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MasterCard Q3 profit up 63%

31 October 2007  |  1534 views  |  0 Source: MasterCard

MasterCard Incorporated (NYSE: MA) today announced financial results for third-quarter 2007.

For the quarter, the company reported quarterly net income of $314 million, or $2.31 per share on a diluted basis, which includes after-tax gains of $70 million or $0.51 per share on a diluted basis from the partial sale of the company's investment in Redecard S.A. in Brazil.

Net revenues for the quarter were a record, at $1.08 billion, a 20.1% increase versus the same period in 2006. Currency fluctuation (driven by the movement of the euro relative to the US dollar) contributed approximately 2.3% of the increase in revenues for the quarter.

Fueling the higher revenue in the third quarter versus the same period in 2006 was growth in MasterCard's gross dollar volume (GDV), which increased 12.8% on a local currency basis, to $577 billion; a 13.3% increase in the number of transactions processed to 4.8 billion; and, an increase in cross- border volumes of 20.6%.

Worldwide purchase volume rose 14.1%, on a local currency basis, during the quarter to $430 billion, driven by increased cardholder spending on a growing number of MasterCard cards. As of September 30, 2007, the company's customers had issued 878 million MasterCard cards, an increase of 11.3% over the cards issued at September 30, 2006.

"Our solid performance illustrates the strength of our diverse, global business," said Robert W. Selander, MasterCard president and chief executive officer. "We continue to benefit from positive secular trends and outstanding growth in international and emerging markets such as South Asia/Middle East/Africa and Latin America.

"As a unified global company, one of our strongest assets is our ability to align with our customers anywhere worldwide. As our business continues to grow, we are committed to delivering best-in-class dedicated customer account teams, and to finding the right talent to help MasterCard, and our customers, win in the marketplace," said Selander.

Total operating expenses increased 16.3%, to $730 million, in the third quarter of 2007 commcompared to the same period in 2006. This increase was primarily driven by higher advertising and market development expenses in the quarter, which increased 26.4%, to $264 million, resulting from a change in the timing of 2007 initiatives compared to the same period last year. The first half of 2006 had significant World Cup sponsorship activity versus this year, where a planned shift in spending to the second half of 2007 had been anticipated.

General and administrative expenses increased 10.2%, to $433 million, in the third quarter. This increase was primarily driven by personnel costs related to hiring of additional staff and contractors to support the company's customers as well as increased performance incentive accruals. The increase in total operating expenses was also driven by a $10 million cash contribution to the MasterCard Foundation.
Currency fluctuation contributed 1.6% of the growth in total operating expenses for the quarter.

Total other income was $129 million in the third quarter of 2007 versus $17 million in the same period in 2006. The improvement was driven by a $112 million increase in investment income primarily due to gains realized from the sale of 25% of the company's investment in Redecard S.A. in Brazil. Redecard gains contributed $0.51 per share on a diluted basis to the quarterly earnings per share of $2.31.

MasterCard's effective tax rate was 34.8% in the three months ended September 30, 2007, versus 33.9% in the comparable period in 2006. The year- over-year difference was due to an increase in state income tax liabilities for uncertain tax positions as required under provisions of the recently adopted Financial Accounting Standards Board Interpretation No. 48 ("FIN 48").

Year-to-Date 2007 Results

For the nine months ended September 30, 2007, MasterCard reported net income of $782 million or $5.73 per share, on a diluted basis, including the impact of special items. Excluding the impact of special items, the company reported net income of $724 million, or $5.31 per share, on a diluted basis. The company's total operating expenses, total other income, effective tax rate, net income and earnings per share, excluding special items, are non-GAAP financial measures that are reconciled to their most directly comparable GAAP measures in the accompanying financial tables.

Special items for the nine months ended September 30, 2007 included:
  • A $3.4 million reserve recorded for a litigation settlement; and
  • $90 million in other income related to a settlement received under an agreement to discontinue the company's sponsorship of the 2010 and 2014 World Cup soccer events.


