2020.~~2021. Further, the impact from transactional currency occurs in transaction processing revenue, other revenue and operating expenses when the ~~local~~transacting currency of these items is different than the functional currency of the entity.

~~Through December 31, 2020, our approach to~~To manage ~~our transactional~~the impact of foreign currency ~~exposure consisted of hedging a portion of~~variability on anticipated revenues ~~impacted by transactional currencies by entering~~and expenses, we may enter into foreign exchange derivative contracts and ~~recording the related changes~~designate such derivatives as hedging instruments in ~~fair value~~a cash flow hedging relationship as discussed further in ~~general~~Note 17 (Derivative and ~~administrative expenses on~~Hedging Instruments) to 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 changesfinancial statements included in fair value of these designated contracts will be deferred in accumulated other comprehensive income (loss) and subsequently recognized in the respective financial statement line item on the statement of operations when the underlying forecasted transactions impact earnings.Part I, Item 1.

Foreign Exchange Activity

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

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

Risk of Currency Devaluation

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

3632 MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q

PART I

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

Financial Results

Revenue

Primary drivers of net revenue for the three months ended March 31, 2022, versus the comparable ~~periods~~period in ~~2020,~~2021, were as follows:

~~For the three months ended June 30, 2021, gross~~Gross revenue increased ~~42%~~25%, or ~~37%~~28% on a currency-neutral ~~basis, which includes growth of 2 percentage points from acquisitions.~~basis. The ~~remaining~~ increase was primarily driven by transaction and volume growth and an increase in our ~~value-added products~~Cyber & Intelligence and ~~services.~~ Data & Services solutions within other revenue.

Rebates and incentives increased ~~53%~~26%, or ~~49%~~29% on a currency-neutral basis, primarily due to increased volumes and transactions and new and renewed ~~deals.~~ deals, which includes a 1 percentage point reduction from Special Items.

Net revenue increased ~~36%~~24%. Excluding the impact of Special Items, adjusted net revenue increased 24%, or ~~31% on a currency-neutral basis, and includes 3 percentage points of growth from our acquisitions.~~

For the six months ended June 30, 2021, gross revenue increased 21%, or 19% on a currency-neutral basis, which includes growth of 1 percentage point from acquisitions. The remaining increase was primarily driven by transaction and volume growth and an increase in our value-added products and services. Rebates and incentives increased 27%~~, or 24% on a currency-neutral basis, primarily due to increased volumes and transactions and new and renewed deals. Net revenue increased 18%, or 16%~~ on a currency-neutral basis, and includes 2 percentage points of growth from our acquisitions.

~~MASTERCARD JUNE 30,~~See Note 3 (Revenue) to the consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021 ~~FORM 10-Q~~ 37

~~PART I~~

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

for a further discussion of how we recognize revenue.

The components of net revenue were as follows:


		Three Months Ended June 30,				Increase (Decrease)			Six Months Ended June 30,								Increase/ (Decrease)				Three Months Ended March 31,						Increase/ (Decrease)
		2021		2020				2021			2020									2022		2021
		($ in millions)																					($ in millions)
Domestic assessments	Domestic assessments	$	2,056	$	1,474		39%				$	3,854			$	3,157		22%	Domestic assessments						$	2,134			$	1,798		19%
Cross-border volume fees	Cross-border volume fees	1,076		637		69%			2,008				1,854				8%	Cross-border volume fees					1,395				932				50%
Transaction processing	Transaction processing	2,612		1,901		37%			4,963				4,101				21%	Transaction processing					2,912				2,351				24%
Other revenues	Other revenues	1,475		1,081		37%			2,822				2,143				32%	Other revenues					1,584				1,347				18%
Gross revenue	Gross revenue	7,219		5,093		42%			13,647				11,255				21%	Gross revenue					8,025				6,428				25%
Rebates and incentives (contra-revenue)	Rebates and incentives (contra-revenue)	(2,691)		(1,758)		53%			(4,964)				(3,911)				27%	Rebates and incentives (contra-revenue)					(2,858)				(2,273)				26%
Net revenue	Net revenue	$	4,528	$	3,335	36%			$	8,683			$	7,344			18%	Net revenue					$	5,167			$	4,155			24%
Special Items 1																		Special Items 1					(30)				—				**
Adjusted net revenue (excluding Special Items 1)																		Adjusted net revenue (excluding Special Items 1)					$	5,136			$	4,155			24%

Note: Table may not sum due to rounding

** Not meaningful.

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

Drivers of Change

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

Three Months Ended June 30, 2021
Operational Acquisitions
Currency Impact 3
Total
Domestic assessments 36 % 1 — % 3 % 39 %
Cross-border volume fees 60 % 1 — % 9 % 69 %
Transaction processing 33 % 1 — % 4 % 37 %
Other revenues 23 % 2 9 % 4 % 37 %
Rebates and incentives (contra-revenue) 49 % — % 4 % 53 %
Net revenue 29 % 3 % 4.5 % 36 %


