What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-04-28 · 98 added, 83 removed, 319 unchanged (36% of the section changed)

27 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages and per share data)

18 unchanged sentences

With respect to cross-border activities, all transactions initiated with Visa cards issued by financial institutions outside Russia no longer work within Russia, and all transactions on cards issued in Russia no longer work outside the country.

Furthermore, we have deconsolidated our Russian subsidiary, as required under U.S.

For the first half of fiscal 2022 and full year fiscal 2021, total net revenues from Russia, including revenues driven by domestic as well as cross-border activities, were approximately 4% of our consolidated net revenues.

Furthermore, during the quarter ended March 31, 2022 we deconsolidated our Russian subsidiary, as required under U.S.

For the nine months ended June 30, 2022 and full year fiscal 2021, total net revenues from Russia, including revenues driven by domestic as well as cross-border activities, were approximately 3% and 4% of our consolidated net revenues, respectively.

With respect to Russia's invasion of Ukraine, our priority is ensuring the safety and security of our colleagues and their families who are directly impacted.

1 unchanged sentence

As the effects of the evolving COVID-19 pandemic continue, our priority remains the safety of our employees, clients and the communities in which we live and operate.

We are taking a phased approach to reopening our offices, with our U.S.

employees returning to offices in April 2022 in a new hybrid model of flexible work.

The ongoing effects of Russia’s invasion of Ukraine and COVID-19 are difficult to predict due to numerous uncertainties identified in Part II, Item 1A “Risk Factors” in this Form 10-Q.

We are taking a phased approach to reopening our offices, with the return to office of our U.S.

employees in April 2022 in a new hybrid model of flexible work.

The ongoing effects of Russia’s invasion of Ukraine and COVID-19 are difficult to predict due to numerous uncertainties identified in Part II, Item 1A “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 .

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

Highlights for the first half of fiscal 2022.

For the three and six months ended March 31, 2022, net revenues increased 25% over both the prior-year comparable periods, primarily due to the growth in nominal payments volume, processed transactions and nominal cross-border volume, partially offset by higher client incentives.

Net revenues were also positively impacted by our suspension of operations in Russia.

See Results of Operations — Net Revenues below for further discussion.

During the three and six months ended March 31, 2022, exchange rate

movements and our hedging program negatively impacted our net revenues growth by approximately one percentage point.

For the three and six months ended March 31, 2022, GAAP operating expenses increased 11% and 17% over the prior-year comparable periods, respectively, primarily driven by higher personnel expense reflecting our strategy to invest in future growth and expenses incurred as a result of steps taken to support our employees in Russia and Ukraine, and higher marketing expense as we lapped planned delays in spending in the prior year.

For the six months ended March 31, 2022, GAAP operating expenses also included higher litigation provision.

During the three and six months ended March 31, 2022, exchange rate movements positively impacted our operating expense growth by approximately three percentage points and two percentage points, respectively.

For the three and six months ended March 31, 2022, non-GAAP operating expenses increased 16% over both the prior-year comparable periods, primarily due to higher marketing expense as we lapped planned delays in spending in the prior year, higher personnel expense reflecting our strategy to invest in future growth and higher general and administrative expense related to the suspension of our operations in Russia and higher usage of travel related card benefits.

Highlights for the first nine months of fiscal 2022.

For the three and nine months ended June 30, 2022, net revenues increased 19% and 23% over the prior-year comparable periods, primarily due to the growth in nominal cross-border volume, nominal payments volume and processed transactions, partially offset by higher client incentives.

During the three and nine months ended June 30, 2022, exchange rate movements and our hedging

program negatively impacted our net revenues growth by approximately three percentage points and two percentage points, respectively.

For the three months ended June 30, 2022, GAAP operating expenses increased 51% over the prior-year comparable period primarily due to higher expenses for litigation provision and personnel.

For the nine months ended June 30, 2022, GAAP operating expenses increased 29% over the prior-year comparable period primarily due to higher expenses related to litigation provision and personnel.

See Results of Operations—Operating Expenses below for further discussion.

During the three and nine months ended June 30, 2022, exchange rate movements positively impacted our operating expense growth by approximately two percentage points.

For the three months ended June 30, 2022, non-GAAP operating expenses increased 15% over the prior-year comparable period primarily due to higher expenses for personnel and general and administrative.

