MasterCard Incorporated Reports Fourth-Quarter and Full-Year 2009 Financial Results

MasterCard Incorporated (NYSE:MA) today announced financial results for the fourth quarter and full-year 2009. The company reported fourth quarter net income of $294 million, or $2.24 per diluted share, including an after-tax severance charge of $0.19 per diluted share. The company's total operating expenses, 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 GAAP reconciliations.

Net revenue for the fourth quarter of 2009 was $1.3 billion, a 6.0% increase versus the same period in 2008. Currency fluctuations (driven by the movement of the euro and the Brazilian real relative to the U.S. dollar) contributed 3.8 percentage points of the increase in net revenue for the quarter. The higher net revenue in the fourth quarter this year benefited from:

• Pricing changes of approximately 5 percentage points;
• An increase in cross-border volumes of 3.9%;
• A 6.7% increase in the number of transactions processed, to 5.9 billion; and
• Growth of 5.3% in MasterCard’s gross dollar volume, on a local currency basis, to $674 billion.

The net revenue growth was somewhat tempered by an increase in rebates and incentives primarily due to new and renewed customer agreements.

Worldwide purchase volume during the quarter rose 5.7% on a local currency basis, versus the fourth quarter of 2008, to $510 billion. As of December 31, 2009, the company’s customers had issued 966 million MasterCard cards, a decline of 1.3% over the cards issued at December 31, 2008.

"In 2009 we took important steps to maintain MasterCard's bottom-line growth, and as a result delivered another quarter and year of solid financial results,” said Robert W. Selander, MasterCard chief executive officer. "We remained focused on the needs of our customers, and continued to add value amid a challenging economic environment. For example, we recently announced a significant debit win in the U.S. with SunTrust and the first consumer inControl implementation with Barclaycard in the UK.”

Selander commented, "Throughout the year, we greatly improved our expense management and realigned our organization to capitalize on the most promising growth opportunities, from both a geographic and product development standpoint.

"In the fourth quarter, we saw encouraging signs with regard to key aspects of our business as cross-border volumes increased and processed transactions continued to grow. Overall, we are very pleased with our performance, and we look forward to building on that momentum as the global economic climate continues to improve,” concluded Selander.

There were no special items for the fourth quarter of 2009. The special item for the fourth quarter of 2008 represented a $6 million charge related to a litigation settlement.

Total operating expenses increased 9.8%, to $830 million, during the fourth quarter of 2009 compared to the same period in 2008, excluding special items. Currency fluctuations contributed 3.2 percentage points of the increase in expenses. The increase in total operating expenses was driven by:

• A 1.6% increase in general and administrative expenses versus the year-ago period, primarily resulting from increased personnel costs due to severance-related charges of $38 million in the fourth quarter of 2009, offset by a benefit from foreign exchange remeasurement. Currency fluctuations represented 2.3 percentage points of the increase. Excluding the impact of severance costs in both periods, general and administrative expenses declined 2.3% for the fourth quarter of 2009; and
• A 25.1% increase in advertising and marketing expenses versus the year-ago period, primarily related to incremental investments to support activities in priority countries. Currency fluctuations represented 5.4 percentage points of the increase.

The operating margin was 36.1% for the fourth quarter of 2009.

Total other expense was $10 million in the fourth quarter of 2009 versus total other expense of $17 million in the fourth quarter of 2008. The decrease was primarily due to lower interest expense of $13 million related to litigation settlements versus the comparable period in 2008.

MasterCard's effective tax rate was 35.8% in the fourth quarter of 2009 versus 46.1% in the comparable period in 2008, excluding special items. The decrease was primarily due to a more favorable mix of earnings, a lower state tax rate and a lower provision for tax reserves in the fourth quarter of 2009.

Full-Year 2009 Results

For the year-ended December 31, 2009, MasterCard reported net income of $1.5 billion, or $11.19 per diluted share, excluding the impact of special items, and net income of $1.5 billion, or $11.16 per diluted share, including special items. The 2009 earnings per share figure includes an after-tax severance charge of $0.69 per diluted share, compared with $0.16 in 2008. The 2008 earnings per share figure includes after-tax gains from the sale of a portion of the company’s investment in Redecard S.A. of $0.43 per diluted share.

Special items for the full-year 2009 included charges of $7 million related to litigation settlements.

Special items for the full-year 2008 included:

• Charges of $2.5 billion related to several litigation settlements; and
• A $75 million gain in other income from the termination of a customer business agreement.

Net revenue for the full-year 2009 was $5.1 billion, a 2.1% increase versus 2008. On a constant currency basis, net revenue increased 3.9%. Increased processed transactions of 6.9% and pricing changes of approximately 6 percentage points contributed to the revenue growth in the full-year period. These factors were partially offset by the impact of lower cross-border volume growth on a U.S. dollar basis and higher rebates and incentives for 2009 compared to 2008.

