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MasterCard Incorporated Reports First-Quarter 2014 Financial Results

MasterCard Incorporated (NYSE:MA) today announced financial results for the first quarter of 2014. The company reported net income of $870 million, up 14%, and earnings per diluted share of $0.73, up 18%, in each case versus the year-ago period.

Net revenue for the first quarter of 2014 was $2.2 billion, a 14% increase versus the same period in 2013, both as-reported and adjusted for currency. Net revenue growth was driven by the impact of the following:

  • A 14% increase in gross dollar volume, on a local currency basis, to $1.0 trillion;
  • An increase in processed transactions of 14%, to 9.8 billion; and
  • An increase in cross-border volumes of 17%.

These factors were partially offset by an increase in rebates and incentives, primarily due to new and renewed agreements and increased volumes.

Worldwide purchase volume during the quarter was up 13% on a local currency basis versus the first quarter of 2013, to $759 billion. As of March 31, 2014, the company’s customers had issued just over 2 billion MasterCard and Maestro-branded cards.

Commenting on the company’s performance, Ajay Banga, president and CEO of MasterCard, said, “We kicked off the year with a strong quarter, despite a mixed global economy. We secured several new agreements, including three of the largest retailers. Wal-Mart and Sam's Club will flip their co-brand portfolios to MasterCard. Target will also shift its co-brand to MasterCard and use our chip and PIN technology across all of its card products as part of a commitment to provide its customers with the most secure payment product. At the same time, we continue to invest in technology and acquisitions that will speed our development of mobile and online solutions.”

Total operating expenses increased 12%, or 11% after adjusting for currency, to $892 million, during the first quarter of 2014 compared to the same period in 2013. The increase was primarily driven by higher investments, including acquisitions, to support strategic initiatives.

Operating income for the first quarter of 2014 increased 16% over the year-ago period and the company delivered an operating margin of 59.0%.

MasterCard's effective tax rate was 32.0% in the first quarter of 2014, versus a rate of 30.5% in the comparable period in 2013. The increase was primarily due to a less favorable geographic mix of taxable earnings.

During the first quarter of 2014, MasterCard repurchased approximately 21.3 million shares of Class A common stock at a cost of approximately $1.7 billion. Quarter-to-date through April 24, the company repurchased an additional 6.2 million shares at a cost of approximately $453 million, with $1.5 billion remaining under the current repurchase program authorization.

First-Quarter Financial Results Conference Call Details

At 8:30 a.m. ET today, the company will host a conference call to discuss its first-quarter financial results.

The dial-in information for this call is 800-708-4540 (within the U.S.) and 847-619-6397 (outside the U.S.), and the passcode is 36946578. A replay of the call will be available for one week and can be accessed by dialing 888-843-7419 (within the U.S.) and 630-652-3042 (outside the U.S.), and using passcode 36946578.

This call can also be accessed through the Investor Relations section of the company’s website at www.mastercard.com.

Non-GAAP Financial Information

The presentation of growth rates adjusted for currency represent a non-GAAP measure and are calculated by remeasuring the prior period’s results using the current period’s exchange rates.

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’s 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 Cashless Pioneers Blog and subscribe for the latest news on the Engagement Bureau.

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, statements related to the Company’s business prospects, including with respect to its merchant relationships and mobile and online solutions.

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, 2013, the company’s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that have been filed with the SEC during 2014, 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.

 

MASTERCARD INCORPORATED

CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

 
 

Three Months Ended
March 31,

2014   2013
(in millions, except per share data)
Net Revenue $ 2,177 $ 1,906
Operating Expenses
General and administrative 670 608
Advertising and marketing 149 129
Depreciation and amortization 73   62  
Total operating expenses 892   799  
Operating income 1,285 1,107
Other Income (Expense)
Investment income 7 8
Interest expense (6 ) (5 )
Other income (expense), net (5 ) (8 )
Total other income (expense) (4 ) (5 )
Income before income taxes 1,281 1,102
Income tax expense 411   336  
Net Income $ 870   $ 766  
 
Basic Earnings per Share $ 0.73   $ 0.62  
Basic Weighted-Average Shares Outstanding 1,185   1,226  
Diluted Earnings per Share $ 0.73   $ 0.62  
Diluted Weighted-Average Shares Outstanding 1,189   1,230  
 
 

