MasterCard reports FY net loss of $254 million

Source: MasterCard

MasterCard Incorporated today announced financial results for the fourth quarter and full-year 2008. The company reported net income of $243 million, or $1.87 per diluted share, excluding a special item of $6 million related to a litigation settlement. Including the special item, the company reported net income of $239 million, or $1.84 per diluted share. The company's total operating expenses, operating margin, other income, effective tax rate, net income and earnings per share, excluding special items, are non-GAAP financial measures that are reconciled to their most directly comparable GAAP measures in the accompanying financial tables.

Net revenue for the fourth quarter of 2008 was $1.2 billion, a 14.2% increase versus the same period in 2007. Currency fluctuations (driven by movement of the euro and the Brazilian real relative to the U.S. dollar) tempered net revenue growth by 3.5 percentage points for the quarter. The higher net revenue in the fourth quarter versus the same period in 2007 was fueled by:

* Pricing changes, which contributed approximately 8 percentage points of the net revenue growth; and
* A 6.0% increase in the number of transactions processed, to 5.5 billion.

MasterCard's gross dollar volume increased 3.4%, on a local currency basis, to $605 billion. Worldwide purchase volume during the quarter rose 3.1% on a local currency basis, versus the fourth quarter of 2007, to $455 billion, driven by modest growth in cardholder spending on a growing number of MasterCard cards. As of December 31, 2008, the company's financial-institution customers had issued 981 million MasterCard cards, an increase of 7.6% over the cards issued at December 31, 2007.

"Despite the significant economic turbulence around the world, we were able to achieve excellent fourth-quarter operating results while maintaining a healthy balance sheet, which is a strength in this environment," said Robert W. Selander, MasterCard president and chief executive officer. "Our 2008 full-year results reflect our unique business model and the value we provide to our financial-institution customers around the world."

Selander stated, "We remain committed to taking a prudent approach to our business to ensure effective cost management, while opportunistically investing to drive long-term growth for MasterCard and deliver value to our customers and shareholders. Our recent organizational realignment and our acquisition of Orbiscom, a leading payments solutions software provider, reflect that approach.

"The economic environment remains challenging, with businesses, governments and consumers around the world retd the world retd consumers around the world rethinking how finances are managed. One thing is certain in this new reality of increased financial management control --- the value and importance of electronic payments has never been greater," concluded Selander.

The special item for the fourth quarter of 2008 represented:

* A $6 million charge related to the settlement of a consumer protection case in California.

There were no special items for the fourth quarter of 2007.

Excluding the special item, total operating expenses decreased 16.0%, to $756 million, during the fourth quarter of 2008 compared to the same period in 2007. Currency fluctuations of 2.0 percentage points contributed to the rate of decline for total operating expenses. The decrease in total operating expenses was driven by:

* A 3.4% decrease in general and administrative expenses, primarily resulting from initiatives to reduce travel expenses, personnel costs and professional fees. Currency fluctuations representing approximately 2.0 percentage points contributed to the rate of decline; and
* A 32.8% decrease in advertising and marketing expenses versus the year-ago period, with approximately 1.9 percentage points related to the impact of foreign currency fluctuations contributing to the rate of decline.

Including the special item, total operating expenses for the fourth quarter of 2008 decreased 15.3% versus the year-ago period, to $762 million.

Excluding the special item, the operating margin was 38.2% for the fourth quarter of 2008, up 22.2 percentage points over the year-ago period. Including the special item, the operating margin was 37.7% for the fourth quarter of 2008.

Total other expense was $17 million in the fourth quarter of 2008 versus total other income of $295 million in the fourth quarter of 2007. The decrease was primarily due to gains realized in the fourth quarter of 2007 from the sale of a portion of the company's investment in Redecard S.A. Interest expense versus the year-ago period increased $21 million, primarily due to the interest accretion associated with the American Express settlement that occurred in the second quarter of 2008.

Excluding the special item, MasterCard's effective tax rate was 46.1% in the fourth quarter of 2008, versus 34.9% in the comparable period in 2007. The increase was primarily due to deferred tax remeasurement and increased FIN 48 tax reserves. Including the special item, the effective tax rate was 46.2% for the fourth quarter of 2008.

Full-Year 2008 Results

For the year-ended December 31, 2008, MasterCard reported net income of $1.2 billion, or $9.45 per diluted share, excluding the impact of special items, and a net loss of $254 million, or $1.95 per diluted share, including special items. Both earnings per share figures include after-tax gains from the sale of a portion of the company's investment in Redecard S.A. of $0.42 per share on a diluted basis.

Special items on a pre-tax basis for the full-year 2008 included:

* A $1.65 billion charge related to the antitrust litigation settlement between MasterCard and American Express;
* An $827.5 million net charge related to the Discover litigation settlement;
* A $75 million gain in other income from the termination of a customer business agreement; and
* A $6 million charge related to the settlement of a consumer protection case in California.