For the nine months ended June 30, 2022, non-GAAP operating expenses increased 15% over the prior year comparable period primarily due to higher expenses related to personnel and marketing.

Senior notes.

In June 2022, we issued Euro-denominated fixed-rate senior notes in a public offering in an aggregate principal amount of €3.0 billion, with maturities ranging between 4 and 12 years.

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

Acquisitions.

4 unchanged sentences

Interchange multidistrict litigation.

During the six months ended March 31, 2022, we recorded an additional accrual of $145 million to address claims associated with the interchange multidistrict litigation.

We also deposited $250 million into the U.S.

During the nine months ended June 30, 2022, we recorded additional accruals of $861 million to address claims associated with the interchange multidistrict litigation.

We also made deposits of $850 million into the U.S.

litigation escrow account.

3 unchanged sentences

In December 2021, our board of directors authorized a $12.0 billion share repurchase program .

During the six months ended March 31, 2022, we repurchased 34 million shares of our class A common stock in the open market for $7.1 billion.

As of March 31, 2022, our repurchase program had remaining authorized funds of $9.8 billion.

During the nine months ended June 30, 2022, we repurchased 46 million shares of our class A common stock in the open market for $9.5 billion.

As of June 30, 2022, our repurchase program had remaining authorized funds of $7.3 billion.

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

12 unchanged sentences

Acquisition-related costs consist primarily of one-time transaction and integration costs associated with our business combinations.

These costs include professional fees, technology integration fees, restructuring activities and other direct costs related to the purchase and integration of

acquired entities.

These costs include professional fees, technology integration fees, restructuring activities and other direct costs related to the purchase and integration of acquired entities.

These costs also include retention equity and deferred equity compensation when they are agreed upon as part of the purchase price of the transaction but are required to be recognized as expense post-combination.

1 unchanged sentence

• Litigation provision.

During the six months ended March 31, 2022, we recorded an additional accrual to address claims associated with the interchange multidistrict litigation of $145 million, and related tax benefit of $32 million determined by applying applicable tax rates.

During the three and nine months ended June 30, 2022, we recorded additional accruals to address claims associated with the interchange multidistrict litigation of $716 million and $861 million, respectively, and related tax benefit of $159 million and $191 million, respectively, determined by applying applicable tax rates.

Under the U.S.

4 unchanged sentences

• Russia-Ukraine charges.

During the three and six months ended March 31, 2022, we recorded a loss within general and administrative expense of $35 million from the deconsolidation of our Russian subsidiary.

During the nine months ended June 30, 2022, we recorded a loss within general and administrative expense of $35 million from the deconsolidation of our Russian subsidiary.

See Note 1—Summary of Significant Accounting Policies to our unaudited consolidated financial statements.

1 unchanged sentence

We have excluded these amounts and the related tax benefit of $4 million, determined by applying applicable tax rates, as they are one-time charges and do not reflect the underlying performance of our business.

• Remeasurement of deferred tax balances.

During the three and nine months ended June 30, 2021, in connection with the UK enacted legislation on June 10, 2021 that will increase the tax rate from 19% to 25%, effective April 1, 2023, we remeasured our net deferred tax liabilities, resulting in the recognition of a non-recurring, non-cash income tax expense of $1.0 billion.

• 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, and related tax benefit of $40 million determined by applying applicable tax rates.

During the nine months ended June 30, 2021, we recognized a one-time charge within general and administrative expense of $152 million, and related tax benefit of $40 million determined by applying applicable tax rates.

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.

3 unchanged sentences

GAAP, to our respective non-GAAP financial measures:

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

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

5 unchanged sentences

Acquisition-related costs (14) — 2 12 0.01

Russia-Ukraine charges (60) — 4 56 0.03

Litigation provision (716) — 159 557 0.26

Non-GAAP $ 2,353 $ (73) $ 643 13.3 % $ 4,206 $ 1.98

Six Months Ended March 31, 2022

Nine Months Ended June 30, 2022

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

8 unchanged sentences

Non-GAAP $ 6,755 $ (316) $ 2,509 17.4 % $ 11,943 $ 5.57

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

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

5 unchanged sentences

Acquisition-related costs (5) — 1 4 —

Indirect taxes (152) — 40 112 0.05

Remeasurement of deferred tax balances — — (1,007) 1,007 0.46

Non-GAAP $ 2,048 $ (114) $ 712 17.9 % $ 3,256 $ 1.49

Six Months Ended March 31, 2021

Nine Months Ended June 30, 2021

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

5 unchanged sentences

Acquisition-related costs (13) — 3 10 —

Remeasurement of deferred tax balances — — (1,007) 1,007 0.46

Indirect taxes (152) — 40 112 0.05

11 unchanged sentences

International Visa Inc.

