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MasterCard Incorporated Reports Second-Quarter 2011 Financial Results

  • Second-quarter net income of $608 million, or $4.76 per diluted share
  • Second-quarter net revenue increase of 22.1%, to $1.7 billion
  • Second-quarter gross dollar volume up 16.4% and purchase volume up 16.3%
  • Second-quarter operating income increase of 23.3%

PURCHASE, N.Y., Aug 03, 2011 (BUSINESS WIRE) -- MasterCard Incorporated (NYSE: MA) today announced financial results for the second quarter of 2011. The company reported net income of $608 million, up 32.8%, and earnings per diluted share of $4.76, up 36.4%, in each case versus the year-ago period.

Net revenue for the second quarter of 2011 was $1.7 billion, a 22.1% increase versus the same period in 2010. On a constant currency basis, net revenue increased 18.0%. Net revenue growth was primarily driven by the impact of the following:

  • A 16.4% increase in gross dollar volume on a local currency basis, to $811 billion;
  • An increase in cross-border volumes of 19.3%; and
  • An increase in processed transactions of 17.4%.

These factors were partially offset by an increase in rebates and incentives primarily due to new and renewed customer agreements and increased volumes.

Worldwide purchase volume during the quarter was up 16.3% on a local currency basis versus the second quarter of 2010, to $608 billion. As of June 30, 2011, the company's customers had issued 1.7 billion MasterCard and Maestro-branded cards.

"Solid global performance, including strong increases in volume and processed transactions, fueled double-digit revenue growth this quarter," said Ajay Banga, MasterCard president and chief executive officer. "While payment volumes have risen across our base customers, we're also seeing new business such as the portfolio conversions of SunTrust and Sovereign, as well as new processing relationships in the Netherlands and in Brazil, contribute to growth."

Banga said, "During the quarter, work continued in the mobile commerce category highlighted by an agreement with Google and multiple partners to launch the Google Wallet, as well as our alliance with Isis, in the U.S. Additionally, the previously announced Orange and Barclaycard contactless mobile payment service became available to U.K. consumers in May. Other notable agreements we executed include a commercial alliance with China Union Pay to enable its cards for cross-border e-Commerce, and a new, multi-product agreement with Swedbank in the Nordics and Baltics region."

Total operating expenses increased 20.8%, to $782 million, during the second quarter of 2011 compared to the same period in 2010. Excluding currency fluctuations, operating expenses were up 17.1%. The increase in total operating expenses was driven by:

  • An increase in general and administrative expenses of 24.8%, or 21.3% on a constant currency basis, primarily due to higher personnel expenses and other expenses related to the inclusion of acquisitions and other strategic opportunities;
  • An increase in advertising and marketing of 7.1%, or 2.4% on a constant currency basis, driven by sponsorships, as well as customer-specific and strategic initiatives; and
  • An increase in depreciation and amortization of 43.2%, or 41.6% on a constant currency basis, primarily due to the amortization of intangible assets from our recent acquisitions and continued investments in technology.

In the second quarter of 2011, excluding acquisitions, net revenue grew approximately 19% and operating expenses grew approximately 14%.

Operating income increased 23.3%, or 18.9% on a constant currency basis, over the year-ago quarter. Operating margin was 53.1%, up from 52.6% in the second quarter of 2010.

MasterCard reported other income of $7 million in the second quarter of 2011 versus other expense of $4 million in the second quarter of 2010. This change was mainly driven by a decrease in interest expense due to lower interest accretion related to litigation settlements and lower interest on uncertain tax positions.

MasterCard's effective tax rate was 31.8% in the second quarter of 2011, versus a rate of 35.7% in the comparable period in 2010. This decrease was primarily driven by a more favorable geographic mix of earnings in 2011 and discrete adjustments in the second quarter of 2010.

In April 2011, MasterCard's board of directors amended its share repurchase program authorizing the company to repurchase an incremental $1 billion of class A common stock, bringing the authorization to an aggregate of $2 billion. During the second quarter, MasterCard repurchased approximately 1.5 million shares at a cost of approximately $387 million. Quarter-to-date through July 28, the company repurchased an additional 77,700 shares of class A common stock at a cost of approximately $24 million, with $935 million remaining under the current repurchase program authorization.

Year-to-Date 2011 Results

For the six months ended June 30, 2011, MasterCard reported net income of $1.2 billion, up 28.2%, and earnings per diluted share of $9.05, up 30.2%, in each case versus the year-ago period.

