10-QPeriod: Q2 FY2012

Mastercard Inc Quarterly Report for Q2 Ended Jun 30, 2012

Filed August 1, 2012For Securities:MA

Summary

Mastercard Inc. reported solid financial results for the second quarter and the first half of 2012, demonstrating continued revenue growth and operational efficiency. Net revenues increased by 9% for the quarter and 13% year-to-date, driven by growth in processed transactions and increased dollar volume on cards bearing its brands. Despite a strengthening U.S. dollar impacting reported figures, the company maintained strong operating margins, reflecting effective cost management. A significant development during the quarter was the announcement of a preliminary settlement for the U.S. merchant class litigation, with an additional $20 million pre-tax charge recorded. While this resolution brings some clarity, it also introduces a new risk factor: the potential for merchants to surcharge credit cards, which could impact transaction volumes. The company's strong cash flow generation and robust balance sheet provide a stable financial foundation to navigate these, and other ongoing legal and regulatory challenges.

Financial Highlights

50 data points
Beta

Revenue

$1.82B

Net Income

$700.00M

38.5% Net Margin

EPS (Diluted)

$0.56

Total Assets

$11.24B

Cash & Equivalents

$3.15B

Free Cash Flow

$613.00M

Financial Statements
Beta
Revenue$1.82B
Operating Expenses$846.00M
Operating Income$974.00M
Interest Expense$3.00M
Net Income$700.00M
EPS (Basic)$0.56
EPS (Diluted)$0.56
Shares Outstanding (Basic)1.26B
Shares Outstanding (Diluted)1.26B

Key Highlights

  • 1Net revenues increased by 9% to $1.82 billion for Q2 2012 and by 13% to $3.58 billion for the first six months of 2012 compared to the prior year periods.
  • 2Net income attributable to MasterCard grew by 15% to $700 million for Q2 2012 and by 18% to $1.38 billion for the first six months of 2012.
  • 3Diluted Earnings Per Share (EPS) rose by 17% to $5.55 for Q2 2012 and by 21% to $10.91 for the first six months of 2012.
  • 4Operating expenses increased by 8% for the quarter and 11% year-to-date, largely due to higher general and administrative costs and a provision for litigation settlement.
  • 5The company accrued an additional $20 million pre-tax charge for the U.S. merchant litigations, following a $770 million charge in Q4 2011, as it moved towards a settlement.
  • 6Mastercard announced a new $1.5 billion share repurchase program, continuing its commitment to returning capital to shareholders.
  • 7The effective income tax rate decreased to 28.0% for Q2 2012 and 30.0% for the first six months of 2012, down from 31.8% and 32.3% respectively in the prior year periods, due to discrete tax benefits and a favorable geographic mix of earnings.

Frequently Asked Questions

In the second quarter of 2012, Mastercard reported a 9% increase in net revenues to $1.82 billion and a 15% increase in net income attributable to Mastercard to $700 million, resulting in a 17% rise in diluted Earnings Per Share (EPS) to $5.55.

Mastercard entered into a memorandum of understanding in July 2012 to settle the U.S. merchant class litigation and agreed in principle to settle claims with individual merchant plaintiffs. This resulted in an additional $20 million pre-tax charge in Q2 2012, adding to the $770 million charge recorded in Q4 2011. The total estimated financial settlement is $790 million pre-tax. A new risk factor highlights the potential impact of merchants being allowed to surcharge credit cards as a result of this settlement.

The strengthening of the U.S. dollar against currencies like the Euro and Brazilian Real negatively impacted reported revenues and expenses. For instance, foreign currency translation reduced net revenues by approximately 4 percentage points for the quarter. However, local currency transaction and volume growth remained strong.

Mastercard continues to prioritize returning capital to shareholders. During the first six months of 2012, the company repurchased approximately $919 million of its Class A common stock. Additionally, a new share repurchase program authorizing up to $1.5 billion was approved. The company also paid quarterly cash dividends totaling $57 million for the first six months of 2012.