Mastercard Inc Quarterly Report for Q3 Ended Sep 30, 2008

Summary

Mastercard Inc. reported a net loss of $193.6 million ($1.49 per diluted share) for the third quarter of 2008, a significant shift from a net income of $314.5 million ($2.31 per diluted share) in the same period last year. This downturn was largely driven by substantial charges related to significant litigation settlements, specifically the Discover and American Express settlements, which amounted to $827.5 million in the quarter. Despite the net loss, the company demonstrated resilience in its core operations, with net revenues increasing by 23.6% to $1.34 billion, fueled by a 14.8% rise in gross dollar volume (GDV) and a 25.8% increase in net operations fees. Pricing increases and favorable foreign currency movements also contributed positively to revenue growth. The company maintained a strong liquidity position with $2.8 billion in cash, cash equivalents, and current available-for-sale securities at the end of the quarter, indicating operational stability despite the significant legal headwinds.

Key Highlights

• 1Net loss of $193.6 million for Q3 2008, a significant decrease from a net income of $314.5 million in Q3 2007.
• 2Net revenues grew 23.6% year-over-year to $1.34 billion, driven by increased transaction volumes and pricing adjustments.
• 3Significant litigation settlement charges of $827.5 million, primarily related to Discover and American Express settlements, heavily impacted profitability.
• 4Gross dollar volume (GDV) increased by 14.8% on a U.S. dollar converted basis.
• 5Operating expenses surged by 121.7% due to litigation settlement charges, but excluding these, operating expenses increased by a more modest 8.3%.
• 6The company maintained a strong liquidity position with $2.8 billion in cash, cash equivalents, and current available-for-sale securities.
• 7Effective income tax rate for the quarter was a 34.1% benefit, significantly influenced by tax benefits from litigation settlement charges.

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