EX-99.1 2 dex991.htm PRESS RELEASE Press release

Exhibit 99.1

 

LOGO   LOGO

MasterCard Incorporated Reports

Fourth-Quarter and Full-Year 2006

Financial Results

 

  •  

Fourth-quarter net income of $0.30 per share, or $41 million

 

  •  

Fourth-quarter net revenues up 17.2% to $839 million

 

  •  

Fourth-quarter gross dollar volume up 13.8%, purchase volume up 16.7%

 

  •  

Quarterly dividend increase of 66.7%, up from 9 cents to 15 cents per share

Purchase, NY, February 9, 2007 – MasterCard Incorporated (NYSE:MA) today announced financial results for the fourth quarter and full-year 2006. For the fourth quarter, the company reported net income of $41 million, or $0.30 per share. Excluding the impact of litigation settlements, net income for the quarter was $42 million, or $0.31 per share. Net revenues for the quarter were $839 million, a 17.2% increase versus the same period in 2005. Currency fluctuations (driven by the movement of the euro relative to the US dollar) contributed approximately 1.9% of the increase in revenues for the quarter. For the fourth quarter 2006, total net income, earnings per share and total operating expenses, each of which excludes litigation settlements, are non-U.S. GAAP financial measures that are reconciled to their most directly comparable U.S. GAAP measures in the accompanying financial tables.

Fueling the higher revenue in the fourth quarter versus the same period in 2005 was growth in MasterCard’s gross dollar volume (GDV), which increased 13.8%, on a local currency basis, to $532 billion; a 17.4% increase in the number of transactions processed to 4.4 billion; and a restructuring of cross-border transaction pricing which was implemented in April 2006. Worldwide purchase volume rose 16.7%, on a local currency basis, during the quarter to $391 billion, driven by increased cardholder spending on a growing number of MasterCard cards. As of December 31, 2006, the company’s customers had issued 817 million MasterCard cards, an increase of 12.3% percent over the cards issued at December 31, 2005.

“Cardholders around the world used their MasterCard cards for transactions totaling almost $2 trillion in 2006 — doubling the GDV we reported only five years ago, as the pace at which we are driving commerce in markets around the world gains momentum,” said Robert W. Selander, MasterCard president and chief executive officer. “Our success in displacing paper-based forms of payment reflects the strength of our brand and network as well as the opportunities to implement innovative payment programs in both emerging and developed economies.

 

-more-

MasterCard Incorporated – Page 2

 

“Having invested significantly in our global brand and payments network over the past 40 years, we enter our fifth decade with a leveragable infrastructure that will allow us to provide cutting-edge payment solutions for our financial institution customers as well as merchants, consumers, corporations and governments who are increasingly turning to the convenience and security of electronic payments,” Selander noted. “We expect this will enable us to continue to drive value for our shareholders.”

Total operating expenses decreased 2.6%, to $793 million, during the fourth quarter of 2006 compared to the same period in 2005. Excluding the impact of litigation settlements, operating expenses increased 0.5%. This was primarily driven by a $14.5 million cash contribution to the MasterCard Foundation, as part of MasterCard’s previously disclosed intention to contribute up to $40 million in cash to the Foundation over four years; higher professional fees related to legal costs to defend outstanding litigation; and, an increase in personnel costs related to the hiring of additional staff to strengthen our capability to add value to our customers’ businesses. Offsetting this increase was an 8.5% decrease in advertising and market development expenses versus the year-ago period due to a shift in the typical annual pattern of marketing spend to support the 2006 World Cup soccer events earlier in the year. Currency fluctuations contributed approximately 1.5% of the increase in expenses for the quarter.

Total other income was $24 million in the fourth quarter 2006 versus $10 million in the fourth quarter of 2005. The increase was primarily driven by a $20 million increase in investment income.

Full-Year 2006 Results

For the year-ended December 31, 2006, MasterCard reported net income of $50 million or $0.37 per share. Excluding the impact of special items, the company reported net income of $457 million, or $3.37 per share.

Pre-tax special items for 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.