Net revenue for the six months ended June 30, 2011 was $3.2 billion, an increase of 18.5% versus the same period in 2010, or 16.4% on a constant currency basis. Cross-border volume growth of 18.9%, gross dollar volume growth of 14.7%, transaction processing growth of 14.3% and the net impact of pricing changes of approximately 3 percentage points 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.

Total operating expenses increased 15.3%, to $1.4 billion, for the six-month period compared to the same period in 2010. Excluding currency fluctuations, total operating expenses increased 13.5%.

Operating margin was 54.3% for the six months ending June 30, 2011, up from 53.0% in the first half of 2010.

Total other income was $7 million for the six-month period versus other expense of $9 million for the same period in 2010. This change was primarily driven by a decrease in interest expense due to lower interest accretion related to litigation settlements and lower interest on uncertain tax positions.

MasterCard's effective tax rate was 32.3% in the six months ended June 30, 2011, versus a rate of 35.1% in the comparable period in 2010. This decrease was primarily due to a more favorable geographic mix of earnings in 2011.

Second-Quarter Financial Results Conference Call Details

At 9:00 a.m. ET today, the company will host a conference call to discuss its second-quarter financial results.

The dial-in information for this call is 800-299-9630 (within the U.S.) and 617-786-2904 (outside the U.S.) and the passcode is 14526215. A replay of the call will be available for one week following the meeting. The replay can be accessed by dialing 888-286-8010 (within the U.S.) and 617-801-6888 (outside the U.S.) and using passcode 71099631.

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 http://www.mastercard.com.

About MasterCard Incorporated

MasterCard (NYSE: MA) 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. Learn more at mastercard.com.

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 contributions to growth from portfolio conversions and new processing relationships, as well as continued work on agreements and commercial relationships in areas such as mobile and e-Commerce.

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, 2010, the company's Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that have been filed with the SEC during 2011, 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
June 30,

Six Months Ended
June 30,

2011 2010 2011 2010
(in millions, except per share data)
Revenues, net $ 1,667 $ 1,365 $ 3,168 $ 2,673
Operating Expenses
General and administrative 540 433 1,034 891
Advertising and marketing 193 180 322 295
Depreciation and amortization 49 35 91 70
Total operating expenses 782 648 1,447 1,256
Operating income 885 717 1,721 1,417
Other Income (Expense)
Investment income 11 13 23 23
Interest expense (2 ) (17 ) (12 ) (32 )
Other income (expense), net (2 ) - (4 ) -
Total other income (expense) 7 (4 ) 7 (9 )
Income before income taxes 892 713 1,728 1,408
Income tax expense 284 255 558 495
Net income 608 458 1,170 913
Income attributable to non-controlling interests - - - -
Net Income Attributable to MasterCard $ 608 $ 458 $ 1,170 $ 913
Basic Earnings per Share $ 4.77 $ 3.50 $ 9.08 $ 6.97
Basic Weighted Average Shares Outstanding 127 131 129 131
Diluted Earnings per Share $ 4.76 $ 3.49 $ 9.05 $ 6.95
Diluted Weighted Average Shares Outstanding 128 131 129 131
MASTERCARD INCORPORATED
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
June 30, December 31,
2011 2010
(in millions, except share data)
ASSETS
Cash and cash equivalents $ 2,764 $ 3,067
Investment securities available-for-sale, at fair value 840 831
Investment securities held-to-maturity - 300
Accounts receivable 713 650
Settlement due from customers 483 497
Restricted security deposits held for customers 608 493
Prepaid expenses 401 315
Deferred income taxes 134 216
Other current assets 68 85
Total Current Assets 6,011 6,454
Property, plant and equipment, at cost, net of accumulated depreciation 454 439
Deferred income taxes 23 5
Goodwill 1,068 677
Other intangible assets, net of accumulated amortization 700 530
Auction rate securities available-for-sale, at fair value 81 106
Investment securities held-to-maturity 36 36
Prepaid expenses 373 365
Other assets 279 225
Total Assets $ 9,025 $ 8,837
LIABILITIES AND EQUITY
Accounts payable $ 336 $ 272
Settlement due to customers 551 636
Restricted security deposits held for customers 608 493
Obligations under litigation settlements 8 298
Accrued expenses 1,280 1,315
Other current liabilities 181 129
Total Current Liabilities 2,964 3,143
Deferred income taxes 130 74
Obligations under litigation settlements - 4
Other liabilities 450 400
Total Liabilities 3,544 3,621
Commitments and Contingencies
Stockholders' Equity
Class A common stock, $.0001 par value; authorized 3,000,000,000 shares, 131,431,450 and
129,436,818 shares issued and 120,605,530 and 122,696,228 outstanding, respectively - -
Class B common stock, $.0001 par value; authorized 1,200,000,000 shares, 6,523,961 and
8,202,380 issued and outstanding, respectively - -
Additional paid-in-capital 3,465 3,445
Class A treasury stock, at cost, 10,825,920 and 6,740,590 shares, respectively (2,289 ) (1,250 )
Retained earnings 4,047 2,915
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustments 253 105
Defined benefit pension and other postretirement plans, net of tax (12 ) (12 )
Investment securities available-for-sale, net of tax 6 2
Total accumulated other comprehensive income 247 95
Total Stockholders' Equity 5,470 5,205
Non-controlling interests 11 11
Total Equity 5,481 5,216
Total Liabilities and Equity $ 9,025 $ 8,837
MASTERCARD INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)