Three Months Ended December 31, (1)

Three Months Ended March 31, (1)

2022 2021 % Change (2)

16 unchanged sentences

International Visa Inc.

Six Months Ended December 31, (1)

Nine Months Ended March 31, (1)

2022 2021 % Change (2)

17 unchanged sentences

International Visa Inc.

Ended December 31,

Ended March 31,

Nominal Constant (7)

13 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 and six months ended March 31, 2022 and 2021, respectively, were based on nominal payments volume reported by our financial institution clients for the three and six months ended December 31, 2021 and 2020, respectively.

Therefore, service revenues reported for the three and nine months ended June 30, 2022 and 2021, respectively, were based on nominal payments volume reported by our financial institution clients for the three and nine months ended March 31, 2022 and 2021, respectively.

On occasion, previously presented volume information may be updated.

10 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages)

8 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages)

4 unchanged sentences

Percentage changes are calculated based on unrounded numbers.

Net revenues increased during the three and six-month comparable periods primarily due to the growth in nominal payments volume, processed transactions and nominal cross-border volume, partially offset by higher client incentives.

Net revenues were also positively impacted by our suspension of operations in Russia.

See further discussion below.

Net revenues increased during the three and nine-month comparable periods primarily due to the growth in nominal cross-border volume, nominal payments volume and processed transactions, partially offset by higher client incentives.

Our net revenues are impacted by the overall strengthening or weakening of the U.S.

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

During the three and six months ended March 31, 2022, exchange rate movements and our hedging program negatively impacted our net revenues growth by approximately one percentage point.

During the three and nine months ended June 30, 2022, exchange rate movements and our hedging program negatively impacted our net revenues growth by approximately three percentage points and two percentage points, respectively.

The following table presents the components of our net revenues:

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages)

8 unchanged sentences

Percentage changes are calculated based on unrounded numbers.

• Service revenues increased primarily due to 20% and 19% growth in nominal payments volume during the three and six-month comparable periods, respectively.

In addition, while we normally would have recognized revenues in fiscal third quarter based on fiscal second quarter payments volume, as a result of the suspension of our operations in Russia, this quarter we recognized revenues from our Russian clients based on fiscal second quarter payments volume.

• Data processing revenues increased primarily due to overall growth in processed transactions of 19% and 20% during the three and six-month comparable periods, respectively, partially offset by unfavorable business mix.

• International transaction revenues increased primarily due to growth in nominal cross-border volumes, excluding transactions within Europe, of 42% and 45% during the three and six-month comparable periods, respectively.

International transaction revenues also increased due to select pricing modifications and fluctuations in the volatility of a broad range of currencies, partially offset by business mix.

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

• Client incentives increased primarily due to growth in payments volume during the three and six-month comparable periods.

• Service revenues increased primarily due to 14% and 18% growth in nominal payments volume during the three and nine-month comparable periods, respectively.

For the three-month comparable period, service revenues were partially offset by our suspension of operations in Russia as we recognized revenues from fiscal third quarter, based on fiscal second quarter payments volume, in fiscal second quarter.

• Data processing revenues increased primarily due to overall growth in processed transactions of 16% and 19% during the three and nine-month comparable periods, respectively, partially offset by our suspension of operations in Russia and unfavorable currency fluctuations.

• International transaction revenues increased primarily due to growth in nominal cross-border volumes, excluding transactions within Europe, of 38% and 42% during the three and nine-month comparable periods, respectively.

International transaction revenues also increased due to volatility of a broad range of currencies and select pricing modifications.

• Other revenues increased primarily due to value added services revenues tied to marketing services, travel related card benefits, consulting revenues, other value added services and select pricing modifications.

• Client incentives increased primarily due to growth in payments volume during the three and nine-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

June 30, Nine Months Ended

(in millions, except percentages)

12 unchanged sentences

Percentage changes are calculated based on unrounded numbers.

Total operating expenses increased primarily due to the planned delay of our spend as revenue was impacted by the COVID-19 pandemic in the first half of the prior year.