MasterCard Incorporated – Page 3

 

The company’s full year 2006 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 twelve months ended December 31, 2006 were $3.3 billion, a 13.2% increase versus the same period in 2005. Currency fluctuations had a negligible impact on revenues during the year.

Total operating expenses increased 21.7%, to $3.1 billion, for the twelve-month period compared to the same period in 2005. Excluding the impact of the charitable donation of common stock to the MasterCard Foundation, litigation settlements, and an adjustment to reflect an accounting methodology change for cash-based executive incentive plans in the third quarter of 2005, total operating expenses increased 9.2%. This was due to increased personnel costs, professional fees and advertising and marketing expenses, as well as a total of $20 million in cash contributed to the MasterCard Foundation in 2006. Currency fluctuations had a negligible impact on operating expenses during this period.

Total other income was $65 million for the twelve-month period versus $14 million for the same period in 2005. This change was driven by a $64 million increase in investment income, including the $7 million special item of interest income earned on IPO proceeds which were used for redemption. Interest expense also decreased by $9 million primarily due to a refund of interest assessed in connection with an audit of the company’s federal income tax return and a reduction of interest reserve requirements related to the company’s tax reserves.

MasterCard’s effective tax rate of 82.9% for the twelve months ended December 31, 2006 includes the impact of the non-deductible charitable donation of common stock to the MasterCard Foundation. Excluding this donation, the company’s tax rate would have been 35.4% vs. 34.5% for the same period in 2005. 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.

MasterCard Incorporated – Page 4

 

MasterCard Board of Directors Announces Increase in Quarterly Dividend

At a meeting on February 6, 2007, the MasterCard Incorporated Board of Directors declared an increase to the quarterly cash dividend to holders of shares of its Class A common stock and Class B common stock. A cash dividend of 15 cents per share, which represents a 66.7% increase over the prior dividend level of 9 cents per share, will be paid on May 10, 2007 to holders of record of its Class A common stock and Class B common stock as of April 9, 2007.

“We are pleased that the success of our business and the strength of our capital position has allowed us to increase our dividend, further demonstrating our commitment to drive shareholder value,” said Chris A. McWilton, chief financial officer.

Fourth-Quarter and Full-Year 2006 Financial Results Conference Call Details

At 9:00 a.m. EST today, the company will host a conference call to discuss its fourth quarter and full-year financial results.

The dial-in information for this call is 866-383-7989 (within the U.S.) and 617-597-5328 (outside the U.S.) and the passcode is 69019047. A replay of the call will be available for one week following the live call. 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 82233899.

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 16 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.

MasterCard Incorporated – Page 5

 

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 drive commerce in markets around the world;

 

  •  

the company’s success in displacing paper-based forms of payments;

 

  •  

the company’s ability to implement innovative payment programs in both emerging and developed economies;

 

  •  

the company’s ability to leverage its infrastructure to provide cutting-edge payment solutions for its financial institution customers as well as merchants, consumers, corporations and governments;

 

  •  

the company’s strong capital position and commitment to drive value for its shareholders.

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, 2005, the company’s Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that it has filed with the SEC during 2006 and 2007, 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.

Contacts:

Media Relations: Sharon Gamsin, sgamsin@mastercard.com, 914-249-5622

Investor Relations: Barbara Gasper, investor_relations@mastercard.com, 914-249-4565

###

MasterCard Incorporated – Page 6

 

MASTERCARD INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

 

     Three Months Ended December 31,     For the Years Ended December 31,  
     2006     2005     2006     2005  
     (In thousands, except per share data)     (In thousands, except per share data)  

Revenues, net

    $ 839,163     $ 715,918     $ 3,326,074     $ 2,937,628  

Operating Expenses

         

General and administrative

      399,304       375,215       1,505,185       1,351,082  

Advertising and marketing

      352,934       385,821       1,051,870       1,008,268  

Litigation settlements

      1,707       26,970       24,957       75,158  

Charitable contributions to the MasterCard Foundation

      14,500       —         414,785       —    

Depreciation and amortization

      24,730       26,570       99,782       109,936  
                                

Total operating expenses

      793,175       814,576       3,096,579       2,544,444  
                                

Operating income (expense)

