What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-04-29 compared with 2021-01-29 · 109 added, 55 removed, 236 unchanged (41% of the section changed)

26 unchanged sentences

Three Months Ended

March 31, Six Months Ended

(in millions, except percentages and per share data)

10 unchanged sentences

COVID-19 continues to have an impact globally.

While we have been actively monitoring the worldwide spread of COVID-19, the extent to which COVID-19 will ultimately impact our business remains difficult to predict.

While we have been actively monitoring the worldwide spread of COVID-19, the extent to which COVID-19 continues to impact our business remains difficult to predict.

Our priority remains the safety of our employees, clients and the communities in which we live and operate.

1 unchanged sentence

We continue to remain in close and regular contact with our employees, clients, partners and with governments globally to help them navigate these challenging times.

Revenues in the first quarter of fiscal 2021 were at varying stages of recovery.

During the quarter, there was year-over-year growth in payments volume and processed transactions.

While cross-border volume did improve during the quarter, it remains depressed as the majority of borders remain closed.

Although we have taken measures to modify our business practices and reduce operating expenses, including scaling back hiring plans, restricting travel, lowering marketing spend and the use of external resources, the impact that COVID-19 will have on our business remains difficult to predict due to numerous uncertainties, including the transmissibility, severity and duration of the outbreak, the effectiveness of social distancing measures or actions that are voluntarily adopted by the public or required by governments or public health authorities, the development and availability of effective treatments or vaccines, and the impact to our employees and our operations, the business of our clients, supplier and business partners, and other factors identified in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30 2020, filed with the SEC on November 19, 2020.

Revenues in the second quarter of fiscal 2021 were at varying stages of recovery.

During the quarter, there was continued year-over-year growth in payments volume and processed transactions.

Cross-border volume also continued to improve during the quarter, despite many borders remaining closed.

Although we have taken measures to modify our business practices and reduce operating expenses, including scaling back hiring plans, restricting travel and the use of external resources, the impact that COVID-19 continues to have on our business remains difficult to predict due to numerous uncertainties, including the transmissibility, severity and duration of the outbreak, new variants of the virus, the effectiveness of social distancing measures or actions that are voluntarily adopted by the public or required by governments or public health authorities, the development, availability and rollout of effective treatments or vaccines, the timing of border openings, and the impact to our employees and our operations, the business of our clients, supplier and business partners, and other factors identified in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30 2020, filed with the SEC on November 19, 2020.

We will continue to evaluate the nature and extent of the impact to our business.

Highlights for the first quarter of fiscal 2021.

Net revenues for the three months ended December 31, 2020 were $5.7 billion, and decreased 6% over the prior-year comparable period, driven by the year-over-year changes in cross-border volume, which were impacted by the spread of COVID-19 globally starting in the latter part of March 2020, and higher client incentives.

The decrease in net revenues were partially offset by growth in nominal payments volume and processed transactions.

Exchange rate movements in the three months ended December 31, 2020, as partially mitigated by our hedging program, positively impacted our net revenues by approximately one half of a percentage point.

Total operating expenses for the three months ended December 31, 2020 were $1.8 billion, and decreased 10% over the prior-year comparable period, on both a GAAP and non-GAAP basis, driven by our overall cost reduction strategy.

Highlights for the first half of fiscal 2021.

Net revenues for the three and six months ended March 31, 2021 were $5.7 billion and $11.4 billion, respectively, and decreased 2% and 4% over the prior-year comparable periods, respectively.

The year-over-year changes are primarily due to cross-border volume, which were impacted by the spread of COVID-19 globally starting in March 2020 and higher client incentives, partially offset by growth in nominal payments volume and processed transactions.

Exchange rate movements in the three and six months ended March 31, 2021, as partially mitigated by our hedging program, positively impacted our net revenues by approximately one half of a percentage point.

Total operating expenses for the three months ended March 31, 2021 were $2.1 billion on a GAAP basis and increased 11% over the prior-year comparable period, primarily driven by higher personnel expenses and higher general and administrative expenses, partially offset by lower marketing expenses and lower professional fees.