Special items on a pre-tax basis for full-year 2007 included:

* $90 million in other income related to a settlement received under an agreement to discontinue the company's sponsorship of the 2010 and 2014 World Cup soccer events; and
* A $3.4 million reserve recorded for a litigation settlement.

Net revenue for full-year 2008 was $5.0 billion, a 22.7% increase versus 2007. In addition to growth in GDV, processed transactions and cross-border transaction volumes, this increase was driven by pricing changes of approximately 6 percentage points, primarily associated with the cross-border transaction pricing implemented in 2008. Currency fluctuation contributed approximately 2.5 percentage points of the increase in revenue.

Excluding special items for both periods, total operating expenses increased 2.9%, to $3.0 billion, for full-year 2008 compared to 2007, primarily due to higher personnel expenses. Currency fluctuations contributed 1.7 percentage points of this increase. Growth in total operating expenses was driven by:

* An increase in general and administrative expenses, which was primarily driven by an 11.6% increase in personnel expenses due to new personnel and higher contractor costs. Currency fluctuations represented approximately 1.4 percentage points of the increase; and
* Advertising and marketing expenses, which decreased 5.8% versus full-year 2007 due to cost-containment activities, partially offset by approximately 2.0 percentage points related to the impact of foreign currency fluctuations.

Including special items, operating expenses increased 86.7%, to $5.5 billion.

Excluding special items, the operating margin was 39.0% for full-year 2008, up 11.7 percentage points over the year-ago period. Including special items, the operating margin was a negative 10.7% for full-year 2008.

Total other income was $76 million for full-year 2008 versus $473 million for the same period in 2007, excluding special items in both periods. Other income decreased due to larger gains recorded in 2007 from the sale of Redecard securities. Additionally, interest expense versus the year-ago period increased $46 million, primarily due to the interest accretion associated with the 2008 American Express settlement. Including special items, total other income was $151 million for full-year 2008 and $563 million for full-year 2007.

MasterCard's effective tax rate, excluding litigation settlements, was 38.7% for the full-year 2008, versus a rate of 35.0% for the full-year 2007. The increase was primarily due to deferred tax remeasurement and increased FIN 48 tax reserves. Including the litigation settlements, the effective tax rate was 33.7% for 2008 and 35.0% for 2007.

Fourth-Quarter 2008 Financial Results Conference Call Details

At 9:00 a.m. EST today, the company will host a conference call to discuss its fourth-quarter and full-year 2008 financial results.

The dial-in information for this call is 866-578-5771 (within the U.S.) and 617-213-8055 (outside the U.S.) and the passcode is 31072600. A replay of the call will be available for one week thereafter. The replay can be accessed by dialing 888-286-8010 (within the U.S.) and 617-801-6888 (outside the U.S.) and using passcode 44423914.

The live call and the replay, along with supporting materials, can also be accessed through the Investor Relations section of the company's website at www.mastercard.com.

About MasterCard Incorporated

MasterCard Incorporated advances global commerce by providing a critical economic link among financial institutions, businesses, cardholders and merchants worldwide. As a franchisor, processor and advisor, MasterCard develops and markets payment solutions, processes approximately 21 billion transactions each year, and provides industry-leading analysis and consulting services to financial institution customers and merchants. Through its family of brands, including MasterCard®, Maestro® and Cirrus®, MasterCard serves consumers and businesses in more than 210 countries and territories. For more information go to www.mastercard.com.

Forward-Looking Statements

Statements in this press release which are not historical facts, including statements about MasterCard's plans, strategies, beliefs and expectations, are forward-looking and subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date they are made. Accordingly, except for the company's ongoing obligations under the U.S. federal securities laws, the company does not intend to update or otherwise revise the forward-looking information to reflect actual results of operations, changes in financial condition, changes in estimates, expectations or assumptions, changes in general economic or industry conditions or other circumstances arising and/or existing since the preparation of this press release or to reflect the occurrence of any unanticipated events. Such forward-looking statements include, without limitation:

* The company's ability to effectively manage costs;
* The company's ability to opportunistically invest to drive long-term growth to deliver value to customers and shareholders; and
* The continued value and importance of electronic payments within the context of the current economic environment and increased financial management control.

Actual results may differ materially from such forward-looking statements for a number of reasons, including those set forth in the company's filings with the Securities and Exchange Commission (SEC), including the company's Annual Report on Form 10-K for the year ended December 31, 2007, the company's Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that have been filed with the SEC during 2008 and 2009, as well as reasons including difficulties, delays or the inability of the company to achieve its strategic initiatives set forth above. Factors other than those listed above could also cause the company's results to differ materially from expected results.

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