      45,988       (98,658 )     229,495       393,184  

Other Income (Expense)

         

Investment income, net

      40,905       21,255       124,994       60,867  

Interest expense

      (17,686 )     (18,252 )     (61,151 )     (70,158 )

Other income, net

      531       7,447       834       23,445  
                                

Total other income

      23,750       10,450       64,677       14,154  
                                

Income (loss) before income taxes

      69,738       (88,208 )     294,172       407,338  

Income tax expense (benefit)

      28,836       (35,300 )     243,982       140,619  
                                

Net Income (Loss)

   $ 40,902     $ (52,908 )   $ 50,190     $ 266,719  
                                

Basic Net Income (Loss) per Share

    $ 0.30     $ (0.39 )   $ 0.37     $ 1.98  
                                

Basic Weighted average shares outstanding

      135,700       134,969       135,411       134,969  
                                

Diluted Net Income (Loss) per Share

    $ 0.30     $ (0.39 )   $ 0.37     $ 1.98  
                                

Diluted Weighted average shares outstanding

      136,461       134,969       135,779       134,969  
                                

MasterCard Incorporated – Page 7

 

MASTERCARD INCORPORATED

CONSOLIDATED BALANCE SHEETS

 

    

December 31,

2006

    

December 31,

2005

  
     (In thousands, except share data)  
ASSETS  

Cash and cash equivalents

    $ 1,185,080     $ 545,273  

Investment securities, at fair value:

     

Trading

      12,261       22,472  

Available-for-sale

      1,286,580       714,147  

Accounts receivable

      451,261       347,754  

Settlement due from members

      311,953       211,775  

Restricted security deposits held for members

      109,897       97,942  

Prepaid expenses

      130,849       167,209  

Other current assets

      89,348       121,326  
                

Total Current Assets

      3,577,229       2,227,898  

Property, plant and equipment, at cost (less accumulated depreciation of $220,720 and $373,319)

      252,731       230,614  

Deferred income taxes

      216,782       225,034  

Goodwill

      217,013       196,701  

Other intangible assets (less accumulated amortization of $309,110 and $272,913)

      271,373       273,854  

Municipal bonds held-to-maturity

      193,477       194,403  

Prepaid expenses

      235,654       201,132  

Other assets

      118,211       150,908  
                

Total Assets

    $ 5,082,470     $ 3,700,544  
                
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Accounts payable

    $ 278,656     $ 185,021  

Settlement due to members

      286,059       175,021  

Restricted security deposits held for members

      109,897       97,942  

Obligations under U.S. merchant lawsuit and other litigation settlements — current

      117,275       189,380  

Accrued expenses

      936,427       850,657  

Other current liabilities

      83,276       58,682  
                

Total Current Liabilities

      1,811,590       1,556,703  

Deferred income taxes

      66,198       61,188  

Obligations under U.S. merchant lawsuit and other litigation settlements

      359,640       415,620  

Long-term debt

      229,668       229,489  

Other liabilities

      246,395       263,776  
                

Total Liabilities

      2,713,491       2,526,776  

Commitments and Contingencies

     

Minority interest

      4,620       4,620  

Stockholders’ Equity

     

Class A common stock, $.0001 par value; authorized 3,000,000,000 shares, 79,631,983 and no shares issued and outstanding, respectively

      8       —    

Class B common stock, $.0001 par value; authorized 1,200,000,000 shares, 55,337,407 and 134,969,329 shares issued and outstanding, respectively

      6       14  

Class M common stock, $.0001 par value, authorized 1,000,000 shares, 1,600 and no shares issued and outstanding, respectively

      —         —    

Additional paid-in capital

      3,289,879       974,605  

Retained earnings (accumulated deficit)

      (1,029,196 )     145,515  

Accumulated other comprehensive income, net of tax:

     

Cumulative foreign currency translation adjustments

      96,851       50,818  

Defined benefit pension and other postretirement plans

      11,402       —    

Investment securities available-for-sale

      (3,065 )     (2,543 )

