MasterCard Incorporated Reports Third-Quarter 2012 Financial Results

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MasterCard Incorporated Reports Third-Quarter 2012 Financial Results

  • Net income of $772 million, or $6.17 per diluted share
  • Net revenue increase of 5%, to $1.9 billion
  • Gross dollar volume up 14% and purchase volume up 12%

PURCHASE, N.Y.--(BUSINESS WIRE)-- MasterCard Incorporated (NYS: MA) today announced financial results for the third quarter of 2012. The company reported net income of $772 million, up 8%, and earnings per diluted share of $6.17, up 10%, in each case versus the year-ago period.

Net revenue for the third quarter of 2012 was $1.9 billion, a 5% increase versus the same period in 2011. Adjusted for currency, net revenue increased 10% compared to the same period in 2011. Net revenue growth was driven by the impact of the following:

  • A 14% increase in gross dollar volume on a local currency basis, to $918 billion;
  • An increase in processed transactions of 24%, to 8.7 billion; and
  • An increase in cross-border volumes of 14%.

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 12% on a local currency basis versus the third quarter of 2011, to $676 billion. As of September 30, 2012, the company's customers had issued 1.9 billion MasterCard and Maestro-branded cards.

"MasterCard continues to drive solid financial performance and focus on executing key deals, investments and partnerships," said Ajay Banga, MasterCard president and CEO. "We won significant business in Europe this quarter with Nordea, Credit Agricole and CSOB in the Czech Republic and, in the U.S., we acquired loyalty reward provider Truaxis to better connect consumers with targeted, relevant offers.

"Additionally, emerging geographies and governments continue to provide great opportunities for growth. In Africa, our win with Nakumatt, the largest supermarket chain in East Africa, is expected to deliver more than a million multi-currency prepaid loyalty cards to consumers. We also continue to support governments around the world, including new programs in the U.S. and Mexico with several large government agencies that help save money and deliver more effective and efficient programs and benefits," Banga concluded.

Total operating expenses increased 5%, to $854 million in the third quarter of 2012. Adjusted for currency, operating expenses increased 8%. The increase in total operating expenses was primarily driven by higher personnel costs related to strategic initiatives.

Operating income for the third quarter of 2012 increased 6% over the year-ago period, and the company delivered an operating margin of 55.5%.

MasterCard reported other income of $2 million in the third quarter of 2012 versus other income of $28 million in the third quarter of 2011. The decrease was primarily driven by lower realized gains on sales of investments, an adjustment to acquisition-related provisions in last year's third quarter and increased expenses from investments in joint ventures.

The effective tax rate was 27.6% in the third quarter of 2012, versus a rate of 30.5% in the comparable period in 2011. The decrease was primarily due to a discrete benefit related to additional export incentives and a benefit from a deduction related to the Company's authorization software.

During the third quarter of 2012, MasterCard repurchased approximately 500,000 shares of Class A common stock at a cost of $216 million. Quarter-to-date through October 25, the company repurchased approximately 255,000 additional shares at a cost of approximately $119 million, with $1.1 billion remaining under the most recent $1.5 billion repurchase program authorization.

Year-to-Date 2012 Results

For the nine months ended September 30, 2012, MasterCard reported net income of $2.2 billion, or $17.18 per diluted share, excluding a special item taken in the second quarter for an incremental $13 million after-tax charge related to the U.S. merchant litigations. Including the special item, diluted earnings per share was $17.07.

Net revenue for the nine months ended September 30, 2012 was $5.5 billion, an increase of 10% versus the same period in 2011, or 14% adjusted for currency. Gross dollar volume growth of 16%, transaction processing growth of 27% and cross-border volume growth of 16% contributed to the net revenue growth in the year-to-date period. These factors were partially offset by an increase in rebates and incentives, primarily due to new and renewed customer agreements and increased volumes.

Excluding the special item, operating expenses increased 8%, to $2.4 billion, for the nine months ended September 30, 2012, primarily due to higher personnel costs related to strategic initiatives. Excluding currency fluctuations and the special item, total operating expenses increased 10%. Including the special item in the second quarter, total operating expenses increased 9%.

Excluding the special item, operating income increased 12% for the nine months ended September 30, 2012 versus the same period in 2011, delivering an operating margin of 55.6%.

MasterCard reported no other income/expense for the nine months ended September 30, 2012, versus other income of $35 million in the same period last year. This decrease was primarily driven by lower realized gains on sales of investments, increased expenses from investments in joint ventures and an adjustment to acquisition-related provisions made in last year's third quarter.

MasterCard's effective tax rate was 29.1% in the nine months ended September 30, 2012, including the special item, compared to a rate of 31.6% in the comparable period in 2011. The decrease was primarily due to discrete benefits related to additional export incentives and the conclusion of tax examinations in certain jurisdictions.