Six Months Ended
June 30,

2011 2010
(in millions)
Operating Activities
Net income $ 1,170 $ 913
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 91 70
Share based payments 36 31
Stock units withheld for taxes (32 ) (124 )
Tax benefit for share based compensation (10 ) (89 )
Accretion of imputed interest on litigation settlements 5 21
Deferred income taxes 94 110
Other 8 6
Changes in operating assets and liabilities:
Accounts receivable (22 ) (12 )
Income taxes receivable - (14 )
Settlement due from customers 42 (1 )
Prepaid expenses (73 ) (68 )
Obligations under litigation settlements (300 ) (300 )
Accounts payable 34 (38 )
Settlement due to customers (127 ) 38
Accrued expenses (84 ) (109 )
Net change in other assets and liabilities 61 4
Net cash provided by operating activities 893 438
Investing Activities
Acquisition of business, net of cash acquired (460 ) -
Purchases of property, plant and equipment (35 ) (25 )
Capitalized software (37 ) (40 )
Purchases of investment securities available-for-sale (39 ) (68 )
Proceeds from sales of investment securities available-for-sale 30 56
Proceeds from maturities of investment securities available-for-sale 28 60
Proceeds from maturities of investment securities held-to-maturity 301 -
Investment in nonmarketable equity investments (2 ) (3 )
Net cash used in investing activities (214 ) (20 )
Financing Activities
Purchases of treasury stock (1,041 ) -
Payment of debt (21 ) -
Dividends paid (39 ) (39 )
Tax benefit for share based compensation 10 89
Cash proceeds from exercise of stock options 8 9
Net cash (used in) provided by financing activities (1,083 ) 59
Effect of exchange rate changes on cash and cash equivalents 101 (209 )
Net (decrease) increase in cash and cash equivalents (303 ) 268
Cash and cash equivalents - beginning of period 3,067 2,055
Cash and cash equivalents - end of period $ 2,764 $ 2,323

MASTERCARD INCORPORATED OPERATING PERFORMANCE

For the 3 Months ended June 30, 2011
All MasterCard Credit, GDV Growth Growth Purchase

Volume

Growth Purchase

Trans.

Cash

Volume

Growth Cash

Trans.

Accounts Cards Acceptance

Locations

Charge and Debit Programs (Bil.) (USD) (Local) (Bil.) (Local) (Mil.) (Bil.) (Local) (Mil.) (Mil.) (Mil.) (Mil.)
APMEA $196 36.3% 24.7% $132 27.2% 1,395 $63 19.6% 442 287 313 9.5
Canada 31 15.0% 8.1% 28 10.3% 293 3 -9.0% 5 39 48 0.9
Europe 249 30.0% 16.7% 181 14.1% 2,226 67 24.2% 387 209 223 9.2
Latin America

69

34.6% 24.5%

40

28.0%

662

29

19.9%

170

106

130

4.4

Worldwide less United States 544 31.8% 19.9% 381 19.4% 4,576 162 20.8% 1,004 641 714 24.0
United States

268

9.9% 9.9%

227

11.3%

3,988

41

2.5%

270

271

303

8.7

Worldwide 811 23.6% 16.4% 608 16.3% 8,564 203 16.6% 1,274 912 1,016 32.7
MasterCard Credit and Charge Programs
Worldwide less United States 380 28.0% 16.5% 323 18.1% 3,598 57 8.3% 245 459 522
United States

137

5.3% 5.3%

129

6.1%

1,523

9

-4.7%

8

146

173

Worldwide 517 21.1% 13.3% 452 14.4% 5,120 65 6.4% 252 605 695
MasterCard Debit Programs
Worldwide less United States 164 41.4% 28.5% 58 27.8% 978 106 28.9% 759 181 192
United States

130

15.1% 15.1%

98

19.1%

2,465

32

4.6%

262

126

129

Worldwide 294 28.4% 22.2% 156 22.2% 3,444 138 22.2% 1,021 307 321
For the 6 Months ended June 30, 2011
All MasterCard Credit, GDV Growth Growth Purchase

Volume

Growth Purchase

Trans.