		Six Months Ended June 30, 2021									Three Months Ended March 31, 2022
		Operational			Acquisitions			Currency Impact 3				Total		Operational					Special Items 3	Acquisitions			Currency Impact 4					Total
Domestic assessments	Domestic assessments	21	%	1		—	%		1	%			22	%	Domestic assessments	21	%	1			—	%		—	%	(2)	%		19	%
Cross-border volume fees	Cross-border volume fees	4	%	1		—	%		4	%			8	%	Cross-border volume fees	57	%	1			—	%		—	%	(7)	%		50	%
Transaction processing	Transaction processing	18	%	1		—	%		3	%			21	%	Transaction processing	27	%	1, 2			—	%		—	%	(3)	%		24	%
Other revenues	Other revenues	23	%	2		6	%		2	%			32	%	Other revenues	13	%	2			—	%		7	%	(3)	%		18	%
Rebates and incentives (contra-revenue)	Rebates and incentives (contra-revenue)	24	%			—	%		2	%			27	%	Rebates and incentives (contra-revenue)	30	%				(1)	%		—	%	(3)	%		26	%
Net revenue	Net revenue	14	%			2	%		3	%			18	%	Net revenue	25	%				1	%		2	%	(3)	%		24	%

Note: ~~Tables~~Table may not sum due to rounding.

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

2 Includes impacts from our cyber and intelligence solutions fees, data analytics and consulting fees and other ~~payment-related products and~~value-added services.

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

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

38MASTERCARD MARCH 31, 2022 FORM 10-Q ~~MASTERCARD JUNE 30, 2021 FORM 10-Q~~33

PART I

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

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

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Increase/(Decrease) Increase/(Decrease)
USD Local USD Local USD Local USD Local
Mastercard-branded GDV 1
38% 33% (14)% (10)% 23% 19% (4)% (1)%
Asia Pacific/Middle East/Africa 30% 22% (15)% (12)% 19% 13% (6)% (3)%
Canada 39% 24% (16)% (12)% 24% 13% (7)% (5)%
Europe 50% 42% (17)% (13)% 27% 22% (5)% (1)%
Latin America 51% 43% (33)% (17)% 19% 22% (16)% (2)%
United States 34% 34% (5)% (5)% 23% 23% —% —%
Cross-border volume 1
70% 58% (47)% (45)% 18% 11% (26)% (24)%


	Three Months Ended March 31,
		2022	2021
	Increase/(Decrease)
			USD	Local	USD	Local
Mastercard-branded GDV 1			12%	17%	9%	8%
United States			14%	14%	14%	14%
Worldwide less United States			11%	19%	7%	5%

Cross-border volume 1			45%	53%	(13)%	(17)%

Mastercard-branded GDV 1 adjusted for Russia 2			16%	20%	10%	7%
Worldwide less United States adjusted for Russia 2			17%	24%	8%	4%

Cross-border volume 1 adjusted for Russia 2			45%	52%	(13)%	(18)%


	Three Months Ended March 31,
		2022	2021
	Increase/(Decrease)
Switched transactions		22%	9%

Switched transactions adjusted for Russia 2		24%	8%

1 Excludes volume generated by Maestro and Cirrus cards.

Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Increase/(Decrease) Increase/(Decrease)
Switched transactions 41% (10)% 24% 1%

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

Operating Expenses

For the three months ended ~~June 30, 2021,~~March 31, 2022, operating expenses increased ~~34%~~13% versus the comparable period in ~~2020.~~2021. Adjusted operating expenses increased ~~32%~~11%, or ~~28%~~13% on a currency-neutral basis, versus the comparable period in ~~2020,~~2021, which includes ~~an 8~~a 6 percentage point increase from acquisitions. ~~The remaining increase was~~Excluding acquisitions, expenses increased 7% primarily due to increased spending on advertising and marketing, higher personnel costs to support our continued investment in our strategic initiatives ~~increased spending on advertising and marketing~~ and increased data processing costs.

For the six months ended June 30, 2021, operating expenses increased 21% versus the comparable period in 2020. Adjusted operating expenses increased 20% or 17% on a currency-neutral basis, versus the comparable period in 2020, which includes a 6 percentage point increase from acquisitions. The remaining increase was primarily due to higher personnel costs to support our continued investment in our strategic initiatives, increased spending on advertising and marketing and the lapping of a favorable hedging gain in the prior year.

The components of operating expenses were as follows:


		Three Months Ended June 30,				Increase (Decrease)		Six Months Ended June 30,								Increase/ (Decrease)					Three Months Ended March 31,				Increase/ (Decrease)
		2021		2020			2021			2020										2022		2021
		($ in millions)																					($ in millions)
General and administrative	General and administrative	$	1,718	$	1,368		26%			$	3,394			$	2,862			19%	General and administrative						$	1,844	$	1,676	10%
Advertising and marketing	Advertising and marketing	216		93		132%		335				247				36%	Advertising and marketing						181		119		52%
Depreciation and amortization	Depreciation and amortization	186		145		29%		349				289				21%	Depreciation and amortization						192		163		18%
Provision for litigation		67		22		**		67				28				**

Total operating expenses	Total operating expenses	2,187		1,628		34%		4,145				3,426				21%	Total operating expenses						2,217		1,958		13%
Special Items 1	Special Items 1	(67)		(22)		**		(67)				(28)				**	Special Items 1						(34)		—		**
Adjusted total operating expenses (excluding Special Items 1)	Adjusted total operating expenses (excluding Special Items 1)	$	2,121	$	1,606	32%		$	4,079			$	3,398			20%	Adjusted total operating expenses (excluding Special Items 1)						$	2,182	$	1,958	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.