Total operating expenses were also impacted by Russia’s invasion of Ukraine.

• Personnel expenses increased primarily due to higher headcount and compensation, reflecting our strategy to invest in future growth, and expenses incurred as a result of steps taken to support our employees in Russia and Ukraine.

• Marketing expenses increased as we lapped planned delays in spending in the prior year as well as higher spending in various campaigns, including the Beijing 2022 Olympics Winter Games, and client marketing .

• Network and processing expenses increased mainly due to higher continued technology and processing network investments to support growth.

• Professional fees increased primarily due to higher consulting fees as we lapped planned delays in spending in the prior year.

• General and administrative expenses decreased and was approximately flat during the three and six months ended March 31, 2022, respectively, primarily due to a one-time charge of indirect taxes in the prior year, partially offset by increases in expenses due to the suspension of our operations in Russia, deconsolidation of our Russian subsidiary and higher usage of travel related card benefits.

• Litigation provision increased during the six months ended March 31, 2022 primarily due to an additional $145 million accrual related to the U.S.

Total operating expenses increased during the three months ended June 30, 2022 primarily due to a provision for U.S.

covered litigation, partially offset by a decrease in expenses due to the suspension of our operations in Russia.

In the nine months ended June 30, 2022, expenses increased as we lapped planned delays in spending in the first half of fiscal 2021 and invested in future growth and due to the provision for U.S.

covered litigation.

• Personnel expenses increased during the three and nine months ended June 30, 2022 primarily due to higher headcount and compensation, reflecting our strategy to invest in future growth, including acquisitions.

The increase during the nine months ended June 30, 2022 also included expenses incurred as a result of steps taken to support our employees in Russia and Ukraine.

• Marketing expenses increased during the three months ended June 30, 2022 primarily in support of a number of campaigns and client marketing.

In the nine months ended June 30, 2022, expenses increased as we lapped planned delays in spending in the first half of fiscal 2021 and increased spending in various campaigns, including the Beijing 2022 Olympics Winter Games, and client marketing.

• Professional fees increased during the three months ended June 30, 2022, reflecting higher investment in various corporate projects.

In the nine months ended June 30, 2022, expenses increased as we lapped planned delays in spending in the first half of fiscal 2021.

• Depreciation and amortization expenses increased during the three and nine months ended June 30, 2022 primarily due to additional depreciation and amortization from our acquisitions and on-going investments.

• General and administrative expenses increased during the three months ended June 30, 2022 primarily due to higher travel expenses, higher usage of travel related card benefits and the inclusion of expenses from our acquisitions.

In the nine months ended June 30, 2022, expenses increased primarily due to the suspension of our operations in Russia and deconsolidation of our Russian subsidiary, higher usage of travel related card benefits, higher travel expenses and the inclusion of expenses from our acquisitions, partially offset by one-time charge of indirect taxes in the prior year.

• Litigation provision increased during the three and nine months ended June 30, 2022 primarily due to additional accruals of $716 million and $861 million, respectively, related to the U.S.

covered litigation.

See Note 5—U.S.

3 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(in millions, except percentages)

4 unchanged sentences

Percentage changes are calculated based on unrounded numbers.

• Interest expense, net increased in the three and six months ended March 31, 2022 primarily as a result of higher interest expense related to income taxes liabilities.

The increase in the six months ended March 31, 2022 was partially offset by lower interest expense due to lower outstanding debt and derivative instruments that lowered the cost of borrowing.

• Investment income and other decreased in the three months ended March 31, 2022 primarily due to losses on our equity investments.

Investment income and other decreased in the six months ended March 31, 2022 primarily due to lower gains on our equity investments.

• Interest expense, net decreased in the three months ended June 30, 2022 primarily due to lower interest expense related to income taxes, partially offset by higher interest expense as a result of the issuance of debt in the three months ended June 30, 2022.

The decrease in the nine months ended June 30, 2022 was primarily driven by lower interest expense due to the timing of debt issuance.

• Investment income and other decreased in the three and nine months ended June 30, 2022 primarily due to losses on our equity investments.

Effective Income Tax Rate

1 unchanged sentence

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

Effective income tax rate 11 % 41 % 17 % 26 %

The difference in the effective tax rates is 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.

