MasterCard Incorporated Reports Third-Quarter 2012 Financial Results

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

2011

2012

2011

(in millions, except per share data)

Revenues, net

$

1,918

$

1,818

$

5,496

$

4,986

Operating Expenses

General and administrative

620

565

1,790

1,599

Advertising and marketing

176

200

480

522

Depreciation and amortization

58

51

168

142

Provision for litigation settlement

-

-

20

-

Total operating expenses

854

816

2,458

2,263

Operating income

1,064

1,002

3,038

2,723

Other Income (Expense)

Investment income

9

17

27

40

Interest expense

(4

)

(6

)

(13

)

(18

)

Other income (expense), net

(3

)

17

(14

)

13

Total other income (expense)

2

28

-

35

Income before income taxes

1,066

1,030

3,038

2,758

Income tax expense

294

314

885

872

Net income

772

716

2,153

1,886

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-sale

2,594

1,215

Accounts receivable

912

808

Settlement due from customers

815

601

Restricted security deposits held for customers

775

636

Prepaid expenses and other current assets

575

404

Deferred income taxes

356

343

Total Current Assets

9,072

7,741

Property, plant and equipment, net

465

449

Deferred income taxes

101

88

Goodwill

1,087

1,014

Other intangible assets, net of accumulated amortization

676

665

Other assets

719

736

Total Assets

$

12,120

$

10,693

LIABILITIES AND EQUITY

Accounts payable

$

319

$

360

Settlement due to customers

839

699

Restricted security deposits held for customers

775

636

Accrued litigation

790

770

Accrued expenses

1,620

1,610

Other current liabilities

205

142

Total Current Liabilities

4,548

4,217

Deferred income taxes

103

113

Other liabilities

545

486

Total Liabilities

5,196

4,816

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-capital

3,619

3,519

Class A treasury stock, at cost, 13,917,645 and 11,153,333 shares, respectively

(3,527

)

(2,394

)

Retained earnings

6,786

4,745

Accumulated other comprehensive income (loss)

34

(2

)

Total Stockholders' Equity

6,912

5,868

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 amortization

168

142

Share-based payments

66

53

Stock units withheld for taxes

(41

)

(33

)

Tax benefit for share-based compensation

(46

)

(11

)

Deferred income taxes

(40

)

136

Other

35

7

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 settlements

20

(302

)

Accounts payable

(36

)

(8

)

Settlement due to customers

140

(84

)

Accrued expenses

129

163

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

)