Special items for the nine months ended September 30, 2006 included:
  • A $395 million non-cash expense, resulting from the donation of approximately 13.5 million shares of Class A common stock to the MasterCard Foundation that occurred simultaneously with the company's initial public offering in May 2006, which was not deductible for tax purposes;
  • A $23 million reserve recorded for litigation settlements; and
  • $7 million in interest income earned on IPO proceeds, ultimately used for redemption of shares of Class B common stock.


Net revenue for the nine months ended September 30, 2007 was approximately $3 billion, a 20.4% increase versus the same period in 2006. In addition to growth in GDV and processed transactions, this increase was driven by a restructuring of pricing, including cross-border transaction pricing implemented in April 2006. Currency fluctuation contributed approximately 2.3% of the increase in revenues in the year-to-date period.

Total operating expenses increased 9.1%, to $2.1 billion, for the nine- month period compared to the same period in 2006, excluding special items for both periods. Including special items, operating expenses decreased 10.6%, to $2.1 billion. Currency fluctuation contributed approximately 1.2% growth in total operating expenses in the year-to-date period.

Total other income was $268 million for the nine-month period versus $41 million for the same period in 2006, on a GAAP basis in both periods. The year-over-year difference was driven by a $135 million increase in investment income primarily due to gains realized from the sale of 25% of the company's investment in Redecard S.A. in Brazil. Redecard gains contributed $0.51 per share on a diluted basis to the earnings per share of $5.73 for the nine months ended September 30, 2007. Additionally, other income increased $91 million primarily related to a settlement received under an agreement to discontinue the company's sponsorship of the 2010 and 2014 World Cup soccer events.

MasterCard's GAAP effective tax rate was 35.1% in the nine months ended September 30, 2007, versus the non-GAAP rate of 34.6% in the comparable period in 2006. MasterCard's GAAP effective tax rate in 2006 was significantly impacted by the share donation to the MasterCard Foundation. The year-over- year difference, excluding the effects of the donation, was due to the effect of a New York state tax law change and a net increase in the accrual of income tax liabilities for uncertain tax positions as required under provisions of the recently adopted FIN 48.

Class A Share Repurchase Update and Additional Class A Share Repurchase

In April 2007, the Company's Board of Directors authorized a plan for the Company to repurchase up to $500 million of its Class A common stock in open market transactions during 2007. As of September 30, 2007, approximately 2.0 million shares of Class A common stock had been repurchased at a cost of $277 million. Subsequent to September 30, 2007, the Company repurchased an additional 1.4 million shares of its Class A common stock at a cost of $223 million, completing the initial $500 million repurchase plan.

On October 29, 2007, the Company's Board of Directors amended the share repurchase plan to authorize the Company to repurchase an incremental $750 million, for an aggregate of the entire repurchase program of $1.25 billion of Class A common stock in open market transactions on or prior to June 30, 2008.

"Our continued strong business results and cash position have enabled us to fund an incremental $750 million Class A repurchase program," said Chris A. McWilton, chief financial officer. "This program demonstrates our commitment to enhance shareholder value and is in addition to the $500 million share repurchase program approved by our Board and completed earlier this year."

Class B Share Conversion Update

In April 2007, MasterCard announced that its Board of Directors had approved plans for certain accelerated Class B share conversions subject to shareholder approval of changes to the company's corporate charter. In June, after receiving shareholder approval at its Annual Meeting, the company announced that current holders of Class B common stock who elected to participate would be eligible in 2007 to convert up to an aggregate of 13.4 million shares of Class B common stock on a one-for-one basis into shares of Class A common stock for subsequent sale to public investors. The first election window for this conversion program extended from August 4, 2007 through October 5, 2007.

As of September 30, 2007, approximately 5.0 million shares of Class B common stock had been converted into Class A common stock as part of the initial conversion program. Subsequent to September 30, 2007, an additional 2.6 million shares of Class B common stock were converted into Class A common stock, for a total of 7.6 million shares converted during the initial share conversion window.

In October 2007, the Company's Board of Directors approved a second program for 2007, allowing for the conversion of the balance of the initially approved 13.4 million shares, or up to 5.8 million shares of Class B into Class A common stock. The election window for this conversion program will begin on November 17, 2007 and end no later than December 14, 2007.

Read the consolidated statements of operations here:» Download the document now 50.2 kb (PDF File)

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