Total operating expenses for the six months ended March 31, 2021 were $4.0 billion on a GAAP basis and increased 1% over the prior-year comparable period, primarily driven by higher personnel expenses, partially offset by lower marketing expenses, lower professional fees and lower general and administrative expenses.

Total operating expenses for the three months ended March 31, 2021 were $2.0 billion on a non-GAAP basis and increased 3% over the prior-year comparable period, primarily due to higher personnel expenses, partially offset by lower general and administrative expenses, lower marketing expenses and lower professional fees.

Total operating expenses for the six months ended March 31, 2021 were $3.8 billion on a non-GAAP basis and decreased 3% over the prior-year comparable period, primarily driven by lower general and administrative expenses, lower marketing expenses and lower professional fees, partially offset by higher personnel expenses.

Non-GAAP financial results.

We use non-GAAP financial measures of our performance which exclude certain items which we believe are not representative of our continuing operations, as they may be non-recurring or have no cash impact, and may distort our longer-term operating trends.

We consider non-GAAP measures useful to

investors because they provide greater transparency into management’s view and assessment of our ongoing operating performance.

We consider non-GAAP measures useful to investors because they provide greater transparency into management’s view and assessment of our ongoing operating performance.

• Gains and losses on equity investments.

11 unchanged sentences

We have excluded these amounts and the related tax impacts as the expenses are recognized for a limited duration and do not reflect the underlying performance of our business.

• Indirect taxes.

During the three and six months ended March 31, 2021, we recognized a one-time charge within general and administrative expense of $152 million, before tax.

Net of the related income tax benefit of $40 million, determined by applying applicable tax rates, non-GAAP net income increased by $112 million.

This charge is to record our estimate of probable additional indirect taxes, related to prior periods, for which we could be liable as a result of certain changes in applicable law.

This one-time charge is not representative of our ongoing operations.

Non-GAAP operating expense, non-operating income (expense), income tax provision, effective income tax rate, net income and diluted earnings per share should not be relied upon as substitutes for, or considered in isolation from, measures calculated in accordance with U.S.

The following tables reconcile our as-reported financial measures, calculated in accordance with U.S.

GAAP, to our respective non-GAAP financial measures for the three months ended December 31, 2020 and 2019.

Three Months Ended December 31, 2020

GAAP, to our respective non-GAAP financial measures for the three and six months ended March 31, 2021 and 2020.

Three Months Ended March 31, 2021

Operating Expenses Non-operating Income (Expense) Income Tax Provision Effective Income Tax Rate (1)

Net Income Diluted Earnings Per Share (1)

Income Diluted Earnings Per Share (1)

(in millions, except percentages and per share data)

3 unchanged sentences

Acquisition-related costs (5) — 1 4 —

Indirect taxes (152) — 40 112 0.05

Non-GAAP $ 1,978 $ (109) $ 611 16.8 % $ 3,031 $ 1.38

Three Months Ended December 31, 2019

Six Months Ended March 31, 2021

Operating Expenses Non-operating Income (Expense) Income Tax Provision Effective Income Tax Rate (1)

Net Income Diluted Earnings Per Share (1)

Income Diluted Earnings Per Share (1)

(in millions, except percentages and per share data)

3 unchanged sentences

Acquisition-related costs (8) — 2 6 —

Indirect taxes (152) — 40 112 0.05

Non-GAAP $ 3,806 $ (221) $ 1,233 16.7 % $ 6,156 $ 2.80

Three Months Ended March 31, 2020

Operating Expenses Non-operating Income (Expense) Income Tax Provision Effective Income Tax Rate (1)

Income Diluted Earnings Per Share (1)

(in millions, except percentages and per share data)

As reported $ 1,930 $ (95) $ 745 19.4 % $ 3,084 $ 1.38

(Gains) Losses on equity investments, net — 2 — 2 —

Amortization of acquired intangible assets (11) — 2 9 —

Acquisition-related costs (5) — 2 3 —

Non-GAAP $ 1,914 $ (93) $ 749 19.5 % $ 3,098 $ 1.39

Six Months Ended March 31, 2020

Operating Expenses Non-operating Income (Expense) Income Tax Provision Effective Income Tax Rate (1)

Income Diluted Earnings Per Share (1)

(in millions, except percentages and per share data)

As reported $ 3,968 $ (137) $ 1,447 18.5 % $ 6,356 $ 2.85

(Gains) Losses on equity investments, net — (11) (3) (8) —

Amortization of acquired intangible assets (22) — 5 17 0.01

Acquisition-related costs (7) — 2 5 —

Non-GAAP $ 3,939 $ (148) $ 1,451 18.6 % $ 6,370 $ 2.85

(1) Figures in the table may not recalculate exactly due to rounding.