34 MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q39

PART I

ITEM 2. 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:

Three Months Ended June 30, 2021
Operational
Special
Items 1
Acquisitions
Currency Impact 2
Total
General and administrative 16% ** 7% 3% 26%
Advertising and marketing 124% ** 2% 6% 132%
Depreciation and amortization 1% ** 23% 4% 29%
Provision for litigation ** ** ** ** **
Total operating expenses 21% 2% 8% 4% 34%


		Six Months Ended June 30, 2021						Three Months Ended March 31, 2022
		Operational	Special Items 1	Acquisitions	Currency Impact 2	Total		Operational	Special Items 1	Acquisitions	Currency Impact 2	Total
General and administrative	General and administrative	11%	**	5%	3%	19%	General and administrative	4%	2%	5%	(2)%	10%
Advertising and marketing	Advertising and marketing	31%	**	1%	3%	36%	Advertising and marketing	55%	**	1%	(4)%	52%
Depreciation and amortization	Depreciation and amortization	2%	**	16%	3%	21%	Depreciation and amortization	2%	**	17%	(1)%	18%
Provision for litigation		**	**	**	**	**

Total operating expenses	Total operating expenses	11%	1%	6%	3%	21%	Total operating expenses	7%	2%	6%	(2)%	13%

Note: Tables may not sum due to rounding.

** Not meaningful.

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

2 ~~Includes~~Represents the translational and transactional impact of currency.

General and Administrative

For the three months ended ~~June 30, 2021,~~March 31, 2022, general and administrative expenses increased ~~26%~~10%, or ~~22%~~12% on a currency-neutral basis, versus the comparable period in ~~2020.~~2021. Current period results include growth of 75 percentage points from ~~acquisitions.~~acquisitions and 2 percentage points from Special Items. The remaining increase was primarily due to higher personnel costs to support our continued investment in our strategic initiatives and increased data processing costs.

For the six months ended June 30, 2021, general and administrative expenses increased 19%, or 16% on a currency-neutral basis, versus the comparable period in 2020. Current period results include growth of 5 percentage points from acquisitions. The remaining increase was primarily due to higher personnel costs to support our continued investment in our strategic initiatives, increased data processing costs and an increase due to the lapping of a favorable hedging gain in the prior year.

The components of general and administrative expenses were as follows:


		Three Months Ended June 30,				Increase (Decrease)		Six Months Ended June 30,								Increase/(Decrease)				Three Months Ended March 31,				Increase/(Decrease)
		2021		2020			2021			2020									2022		2021
		($ in millions)																				($ in millions)
Personnel		$	1,130	$	915		24%			$	2,234			$	1,877			19%
Personnel 1																	Personnel 1					$	1,181	$	1,104	7%
Professional fees	Professional fees	106		84		27%		203				177				15%	Professional fees					86		97		(11)%
Data processing and telecommunications	Data processing and telecommunications	215		177		21%		415				356				16%	Data processing and telecommunications					235		200		18%
Foreign exchange activity 1		8		19		(61)%		16				(33)				**
Other		259		173		50%		526				485				9%
Foreign exchange activity 2																	Foreign exchange activity 2					36		8		**
Other 1																	Other 1					306		267		15%
Total general and administrative expenses	Total general and administrative expenses	$	1,718	$	1,368	26%		$	3,394			$	2,862			19%	Total general and administrative expenses					$	1,844	$	1,676	10%

Note: Table may not sum due to rounding.

** Not meaningful.

1Total general and administrative expenses includes a $34 million Special Item for Russia-related impacts, of which $29 million is included within Other and $5 million is included within Personnel. 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 gains and losses on foreign exchange derivative contracts and the impact of remeasurement of assets and liabilities denominated in foreign currencies. See Note 17 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part I, Item 1 for further discussion.

40 ~~MASTERCARD JUNE 30, 2021 FORM 10-Q~~

~~PART I~~

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

Advertising and Marketing

For the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, advertising and marketing expenses increased ~~132% and 36%~~52%, or ~~126% and 33%~~56% on a currency-neutral basis, ~~respectively,~~ versus the comparable ~~periods~~period in ~~2020,~~2021, primarily due to an increase in spending on marketing campaigns, advertising and ~~sponsorship spend driven by the reinstatement of sponsored events as economies start to open up and recover from the impact of the pandemic.~~sponsorships.