Derivatives accounted for as hedges

      (1,526 )     739  
                

Total accumulated other comprehensive income, net of tax

      103,662       49,014  
                

Total Stockholders’ Equity

      2,364,359       1,169,148  
                

Total Liabilities and Stockholders’ Equity

    $ 5,082,470     $ 3,700,544  
                

MasterCard Incorporated – Page 7

 

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MASTERCARD INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     For the Years Ended December 31,  
     2006     2005  
     (In thousands)  

Operating Activities

     

Net income

    $ 50,190     $ 266,719  

Adjustments to reconcile net income to net cash provided by operating activities:

     

Depreciation and amortization

      99,782       109,936  

Charitable contribution of common stock to the MasterCard Foundation

      394,785       —    

Share based payments

      19,181       —    

Deferred income taxes

      32,267       (54,036 )

Other

      9,746       12,182  

Changes in operating assets and liabilities:

     

Trading securities

      10,211       4,935  

Accounts receivable

      (93,428 )     (64,189 )

Settlement due from members

      (75,553 )     (15,496 )

Prepaid expenses

      42,623       (52,170 )

Other current assets

      7,813       (17,123 )

Prepaid expenses, non-current

      (30,555 )     (123,692 )

Accounts payable

      89,382       4,111  

Settlement due to members

      89,739       11,471  

Litigation settlement accruals, including accretion of imputed interest

      (128,085 )     7,406  

Accrued expenses

      86,859       220,789  

Net change in other assets and liabilities

      45,204       (37,995 )
                

Net cash provided by operating activities

      650,161       272,848  
                

Investing Activities

     

Purchases of property, plant and equipment

      (61,204 )     (43,866 )

Capitalized software

      (33,264 )     (38,137 )

Purchases of investment securities available-for-sale

      (3,815,115 )     (2,834,321 )

Proceeds from sales and maturities of investment securities available-for-sale

      3,233,725       2,883,709  

Acquisition of businesses, net of cash acquired

      —         —    

Other investing activities

      (368 )     (1,040 )
                

Net cash used in investing activities

      (676,226 )     (33,655 )
                

Financing Activities

     

Cash received from sale of common stock, net of issuance costs

      2,449,910       —    

Cash payment for redemption of common stock

      (1,799,937 )     —    

Dividends paid

      (12,373 )     —    
                

Net cash provided by financing activities

      637,600       —    
                

Effect of exchange rate changes on cash and cash equivalents

      28,272       (22,916 )
                

Net increase in cash and cash equivalents

      639,807       216,277  

Cash and cash equivalents — beginning of year

      545,273       328,996  
                

Cash and cash equivalents — end of year

    $ 1,185,080     $ 545,273  
                

MasterCard Incorporated – Page 9

 

MASTERCARD INCORPORATED OPERATING PERFORMANCE

 

    For the 3 Months ended December 31, 2006

All MasterCard Credit,
Charge and Debit Programs

   GDV
(Billions)		   Growth
(Local)		     Purchase
Volume
(Billions)		   Growth
(Local)		     Purchase
Transactions
(Millions)		   Cash
Volume
(Billions)		   Growth
(Local)		     Cash
Transactions
(Millions)		   Accounts
(Millions)		   Cards
(Millions)		   Acceptance
Locations
(Millions)

Asia / Pacific

   $ 77   6.8 %   $ 46   17.2 %   588   $ 31   -6.0 %   143   143   155   7.2

Canada

     20   13.2 %     18   14.0 %   208     3   8.7 %   5   26   32   0.7

Europe

     145   12.9 %     108   13.8 %   1,343     37   10.2 %   229   141   152   7.7

Latin America

     37   24.8 %     18   27.5 %   374     19   22.4 %   123   71   86   2.2

South Asia / Middle East Africa

     9   38.3 %     5   32.0 %   82     3   49.0 %   32   22   25   0.8

United States

     244   14.5 %     197   17.1 %   3,060     48   5.0 %   235   311   366   6.6

Worldwide

     532   13.8 %     391   16.7 %   5,655     140   6.5 %   766   714   817   25.3

MasterCard Credit and Charge Programs

                      