1 unchanged sentence

Common stock repurchases.

In January 2020, our board of directors authorized a $9.5 billion share repurchase program (the “January 2020 Program”).

During the three months ended December 31, 2020, we repurchased 9 million shares of our class A common stock in the open market for $1.8 billion.

As of December 31, 2020, our January 2020 Program had remaining authorized funds of $3.7 billion.

In January 2021, our board of directors authorized an additional $8.0 billion share repurchase program.

During the three months ended March 31, 2021, we repurchased 8 million shares of our class A common stock in the open market for $1.7 billion.

As of March 31, 2021, our repurchase programs had remaining authorized funds of $10.0 billion.

See Note 9—Stockholders’ Equity to our unaudited consolidated financial statements.

On January 12, 2021, Visa and Plaid Inc.

mutually terminated their merger agreement announced on January 13, 2020.

See Note 2—Acquisitions and Note 13—Legal Matters to our unaudited consolidated financial statements.

Payments volume and processed transactions.

1 unchanged sentence

Nominal payments volume growth in the U.S.

for the three months ended September 30, 2020 (1) was 7%, while nominal international payments volume growth was negatively impacted by movements in U.S.

dollar exchange rates.

On a constant-dollar basis, which excludes the impact of exchange rate movements, our international payments volume growth for the three months ended September 30, 2020 was 1%.

for the three and six months ended December 31, 2020 (1) was 8% for both periods, driven mainly by consumer debit.

On a constant-dollar basis, which excludes the impact of exchange rate movements, our international payments volume growth for the three and six months ended December 31, 2020 was 2% for both periods.

Growth in processed transactions reflects the ongoing worldwide shift to electronic payments, partially offset by the impact of COVID-19.

The following table presents nominal payments and cash volume:

United States International Visa Inc.

Three Months Ended September 30, (1)

International Visa Inc.

Three Months Ended December 31, (1)

2020 2019 % Change (2)

14 unchanged sentences

$ 1,283 $ 1,199 7 % $ 1,835 $ 1,880 (2) % $ 3,117 $ 3,079 1 %

International Visa Inc.

Six Months Ended December 31, (1)

2020 2019 % Change (2)

(in billions, except percentages)

Nominal payments volume

Consumer credit $ 791 $ 829 (5) % $ 1,193 $ 1,307 (9) % $ 1,984 $ 2,136 (7) %

Consumer debit (3)

1,111 905 23 % 1,197 1,038 15 % 2,308 1,943 19 %

Commercial (4)

335 342 (2) % 197 208 (5) % 532 550 (3) %

Total nominal payments volume (2)

$ 2,237 $ 2,075 8 % $ 2,587 $ 2,553 1 % $ 4,824 $ 4,628 4 %

Cash volume 308 292 5 % 980 1,141 (14) % 1,288 1,433 (10) %

Total nominal volume (2),(5)

$ 2,544 $ 2,367 7 % $ 3,568 $ 3,694 (3) % $ 6,112 $ 6,061 1 %

The following table presents nominal and constant payments and cash volume growth:

International Visa Inc.

Ended September 30,

International Visa Inc.

Ended December 31,

Nominal Constant (6)

Payments volume growth

10 unchanged sentences

(1) Service revenues in a given quarter are assessed based on nominal payments volume in the prior quarter.

Therefore, service revenues reported for the three months ended December 31, 2020 and 2019 were based on nominal payments volume reported by our financial institution clients for the three months ended September 30, 2020 and 2019, respectively.

Therefore, service revenues reported for the three and six months ended March 31, 2021 and 2020, respectively, were based on nominal payments volume reported by our financial institution clients for the three and six months ended December 31, 2020 and 2019, respectively.

(2) Figures in the table may not recalculate exactly due to rounding.

