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MasterCard Incorporated Reports Second-Quarter 2008 Financial Results
• Quarterly net income of $276 million, or $2.11 per diluted share, excluding a
special item
• Quarterly net loss of $747 million, or $5.74 per diluted share, including a
special item
• Quarterly net revenue growth of 25.0%, to $1.2 billion
• Gross dollar volume up 12.8%, purchase volume up 14.0%
Purchase, NY, July 31, 2008 -
MasterCard Incorporated (NYSE:MA) today announced financial results for the second quarter of 2008. The company reported net income of $276 million, or $2.11 per diluted share, excluding a special item, and a net loss of $747 million, or $5.74 per diluted share, including the special item -- a $1.0 billion after-tax charge related to an antitrust litigation settlement with American Express. The company's total operating expenses, other income, effective tax rate, net income, and earnings per share, excluding the special item, are non-GAAP financial measures that are reconciled to their most directly comparable GAAP measures in the accompanying financial tables.
Net revenue for the second quarter of 2008 was $1.2 billion, a 25.0% increase versus the same period in 2007. Currency fluctuations (driven by movement of the euro and the Brazilian real relative to the U.S. dollar) contributed 5.4 percentage points of the increase in net revenue for the quarter. Fueling the higher net revenue in the second quarter versus the same period in 2007 were:
Worldwide purchase volume during the quarter rose 14.0%, on a local currency basis, versus the second quarter of 2007, to $493 billion, driven by increased cardholder spending on a growing number of MasterCard cards. As of June 30, 2008, the company's financial-institution customers had issued 951 million MasterCard cards, an increase of 11.0% over the cards issued at June 30, 2007.
"We are pleased that we have been able to continue to deliver solid financial results in the current economic climate," said Robert W. Selander, MasterCard president and chief executive officer. "Businesses, consumers and governments around the world are demonstrating a growing preference for electronic payments, and our cross-border volumes remain healthy as cardholders come to rely on electronic payments and the ease, security and convenience they provide. Additionally, more than 50% of our revenue is generated outside of the U.S., which helps to moderate the impact of an economic downturn in one particular region.
"During these challenging times, we are working closely with our financialinstitution customers to identify and deliver solutions that help maximize their payments business," added Selander. "This quarter, we introduced Integrated Processing Solutions (IPS) -- our new debit processing platform — in the U.S. and successfully implemented our first customer, Security Service Federal Credit Union (SSFCU). We also announced an agreement with Obopay to offer a fully integrated, on-demand, person-to-person mobile payment service. These examples illustrate our commitment to developing innovative solutions designed to meet the needs of today's cardholder while driving value and growth for our customers and merchants."
The special item for the second quarter of 2008 represented:
Special items for the second quarter of 2007 included:
Excluding special items, total operating expenses increased 14.6%, to $830 million, during the second quarter of 2008 compared to the same period in 2007. Currency fluctuations contributed 4.5 percentage points of the increase in expenses for the second quarter of 2008. Growth in total operating expenses was driven by:
Total other income was $10 million in the second quarter of 2008 versus $117 million in the second quarter of 2007. The decrease was primarily due to the recognition in 2007 of a $90 million gain related to a settlement with the organization that operates the World Cup soccer events.
Excluding special items in both periods, MasterCard's effective tax rate was 35.3% in the second quarter of 2008, versus 34.7% in the comparable period in 2007. Including special items, the effective tax rate was 39.0% for the second quarter of 2008, versus 34.7% in the comparable period in 2007. The increase in the effective tax rate was primarily due to the tax rate related to the American Express settlement charge, which provides a tax benefit due to the change in the geographic distribution of pre-tax income or loss.
Year-to-Date 2008 Results
For the six months ended June 30, 2008, MasterCard reported net income of $674 million, or $5.13 per diluted share, excluding the impact of special items, and a net loss of $300 million, or $2.29 per diluted share, including special items.