Cash

Volume

Growth Cash

Trans.

Accounts Cards
Charge and Debit Programs (Bil.) (USD) (Local) (Bil.) (Local) (Mil.) (Bil.) (Local) (Mil.) (Mil.) (Mil.)
APMEA $374 31.9% 22.5% $252 24.5% 2,690 $122 18.5% 850 287 313
Canada 57 13.8% 7.3% 51 8.8% 550 6 -4.0% 10 39 48
Europe 461 22.6% 15.8% 339 13.4% 4,239 123 22.8% 724 209 223
Latin America

131

30.9% 22.3%

76

26.6%

1,267

55

16.9%

333

106

130

Worldwide less United States 1,024 26.4% 18.4% 718 18.1% 8,746 305 19.3% 1,917 641 714
United States

516

7.9% 7.9%

435

9.4%

7,633

81

0.6%

523

271

303

Worldwide 1,539 19.5% 14.7% 1,153 14.6% 16,380 386 14.8% 2,440 912 1,016
MasterCard Credit and Charge Programs
Worldwide less United States 716 22.3% 14.6% 610 16.4% 6,884 106 5.2% 460 459 522
United States

260

5.1% 5.1%

244

5.5%

2,892

16

-0.4%

14

146

173

Worldwide 976 17.2% 11.9% 853 13.1% 9,776 122 4.4% 475 605 695
MasterCard Debit Programs
Worldwide less United States 308 36.9% 28.4% 108 28.1% 1,862 199 28.5% 1,457 181 192
United States

256

10.9% 10.9%

191

14.8%

4,741

65

0.8%

509

126

129

Worldwide 564 23.7% 19.8% 300 19.3% 6,603 264 20.4% 1,966 307 321
For the 3 Months ended June 30, 2010
All MasterCard Credit, GDV Growth Growth Purchase

Volume

Growth Purchase

Trans.

Cash

Volume

Growth Cash

Trans.

Accounts Cards
Charge and Debit Programs (Bil.) (USD) (Local) (Bil.) (Local) (Mil.) (Bil.) (Local) (Mil.) (Mil.) (Mil.)
APMEA $144 26.2% 17.9% $94 14.5% 1,174 $49 24.9% 364 259 281
Canada 27 17.2% 3.2% 24 4.7% 268 3 -6.9% 5 38 46
Europe 191 9.6% 13.7% 143 13.4% 1,934 48 14.7% 318 188 202
Latin America

51

22.3% 15.7%

29

20.8%

527

22

9.7%

157

103

125

Worldwide less United States 413 17.0% 14.6% 289 13.7% 3,903 123 16.9% 843 587 654
United States

243

-0.3% -0.3%

204

0.7%

3,586

40

-5.4%

257

255

288

Worldwide 656 9.9% 8.6% 493 7.9% 7,489 163 10.5% 1,101 843 942
MasterCard Credit and Charge Programs
Worldwide less United States 297 12.5% 10.0% 249 11.9% 3,146 48 0.9% 233 445 503
United States

130

-1.4% -1.4%

121

1.1%

1,475

9

-26.1%

7

143

172

Worldwide 427 7.9% 6.2% 370 8.1% 4,622 57 -4.6% 240 589 675
MasterCard Debit Programs
Worldwide less United States 116 30.1% 28.5% 40 26.1% 757 76 29.9% 610 142 151
United States

113

0.9% 0.9%

82

0.1%

2,111

31

3.0%

250

112

115

Worldwide 229 13.8% 13.2% 123 7.4% 2,867 107 20.7% 860 254 266
For the 6 Months ended June 30, 2010
All MasterCard Credit, GDV Growth Growth Purchase

Volume

Growth Purchase

Trans.

Cash

Volume

Growth Cash

Trans.