The effective tax rates for the three and nine months ended June 30, 2022 differ from the effective tax rates for the same periods in the prior year primarily due to the following:

• during the three months ended June 30, 2022, a decrease in the state apportionment rate, including a $176 million tax benefit related to prior years, as a result of a tax position taken related to a recent ruling;

• during the three months ended June 30, 2021, a $1.0 billion non-recurring, non-cash tax expense related to the remeasurement of UK deferred tax liabilities;

• during the three months ended June 30, 2021, a $51 million tax benefit as a result of a tax position taken on certain expenses;

• during the nine months ended June 30, 2021, $147 million of tax benefits 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:

Six Months Ended

Nine Months Ended

(in millions)

7 unchanged sentences

Operating activities.

Cash provided by operating activities for the six months ended March 31, 2022 was higher than the prior-year comparable period primarily due to growth in our underlying business, partially offset by higher client incentive payments.

Cash provided by operating activities for the nine months ended June 30, 2022 was higher than the prior-year comparable period primarily due to growth in our underlying business, partially offset by higher client incentive payments.

Investing activities.

Cash was used in investing activities for the six months ended March 31, 2022 as compared to cash provided by investing activities during the prior-year comparable period, primarily due to higher cash paid for acquisitions, net of cash and restricted cash acquired, and lower proceeds from sales and maturities, net of purchases of investment securities.

Cash was used in investing activities for the nine months ended June 30, 2022 as compared to cash provided by investing activities during the prior-year comparable period primarily due to lower proceeds from sales and maturities of investment securities, combined with higher purchases of investment securities, and higher cash paid for acquisitions, net of cash and restricted cash acquired.

See Note 2—Acquisitions and Note 4—Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents to our unaudited consolidated financial statements.

Financing activities.

Cash used in financing activities for the six months ended March 31, 2022 was higher than the prior-year comparable period primarily due to higher share repurchases and higher dividends paid, partially offset by the absence of the principal debt payment made in the prior year and proceeds from the issuance of commercial paper in the current year.

Cash used in financing activities for the nine months ended June 30, 2022 was lower than the prior-year comparable period primarily due to proceeds received from the issuance of senior notes in the current year and the absence of the principal debt payment made in the prior year, partially offset by higher share repurchases and higher dividends paid.

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

6 unchanged sentences

We maintain a commercial paper program to support our working capital requirements and for other general corporate purposes.

The carrying amount outstanding at March 31, 2022 of $300 million was fully repaid in April 2022.

During the three months ended June 30, 2022, we repaid $300 million and $650 million of commercial paper that was issued in March 2022 and April 2022, respectively.

We had no outstanding obligations under the program as of June 30, 2022.

Senior notes.

In June 2022, we issued Euro-denominated fixed-rate senior notes in a public offering in an aggregate principal amount of €3.0 billion ($3.2 billion), with maturities ranging between 4 and 12 years.

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

2 unchanged sentences

Common stock repurchases.

During the six months ended March 31, 2022, we repurchased shares of our class A common stock in the open market for $7.1 billion.

As of March 31, 2022, our repurchase program had remaining authorized funds of $9.8 billion.

During the nine months ended June 30, 2022, we repurchased shares of our class A common stock in the open market for $9.5 billion.

As of June 30, 2022, our repurchase program had remaining authorized funds of $7.3 billion.

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

During the six months ended March 31, 2022, we declared and paid $1.6 billion in dividends to holders of our common and preferred stock.

On April 22, 2022, our board of directors declared a cash dividend in the amount of $0.375 per share of class A common stock (determined in the case of class B and C common stock and series A, B and C convertible participating preferred stock on an as-converted basis).

During the nine months ended June 30, 2022, we declared and paid $2.4 billion in dividends to holders of our common and preferred stock.

On July 22, 2022, our board of directors declared a cash dividend in the amount of $0.375 per share of class A common stock (determined in the case of class B and C common stock and series A, B and C convertible participating preferred stock on an as-converted basis).

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

4 unchanged sentences

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

During December 2021, we deposited $250 million into the U.S.

During the nine months ended June 30, 2022, we deposited $850 million into the U.S.

litigation escrow account to address claims associated with the interchange multidistrict litigation.

The balance of this account as of March 31, 2022 was $882 million and is reflected as restricted cash in our consolidated balance sheets.

The balance of this account as of June 30, 2022 was $1.5 billion and is reflected as restricted cash in our consolidated balance sheets.

See Note 5—U.S.

13 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