11 unchanged sentences

Three Months Ended

March 31, Six Months Ended

(in millions, except percentages)

6 unchanged sentences

Three Months Ended

March 31, Six Months Ended

(in millions, except percentages)

4 unchanged sentences

Percentage changes are calculated based on unrounded numbers.

Net revenues decreased primarily due to the year-over-year changes in cross-border volume, which were impacted by COVID-19 starting in the latter part of March 2020, and higher client incentives.

Net revenues decreased during the three and six-month comparable periods primarily due to the year-over-year changes in cross-border volume, which were impacted by COVID-19 starting in March 2020 and higher client incentives.

The decrease in net revenues was partially offset by growth in nominal payments volume and processed transactions.

1 unchanged sentence

dollar as payments volume and related revenues denominated in local currencies are converted to U.S.

The following table sets forth the components of our net revenues:

Three Months Ended

March 31, Six Months Ended

(in millions, except percentages)

8 unchanged sentences

Percentage changes are calculated based on unrounded numbers.

• Service revenues increased primarily due to 4% growth in nominal payments volume.

• Service revenues increased primarily due to 5% and 4% growth in nominal payments volume during the three and six-month comparable periods, respectively.

Service revenues were also impacted by select pricing modifications and business mix.

• Data processing revenues increased mainly due to overall growth in processed transactions of 4% and growth in value added services.

• International transaction revenues decreased due to a 32% decline in nominal cross-border volumes, excluding transactions within Europe, as COVID-19 spread globally starting in the latter part of March 2020.

• Data processing revenues increased mainly due to overall growth in processed transactions of 8% and 6% during the three and six-month comparable periods, respectively, growth in value added services and business mix.

• International transaction revenues driven by nominal cross-border volumes, excluding transactions within Europe, declined 19% and 26% during the three and six-month comparable periods, respectively, as COVID-19 spread globally starting in March 2020.

International transaction revenues were also impacted by fluctuations in the volatility of a broad range of currencies and business mix.

• Other revenues increased primarily due to higher consulting and marketing related fees and other value added services revenues.

• Client incentives increased in correlation with the increase in payments volumes.

• Client incentives increased in correlation with the increase in payments volumes during the three and six-month comparable periods.

The amount of client incentives we record in future periods will vary based on changes in performance expectations, actual client performance, amendments to existing contracts or execution of new contracts.

2 unchanged sentences

Three Months Ended

March 31, Six Months Ended

(in millions, except percentages)

11 unchanged sentences

Percentage changes are calculated based on unrounded numbers.

• Marketing expenses decreased reflecting our overall cost reduction strategy.

• Professional fees decreased reflecting our overall cost reduction strategy.

• Personnel expenses increased primarily due to increases in headcount and higher incentive compensation, reflecting our strategy to invest in future growth.

• Marketing expenses decreased primarily due to delays in spending to later in fiscal 2021.

• Professional fees decreased reflecting non-recurring expenses in the prior year and delays in spending to later in fiscal 2021.

• Depreciation and amortization expenses increased primarily due to additional depreciation and amortization from our on-going investments, including acquisitions.

• General and administrative expenses decreased primarily due to travel restrictions, lower product enhancements costs and our overall cost reduction strategy.

• General and administrative expenses increased in the three months ended March 31, 2021, as a result of a one-time charge to record our estimate of probable additional indirect taxes, related to prior periods, for which we could be liable as a result of certain changes in applicable law, partially offset by lower travel expenses and lower usage of travel related product benefits.

In the six months ended March 31, 2021, expenses decreased due to lower travel expenses and lower usage of travel related product benefits, partially offset by the one-time charge of indirect taxes.

Non-operating Income (Expense)

1 unchanged sentence

Three Months Ended

March 31, Six Months Ended

(in millions, except percentages)

5 unchanged sentences

Percentage changes are calculated based on unrounded numbers.

• Interest expense, net increased primarily as a result of the issuance of debt in fiscal 2020.

• Investment income and other decreased primarily due to lower interest income on our cash and investments.

• Interest expense, net increased in the three and six months ended March 31, 2021 primarily as a result of the issuance of debt in fiscal 2020, offset by a discrete tax benefit recognized during the three months ended March 31, 2021.