Depreciation and Amortization

For the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, depreciation and amortization expenses increased ~~29% and 21%~~18%, or ~~25% and 18%~~19% on a currency-neutral basis, ~~respectively,~~ versus the comparable ~~periods~~period in ~~2020,~~2021, which includes growth of ~~23 and 16~~17 percentage points from acquisitions ~~respectively.~~

~~Provision for Litigation~~

We recorded litigation provisions of $67 million during both the three and six months ended June 30, 2021, as well as $22 million and $28 million during the three and six months ended June 30, 2020, respectively, related to various litigation settlements and legal costs. See “Non-GAAP Financial Information” in this section for further discussion.

~~Other Income (Expense)~~

~~For the three months ended June 30, 2021, other income (expense) was favorable, versus the comparable periods in 2020, primarily~~ due to ~~higher net gains in~~ the ~~current period versus the prior period related to unrealized fair market value adjustments on marketable and non-marketable equity securities.~~

For the six months ended June 30, 2021, other income (expense) was favorable, versus the comparable periods in 2020, primarily due to net gains in the current period versus net losses in the prior period related to unrealized fair market value adjustments on marketable and non-marketable equity securities, partially offset by increased interest expense related to our recent debt issuances and a decrease in our investment income.

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

Three Months Ended June 30, Increase (Decrease) Six Months Ended June 30, Increase/ (Decrease)
2021 2020 2021 2020
($ in millions)
Investment income $ 3 $ 8 (63)% $ 4 $ 24 (83)%
Gains (losses) on equity investments, net 243 75 ** 337 (99) **
Interest expense (106) (101) 5% (213) (170) 25%
Other income (expense), net (3) 1 ** 2 4 (50)%
Total other income (expense) $ 137 $ (17) ** $ 130 $ (241) **

~~Note: Table may not sum due to rounding.~~

** Not meaningful.

~~Income Taxes~~

For the three months ended June 30, 2021, the effective income tax rate was 16.6% versus 16.0% for the comparable period in 2020, primarily due to a change in our geographic mix of earnings and a lower discrete tax benefit related to share-based payments, partially offset by a discrete tax benefit related to the remeasurement of our net deferred tax asset in the U.K. due to a recently enacted tax rate. The adjusted effective income tax rate was 15.9% versus 16.3% for the comparable period in 2020 primarily due to a discrete tax benefit related to the remeasurement of our net deferred tax asset in the U.K. due to a recently enacted tax rate, partially offset by a change in our geographic mix of earnings.

For the six months ended June 30, 2021, the effective income tax rate was 16.6% versus 15.4%, and the adjusted effective income tax rate was 16.4% versus 15.5%, for the comparable period in 2020. Both the as reported and as adjusted effective income tax rates were higher primarily due to a lower discrete tax benefit related to share-based payments and a change in our geographic mix of earnings, partially offset by a discrete tax benefit related to the remeasurement of our net deferred tax asset in the U.K. due to a recently enacted tax rate.acquired intangible assets.

MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q 4135

PART I

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

Other Income (Expense)

For the three months ended March 31, 2022, other income (expense) was unfavorable $170 million, versus the comparable period in 2021, primarily due to net losses in the current period versus net gains in the prior period related to unrealized fair market value adjustments on marketable and non-marketable equity securities. Adjusted other income (expense) was flat on both an as adjusted and a currency-neutral basis versus the year ago period.

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


	Three Months Ended March 31,					Increase/ (Decrease)
		2022			2021
			($ in millions)
Investment income			$	5		$	1	**
Gains (losses) on equity investments, net			(76)			94		**
Interest expense			(110)			(107)		3%
Other income (expense), net			4			5		**
Total other income (expense)			$	(177)		$	(7)	**
(Gains) losses on equity investments 1			76			(94)		**

Adjusted total other income (expense) 1			$	(101)		$	(101)	—%

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 5.1% and 16.5% for the three months ended March 31, 2022 and 2021, respectively. The adjusted effective income tax rates were 5.3% and 16.9% for the three months ended March 31, 2022 and 2021, respectively. Both the as reported and as adjusted effective income tax rates decreased versus the comparable period in 2021, primarily due to a discrete tax benefit related to final U.S. tax regulations published in the current period, resulting in a valuation allowance release of $333 million associated with the U.S. foreign tax credit carryforward deferred tax asset. The regulations limit our ability to generate foreign tax credits starting in 2022 for certain foreign taxes paid resulting in additional U.S. tax expense.

Liquidity and Capital Resources

We rely on existing liquidity, cash generated from operations and access to capital to fund our global operations, capital expenditures, investments in our business and current and potential obligations. The following table summarizes the cash, cash equivalents, investments and credit available to us:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in billions)					(in billions)
Cash, cash equivalents and investments 1	Cash, cash equivalents and investments 1	$	6.8	$	10.6	Cash, cash equivalents and investments 1	$	7.3	$	7.9
Unused line of credit	Unused line of credit	6.0		6.0		Unused line of credit	6.0		6.0

1 Investments include available-for-sale securities and held-to-maturity securities. This amount excludes restricted cash and restricted cash equivalents of ~~$2.4~~$2.3 billion and ~~$2.3~~$2.5 billion at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

We believe that our existing cash, cash equivalents and investment securities balances, our cash flow generating capabilities, and our access to capital resources are sufficient to satisfy our future operating cash needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations and potential obligations which include litigation provisions and credit and settlement exposure.

