01—Abstract
Summary
Summary of the 10-Q filed July 31, 2014. Cited figures are marked; the original filing is the authoritative source.
Mastercard Inc. reported strong financial performance for the second quarter and the first six months of 2014.
Net revenue saw a significant increase of 13%a and 14% respectively, year-over-year, driven by growth in domestic assessments, cross-border volume fees, and transaction processing fees. This top-line growth translated into a robust net income increase of 10% for the quarter and 12% for the six-month period, demonstrating effective operational leverage. The company's balance sheet reflects a solid financial position, although cash and cash equivalents decreased compared to the prior year-end, partly due to substantial share repurchases.
Operating expenses, while increasing, were managed effectively, with total operating expenses as a percentage of net revenue remaining stable. Mastercard also continued its commitment to returning capital to shareholders through dividends and significant share repurchases, underscoring a positive outlook and confidence in its business model. The company also addressed ongoing legal matters, particularly the U.S. merchant class litigation, with a significant reserve in place.
02—Key points
Key Highlights
- Net revenue increased by 13% for the three months ended June 30, 2014, and 14% for the six months ended June 30, 2014, compared to the respective prior-year periods.
- Net income grew by 10% to $931 million for the three months ended June 30, 2014, and by 12% to $1,801 million for the six months ended June 30, 2014.
- Diluted earnings per share increased by 14% to $0.80 for the quarter and 16% to $1.53 for the six-month period.
- Mastercard repurchased approximately $2.8 billion of its Class A common stock during the first six months of 2014.
- The company issued $1.5 billion in new debt (2.000% Notes due 2019 and 3.375% Notes due 2024) in March 2014.
- General and administrative expenses increased by 20% for the quarter and 15% for the six months, primarily due to higher personnel expenses.
- The company maintained a substantial accrued liability of $799 million for U.S. merchant class litigation and anticipated opt-out merchant cases as of June 30, 2014.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2014filed July 31, 2014Financial Statements
Q2 FY2014 against Q2 FY2013
| Line item | Q2 FY2014Q2 FY2013 | Change |
|---|---|---|
| Revenue | $2.37B$2.10B | +13.0% |
| Operating Expenses | $985.00M$868.00M | +13.5% |
| Operating Income | $1.38B$1.23B | +12.6% |
| Interest Expense | $15.00M$5.00M | +200.0% |
| Net Income | $931.00M$848.00M | +9.8% |
| EPS (Basic) | $0.80$0.70 | +14.3% |
| EPS (Diluted) | $0.80$0.70 | +14.3% |
| Shares Outstanding (Basic) | 1.17B1.21B | −4.0% |
| Shares Outstanding (Diluted) | 1.17B1.22B | −3.9% |
05—Questions
Frequently Asked Questions
What was the primary driver of Mastercard's revenue growth in Q2 2014?
Mastercard's revenue growth in the second quarter of 2014 was primarily driven by increases in domestic assessments, cross-border volume fees, and transaction processing fees, reflecting strong underlying transaction volumes and broader adoption of electronic payments.
How did Mastercard's share repurchase program impact its financial position?
Mastercard significantly repurchased its Class A common stock during the first six months of 2014, spending approximately $2.8 billion. This activity reduced the total equity on the balance sheet and decreased the number of outstanding shares, contributing to the increase in diluted earnings per share. It also reduced cash and cash equivalents.
What is the status of the U.S. merchant class litigation, and what is the financial impact?
Mastercard has accrued a liability of $799 million as of June 30, 2014, to cover its estimated probable losses related to the U.S. merchant class litigation and anticipated opt-out merchant cases. While the settlement received final approval in December 2013, it is currently under appeal. The company holds $540 million in a restricted cash fund related to this litigation.
Did Mastercard take on new debt during this period?
Yes, in March 2014, Mastercard issued $1.5 billion in aggregate principal amount of notes: $500 million in 2.000% Notes due 2019 and $1 billion in 3.375% Notes due 2024. The net proceeds were used for general corporate purposes.
06—Continue