Net revenue for the six months ended June 30, 2008 was $2.4 billion, a 27.0% increase versus the same period in 2007. In addition to growth in GDV, processed transactions and crossborder transaction volumes, this increase was driven by pricing changes, primarily crossborder transaction pricing implemented in January 2008, which contributed approximately 5 percentage points of the revenue growth in the year-to-date period. Currency fluctuation contributed approximately 5.2 percentage points of the increase in revenue in the year-to-date period.
Total operating expenses increased 12.9%, to $1.5 billion, for the sixmonth period compared to the same period in 2007, excluding special items for both periods. Currency fluctuations contributed 3.9 percentage points of this increase. Including special items, operating expenses increased 136.7%, to $3.15 billion.
Total other income was $183 million for the six-month period versus $139 million for the same period in 2007, including special items in both periods. The increase was primarily driven by gains from the sale of Redecard securities and the termination of a customer business agreement in 2008, offset by settlement received in 2007 related to discontinuing the company's sponsorship of World Cup soccer events.
MasterCard's effective tax rate, excluding special items, was 35.2% in the six months ended June 30, 2008, versus a rate of 35.3% in the comparable period in 2007. Including the special items, the effective tax rate was 43.9% for the 2008 period, and 35.3% for the 2007 period.
Class A Share Repurchase Program
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.
During the second quarter of 2008, the company repurchased approximately 1.3 million shares of Class A common stock at a cost of $355 million, completing its aggregate authorized share repurchase program of $1.25 billion.
Class B Common Stock Conversion
In February 2008, the MasterCard Board of Directors authorized the conversion and sale or transfer of up to 13.1 million shares of Class B common stock into Class A common stock. In May 2008, the company implemented and completed a conversion program in which all of the 13.1 million authorized shares of Class B common stock were converted into an equal number of shares of Class A common stock and subsequently sold or transferred by participating holders of Class B common stock to public investors.
Second-Quarter 2008 Financial Results Conference Call Details
At 9:00 a.m. EDT today, the company will host a conference call to discuss its secondquarter 2008 financial results.
The dial-in information for this call is 800-573-4842 (within the U.S.) and 617-224-4327 (outside the U.S.) and the passcode is 75020426. A replay of the call will be available for one week following the meeting. The replay can be accessed by dialing 888-286-8010 (within the U.S.) and 617-801-6888 (outside the U.S.) and using passcode 29875457.
The live call and the replay, along with supporting materials, can also be accessed through the Investor Relations section of the company's website at www.mastercard.com.
About MasterCard Incorporated
MasterCard Incorporated advances global commerce by providing a critical economic link among financial institutions, businesses, cardholders and merchants worldwide. As a franchisor, processor and advisor, MasterCard develops and markets payment solutions, processes over 18 billion transactions each year, and provides industry-leading analysis and consulting services to financial institution customers and merchants. Through its family of brands, including MasterCard®, Maestro® and Cirrus®, MasterCard serves consumers and businesses in more than 210 countries and territories. For more information go to www.mastercard.com.
Forward-Looking Statements
Statements in this press release which are not historical facts, including statements about MasterCard's plans, strategies, beliefs and expectations, are forward-looking and subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date they are made. Accordingly, 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. Such forward-looking statements include, without limitation:
Actual results may differ materially from such forward-looking statements for a number of reasons, including those set forth in the company's filings with the Securities and Exchange Commission (SEC), including the company's Annual Report on Form 10-K for the year ended December 31, 2007, the company's Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that have been filed with the SEC during 2008, as well as reasons including difficulties, delays or the inability of the company to achieve its strategic initiatives set forth above. Factors other than those listed above could also cause the company's results to differ materially from expected results.
*The attached PDF (above) includes the 2Q08 Financial Statements.