Excluding special items for both periods, total operating expenses decreased 6.9%, to $2.8 billion, for full-year 2009 compared to 2008, primarily due to reduced advertising and marketing expenses versus the year-ago period. Excluding the impact of severance costs in both periods, total operating expenses decreased 10.5%. Currency fluctuations of 1.4 percentage points also contributed to the decline. The decrease in total operating expenses was driven by:

• A 3.1% decrease in general and administrative expenses, primarily resulting from lower professional fees and travel and entertainment expenses; as well as a benefit from foreign exchange remeasurement, versus the comparable period in 2008. The decrease was partially offset by an increase in personnel costs, driven by severance charges. Excluding the impact of severance costs in both periods, general and administrative expenses declined 8.5 % for 2009. Currency fluctuations of 1.2 percentage points also contributed to the decline; and
• A 19.2% decline in advertising and marketing expenses versus full-year 2008 due to cost-containment activities in response to market realities. The impact of foreign currency fluctuations contributed approximately 1.6 percentage points to the decline.

Including special items, total operating expenses in 2009 decreased 48.6%, to $2.8 billion, versus 2008.

Excluding special items, the operating margin was 44.5% for full-year 2009, up 5.5 percentage points over the year-ago period. Including special items, the operating margin was 44.3% for the full-year 2009.

Total other expense was $42 million for full-year 2009 versus total other income of $76 million for the same period in 2008, excluding special items. Investment income decreased due to gains recorded in 2008 from the sale of the remaining Redecard securities. Interest expense increased $12 million versus the year-ago period, primarily due to interest accretion associated with a 2008 litigation settlement. Including special items, total other income was $151 million for full-year 2008.

MasterCard’s effective tax rate, excluding special items, was 34.1% for the full-year 2009, versus a rate of 38.8% for the full-year 2008. The decrease was primarily due to a lower deferred tax remeasurement and a decrease in tax reserves in 2009. Including the special items, the effective tax rate was 34.1% for 2009 and 33.7% for 2008.

Fourth-Quarter and Full-Year 2009 Financial Results Conference Call Details

At 9:00 a.m. ET today, the company will host a conference call to discuss its fourth-quarter and full-year 2009 financial results.

The dial-in information for this call is 888-396-2386 (within the U.S.) and 617-847-8712 (outside the U.S.) and the passcode is 89358445. 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 28360818.

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 over 22 billion transactions each year, and provides industry-leading analysis and consulting services to financial-institution customers and merchants. Powered by the MasterCard Worldwide Network and 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 build on its business momentum as the global economic climate continues to improve.

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, 2008, the company’s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that were filed with the SEC during 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.

Footnote

The tables set forth the gross dollar volume ("GDV”), purchase volume, cash volume and the number of purchase transactions, cash transactions, accounts, cards and acceptance locations on a regional and global basis for MasterCard®-branded and MasterCard Electronic™-branded cards. Growth rates over prior periods are provided for volume-based data.

Debit transactions on Maestro® and Cirrus®-branded cards, Mondex® transactions and transactions involving brands other than MasterCard are not included in the preceding tables.

For purposes of the table: 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 obtained with MasterCard-branded cards for the relevant period. The number of cards includes virtual cards, which are MasterCard-branded payment accounts in connection with which functional cards are not generally issued. Acceptance locations include merchant locations, ATMs and other locations where cash may be obtained.

The MasterCard payment product is comprised of credit, charge and debit programs, and data relating to each type of program is included in the tables. Debit programs include MasterCard-branded debit programs where the primary means of cardholder validation at the point of sale is for cardholders either to sign a sales receipt or enter a PIN. The tables include information with respect to transactions involving MasterCard-branded cards that are not processed by MasterCard and transactions for which MasterCard does not earn significant revenues.

Information denominated in U.S. dollars is calculated by applying an established U.S. dollar/local currency exchange rate for each local currency in which MasterCard volumes are reported. These exchange rates are calculated on a quarterly basis using the average exchange rate for each quarter. MasterCard reports 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 foreign currencies against the U.S. dollar in calculating such rates of change.

The data set forth in the GDV, purchase volume, purchase transactions, cash volume and cash transactions columns is provided by MasterCard customers and is subject to verification by MasterCard and partial cross-checking against information provided by MasterCard’s transaction processing systems. The data set forth in the accounts and cards columns is provided by MasterCard customers and is subject to certain limited verification by MasterCard. A portion of the data set forth in the accounts and cards columns reflects the impact of routine portfolio changes among customers and other practices that may lead to over counting of the underlying data in certain circumstances. In order to provide a true indication of how broadly our cards can be used, MasterCard seeks to provide the most accurate acceptance figures possible and to maintain that MasterCard acceptance is unsurpassed worldwide by periodically validating our results with third parties. The data set forth in the acceptance locations column is derived through a proprietary methodology designed to minimize the impact of multiple acquiring in certain markets. This data is based on information provided by our customers and other third parties and is subject to certain limited verification by MasterCard and partial cross-checking against information provided by MasterCard’s transaction processing systems. All data is subject to revision and amendment by MasterCard’s customers subsequent to the date of its release.

Performance information for prior periods can be found in the "Investor Relations" section of MasterCard's website at www.mastercard.com.

For more information about these reconciliations, refer to MasterCard Incorporated’s Form 8-K filed with the Securities and Exchange Commission on February 4, 2010.