United States

     159   3.0 %     135   5.8 %   1,593     24   -10.1 %   17   211   260  

Worldwide

     391   7.8 %     308   11.5 %   3,812     83   -3.9 %   281   563   656  

MasterCard Debit Programs

                      

United States

     85   44.6 %     61   53.4 %   1,467     24   26.1 %   219   100   106  

Worldwide

     140   34.6 %     83   40.8 %   1,844     57   26.5 %   485   152   161  

 

     For the Year ended December 31, 2006     

All MasterCard Credit,

Charge and Debit Programs

    GDV
(Billions)		    Growth
(Local)		     Purchase
Volume
(Billions)		    Growth
(Local)		     Purchase
Transactions
(Millions)		    Cash
Volume
(Billions)		    Growth
(Local)		     Cash
Transactions
(Millions)		    Accounts
(Millions)		    Cards
(Millions)

Asia / Pacific

    $ 286    7.7 %   $ 166    16.4 %   2,121    $ 120    -2.3 %   548    143    155

Canada

      75    14.2 %     64    15.2 %   768      11    8.3 %   19    26    32

Europe

      520    13.9 %     384    14.1 %   4,989      136    13.1 %   878    141    152

Latin America

      126    26.1 %     60    29.0 %   1,320      66    23.5 %   456    71    86

South Asia / Middle East Africa

      30    46.0 %     18    34.0 %   288      12    69.5 %   107    22    25

United States

      919    15.7 %     725    17.3 %   11,039      195    10.1 %   924    311    366

Worldwide

      1,956    14.9 %     1,417    16.9 %   20,524      539    10.0 %   2,932    714    817

MasterCard Credit and Charge Programs

                           

United States

      610    6.0 %     509    7.7 %   5,912      102    -2.0 %   65    211    260

Worldwide

      1,455    9.9 %     1,124    12.5 %   14,009      331    1.8 %   1,116    563    656

MasterCard Debit Programs

                           

United States

      309    41.3 %     216    48.4 %   5,127      93    27.2 %   859    100    106

Worldwide

      501    32.5 %     292    37.3 %   6,516      208    26.3 %   1,816    152    161

 

     For the 3 Months ended December 31, 2005

All MasterCard Credit,

Charge and Debit Programs

    GDV
(Billions)		    Growth
(Local)		     Purchase
Volume
(Billions)		    Growth
(Local)		     Purchase
Transactions
(Millions)		    Cash
Volume
(Billions)		    Growth
(Local)		     Cash
Transactions
(Millions)		    Accounts
(Millions)		    Cards
(Millions)

Asia / Pacific

    $ 69    10.6 %   $ 38    15.1 %   479    $ 31    5.6 %   131    132    144

Canada

      17    12.7 %     15    14.7 %   186      2    1.0 %   5    24    30

Europe

      119    14.5 %     88    13.4 %   1,213      31    17.7 %   208    120    129

Latin America

      30    27.1 %     14    29.9 %   309      16    24.8 %   109    62    74

South Asia / Middle East Africa

      7    53.3 %     4    33.8 %   67      2    105.3 %   20    16    18

United States

      213    9.0 %     168    11.9 %   2,434      45    -0.6 %   192    279    331

Worldwide

      455    12.3 %     327    13.7 %   4,687      128    8.9 %   663    632    727

MasterCard Credit and Charge Programs

                           

United States

      154    5.1 %     128    9.0 %   1,511      26    -10.4 %   17    208    254

Worldwide

      353    10.4 %     270    12.7 %   3,439      83    3.6 %   283    521    607

MasterCard Debit Programs

                           

United States

      59    20.8 %     40    22.6 %   923      19    17.3 %   175    72    77

Worldwide

      102    19.3 %     57    18.6 %   1,247      45    20.4 %   381    111    121

 

     For the Year ended December 31, 2005

All MasterCard Credit,

Charge and Debit Programs

    GDV
(Billions)		    Growth
(Local)		     Purchase
Volume
(Billions)		    Growth
(Local)		     Purchase
Transactions
(Millions)		    Cash
Volume
(Billions)		    Growth
(Local)		     Cash
Transactions
(Millions)		    Accounts
(Millions)		    Cards
(Millions)