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.

36 MASTERCARD MARCH 31, 2022 FORM 10-Q

PART I

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

Our liquidity and access to capital could also be negatively impacted by the outcome of any of the legal or regulatory proceedings to which we are a party. For additional discussion of these and other risks facing our business, see Part I, Item 1A - Risk Factors ~~and Part II, Item 7 (Business Environment)~~ of our Annual Report on Form 10-K for the year ended December 31, ~~2020 and~~2021, Note 15 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part I, Item 1.1 and Part II, Item 1A - Risk Factors 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,					Three Months Ended March 31,
		2021		2020			2022		2021
		(in millions)					(in millions)
Net cash provided by operating activities	Net cash provided by operating activities	$	3,731	$	3,317	Net cash provided by operating activities	$	1,782	$	1,463
Net cash used in investing activities	Net cash used in investing activities	(4,702)		(626)		Net cash used in investing activities	(287)		(3,560)
Net cash (used in) provided by financing activities		(2,801)		1,691
Net cash used in financing activities						Net cash used in financing activities	(2,154)		(606)

Net cash provided by operating activities increased ~~$414~~$319 million for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, versus the comparable period in ~~2020,~~2021, primarily due to higher net income adjusted for non-cash items and higher accounts receivable collected, partially offset by ~~timing of settlement with customers.~~higher customer incentive payments and employee incentives.

Net cash used in investing activities ~~increased $4,076~~decreased $3,273 million for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, versus the comparable period in ~~2020,~~2021, primarily due to ~~increased~~no business acquisition activity in the current year.

~~During~~Net cash used in financing activities increased $1,548 million for the ~~six~~three months ended ~~June 30, 2021 we had a net use of cash for financing activities,~~March 31, 2022, versus the comparable period in ~~2020, when we had net cash provided by financing activities. This change was~~2021, primarily due to ~~lower net debt proceeds and~~ higher repurchases of our Class A common stock and lower proceeds from debt issuances in the current ~~period.~~year.

Debt and Credit Availability

In ~~March 2021,~~February 2022, we issued ~~$600~~€750 million ($834 million as of March 31, 2022) principal amount of notes due ~~March 2031 and $700 million principal amount of notes due March 2051 (collectively the “2021 USD~~February 2029 (the “2022 EUR Notes”). Our total debt outstanding was $14.6 billion and $13.9 billion ~~and $12.7 billion~~ at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, with the earliest maturity of ~~$650~~€700 million ($778 million as of March 31, 2022) of principal occurring in November 2021. The proceeds of the 2021 USD Notes due March 2031 are to be used to fund eligible green and social projects, examples of which are described in the Use of Proceeds section of the Prospectus Supplement filed on March 4, 2021. All other notes are to be used for general corporate purposes.

42 ~~MASTERCARD JUNE 30, 2021 FORM 10-Q~~

~~PART I~~

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

December 2022.

As of ~~June 30, 2021,~~March 31, 2022, we have a commercial paper program (the “Commercial Paper Program”), under which we are authorized to issue up to $6 billion in outstanding notes, with maturities up to 397 days from the date of issuance. In conjunction with the Commercial Paper Program, we have a committed unsecured $6 billion revolving credit facility (the “Credit Facility”) which expires in November ~~2025.~~2026.

Borrowings under the Commercial Paper Program and the Credit Facility are to be used to provide liquidity for general corporate purposes, including providing liquidity in the event of one or more settlement failures by our customers. In addition, we may borrow and repay amounts under these facilities for business continuity purposes. We had no borrowings outstanding under the Commercial Paper Program or the Credit Facility at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

See Note 10 (Debt) to the consolidated financial statements included in Part I, Item 1 for further discussion on our debt and Note 15 (Debt) to the consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 for further discussion on our debt, the Commercial Paper Program and the Credit Facility.

Dividends and Share Repurchases

We have historically paid quarterly dividends on our outstanding Class A common stock and Class B common stock. Subject to legally available funds, we intend to continue to pay a quarterly cash dividend. The declaration and payment of future dividends is at the sole discretion of our Board of Directors after taking into account various factors, including our financial condition, operating results, available cash and current and anticipated cash needs.

Aggregate payments for quarterly dividends totaled ~~$873~~$479 million for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022.

On ~~December 8, 2020,~~November 30, 2021, our Board of Directors declared a quarterly cash dividend of ~~$0.44~~$0.49 per share paid on February 9, ~~2021~~2022 to holders of record on January ~~8, 2021~~7, 2022 of our Class A common stock and Class B common stock. The aggregate amount of this dividend was ~~$439~~$479 million.

