MasterCard Incorporated (NYSE: MA) today announced financial results for the fourth-quarter and full-year 2007.
For the fourth-quarter 2007, the company reported net income of $304 million, or $2.26 per share on a diluted basis, which included after-tax gains of $185 million, or $1.37 per share on a diluted basis, from additional sales of the company's investment in Redecard S.A. in Brazil.
Net revenues for the fourth-quarter 2007 were $1.07 billion, a 27.8% increase versus the same period in 2006. Currency fluctuations (driven by movement of the euro and the Brazilian real relative to the U.S. dollar) contributed 4.7% of the increase in net revenue for the quarter.
Fueling the higher revenue in the fourth quarter versus the same period in 2006 was: growth in MasterCard's gross dollar volume (GDV), which increased 15.2%, on a local currency basis, to $634 billion; a 17.2% increase in the number of transactions processed to 5.2 billion; and, an increase in cross-border volumes of 27.7%.
Worldwide purchase volume rose 16.1%, on a local currency basis, during the quarter to $477 billion, driven by increased cardholder spending on a growing number of MasterCard cards. As of December 31, 2007, the company's financial institution customers had issued 916 million MasterCard cards, an increase of 12.6% over the cards issued at December 31, 2006.
"Our fourth-quarter and full-year results reflect the strength of MasterCard's global business model," said Robert W. Selander, MasterCard president and chief executive officer. "We continue to benefit from the worldwide demand for electronic payments, solid performance in high-growth regions such as South Asia/Middle East/Africa and Latin America, as well as strong growth in processed transactions and cross-border travel volumes.
"Despite economic uncertainties in the U.S., we continue to leverage our unique assets and world-renowned brands to position MasterCard for long-term growth and success. Our diverse offerings and unparalleled global payments insights are clearly resonating with our customers and merchants around the world," said Selander.
Total operating expenses increased 13.5%, to $901 million, during the fourth quarter of 2007 compared to the same period in 2006. Currency fluctuations contributed 3.3% of the increase in expenses for the fourth quarter of 2007. Growth in total operating expenses was driven by:
- An increase in personnel costs primarily associated with the hiring of additional staff, mainly in customer-facing, technology and product areas, and an increase in performance incentive accruals. The increase in personnel expenses was also driven by severance expense resulting from a corporate resource realignment which occurred in the quarter;
- Higher professional fees related to legal costs to defend outstanding litigation; and
- A 4.5% increase in advertising and marketing expenses versus the year-ago period, primarily due to currency fluctuations.
During the quarter, the company made a $10 million cash contribution to the MasterCard Foundation, completing MasterCard's previously disclosed intention to contribute up to $40 million in cash to the Foundation within four years following MasterCard's May 2006 initial public offering.
Total other income was $295 million in the fourth-quarter 2007 versus $24 million in the fourth quarter of 2006. The increase was driven primarily by $284 million in pre-tax gains realized from additional sales of the company's investment in Redecard S.A. in Brazil. On an after-tax basis, Redecard gains contributed $1.37 per share on a diluted basis to the quarterly earnings per share of $2.26.
Full-Year 2007 Results
For the year-ended December 31, 2007, MasterCard reported net income of $1.09 billion, or $8.00 per share on a diluted basis, which includes after-tax gains of $254 million, or $1.87 per share on a diluted basis, from selling a significant portion of the company's investment in Redecard S.A. in Brazil. Excluding the impact of special items mentioned below, the company reported net income of $1.03 billion, or $7.58 per share, on a diluted basis.
Special items for the full-year 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 full-year 2006 included:
- A $395 million non-cash expense in the second quarter of 2006, 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 IPO, which was not deductible for tax purposes;
- A $25 million reserve for litigation settlements; $23 million was recorded in the second quarter of 2006 and $2 million was recorded in the fourth quarter of 2006; and
- $7 million in interest income in the second quarter of 2006 earned on the IPO proceeds, which were ultimately used for redemption of shares of Class B common stock in the third quarter of 2006.
The company's full-year 2007 net income, earnings per share and total operating expenses, each of which excludes special items, are non-U.S. GAAP financial measures that are reconciled to their most directly comparable U.S. GAAP measures in the accompanying financial tables.
Net revenues for the full year were $4.1 billion, a 22.3% increase versus the same period in 2006. Currency fluctuations (driven primarily by movement of the euro relative to the U.S. dollar) contributed 3.1% of the increase in revenues for the full-year.
Total operating expenses decreased 4.4%, to $3.0 billion, for the twelve-month period compared to the same period in 2006. Currency fluctuations contributed 1.8% of the increase in expenses in 2007. Excluding the impact of special items in both 2006 and 2007 noted above, total operating expenses increased 10.4%. This increase was driven by:
- An increase in personnel costs due to the hiring of additional staff to support strategic initiatives and an increase in performance incentive accruals;
- Higher professional fees related to consulting services used to execute strategic initiatives and legal costs to defend outstanding litigation; and
- An increase in advertising and marketing expenses resulting from currency fluctuations.
Total other income was $563 million for the twelve-month period versus $65 million for the same period in 2006. The improvement was driven by a $405 million increase in investment income primarily due to gains realized from sales of a significant portion of the company's investment in Redecard S.A. in Brazil. The improvement in other income was also driven by a $90 million settlement received under an agreement to discontinue the company's sponsorship of the 2010 and 2014 World Cup soccer events.
MasterCard's effective tax rate was 35.0% for the twelve months ended December 31, 2007, compared to 82.9% for the full-year 2006. MasterCard's U.S. GAAP effective tax rate in 2006 was significantly impacted by a donation of shares to the MasterCard Foundation. Excluding this donation, the company's tax rate would have been 35.4% in 2006. The year-over-year difference, excluding the effects of the donation, was due to lower effective state tax rates based on the composition of taxable income in 2007.
The company's effective tax rate, excluding the impact of the stock donation, is a non-U.S. GAAP financial measure that is reconciled to the most directly comparable U.S. GAAP measure in the accompanying financial tables.
The company ended the year with $3 billion in cash, cash equivalents and available-for-sale securities.
Class A Share Repurchase Update
In April 2007, the MasterCard 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. On October 29, 2007, the Board amended the share repurchase plan to authorize the company to repurchase an incremental $750 million (an aggregate for the entire repurchase program of $1.25 billion) of its Class A common stock in open market transactions through June 30, 2008.
As of December 31, 2007, approximately 4 million shares of Class A common stock had been repurchased at a cost of $601 million. As of January 25, 2008, the company repurchased an additional 657 thousand shares of its Class A common stock at a cost of $124 million.
Class B Share Conversion Update
During 2007, the company implemented and completed two separate conversion programs in which 11.4 million shares, of an eligible 13.4 million shares, of Class B common stock were converted into Class A common stock and subsequently sold to public investors.
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