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Mastercard Incorporated Reports Fourth-Quarter and Full-Year 2016 Financial Results

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Jan 31 2017

Fourth-quarter net income of $933 million, including a special item, or $0.86 per diluted share
Fourth-quarter net income of $940 million, excluding a special item,1 or $0.86 per diluted share
Fourth-quarter net revenue increase of 9%, to $2.8 billion
Fourth-quarter gross dollar volume up 9% and purchase volume up 8%, both adjusting for the impact of recent EU regulatory changes2

Purchase, NY- January 31, 2017

Mastercard Incorporated (NYSE:MA) today announced financial results for the fourth quarter and full year 2016. The company reported net income of $933 million, an increase of 5%, or 4% on a currency-neutral basis and earnings per diluted share of $0.86, up 9%, or 7% on a currency-neutral basis, both versus the year-ago period. Excluding a special item in this quarter related to merchant litigation in the U.K., the company reported net income of $940 million, an increase of 6%, or 5% on a currency neutral-basis, and earnings per diluted share of $0.86, up 9%, or 7% on a currency-neutral basis, both versus the same period in 2015.

“We’re pleased to have delivered strong results for the quarter and full year, driven by solid execution of our strategy and leveraging our differentiated service offerings,” said Ajay Banga, Mastercard president and CEO. “Our continued investments in digital, safety and security, data analytics, loyalty and processing position us well for future growth in our core business and new payment flows.”
Net revenue for the fourth quarter of 2016 was $2.8 billion, an increase of 9%, or 10% on a currency-neutral basis, versus the same period in 2015. Net revenue growth was driven by the impact of the following:

An increase in switched transactions3 of 17%, to 15.2 billion;
A 9% increase in gross dollar volume, on a local currency basis and adjusting for the impact of recent EU regulatory changes, to $1.2 trillion; and An increase in cross-border volumes of 13%.

These factors were partially offset by an increase in rebates and incentives, primarily due to new and renewed agreements and increased volumes. As of December 31, 2016, the company’s customers had issued 2.3 billion Mastercard and Maestro-branded cards.

Total operating expenses decreased 1% to $1.4 billion during the fourth quarter of 2016 compared to the same period in 2015 and were flat on a currency-neutral basis. Excluding the special item, total operating expenses decreased 2%, or 1% on a currency-neutral basis. The decrease reflects the impact of ongoing cost management activities offsetting our continued investments in strategic initiatives.

Operating income for the fourth quarter of 2016 increased 23%, or 22% on a currency-neutral basis, versus the year-ago period. Excluding the special item, operating income increased 24%, or 23% on a currency-neutral basis. The company delivered an operating margin of 49.4%, or 49.8% excluding the special item.

Mastercard reported other expense of $52 million in the fourth quarter of 2016, versus $82 million in the fourth quarter of 2015. The decrease was mainly due to lower impairment charges on investments in the current quarter versus the comparable period in the prior year, partially offset by increased interest expense related to the company’s recent debt offerings.

Mastercard’s effective tax rate was 28.8% in the fourth quarter of 2016, or 28.7% excluding the special item, versus a rate of 13.1% in the comparable period in 2015. The difference was primarily due to the recognition of discrete benefits in the fourth quarter of 2015.

During the fourth quarter of 2016, Mastercard repurchased approximately 11 million shares at a cost of $1.1 billion. Quarter-to-date through January 26, the company repurchased an additional 2.3 million shares at a cost of $247 million, which leaves $4.7 billion remaining under current repurchase program authorizations.

Full-Year 2016 Results

For the full-year 2016, Mastercard reported net income of $4.1 billion, an increase of 7%, or 8% on a currency-neutral basis, and earnings per diluted share of $3.69, up 10%, or 11% on a currency-neutral basis, versus the year-ago period. Excluding special items, net income was $4.1 billion, up 6%, or 7% on a currency-neutral basis. Earnings per diluted share were $3.77, up 10%, or 11% on a currency-neutral basis, compared to the same period in 2015.

Net revenue for the full-year 2016 was $10.8 billion, an increase of 11%, or 13% on a currency-neutral basis, versus the same period in 2015. Contributing to this growth were switched transactions growth of 16%, cross-border volume growth of 12% and gross dollar volume growth of 11%, on a local currency basis and adjusting for the impact of recent EU regulatory changes. These factors were partially offset by an increase in rebates and incentives.