On February 8, ~~2021,~~2022, our Board of Directors declared a quarterly cash dividend of ~~$0.44~~$0.49 per share payable on May ~~7, 2021~~9, 2022 to holders of record on April ~~9, 2021 of our Class A common stock and Class B common stock. The aggregate amount of this dividend was $434 million.~~

~~On June 21, 2021, our Board of Directors declared a quarterly cash dividend of $0.44 per share payable on August 9, 2021 to holders of record on July 9, 2021~~8, 2022 of our Class A common stock and Class B common stock. The aggregate amount of this dividend is estimated to be ~~$434~~$477 million.

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

MASTERCARD MARCH 31, 2022 FORM 10-Q 37

PART I

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

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, 2021:~~March 31, 2022:

(in millions, except average price data)

Remaining authorization at December 31, ~~2020~~2021

~~9,831~~11,927

Dollar value of shares repurchased during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022

~~3,067~~2,408

Remaining authorization at ~~June 30, 2021~~March 31, 2022

~~6,764~~9,519

Shares repurchased during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022

~~8.5~~6.8

Average price paid per share during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022

~~359.66~~355.13

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 isare discussed further in Note 17 (Derivative and Hedging Instruments) to the consolidated financial statements included in Part I, Item 1.

~~MASTERCARD JUNE 30, 2021 FORM 10-Q~~ 43

~~PART I~~

~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

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 ~~and reporting~~ 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 ~~$70~~$74 million and ~~$58~~$70 million on our foreign exchange derivative contracts outstanding at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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. ~~The effect of a~~A hypothetical 10% adverse change in the value of the functional currencies ~~could result in~~would not have a material impact to the fair value ~~loss~~ of ~~approximately $1 million and $23 million on~~ our short duration foreign exchange derivative contracts outstanding at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

We are further exposed to foreign exchange rate risk related to translation of our net investment in foreign ~~operating results~~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 ~~$211~~$319 million and $165 million on our foreign exchange derivative contracts designated as a net investment hedge at ~~June 30,~~March 31, 2022 and December 31, 2021, respectively, before considering the offsetting effect of the underlying hedged activity. ~~The Company did not have similar foreign exchange derivative contracts outstanding as of December 31, 2020.~~

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, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

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 could result in a fair value loss of approximately $44

38 MASTERCARD MARCH 31, 2022 FORM 10-Q

PART I

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

million and $49 million on our interest rate derivative contracts designated as a fair value hedge of our fixed-rate debt at March 31, 2022 and December 31, 2021, respectively, before considering the offsetting effect of the underlying hedged activity.

Item 4. Controls and procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to ensure that information that is required to be disclosed in the reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated to management, including our President and Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding disclosure. The President and Chief Executive Officer and the Chief Financial Officer, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.

Changes in Internal Control over Financial Reporting

There was no change in Mastercard’s internal control over financial reporting that occurred during the three months ended ~~June 30, 2021~~March 31, 2022 that has materially affected, or is reasonably likely to materially affect, Mastercard's internal control over financial reporting.

44MASTERCARD MARCH 31, 2022 FORM 10-Q ~~MASTERCARD JUNE 30, 2021 FORM 10-Q~~39

PART II

Item 1. Legal proceedings

Item 1A. Risk factors

Item 2. Unregistered sales of equity securities and use of proceeds

Item 5. Other information

Item 6. Exhibits

Signatures

PART II

ITEM 1. LEGAL PROCEEDINGS

Item 1. Legal proceedings

Refer to Note 15 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part I, Item 1.

Item 1A. Risk factors

~~For a discussion of our~~The following supplements the risk factors ~~see~~disclosed in Part I, Item 1A - Risk Factors of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021 (our “2021 Form 10-K”). The following risk factor disclosure should be read in conjunction with the risk factors described in our 2021 Form 10-K.

Events and resulting actions related to the Russian invasion of Ukraine could result in a material and adverse impact on our overall business and results of operations.

In response to the Russian invasion of Ukraine, the United States and other governments imposed sanctions and other restrictive measures on certain Russian-related entities and individuals and we suspended our business operations in Russia.

We expect to experience revenue loss in this fast-growing market as a result of both the implementation of sanctions and the suspension of our business operations, as well as related impacts in Ukraine and potentially in neighboring countries. Future developments (including the expansion or extension of the war, future sanctions on Russia or other governments such as Belarus and/or actions taken by others globally, and other macroeconomic factors) could result in further negative impacts on our business and financial results. As customers, merchants and other business partners are impacted by the invasion, it can further negatively affect the environment in which we operate.

As a result of our continuing compliance with current sanctions, including any potential future sanctions, we may not be able to collect amounts due from subsidiaries of Russian banks that are not currently impacted by our suspension of services in Russia. Additionally, we may be unable to provide the support that customers or consumers would expect if one part of a transaction in which they are participating is sanctioned, potentially resulting in negative reputational impact. Separately, to the extent we are unable to fully comply with all current and potential future sanctions and related restrictions, we could face penalties and/or other consequences.