Net revenue for the second quarter of 2008 was $1.2 billion, a 25.0% increase versus the same period in 2007. Currency fluctuations (driven by movement of the euro and the Brazilian real relative to the U.S. dollar) contributed 5.4 percentage points of the increase in net revenue for the quarter. Fueling the higher net revenue in the second quarter versus the same period in 2007 were:
- Growth in MasterCard's gross dollar volume, which increased 12.8%, on a local currency basis, to $655 billion;
- A 13.6% increase in the number of transactions processed, to 5.2 billion;
- An increase in cross-border volumes of 18.9%; and
- Pricing changes contributed approximately 5 percentage points of the net revenue growth.
Worldwide purchase volume during the quarter rose 14.0%, on a local currency basis, versus the second quarter of 2007, to $493 billion, driven by increased cardholder spending on a growing number of MasterCard cards. As of June 30, 2008, the company's financial-institution customers had issued 951 million MasterCard cards, an increase of 11.0% over the cards issued at June 30, 2007.
"We are pleased that we have been able to continue to deliver solid financial results in the current economic climate," said Robert W. Selander, MasterCard president and chief executive officer. "Businesses, consumers and governments around the world are demonstrating a growing preference for electronic payments, and our cross-border volumes remain healthy as cardholders come to rely on electronic payments and the ease, security and convenience they provide. Additionally, more than 50% of our revenue is generated outside of the U.S., which helps to moderate the impact of an economic downturn in one particular region.
"During these challenging times, we are working closely with our financialinstitution customers to identify and deliver solutions that help maximize their payments business," added Selander. "This quarter, we introduced Integrated Processing Solutions (IPS) -- our new debit processing platform — in the U.S. and successfully implemented our first customer, Security Service Federal Credit Union (SSFCU). We also announced an agreement with Obopay to offer a fully integrated, on-demand, person-to-person mobile payment service. These examples illustrate our commitment to developing innovative solutions designed to meet the needs of today's cardholder while driving value and growth for our customers and merchants."
The special item for the second quarter of 2008 represented:
- A $1.65 billion pre-tax charge related to the settlement of U.S. federal antitrust litigation between MasterCard and American Express, which equates to approximately $1 billion on an after-tax basis.
Special items for the second quarter of 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.
Excluding special items, total operating expenses increased 14.6%, to $830 million, during the second quarter of 2008 compared to the same period in 2007. Currency fluctuations contributed 4.5 percentage points of the increase in expenses for the second quarter of 2008. Growth in total operating expenses was driven by:
- A 15.7% increase in general and administrative expenses primarily resulting from higher personnel costs due to increased compensation and benefits for new personnel and higher severance costs. Currency fluctuations represented 3.3 percentage points of the increase; and
- A 13.0% increase in advertising and marketing expenses versus the yearago period, with 6.6 percentage points of the growth primarily related to the impact of foreign currency fluctuation of the euro and Brazilian real to the U.S. dollar. Additionally, the increase reflected significant sponsorship activity during the quarter related to the UEFA and European Championship soccer events.
Total other income was $10 million in the second quarter of 2008 versus $117 million in the second quarter of 2007. The decrease was primarily due to the recognition in 2007 of a $90 million gain related to a settlement with the organization that operates the World Cup soccer events.
Excluding special items in both periods, MasterCard's effective tax rate was 35.3% in the second quarter of 2008, versus 34.7% in the comparable period in 2007. Including special items, the effective tax rate was 39.0% for the second quarter of 2008, versus 34.7% in the comparable period in 2007. The increase in the effective tax rate was primarily due to the tax rate related to the American Express settlement charge, which provides a tax benefit due to the change in the geographic distribution of pre-tax income or loss.
Year-to-Date 2008 Results
For the six months ended June 30, 2008, MasterCard reported net income of $674 million, or $5.13 per diluted share, excluding the impact of special items, and a net loss of $300 million, or $2.29 per diluted share, including special items.