MASTERCARD INCORPORATED

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

 
  March 31, 2014   December 31, 2013
(in millions, except share data)
ASSETS

Cash and cash equivalents

$ 4,019 $ 3,599
Restricted cash for litigation settlement 540 723
Investment securities available-for-sale, at fair value 2,543 2,696
Accounts receivable 995 966
Settlement due from customers 1,476 1,351
Restricted security deposits held for customers 913 911
Prepaid expenses and other current assets 552 471
Deferred income taxes 304   233  
Total Current Assets 11,342 10,950

Property, plant and equipment, net of accumulated depreciation of $398 and $394,

528 526

respectively

Deferred income taxes 65 70
Goodwill 1,286 1,122
Other intangible assets, net of accumulated amortization of $576 and $534, respectively 723 672
Other assets 858   902  
Total Assets $ 14,802   $ 14,242  
LIABILITIES AND EQUITY
Accounts payable $ 297 $ 338
Settlement due to customers 1,374 1,433
Restricted security deposits held for customers 913 911
Accrued litigation 859 886
Accrued expenses 2,128 2,101
Other current liabilities 423   363  
Total Current Liabilities 5,994 6,032
Long-term debt 1,494
Deferred income taxes 117 117
Other liabilities 619   598  
Total Liabilities 8,224 6,747
Commitments and Contingencies
Stockholders’ Equity

Class A common stock, $0.0001 par value; authorized 3,000,000,000 shares,

1,343,844,152 and 1,341,541,110 shares issued and 1,129,877,235 and

1,148,838,370 outstanding, respectively

Class B common stock, $0.0001 par value; authorized 1,200,000,000 shares,

44,716,100 and 45,350,070 issued and outstanding, respectively

Additional paid-in-capital 3,769 3,762
Class A treasury stock, at cost, 213,966,917 and 192,702,740 shares, respectively (8,243 ) (6,577 )
Retained earnings 10,861 10,121
Accumulated other comprehensive income 180   178  
Total Stockholders’ Equity 6,567 7,484
Non-controlling interests 11   11  
Total Equity 6,578   7,495  
Total Liabilities and Equity $ 14,802   $ 14,242  
 
 

MASTERCARD INCORPORATED

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

Three Months Ended
March 31,

2014   2013
(in millions)
Operating Activities
Net income $ 870 $

766

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 73 62
Share-based payments (74 ) (23 )
Deferred income taxes (67 ) (5 )
Other 2 16
Changes in operating assets and liabilities:
Accounts receivable (15 ) (25 )
Income taxes receivable 149
Settlement due from customers (129 ) 433
Prepaid expenses (43 ) (7 )
Accrued litigation and legal settlements (27 )
Accounts payable (46 ) (93 )
Settlement due to customers (55 ) (423 )
Accrued expenses 29 (30 )
Net change in other assets and liabilities 50   52  
Net cash provided by operating activities 568   872  
Investing Activities
Purchases of investment securities available-for-sale (619 ) (934 )
Acquisition of businesses, net of cash acquired (146 )
Purchases of property, plant and equipment (25 ) (20 )
Capitalized software (24 ) (22 )
Proceeds from sales of investment securities available-for-sale 341 576
Proceeds from maturities of investment securities available-for-sale 425 257
Decrease in restricted cash for litigation settlement 183 2
Proceeds from maturities of investment securities held-to-maturity 36
Other investing activities (5 ) (2 )
Net cash provided by (used in) investing activities 130   (107 )
Financing Activities
Purchases of treasury stock (1,669 ) (766 )
Proceeds from debt 1,487
Dividends paid (131 ) (37 )
Tax benefit for share-based compensation 38 14
Cash proceeds from exercise of stock options 8 5
Other financing activities (12 ) 1  
Net cash used in financing activities (279 ) (783 )
Effect of exchange rate changes on cash and cash equivalents 1   (50 )
Net increase (decrease) in cash and cash equivalents 420 (68 )
Cash and cash equivalents - beginning of period 3,599   2,052  
Cash and cash equivalents - end of period $ 4,019   $ 1,984  
 
Non-Cash Investing and Financing Activities
Fair value of assets acquired, net of cash acquired $ 246   $  
Fair value of liabilities assumed related to acquisitions $ 42   $  
 
   

MASTERCARD INCORPORATED OPERATING PERFORMANCE

 
For the 3 Months ended March 31, 2014
All MasterCard Credit, GDV Growth   Growth  

Purchase
Volume

  Growth  

Purchase
Trans.