Moreover, our compliance with sanctions and our decision to suspend business operations could lead to other legal ramifications and operational challenges, including fines, impacts from any decision to nationalize our subsidiary, and lawsuits related to the suspension of our business operations. Additionally, these circumstances could lead to information security threats and attacks by affected or sympathizing actors, which could put our information and assets at risk, as well as result in network disruption.

Given our decision to suspend business operations in Russia, other separate jurisdictions may decide to increase their focus on growing local payment networks and other solutions. Moreover, the suspension of our business operations may provide the opportunity for competitors to grow their business and increase their market share and relative competitive position.

Each instance above may individually or collectively materially and adversely affect our financial performance and/or our overall business and results of operations.

Item 2. Unregistered sales of equity securities and use of proceeds

Issuer Purchases of Equity Securities

During the ~~second~~first quarter of ~~2021,~~2022, we repurchased ~~4.6~~6.8 million shares for ~~$1.7~~$2.4 billion at an average price of ~~$370.83~~$355.13 per share of Class A common stock. The following table presents our repurchase activity on a cash basis during the ~~second~~first quarter of ~~2021:~~2022:

Period Total Number
of Shares
Purchased Average Price
Paid per Share
(including
commission cost) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Dollar Value of
Shares that may yet
be Purchased under
the Plans or
Programs 1, 2
April 1 - 30 1,360,096 $ 377.46 1,360,096 $ 7,961,751,045
May 1 - 31 1,580,594 $ 369.14 1,580,594 $ 7,378,297,503
June 1 - 30 1,674,449 $ 367.03 1,674,449 $ 6,763,717,318
Total 4,615,139 $ 370.83 4,615,139


Period	Total Number of Shares Purchased	Average Price Paid per Share (including commission cost)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Dollar Value of Shares that may yet be Purchased under the Plans or Programs 1, 2
January 1 - 31	2,117,227	$	361.27	2,117,227	$	11,161,980,516
February 1 - 28	1,716,442	376.64		1,716,442	10,515,504,070
March 1 - 31	2,945,978	338.18		2,945,978	9,519,222,925
Total	6,779,647	355.13		6,779,647

1 Dollar value of shares that may yet be purchased under the repurchase programs is as of the end of the period.

2 In November 2021 and December 2020, ~~and 2019,~~ our Board of Directors approved share repurchase programs of our Class A common stock authorizing us to repurchase up to $8.0 billion and $6.0 billion, ~~and $8.0 billion, respectively, of our Class A common stock under each plan.~~respectively.

MASTERCARD MARCH 31, 2022 FORM 10-Q 41

Item 5. Other information

Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, we hereby incorporate by reference herein the disclosure contained in Exhibit 99.1.

Item 6. Exhibits

Refer to the Exhibit Index included herein.

4642 MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q

PART II

EXHIBIT INDEX

Exhibit index


Exhibit Number						Exhibit Description
~~3.1~~4.1						~~Amended and Restated~~Officer’s Certificate of ~~Incorporation~~the Company, dated as of ~~Mastercard Incorporated~~February 22, 2022 (incorporated by reference to Exhibit ~~3.1 to~~4.1 of the Company’s Current Report on Form 8-K filed ~~June 23, 2021~~on February 22, 2022 (File No. 001-32877)).
~~3.2~~4.2						~~Amended and Restated By-laws~~Form of ~~Mastercard Incorporated (incorporated~~Global Note representing the Company’s 1.000% Notes due 2029 (included in Officer’s Certificate of the Company, dated as of February 22, 2022)(incorporated by reference to Exhibit ~~3.1 to~~4.1 of the Company’s Current Report on Form 8-K filed ~~June 23, 2021~~on February 22, 2022 (File No. 001-32877)).
10.1+*						Form of Restricted Stock Unit Agreement for awards under Mastercard Incorporated 2006 Long Term Incentive Plan ~~amended~~(effective for awards granted on and ~~restated effective June 22, 2021.~~subsequent to March 1, 2022).
10.210.2+						~~Schedule~~Form of ~~Non-Employee Directors’ Annual Compensation effective as of June 22, 2021.~~Stock Option Agreement for awards under Mastercard Incorporated 2006 Long Term Incentive Plan (effective for awards granted on and subsequent to March 1, 2022).
10.310.3+						Form of Performance Stock Unit Agreement for awards under Mastercard Incorporated 2006 ~~Non-Employee Director Equity Compensation~~Long Term Incentive Plan ~~amended~~(effective for awards granted on and subsequent to March 1, 2022).
10.4+*						Amended and Restated Mastercard International Incorporated Executive Severance Plan, awarded and restated ~~effective~~ as of ~~Jun 22, 2021.~~April 11, 2022.
10.5+*						Amended and Restated Mastercard International Incorporated Change in Control Severance Plan, awarded and restated as of April 11, 2022.
31.1*						Certification of Michael Miebach, President and Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Sachin Mehra, Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*						Certification of Michael Miebach, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*						Certification of Sachin Mehra, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1*						Disclosure pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012.
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*						XBRL Taxonomy Extension Schema Document
101.CAL*						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*						XBRL Taxonomy Extension Label Linkbase Document
101.PRE*						XBRL Taxonomy Extension Presentation Linkbase Document

+ Management contracts or compensatory plans or arrangements.

