10-QPeriod: Q3 FY2008

Mastercard Inc Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 4, 2008For Securities:MA

Summary

Mastercard Inc. reported a net loss of $193.6 million ($1.49 per diluted share) for the third quarter of 2008, a significant shift from a net income of $314.5 million ($2.31 per diluted share) in the same period last year. This downturn was largely driven by substantial charges related to significant litigation settlements, specifically the Discover and American Express settlements, which amounted to $827.5 million in the quarter. Despite the net loss, the company demonstrated resilience in its core operations, with net revenues increasing by 23.6% to $1.34 billion, fueled by a 14.8% rise in gross dollar volume (GDV) and a 25.8% increase in net operations fees. Pricing increases and favorable foreign currency movements also contributed positively to revenue growth. The company maintained a strong liquidity position with $2.8 billion in cash, cash equivalents, and current available-for-sale securities at the end of the quarter, indicating operational stability despite the significant legal headwinds.

Financial Highlights

29 data points
Beta

Revenue

$1.34B

Net Income

-$193.58M

-14.5% Net Margin

EPS (Diluted)

$-0.15

Cash & Equivalents

$2.07B

Free Cash Flow

$365.50M

Financial Statements
Beta
Revenue$1.34B
Operating Expenses$1.62B
Operating Income-$279.26M
Interest Expense$36.32M
Net Income-$193.58M
EPS (Basic)$-0.15
EPS (Diluted)$-0.15
Shares Outstanding (Basic)1.30B
Shares Outstanding (Diluted)1.30B

Key Highlights

  • 1Net loss of $193.6 million for Q3 2008, a significant decrease from a net income of $314.5 million in Q3 2007.
  • 2Net revenues grew 23.6% year-over-year to $1.34 billion, driven by increased transaction volumes and pricing adjustments.
  • 3Significant litigation settlement charges of $827.5 million, primarily related to Discover and American Express settlements, heavily impacted profitability.
  • 4Gross dollar volume (GDV) increased by 14.8% on a U.S. dollar converted basis.
  • 5Operating expenses surged by 121.7% due to litigation settlement charges, but excluding these, operating expenses increased by a more modest 8.3%.
  • 6The company maintained a strong liquidity position with $2.8 billion in cash, cash equivalents, and current available-for-sale securities.
  • 7Effective income tax rate for the quarter was a 34.1% benefit, significantly influenced by tax benefits from litigation settlement charges.

Frequently Asked Questions

The primary driver for the net loss in the third quarter of 2008 was the recognition of substantial charges related to major litigation settlements, specifically the Discover Settlement ($862.5 million share for Mastercard) and the American Express Settlement (present value of $1.649 billion). These one-time charges significantly impacted the company's profitability for the period.

Mastercard's core business demonstrated strong performance. Net revenues increased by 23.6% to $1.34 billion, driven by a 14.8% increase in gross dollar volume (GDV) and a 25.8% rise in net operations fees. This growth was supported by increased transaction processing and favorable pricing adjustments, indicating underlying operational strength.

Mastercard maintained a strong liquidity position as of September 30, 2008, with $2.8 billion in cash, cash equivalents, and current available-for-sale securities. The company expects its operating cash flow and borrowing capacity to be sufficient to cover future operating, capital expenditure, and debt obligations, including those related to litigation settlements.

Yes, the filing details extensive ongoing legal and regulatory proceedings, including antitrust litigation, currency conversion litigations, and global interchange proceedings in various jurisdictions like the US, EU, UK, Poland, New Zealand, Australia, and South Africa. While Mastercard believes it has strong defenses, adverse outcomes in these matters could have a material adverse effect on its financial condition and results of operations.