 

Cash
Volume

  Growth  

Cash
Trans.

  Accounts   Cards
Charge and Debit Programs (Bil.)   (USD)   (Local)   (Bil.)   (Local)   (Mil.)   (Bil.)   (Local)   (Mil.)   (Mil.)   (Mil.)
APMEA $302 12.4% 18.9% $202 18.6% 2,199 $99 19.6% 861 402 433
Canada 29 -2.0% 7.3% 27 9.0% 336 2 -9.7% 5 46 56
Europe 312 13.6% 14.7% 212 11.0% 3,247 100 23.6% 597 317 334
Latin America

83

2.9% 15.6%

49

21.7%

1,184

33

7.6%

198

125

145

Worldwide less United States 726 11.1% 16.2% 491 14.9% 6,967 235 19.0% 1,662 890 967
United States

319

8.6% 8.6%

268

8.8%

4,720

51

7.4%

311

305

343

Worldwide 1,045 10.3% 13.8% 759 12.7% 11,687 286 16.7% 1,973 1,194 1,309
 
MasterCard Credit and Charge Programs
Worldwide less United States 429 7.9% 12.7% 381 13.6% 4,622 48 5.5% 198 500 566
United States

145

8.1% 8.1%

138

8.1%

1,511

7

8.1%

6

147

181

Worldwide 574 7.9% 11.5% 519 12.1% 6,133 55 5.8% 204 647 746
 
MasterCard Debit Programs
Worldwide less United States 296 16.1% 21.7% 110 19.6% 2,344 186 23.0% 1,464 390 401
United States

174

9.0% 9.0%

130

9.6%

3,209

44

7.3%

305

157

162

Worldwide 471 13.4% 16.7% 240 14.0% 5,553 231 19.7% 1,769 548 563
 
 
For the 3 Months ended March 31, 2013
All MasterCard Credit, GDV Growth Growth

Purchase
Volume

Growth

Purchase
Trans.

Cash
Volume

Growth

Cash
Trans.

Accounts Cards
Charge and Debit Programs (Bil.)   (USD)   (Local)   (Bil.)   (Local)   (Mil.)   (Bil.)   (Local)   (Mil.)   (Mil.)   (Mil.)
APMEA $268 20.2% 22.2% $178 19.4% 1,839 $90 28.0% 700 355 384
Canada 30 2.8% 3.5% 27 3.8% 304 3 -0.2% 6 41 50
Europe 275 13.3% 13.0% 191 10.2% 2,728 84 19.8% 493 267 283
Latin America

80

10.8% 14.9%

48

18.2%

1,020

33

10.5%

185

112

131

Worldwide less United States 653 15.2% 16.3% 443 14.2% 5,891 210 21.2% 1,384 775 848
United States

294

3.6% 3.6%

246

4.5%

4,361

48

-0.7%

301

280

318

Worldwide 947 11.3% 12.1% 690 10.5% 10,252 257 16.5% 1,685 1,054 1,166
 
MasterCard Credit and Charge Programs
Worldwide less United States 398 11.1% 12.8% 350 13.1% 4,083 48 10.8% 191 474 538
United States

134

1.5% 1.5%

127

2.4%

1,438

6

-13.7%

6

140

175

Worldwide 532 8.5% 9.7% 478 10.0% 5,521 54 7.3% 197 614 712
 
MasterCard Debit Programs
Worldwide less United States 255 22.0% 22.3% 93 18.4% 1,808 162 24.7% 1,193 301 310
United States

160

5.5% 5.5%

119

6.9%

2,923

41

1.6%

295

140

143

Worldwide 415 15.1% 15.2% 212 11.7% 4,731 203 19.2% 1,488 440 454

 

 
APMEA = Asia Pacific / Middle East / Africa
Note that the figures in the preceding tables may not sum due to rounding; growth represents change from the comparable year-ago period
 

Footnote

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

Debit transactions on Maestro® and Cirrus®-branded cards, Mondex® transactions 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 processed 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.

In 2013Q4, a large Maestro customer revised their number of Maestro cards to exclude inactive cards. Data for the comparable periods in 2013 and 2012 have been revised to be consistent with this approach. MasterCard revenue is not impacted from these historical changes.

Performance information for prior periods can be found in the "Investor Relations" section of MasterCard's website at www.mastercard.com.

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