* Filed or furnished herewith.

The agreements and other documents filed as exhibits to this Report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and should not be relied upon for that purpose. In particular, any representations and warranties made by the Company in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q 4743

SIGNATURES

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MASTERCARD INCORPORATED

(Registrant)

Date:

~~July 29, 2021~~April 28, 2022

By:

/S/ MICHAEL MIEBACH

Michael Miebach

President and Chief Executive Officer

(Principal Executive Officer)

Date:

~~July 29, 2021~~April 28, 2022

By:

/S/ SACHIN MEHRA

Sachin Mehra

Chief Financial Officer

(Principal Financial Officer)

Date:

~~July 29, 2021~~April 28, 2022

By:

/S/ SANDRA ARKELL

Sandra Arkell

Corporate Controller

(Principal Accounting Officer)

4844 MASTERCARD ~~JUNE 30, 2021~~MARCH 31, 2022 FORM 10-Q



PART I	5	Item 1.	Consolidated financial statements (unaudited)
	3028	Item 2.	Management’s discussion and analysis of financial condition and results of operations
	4338	Item 3.	Quantitative and qualitative disclosures about market risk
	4439	Item 4.	Controls and procedures


PART II	4641	Item 1.	Legal proceedings
	4641	Item 1A.	Risk factors
	4641	Item 2.	Unregistered sales of equity securities and use of proceeds
	4642	Item 5.	Other information
	4642	Item 6.	Exhibits
	4844	-	Signatures


Consolidated Statement of Changes in Equity (Unaudited)
	Three Months Ended June 30, 2021
	Stockholders’ Equity
	Common Stock				Additional Paid-In Capital		Class A Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Mastercard Incorporated Stockholders’ Equity		Non- Controlling Interests		Total Equity
	Class A		Class B
	(in millions)








Balance at March 31, 2021	$	0	$	0	$	4,949	$	(38,024)	$	40,140	$	(738)	$	6,327	$	98	$	6,425
Net income	—		—		—		—		2,066		—		2,066		—		2,066
Activity related to non-controlling interests	—		—		—		—		—		—		—		0		0
Redeemable non-controlling interest adjustments	—		—		—		—		(1)		—		(1)		—		(1)
Other comprehensive income (loss)	—		—		—		—		—		85		85		—		85
Dividends	—		—		—		—		(434)		—		(434)		—		(434)
Purchases of treasury stock	—		—		—		(1,705)		—		—		(1,705)		—		(1,705)
Share-based payments	—		—		104		0		—		—		104		—		104
Balance at June 30, 2021	$	0	$	0	$	5,053	$	(39,729)	$	41,771	$	(653)	$	6,442	$	98	$	6,540


Consolidated Statement of Changes in Equity (Unaudited) - (Continued)
	Three Months Ended June 30, 2020
	Stockholders’ Equity
	Common Stock				Additional Paid-In Capital		Class A Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Mastercard Incorporated Stockholders’ Equity		Non- Controlling Interests		Total Equity
	Class A		Class B
	(in millions)
Balance at March 31, 2020	$	0	$	0	$	4,735	$	(33,531)	$	35,273	$	(1,079)	$	5,398	$	25	$	5,423
Net income	—		—		—		—		1,420		—		1,420		—		1,420
Activity related to non-controlling interests	—		—		—		—		—		—		—		3		3
Redeemable non-controlling interest adjustments	—		—		—		—		(3)		—		(3)		—		(3)
Other comprehensive income (loss)	—		—		—		—		—		33		33		—		33
Dividends	—		—		—		—		(402)		—		(402)		—		(402)
Purchases of treasury stock	—		—		—		(75)		—		—		(75)		—		(75)
Share-based payments	—		—		97		2		—		—		99		—		99
Balance at June 30, 2020	$	0	$	0	$	4,832	$	(33,604)	$	36,288	$	(1,046)	$	6,470	$	28	$	6,498


	Acquisition Date Fair Value		Weighted-Average Useful Life
	(in millions)		(in years)
Developed technologies	$	366	12.3
Customer relationships	1,530		19.0
Other	21		8.0
Other intangible assets	$	1,917	17.6


	Grants in 2021	Weighted-Average Grant-Date Fair Value
	(in millions)	(per option/unit)
Non-qualified stock options	0.3	$	92
Restricted stock units	0.8	358
Performance stock units	0.2	385


	2020 Quarter Ended								2021 Quarter Ended
	March 31		June 30		September 30		December 31		March 31		June 30
	Increase/(Decrease)
Gross dollar volume (local currency basis)	8	%	(10)	%	1	%	1	%	8	%	33	%
Cross-border volume (local currency basis)	(1)	%	(45)	%	(36)	%	(29)	%	(17)	%	58	%
Switched transactions	13	%	(10)	%	5	%	4	%	9	%	41	%