10-KPeriod: FY2004

Mastercard Inc Annual Report, Year Ended Dec 31, 2004

Filed March 2, 2005For Securities:MA

Summary

MasterCard Inc. reported strong financial performance for the year ending December 31, 2004, with revenues increasing by 16.2% to $2.59 billion. This growth was driven by a 14.3% increase in Gross Dollar Volume (GDV) to $1.46 trillion, reflecting a continued shift from paper-based to electronic payments and the company's strategic focus on customer relationships. Despite a significant increase in operating expenses, largely due to legal settlements in the prior year and ongoing investments, operating income turned positive at $346.7 million, a substantial improvement from the operating loss of $601.9 million in 2003. The company's financial position remains strong with $1.1 billion in cash and cash equivalents, and it is actively managing various legal and regulatory challenges that could impact future results.

Key Highlights

  • 1Revenue grew 16.2% to $2.59 billion in 2004, driven by a 14.3% increase in GDV to $1.46 trillion.
  • 2Operating income was $346.7 million in 2004, a significant turnaround from a $601.9 million operating loss in 2003.
  • 3MasterCard Europe's results are included from June 28, 2002, contributing to growth, particularly in European GDV.
  • 4The company generated strong cash flow from operations of $343.8 million in 2004, up 81.1% from 2003.
  • 5Despite increased operating expenses, overall expense as a percentage of revenue improved to 86% from 93% in 2003 (excluding legal settlements).
  • 6Key risks include intense regulatory scrutiny on interchange fees, ongoing litigation, and competition from other payment networks and evolving technologies.

Frequently Asked Questions

MasterCard's revenue grew by 16.2% to $2.59 billion in 2004. This growth was primarily driven by a 14.3% increase in Gross Dollar Volume (GDV) to $1.46 trillion. Factors contributing to this increase included the ongoing global trend of payments migrating from paper-based to electronic forms, the expansion of customer relationships, economic recovery in many countries, and higher cross-border travel.

MasterCard showed a significant improvement in profitability. Operating income turned positive at $346.7 million in 2004, a substantial recovery from the operating loss of $601.9 million reported in 2003. This was achieved despite a 7% increase in operating expenses (excluding legal settlements), primarily due to higher GDV and transaction volumes, alongside successful vendor negotiations and a reduction in the impact of prior year legal settlement charges.

MasterCard faces significant risks including intense regulatory scrutiny worldwide concerning interchange fees, which could adversely affect its business and revenue. The company is also involved in various litigations, including those related to its Competitive Programs Policy, currency conversion practices, and merchant lawsuits, which could lead to substantial damages or require changes in business practices. Furthermore, intense competition from other payment networks like Visa, as well as from new entrants and evolving technologies, poses a continuous challenge.

MasterCard's financial position is strong, with $1.1 billion in cash, cash equivalents, and available-for-sale securities as of December 31, 2004. The company generated $343.8 million in net cash from operating activities in 2004. It has a $1.95 billion committed credit facility available for liquidity needs. Management believes its cash from operations and existing balances are sufficient to fund its growth initiatives and meet its obligations.