Third-Quarter Financial Results Conference Call Details

At 10:00 a.m. ET today, the company will host a conference call to discuss its third-quarter results. The dial-in information for this call is 888-771-4371 (within the U.S.) and 847-585-4405 (outside the U.S.) and the passcode is 33358414. A replay of the call will be available for one week following the meeting. The replay can be accessed by dialing 888-843-7419 (within the U.S.) and 630-652-3042 (outside the U.S.) and using passcode 33358414.

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 mastercard.com.

Non-GAAP Financial Information

The company's total operating expenses, operating income, 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. Presentation of growth rates adjusted for currency also represents a non-GAAP measure.

About MasterCard Incorporated

MasterCard (NYS: MA) , www.mastercard.com,is a global payments and technology company. It operates 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 Conversations Blog and subscribe for the latest news.

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 ability to execute on key deals, investments and partnerships globally, including in emerging markets, in order to benefit consumers and support governments around the world to deliver more effective and efficient programs and benefits.

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, 2011, the company's Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that have been filed with the SEC during 2012, 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
September 30,

Nine Months Ended
September 30,

2012 20112012 2011
(in millions, except per share data)
 
Revenues, net$1,918$1,818$5,496$4,986
Operating Expenses
General and administrative6205651,7901,599
Advertising and marketing176200480522
Depreciation and amortization5851168142
Provision for litigation settlement -  -  20  - 
Total operating expenses 854   816  2,458   2,263 
Operating income1,0641,0023,0382,723
Other Income (Expense)
Investment income9172740
Interest expense(4)(6)(13)(18)
Other income (expense), net (3) 17  (14) 13 
Total other income (expense) 2  28  -  35 
Income before income taxes1,0661,0303,0382,758
Income tax expense 294  314  885  872 
Net income7727162,1531,886
Loss attributable to non-controlling interests -  1  1  1 
Net Income Attributable to MasterCard$772 $717 $2,154 $1,887 
 
Basic Earnings per Share$6.19 $5.65 $17.13 $14.71 
Basic Weighted Average Shares Outstanding 125  127  126  128 
Diluted Earnings per Share$6.17 $5.63 $17.07 $14.66 
Diluted Weighted Average Shares Outstanding 125  127  126  129 
 

MASTERCARD INCORPORATED

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

  
September 30,
2012
December 31,
2011
(in millions, except share data)
ASSETS
Cash and cash equivalents$3,045$3,734
Investment securities available-for-sale2,5941,215
Accounts receivable912808
Settlement due from customers815601
Restricted security deposits held for customers775636
Prepaid expenses and other current assets575404
Deferred income taxes 356  343 
Total Current Assets9,0727,741
Property, plant and equipment, net465449
Deferred income taxes10188
Goodwill1,0871,014
Other intangible assets, net of accumulated amortization676665
Other assets 719  736 
Total Assets$12,120 $10,693 
LIABILITIES AND EQUITY

Accounts payable

$319$360
Settlement due to customers839699
Restricted security deposits held for customers775636
Accrued litigation790770
Accrued expenses1,6201,610
Other current liabilities 205  142 
Total Current Liabilities4,5484,217
Deferred income taxes103113
Other liabilities 545  486 
Total Liabilities5,1964,816
Commitments and Contingencies
Stockholders' Equity

Class A common stock, $0.0001 par value; authorized 3,000,000,000 shares, 133,420,992 and 132,771,392 shares issued and 119,503,347 and 121,618,059 outstanding, respectively

--

Class B common stock, $0.0001 par value; authorized 1,200,000,000 shares, 5,010,762 and 5,245,676 issued and outstanding, respectively

--
Additional paid-in-capital3,6193,519
Class A treasury stock, at cost, 13,917,645 and 11,153,333 shares, respectively(3,527)(2,394)
Retained earnings6,7864,745
Accumulated other comprehensive income (loss) 34  (2)
Total Stockholders' Equity6,9125,868
Non-controlling interests 12  9 
Total Equity 6,924  5,877 
Total Liabilities and Equity$12,120 $10,693 
 

MASTERCARD INCORPORATED

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 
Nine Months Ended September 30,
2012 2011
(in millions)
Operating Activities
Net income$2,153$1,886
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization168142
Share-based payments6653
Stock units withheld for taxes(41)(33)
Tax benefit for share-based compensation(46)(11)
Deferred income taxes(40)136
Other357
Changes in operating assets and liabilities:
Accounts receivable(112)(100)
Income taxes receivable(53)-
Settlement due from customers(213)(16)
Prepaid expenses(122)39
Obligations under litigation settlements20(302)
Accounts payable(36)(8)
Settlement due to customers140(84)
Accrued expenses129163
Net change in other assets and liabilities 34  28 
Net cash provided by operating activities 2,082  1,900 
Investing Activities
Acquisition of businesses, net of cash acquired(70)(460)
Purchases of investment securities available-for-sale(2,123)(188)
Purchases of property, plant and equipment(68) Read Full Story

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