Asia / Pacific

    $ 262    8.7 %   $ 142    15.0 %   1,773    $ 120    2.0 %   455    132    144

Canada

      61    13.7 %     52    16.0 %   684      9    1.7 %   19    24    30

Europe

      453    13.5 %     334    13.7 %   4,530      119    12.8 %   795    120    129

Latin America

      98    32.3 %     44    31.2 %   1,073      54    33.3 %   398    62    74

South Asia / Middle East Africa

      22    39.9 %     14    28.3 %   228      7    70.3 %   59    16    18

United States

      795    11.6 %     618    14.6 %   9,004      177    2.5 %   770    279    331

Worldwide

      1,690    13.0 %     1,205    15.1 %   17,291      485    8.2 %   2,496    632    727

MasterCard Credit and Charge Programs

                           

United States

      576    5.1 %     472    9.0 %   5,597      104    -9.6 %   67    208    254

Worldwide

      1,314    9.4 %     993    12.6 %   12,669      321    0.3 %   1,048    521    607

MasterCard Debit Programs

                           

United States

      219    33.4 %     146    37.2 %   3,407      73    26.5 %   703    72    77

Worldwide

      377    28.2 %     212    28.5 %   4,622      164    27.8 %   1,448    111    121

Note that the figures in the preceding tables may not sum due to rounding; growth represents change from the comparable year-ago period.

MasterCard Incorporated – Page 10

 

Footnote

Set forth above is information regarding the performance results for the three months and year ended December 31, 2006 and December 31, 2005 for the payment programs of MasterCard International Incorporated and MasterCard Europe sprl (collectively, “MasterCard”), the principal operating subsidiaries of MasterCard Incorporated.

The tables set forth the gross dollar volume (“GDV”), purchase volume, cash volume and the number of purchase transactions, cash transactions, accounts, cards and acceptance locations 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 (including PIN point-of-sale) 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 in connection with which functional cards are not generally issued. Acceptance locations include merchant locations, ATMs and other locations where cash may be obtained.

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 Personal Identification Number (PIN).

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. However, MasterCard reports period-over-period rates of change in GDV, purchase volume and cash volume solely 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 derived from information provided by MasterCard members that 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, cards and acceptance locations columns is derived from information provided by MasterCard members and is subject to certain limited verification by MasterCard. Certain information with respect to acceptance locations is provided by third parties and has not been independently verified by MasterCard. All data is subject to revision and amendment by MasterCard’s members subsequent to the date of its release.

A portion of the data set forth in the accounts and cards columns reflects the impact of routine portfolio changes among members and other practices that may lead to over counting of the underlying data in certain circumstances.

The table includes 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, including PIN point-of-sale volumes for MasterCard-branded debit programs in the U.S. region and credit programs in the Asia/Pacific region.

Performance information for prior periods may be found in the “Investor Relations” section of MasterCard’s website at www.mastercard.com.

MasterCard Incorporated – Page 11

 

Reconciliation to Net Income, Earnings Per Share and Total Operating Expenses

 

($ million)    For the three months ended 12/31/06     For the three months ended 12/31/05     YOY Growth  
   Actual     Special
Items		     As
Adjusted		     Actual     Special
Items		     As Adjusted     As Adjusted  

Revenues, net

    $ 839       —       $ 839     $ 716       —       $ 716     17.2 %

Operating Expenses

               

General and administrative

      399       —         399       375       —         375     6.4 %

Advertising and marketing

      353       —         353       386       —         386     (8.5 )%

Litigation settlements

      2       2 a     —         27       27 a     —       NM  

Charitable contributions to the MasterCard Foundation

      14       —         14 b     —         —         —       NM  

Depreciation and amortization

      25       —         25       26       —         26     (3.8 )%
                                                  

Total operating expenses

      793       2       791       814       27       787     0.5 %
                                                  

Operating income (expense)

      46       2       48       (98 )     27       (71 )   167.6 %

Operating Margin

      5.5 %     —         5.7 %     (13.7 )%     —         (9.9 )%   NM  

Other Income (Expense)

               

