MasterCard Incorporated Reports Second-Quarter 2012 Financial Results

MasterCard Incorporated (NYSE: MA) today announced financial results for the second quarter of 2012, said the company in a statement. rnrnExcluding a special item, the company reported net income of $713 million, up 17%, and earnings per diluted share of $5.65, up 19%, in each case versus the year-ago period. Including the special item, an incremental $13 million after-tax charge related to the U.S. merchant litigations, the company reported net income of $700 million, or $5.55 per diluted share. 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. rnrnNet revenue for the second quarter of 2012 was $1.8 billion, a 9% increase versus the same period in 2011. On a constant currency basis, net revenue increased 13% compared to the same period in 2011. Net revenue growth was driven by the impact of the following: rnrn•A 15% increase in gross dollar volume on a local currency basis, to $890 billion; rn•An increase in processed transactions of 29%, to 8.5 billion; and rn•An increase in cross-border volumes of 17%. rnThese factors were partially offset by an increase in rebates and incentives, primarily due to new and renewed agreements and increased volumes. rnrnWorldwide purchase volume during the quarter was up 13% on a local currency basis versus the second quarter of 2011, to $661 billion. As of June 30, 2012, the company’s customers had issued 1.8 billion MasterCard and Maestro-branded cards. rnrn“Though economic uncertainties continued to persist, we experienced solid volume and processed transaction growth in all regions as we are focused on driving our global business to expand the reach of electronic payments,” said Ajay Banga, MasterCard president and CEO. “We are executing on strategic partnerships as demonstrated by our recent announcement with Deutsche Telekom and the completion of AliPay’s integration with the DataCash payment platform, which will expand AliPay’s reach to online retailers outside of China. We also continue to work with government entities around the world, like the South African Social Security Agency, to help them implement more efficient and secure ways to deliver social benefits and to increase transparency and financial inclusion.” rnrnBased on the company’s decision to enter into settlement agreements in the U.S. merchant litigations, the company recorded a $20 million pre-tax charge, or $13 million on an after-tax basis, in the second quarter of 2012. This special item is incremental to the charge taken in the fourth quarter of 2011 to reflect the company’s total financial portion of $790 million in the settlement of these cases. rnrnExcluding the special item, total operating expenses increased 6%, to $826 million in the second quarter of 2012. On a constant currency basis, operating expenses increased 9%. The increase in total operating expenses was primarily driven by higher personnel costs related to strategic initiatives. Including the special item, total operating expenses for the second quarter of 2012 increased 8% versus the year-ago period, to $846 million. rnrnExcluding the special item, operating income for the second quarter of 2012 increased 12% over the year-ago period and the company delivered an operating margin of 54.6%. rnrnMasterCard reported other expense of $1 million in the second quarter of 2012 versus other income of $7 million in the second quarter of 2011. The change was primarily driven by increased expenses from investments in joint ventures. rnrnIncluding the special item, the effective tax rate was 28.0% in the second quarter of 2012, versus a rate of 31.8% in the comparable period in 2011. The decrease was primarily due to discrete benefits relating to additional export incentives and the conclusion of tax examinations in certain jurisdictions. A more favorable geographic mix of earnings also contributed to the decrease. rnrnDuring the second quarter of 2012, MasterCard repurchased approximately 1.6 million shares of Class A common stock at a cost of $671 million. Quarter-to-date through July 26, the company repurchased an additional 132,250 shares at a cost of approximately $57 million, with $1.4 billion remaining under the most recent $1.5 billion repurchase program authorization. rnrnYear-to-Date 2012 Results rnrnFor the six months ended June 30, 2012, MasterCard reported net income of $1.4 billion, or $11.01 per diluted share, excluding the special item from the second quarter of 2012. Including the special item, diluted earnings per share was $10.91. rnrnNet revenue for the six months ended June 30, 2012 was $3.6 billion, an increase of 13% versus the same period in 2011, or 16% on a constant currency basis. Gross dollar volume growth of 17%, transaction processing growth of 29% and cross-border volume growth of 18% 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. rnrnExcluding the special item, total operating expenses increased 9%, to $1.6 billion, for the six months ended June 30, 2012, primarily due to higher personnel costs related to strategic initiatives. Excluding currency fluctuations, total operating expenses increased 12%. Including the special item, total operating expenses increased 11%. rnrnExcluding the special item, operating income increased 16% for the first half of 2012 versus the first half of 2011, delivering an operating margin of 55.7%. rnrnMasterCard reported total other expense of $2 million for the six months ended June 30, 2012, versus other income of $7 million in the same period last year. This change was primarily driven by increased expenses from investments in joint ventures. rnrnMasterCard’s effective tax rate was 30.0% in the six months ended June 30, 2012, including and excluding the special item, versus a rate of 32.3% in the comparable period in 2011. The decrease was primarily due to discrete benefits relating to additional export incentives and the conclusion of tax examinations in certain jurisdictions. A more favorable geographic mix of earnings also contributed to the decrease. rnrn