MasterCard 2008 Annual Report Download - page 67

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and incentives decreased rebates and incentives as a percentage of gross assessments. In 2008 and 2007, rebates
and incentives compared to gross assessments fluctuated with the timing and structure of pricing arrangements
with certain large customers and merchants.
Operating Expenses
Our operating expenses are comprised of general and administrative, advertising and marketing, litigation
settlements, contributions to the Foundation and depreciation and amortization expenses. In 2008, there was an
increase in operating expenses of $2,567 million, or 86.7%, versus 2007. This increase was primarily due to the
settlement of antitrust litigations with Discover Financial Services (“Discover” and the “Discover Settlement”)
and American Express Company (“American Express” and the “American Express Settlement”). The following
table compares and reconciles operating expenses, excluding litigation settlements and the 2006 stock
contribution to the Foundation (“Special Items”), which is a non-GAAP financial measure, to operating expenses
including Special Items, which is the most directly comparable GAAP measurement. Management uses these
types of non-GAAP financial measures to evaluate its ongoing operations in relation to historical results and
believes this analysis may be helpful to an investor’s evaluation of ongoing operating results.
For the year ended
December 31, 2008
For the year ended
December 31, 2007 Percent
Increase
(Decrease)
Actual
Percent
Increase
(Decrease)
As AdjustedActual
Special
Items
As
Adjusted Actual
Special
Items
As
Adjusted
(In millions, except percentages)
General and administrative ......... $1,914 $ — $1,914 $1,758 $ — $1,758 8.8 % 8.8 %
Advertising and marketing .......... 1,018 — 1,018 1,080 — 1,080 (5.8)% (5.8)%
Litigation settlements .............. 2,483 (2,483) — 3 (3) — ** —
Charitable contributions ............ — — — 20 — 20 (100.0)% (100.0)%
Depreciation and amortization ....... 112 — 112 98 — 98 14.7% 14.7%
Total operating expenses ........... $5,526 $(2,483) $3,044 $2,959 $ (3) $2,956 86.7% 2.9%
Total operating expenses as a
percentage of total revenues ...... 110.7% 61.0% 72.8% 72.7%
For the year ended
December 31, 2007
For the year ended
December 31, 2006 Percent
Increase
(Decrease)
Actual
Percent
Increase
(Decrease)
As AdjustedActual
Special
Items
As
Adjusted Actual
Special
Items
As
Adjusted
(In millions, except percentages)
General and administrative ......... $1,758 $ — $1,758 $1,505 $ — $1,505 16.8% 16.8%
Advertising and marketing .......... 1,080 — 1,080 1,052 — 1,052 2.7 % 2.7%
Litigation settlements .............. 3 (3) — 25 (25) — (86.4)% —
Charitable contributions ............ 20 — 20 415 (395)120 (95.2)% —
Depreciation and amortization ....... 98 — 98 100 — 100 (2.1)% (2.1)%
Total operating expenses ........... $2,959 $ (3) $2,956 $3,097 $(420) $2,677 (4.4)% 10.4%
Total operating expenses as a
percentage of total revenues ...... 72.8% 72.7% 93.1% 80.5%
1Contribution of stock to the MasterCard Foundation
* Note that figures in the above tables may not sum due to rounding.
** Not meaningful, see “—Litigation Settlements” for more information.
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