Accounts Cards
Charge and Debit Programs (Bil.) (USD) (Local) (Bil.) (Local) (Mil.) (Bil.) (Local) (Mil.) (Mil.) (Mil.)
APMEA $284 31.2% 19.9% $187 16.8% 2,286 $97 26.2% 708 259 281
Canada 50 19.5% 2.6% 44 4.6% 509 6 -10.4% 10 38 46
Europe 376 15.0% 12.9% 282 13.3% 3,695 94 11.9% 599 188 202
Latin America

100

25.9% 15.9%

56

20.7%

1,015

44

10.3%

309

103

125

Worldwide less United States 810 21.8% 14.9% 569 14.4% 7,505 241 16.2% 1,626 587 654
United States

478

-0.7% -0.7%

397

0.8%

6,993

81

-7.4%

513

255

288

Worldwide 1,288 12.4% 8.6% 966 8.4% 14,498 322 9.2% 2,139 843 942
MasterCard Credit and Charge Programs
Worldwide less United States 585 16.4% 9.4% 490 12.0% 6,075 95 -2.2% 455 445 503
United States

247

-4.6% -4.6%

231

-0.9%

2,808

16

-37.1%

14

143

172

Worldwide 832 9.3% 4.9% 721 7.5% 8,882 111 -9.5% 469 589 675
MasterCard Debit Programs
Worldwide less United States 225 38.7% 32.1% 79 31.6% 1,431 146 32.4% 1,171 142 151
United States

231

3.9% 3.9%

166

3.4%

4,185

64

5.2%

499

112

115

Worldwide 455 18.6% 16.1% 245 11.0% 5,616 210 22.7% 1,670 254 266
APMEA = Asia Pacific / Middle East / Africa
Note that the figures in the preceding tables may not sum due to rounding; growth represents change from the comparable year-ago period

Footnote

The tables set forth the gross dollar volume ("GDV"), purchase volume, cash volume and the number of purchase transactions, cash transactions, accounts, cards and acceptance locations on a regional and global basis for MasterCard(R)-branded and MasterCard Electronic(TM)-branded cards. Growth rates over prior periods are provided for volume-based data.

Debit transactions on Maestro(R) and Cirrus(R)-branded cards, Mondex(R) transactions and transactions involving brands other than MasterCard are not included in the preceding tables.

For purposes of the table: GDV represents purchase volume plus cash volume and includes the impact of balance transfers and convenience checks; "purchase volume" means the aggregate dollar amount of purchases made with MasterCard-branded cards for the relevant period; and "cash volume" means the aggregate dollar amount of cash disbursements obtained with MasterCard-branded cards for the relevant period. The number of cards includes virtual cards, which are MasterCard-branded payment accounts in connection with which functional cards are not generally issued. Acceptance locations include merchant locations, ATMs and other locations where cash may be obtained.

The MasterCard payment product is comprised of credit, charge and debit programs, and data relating to each type of program is included in the tables. Debit programs include MasterCard-branded debit programs where the primary means of cardholder validation at the point of sale is for cardholders either to sign a sales receiptor enter a PIN. The tables include information with respect to transactions involving MasterCard-branded cards that are not processed by MasterCard and transactions for which MasterCard does not earn significant revenues.

Information denominated in U.S. dollars is calculated by applying an established U.S. dollar/local currency exchange rate for each local currency in which MasterCard volumes are reported. These exchange rates are calculated on a quarterly basis using the average exchange rate for each quarter. MasterCard reports period-over-period rates of change in purchase volume and cash volume on the basis of local currency information, in order to eliminate the impact of changes in the value of foreign currencies against the U.S. dollar in calculating such rates of change.

The data set forth in the GDV, purchase volume, purchase transactions, cash volume and cash transactions columns is provided by MasterCard customers and is subject to verification by MasterCard and partial cross-checking against information provided by MasterCard's transaction processing systems. The data set forth in the accounts and cards columns is provided by MasterCard customers and is subject to certain limited verification by MasterCard. A portion of the data set forth in the accounts and cards columns reflects the impact of routine portfolio changes among customers and other practices that may lead to over counting of the underlying data in certain circumstances. In order to provide a true indication of how broadly our cards can be used, MasterCard seeks to provide the most accurate acceptance figures possible and to maintain that MasterCard acceptance is unsurpassed worldwide by periodically validating our results with third parties. The data set forth in the acceptance locations column is derived through a proprietary methodology designed to minimize the impact of multiple acquiring in certain markets. This data is based on information provided by our customers and other third parties and is subject to certain limited verification by MasterCard and partial cross-checking against information provided by MasterCard's transaction processing systems. All data is subject to revision and amendment by MasterCard's customers subsequent to the date of its release.

Performance information for prior periods can be found in the "Investor Relations" section of MasterCard's website at http://www.mastercard.com.

SOURCE: MasterCard Incorporated

MasterCard Incorporated
Investor Relations:
Barbara Gasper, 914-249-4565
investor_relations@mastercard.com
or
Media Relations:
Jennifer Stalzer, 914-249-5325
jennifer_stalzer@mastercard.com