Total operating expenses were $5.0 billion, an increase of 9%, or 11% on a currency-neutral basis, for the full-year 2016, compared to full-year 2015. Excluding special items, total operating expenses were $4.9 billion, an increase of 10%, or 12% on a currency-neutral basis. The increase was primarily due to continued investments to support strategic initiatives, lapping of the favorable impact of foreign exchange gains in 2015 and higher data processing expenses.

Operating income for the full-year 2016 was $5.8 billion, an increase of 13%, or 15% on a currency-neutral basis, versus the same period in 2015. Excluding special items, operating income was $5.9 billion, an increase of 13%, or 14% on a currency-neutral basis, versus the same period in 2015. The company delivered an operating margin of 53.5%, or 54.5% excluding special items.

Mastercard’s effective tax rate was 28.1% for the full-year 2016, versus a rate of 23.2% in 2015. Excluding special items, the effective tax rate was 28.1% for the full-year 2016, versus a rate of 23.4% in the comparable period in 2015. The increase was primarily due to the recognition of larger discrete tax benefits in 2015.

Fourth-Quarter Financial Results Conference Call Details

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

The dial-in information for this call is 877-201-0168 (within the U.S.) and 647-788-4901 (outside the U.S.), and the passcode is 40272333. A replay of the call will be available for 30 days and can be accessed by dialing 855-859-2056 (within the U.S.) and 404-537-3406 (outside the U.S.), using passcode 40272333.

This call can also be accessed through the Investor Relations section of the company’s website at www.mastercard.com/investor. Presentation slides used on this call are also available on the website.

Non-GAAP Financial Information

The company has presented certain financial data that are considered non-GAAP financial measures that are reconciled to their most directly comparable GAAP measures in the accompanying tables.

The presentation of growth rates on a currency-neutral basis represent a non-GAAP measure and are calculated by remeasuring the prior period’s results using the current period’s exchange rates for both the translational and transactional impacts in our operating results.

About Mastercard Incorporated

Mastercard (NYSE: MA), www.mastercard.com, is a technology company in the global payments industry. We operate the world’s fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. Mastercard products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone. Follow us on Twitter @MastercardNews, join the discussion on the Beyond the Transaction Blog and subscribe for the latest news on the Engagement Bureau.

Forward-Looking Statements

This press release contains forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts may be forward-looking statements. When used in this press release, the words “believe”, “expect”, “could”, “may”, “would”, “will”, “trend” and similar words are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements that relate to the Mastercard’s future prospects, developments and business strategies. We caution you to not place undue reliance on these forward-looking statements, as they speak only as of the date they are made. 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.

Many factors and uncertainties relating to our operations and business environment, all of which are difficult to predict and many of which are outside of our control, influence whether any forward-looking statements can or will be achieved. Any one of those factors could cause our actual results to differ materially from those expressed or implied in writing in any forward-looking statements made by Mastercard or on its behalf, including, but not limited to, the following factors:

• payments system-related legal and regulatory challenges (including interchange fees, surcharging and the extension of current regulatory activity to additional jurisdictions or products);
• the impact of preferential or protective government actions;
• regulation to which we are subject based on our participation in the payments industry;
• regulation of privacy, data protection and security;
• the impact of competition in the global payments industry (including disintermediation and pricing pressure);
• the challenges relating to rapid technological developments and changes;
• the impact of information security failures, breaches or service disruptions on our business;
• issues related to our relationships with our customers (including loss of substantial business from significant customers, competitor relationships with our customers and banking industry consolidation);
• the impact of our relationships with stakeholders, including issuers and acquirers, merchants and governments;
• exposure to loss or illiquidity due to settlement guarantees and other significant third-party obligations;
• the impact of global economic and political events and conditions, including global financial market activity, declines in cross-border activity; negative trends in consumer spending and the effect of adverse currency fluctuation;
• reputational impact, including impact related to brand perception, account data breaches and fraudulent activity;
• issues related to acquisition integration, strategic investments and entry into new businesses; and potential or incurred liability and limitations on business resulting from litigation.

For additional information on these and other factors that could cause Mastercard’s actual results to differ materially from expected results, please see the company’s filings with the Securities and Exchange Commission, including the company’s Annual Report on Form 10-K for the year ended December 31, 2015 and any subsequent reports on Forms 10-Q and 8-K.

Footnote

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

Debit transactions on Maestro® and Cirrus®-branded cards 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 that do not generally have physical cards associated with them.

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 switched 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. 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 the Mastercard website at www.mastercard.com/investor.

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