Investment income, net

      41       —         41       21       —         21     95.2 %

Interest expense

      (17 )     —         (17 )     (18 )     —         (18 )   (5.6 )%

Other income, net

      —         —         —         7       —         7     NM  
                                                  

Total other income

      24       —         24       10       —         10     140.0 %
                                                  

Income (loss) before income taxes

      70       2       72       (88 )     27       (61 )   218.0 %

Income tax expense (benefit)

      29       1       30       (35 )     9       (26 )   NM  
                                                  

Net Income (loss)

    $ 41       1     $ 42     $ (53 )   $ 18     $ (35 )   218.5 %
                                                  

Basic Net Income (Loss) per Share

    $ 0.30     $ 0.01     $ 0.31     $ (0.39 )   $ 0.13     $ (0.26 )   218.5 %
                                                  

Diluted Net Income (Loss) per Share

    $ 0.30     $ 0.01     $ 0.31     $ (0.39 )   $ 0.13     $ (0.26 )   218.5 %
                                                  
($ million)    For the year ended 12/31/06     For the year ended 12/31/05     YOY Growth  
   Actual     Special
Items		     As
Adjusted		     Actual     Special
Items		     As Adjusted     As Adjusted  

Revenues, net

    $ 3,326       —       $ 3,326     $ 2,938       —       $ 2,938     13.2 %

Operating Expenses

               

General and administrative

      1,505       —         1,505       1,352       19 c     1,333     12.9 %

Advertising and marketing

      1,052       —         1,052       1,008       —         1,008     4.4 %

Litigation settlements

      25       25 a     —         75       75 a     —       NM  

Charitable contributions to the MasterCard Foundation

      415       395 d     20 b     —         —         —       NM  

Depreciation and amortization

      100       —         100       110       —         110     (9.1 )%
                                                  

Total operating expenses

      3,097       420       2,677       2,545       94       2,451     9.2 %
                                                  

Operating income

      229       420       649       393       94       487     33.3 %

Operating Margin

      6.9 %     —         19.5 %     13.4 %     —         16.6 %   2.9 ppt

Other Income (Expense)

               

Investment income, net

      125       (7 ) e     118       61       —         61     93.4 %

Interest expense

      (61 )     —         (61 )     (70 )     —         (70 )   (12.9 )%

Other income, net

      1       —         1       23       (17 )f     6     (83.3 )%
                                                  

Total other income (expense)

      65       (7 )     58       14       (17 )     (3 )   NM  
                                                  

Income before income taxes

      294       413       707       407       77       484     46.1 %

Income tax expense

      244       6       250       140       27       167     49.9 %
                                                  

Net Income

    $ 50     $ 407     $ 457     $ 267     $ 50     $ 317     44.2 %
                                                  

Basic Net Income per Share

    $ 0.37     $ 3.00     $ 3.37     $ 1.98     $ 0.37     $ 2.35     43.4 %
                                                  

Diluted Net Income per Share

    $ 0.37     $ 3.00     $ 3.37     $ 1.98     $ 0.37     $ 2.35     43.4 %
                                                  

a

Litigation settlements

b

Contribution of cash to the MasterCard Foundation

c

Adjustment to reflect accounting methodology change for cash-based executive incentive plans

d

Contribution of common stock to the MasterCard Foundation

e

Interest income on IPO proceeds which were used for redemption

f

Gains from the settlement of a contractual dispute

NM = not meaningful

 

MasterCard Incorporated – Page 12

 

Reconciliation to Effective Tax Rate

 

     GAAP
Actual		   

GAAP

Effective

Tax Rate

     Stock
Donation		    Non-GAAP
Adjusted		   

Non-GAAP

Effective

Tax Rate

  

Twelve months ended December 31, 2006:

              

Income before income taxes

    $ 294    82.9 %   $ 395    $ 689    35.4 %

Income tax expense1

      244           244   
                     

Net Income

    $ 50         $ 445   
                     

1

Income tax expense has been calculated with and without the impact of the stock donation to the Foundation.

For more information about these reconciliations, refer to MasterCard Incorporated’s Form 8-K furnished with the Securities and Exchange Commission on February 9, 2007.

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