MasterCard 2008 Annual Report Download - page 58

Overview
MasterCard is a leading global payment solutions company that provides a variety of services in support of
the credit, debit and related payment programs of over 24,000 financial institutions and other entities that are our
customers. We develop and market payment solutions, process payment transactions, and provide support
services to our customers and, depending upon the service, to merchants and other clients. We manage a family
of well-known, widely accepted payment card brands, including MasterCard®, MasterCard Electronic™,
Maestro®and Cirrus®, which we license to our customers. As part of managing these brands, we also establish
and enforce rules and standards surrounding the use of our payment card network. We generate revenues from
the fees that we charge our customers for providing transaction processing and other payment-related services
(operations fees) and by assessing our customers based primarily on the dollar volume of activity on the cards
that carry our brands (assessments). Cardholder and merchant relationships are managed principally by our
customers. Accordingly, we do not issue cards, extend credit to cardholders, determine the interest rates (if
applicable) or other fees charged to cardholders by issuers, or establish the merchant discount charged by
acquirers in connection with the acceptance of cards that carry our brands.
We recorded a net loss of $254 million, or $1.95 per diluted share, for the year ended December 31, 2008
versus net income of $1.1 billion, or $8.00 per diluted share, for the year ended December 31, 2007 and net
income of $50 million, or $0.37 per diluted share, in 2006. As of December 31, 2008, our liquidity and capital
positions remained strong, with $2.1 billion in cash, cash equivalents and current available-for-sale securities and
$1.9 billion in stockholders’ equity as of December 31, 2008.
Net revenue growth of 22.7% in 2008 was primarily due to increased transactions and volumes. The foreign
currency fluctuation of the euro and the Brazilian real against the dollar contributed 2.5 percentage points of the
increase while pricing adjustments contributed approximately 6 percentage points to the net revenue growth.
During the fourth quarter of 2008, we began to experience a slowdown in purchase volumes and transactions,
primarily due to economic conditions around the world. See “—Business Environment Challenges” for
additional information.
Our operating expenses increased 86.7% in 2008. Excluding the impact of special items specifically
identified in the reconciliation table included in “—Operating Expenses”, operating expenses increased 2.9% in
2008, of which 1.7 percentage points was due to foreign currency fluctuation of the euro and Brazilian real
against the U.S. dollar. The increase in operating expenses in 2008 was primarily due to litigation settlements.
See “—Litigation Settlements” and Note 18 (Obligations Under Litigation Settlements) and Note 20 (Legal and
Regulatory Proceedings) to the consolidated financial statements included in Item 8 of this Report for additional
information related to our litigation settlements. The increase in operating expenses in 2008, excluding the
impact of special items, was primarily due to increases in general and administrative expenses and foreign
currency fluctuations, partially offset by decreases in advertising and marketing expenses. Our operating
expenses as a percentage of total net revenues were 110.7% in 2008, versus 72.8% in 2007 and 93.1% in 2006.
Excluding the impact of special items, our operating expenses as a percentage of total net revenues were 61.0%
in 2008 versus 72.7% in 2007 and 80.5% in 2006.
Other income in 2008 included realized gains of approximately $86 million for the sale of the remaining
shares of an available-for-sale security, Redecard S.A., and $75 million related to the termination of a customer
business agreement. Other income in 2007 included realized gains of approximately $391 million for the partial
sale of our holdings of equity securities of Redecard S.A. that were classified as an available-for-sale security,
and $90 million from the organization that operates the World Cup soccer events in resolution of all outstanding
disputes pertaining to our sponsorship of the 2010 and 2014 World Cup soccer events. See “—Other Income
(Expense)”.
We believe the trend within the global payments industry from paper-based forms of payment, such as cash
and checks, toward electronic forms of payment, such as card payment transactions, creates significant
opportunities for the growth of our business. Our strategy is to continue to grow by further penetrating our
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