Net revenue for the six months ended June 30, 2008 was $2.4 billion, a 27.0% increase versus the same period in 2007. In addition to growth in GDV, processed transactions and crossborder transaction volumes, this increase was driven by pricing changes, primarily crossborder transaction pricing implemented in January 2008, which contributed approximately 5 percentage points of the revenue growth in the year-to-date period. Currency fluctuation contributed approximately 5.2 percentage points of the increase in revenue in the year-to-date period.
Total operating expenses increased 12.9%, to $1.5 billion, for the sixmonth period compared to the same period in 2007, excluding special items for both periods. Currency fluctuations contributed 3.9 percentage points of this increase. Including special items, operating expenses increased 136.7%, to $3.15 billion.
Total other income was $183 million for the six-month period versus $139 million for the same period in 2007, including special items in both periods. The increase was primarily driven by gains from the sale of Redecard securities and the termination of a customer business agreement in 2008, offset by settlement received in 2007 related to discontinuing the company's sponsorship of World Cup soccer events.
MasterCard's effective tax rate, excluding special items, was 35.2% in the six months ended June 30, 2008, versus a rate of 35.3% in the comparable period in 2007. Including the special items, the effective tax rate was 43.9% for the 2008 period, and 35.3% for the 2007 period.
Class A Share Repurchase Program
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.
During the second quarter of 2008, the company repurchased approximately 1.3 million shares of Class A common stock at a cost of $355 million, completing its aggregate authorized share repurchase program of $1.25 billion.
Class B Common Stock Conversion
In February 2008, the MasterCard Board of Directors authorized the conversion and sale or transfer of up to 13.1 million shares of Class B common stock into Class A common stock. In May 2008, the company implemented and completed a conversion program in which all of the 13.1 million authorized shares of Class B common stock were converted into an equal number of shares of Class A common stock and subsequently sold or transferred by participating holders of Class B common stock to public investors.
Second-Quarter 2008 Financial Results Conference Call Details
At 9:00 a.m. EDT today, the company will host a conference call to discuss its secondquarter 2008 financial results.
The dial-in information for this call is 800-573-4842 (within the U.S.) and 617-224-4327 (outside the U.S.) and the passcode is 75020426. A replay of the call will be available for one week following the meeting. The replay can be accessed by dialing 888-286-8010 (within the U.S.) and 617-801-6888 (outside the U.S.) and using passcode 29875457.
The live call and the replay, along with supporting materials, can also be accessed through the Investor Relations section of the company's website at www.mastercard.com.
About MasterCard Incorporated
MasterCard Incorporated advances global commerce by providing a critical economic link among financial institutions, businesses, cardholders and merchants worldwide. As a franchisor, processor and advisor, MasterCard develops and markets payment solutions, processes over 18 billion transactions each year, and provides industry-leading analysis and consulting services to financial institution customers and merchants. Through its family of brands, including MasterCard®, Maestro® and Cirrus®, MasterCard serves consumers and businesses in more than 210 countries and territories. For more information go to www.mastercard.com.
Forward-Looking Statements
Statements in this press release which are not historical facts, including statements about MasterCard's plans, strategies, beliefs and expectations, are forward-looking and subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date they are made. Accordingly, 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. Such forward-looking statements include, without limitation:
- the company's ability to benefit from an increasing worldwide demand for electronic payments, solid performance outside of the U.S., and continued strength of cross-border travel volumes;
- the company's ability to successfully implement IPS and the on-demand person-to-person mobile payment service with Obopay; and
- the company's ability to develop innovative solutions for customers, merchants and cardholders around the world.
Actual results may differ materially from such forward-looking statements for a number of reasons, including those set forth in the company's filings with the Securities and Exchange Commission (SEC), including the company's Annual Report on Form 10-K for the year ended December 31, 2007, the company's Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that have been filed with the SEC during 2008, as well as reasons including difficulties, delays or the inability of the company to achieve its strategic initiatives set forth above. Factors other than those listed above could also cause the company's results to differ materially from expected results.
*The attached PDF (above) includes the 2Q08 Financial Statements.