• Investment income and other increased in the three and six months ended March 31, 2021 primarily due to higher gains on our equity investments, offset by lower interest income on our cash and investments.

Effective Income Tax Rate

1 unchanged sentence

Three Months Ended

March 31, Six Months Ended

Change 2021 2020 %

Effective income tax rate 17 % 19 % (2) % 17 % 19 % (2) %

The difference in the effective tax rates between the three months ended December 31, 2020 and 2019 was primarily due to an $81 million tax benefit recognized during the three months ended December 31, 2020 as a result of the conclusion of audits by taxing authorities.

The decrease in the effective tax rate was primarily due to $66 million and $147 million of tax benefits recognized during the three and six months ended March 31, 2021, respectively, as a result of the conclusion of audits by taxing authorities.

Liquidity and Capital Resources

1 unchanged sentence

The following table summarizes our cash flow activity for the periods presented:

Three Months Ended

Six Months Ended

(in millions)

7 unchanged sentences

Operating activities.

Cash provided by operating activities for the three months ended December 31, 2020 was lower than the prior-year comparable period due to prior-year receipt of the $467 million takedown payment associated with the Interchange Multidistrict Litigation, partially offset by lower client incentives and lower cash paid for taxes.

Cash provided by operating activities for the six months ended March 31, 2021 was higher than the prior-year comparable period primarily due to lower client incentive payments and the timing and impact of COVID-19 on settlement in the prior-year period.

Investing activities.

Cash provided by investing activities for the three months ended December 31, 2020 increased primarily due to higher maturities and sales of investment securities, partially offset by higher purchases of investment securities as compared to the prior-year period.

Cash provided by investing activities for the six months ended March 31, 2021 decreased primarily due to higher purchases of investment securities, partially offset by higher sales and maturities of investment securities as compared to the prior-year period.

Financing activities.

Cash used in financing activities for the three months ended December 31, 2020 was higher than the prior-year comparable period primarily due to the $3.0 billion principal debt payment upon maturity of our senior notes in December 2020 and higher dividends paid, partially offset by lower share repurchases.

Cash used in financing activities for the six months ended March 31, 2021 was higher than the prior-year comparable period primarily due to the $3.0 billion principal debt payment upon maturity of our senior notes in December 2020 and the absence of the $1.0 billion commercial paper issued in the prior year, partially offset by lower share repurchases.

See Note 7—Debt and Note 9—Stockholders’ Equity to our unaudited consolidated financial statements .

7 unchanged sentences

Common stock repurchases.

During the three months ended December 31, 2020, we repurchased 9 million shares of our class A common stock for $1.8 billion.

As of December 31, 2020, our January 2020 Program had remaining authorized funds of $3.7 billion.

During the six months ended March 31, 2021, we repurchased 17 million shares of our class A common stock for $3.5 billion.

As of March 31, 2021, our repurchase programs had remaining authorized funds of $10.0 billion.

See Note 9—Stockholders’ Equity to our unaudited consolidated financial statements.

During the three months ended December 31, 2020, we declared and paid $703 million in dividends to holders of our common and preferred stock.

On January 26, 2021, our board of directors declared a cash dividend in the amount of $0.32 per share of class A common stock (determined in the case of class B and C common stock and series A, UK&I and Europe preferred stock on an as-converted basis), which will be paid on March 1, 2021, to all holders of record as of February 12, 2021.

During the six months ended March 31, 2021, we declared and paid $1.4 billion in dividends to holders of our common and preferred stock.

On April 23, 2021, our board of directors declared a cash dividend in the amount of $0.32 per share of class A common stock (determined in the case of class B and C common stock and series A, UK&I and Europe preferred stock on an as-converted basis), which will be paid on June 1, 2021, to all holders of record as of May 14, 2021.

See Note 9—Stockholders’ Equity to our unaudited consolidated financial statements.

2 unchanged sentences

Senior notes .

In December 2020, a principal payment of $3.0 billion was made on our fixed-rate senior notes issued in December 2015.

During the six months ended March 31, 2021, we repaid $3.0 billion of principal upon maturity of our senior notes due December 14, 2020.

See Note 7—Debt to our unaudited consolidated financial statements.

14 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis