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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2021
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-33977
VISA INC.
(Exact name of Registrant as specified in its charter) | | | | | | | | | | | |
Delaware | | 26-0267673 |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
| | | |
P.O. Box 8999 | | 94128-8999 |
San Francisco, | California | | |
(Address of principal executive offices) | | (Zip Code) |
(650) 432-3200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Class A Common Stock, par value $0.0001 per share | | V | | New York Stock Exchange |
| | | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☑ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of January 19, 2022, there were 1,658,423,632 shares outstanding of the registrant’s class A common stock, par value $0.0001 per share, 245,513,385 shares outstanding of the registrant’s class B common stock, par value $0.0001 per share, and 10,281,997 shares outstanding of the registrant’s class C common stock, par value $0.0001 per share.
VISA INC.
TABLE OF CONTENTS
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PART I. | | |
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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PART II. | | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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PART I. FINANCIAL INFORMATION
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ITEM 1. | Financial Statements (Unaudited) |
VISA INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | | | | | | | | | |
| December 31, 2021 | | September 30, 2021 |
| (in millions, except per share data) |
Assets | | | |
Cash and cash equivalents | $ | 14,720 | | | $ | 16,487 | |
Restricted cash equivalents—U.S. litigation escrow | 1,144 | | | 894 | |
Investment securities | 1,201 | | | 2,025 | |
| | | |
| | | |
Settlement receivable | 1,788 | | | 1,758 | |
Accounts receivable | 2,168 | | | 1,968 | |
Customer collateral | 2,284 | | | 2,260 | |
Current portion of client incentives | 1,334 | | | 1,359 | |
Prepaid expenses and other current assets | 1,267 | | | 856 | |
Total current assets | 25,906 | | | 27,607 | |
Investment securities | 2,087 | | | 1,705 | |
Client incentives | 3,290 | | | 3,245 | |
Property, equipment and technology, net | 2,908 | | | 2,715 | |
Goodwill | 16,555 | | | 15,958 | |
Intangible assets, net | 27,272 | | | 27,664 | |
Other assets | 3,911 | | | 4,002 | |
Total assets | $ | 81,929 | | | $ | 82,896 | |
Liabilities | | | |
Accounts payable | $ | 252 | | | $ | 266 | |
Settlement payable | 2,774 | | | 2,443 | |
Customer collateral | 2,284 | | | 2,260 | |
Accrued compensation and benefits | 725 | | | 1,211 | |
Client incentives | 5,294 | | | 5,243 | |
Accrued liabilities | 2,965 | | | 2,334 | |
| | | |
Current maturities of debt | 3,247 | | | 999 | |
Accrued litigation | 1,027 | | | 983 | |
Total current liabilities | 18,568 | | | 15,739 | |
Long-term debt | 17,673 | | | 19,978 | |
Deferred tax liabilities | 6,078 | | | 6,128 | |
Other liabilities | 3,416 | | | 3,462 | |
Total liabilities | 45,735 | | | 45,307 | |
Equity | | | |
Preferred stock, $0.0001 par value, 25 shares authorized and 5 shares issued and outstanding as follows: | | | |
Series A convertible participating preferred stock, less than one shares issued and outstanding at December 31, 2021 and September 30, 2021 (the “series A preferred stock”) | 430 | | | 486 | |
Series B convertible participating preferred stock, 2 shares issued and outstanding at December 31, 2021 and September 30, 2021 (the “series B preferred stock”) | 1,045 | | | 1,071 | |
Series C convertible participating preferred stock, 3 shares issued and outstanding at December 31, 2021 and September 30, 2021 (the “series C preferred stock”) | 1,520 | | | 1,523 | |
Class A common stock, $0.0001 par value, 2,001,622 shares authorized, 1,661 and 1,677 shares issued and outstanding at December 31, 2021 and September 30, 2021 respectively | — | | | — | |
Class B common stock, $0.0001 par value, 622 shares authorized, 245 shares issued and outstanding at December 31, 2021 and September 30, 2021 | — | | | — | |
Class C common stock, $0.0001 par value, 1,097 shares authorized, 10 shares issued and outstanding at December 31, 2021 and September 30, 2021 | — | | | — | |
| | | |
Right to recover for covered losses | (111) | | | (133) | |
Additional paid-in capital | 18,776 | | | 18,855 | |
Accumulated income | 14,606 | | | 15,351 | |
Accumulated other comprehensive income (loss), net: | | | |
Investment securities | (9) | | | (1) | |
Defined benefit pension and other postretirement plans | (47) | | | (49) | |
Derivative instruments | (171) | | | (257) | |
Foreign currency translation adjustments | 155 | | | 743 | |
Total accumulated other comprehensive income (loss), net | (72) | | | 436 | |
Total equity | 36,194 | | | 37,589 | |
Total liabilities and equity | $ | 81,929 | | | $ | 82,896 | |
See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
4
VISA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | | | | | | | | | | | | | | |
| | | Three Months Ended December 31, |
| | | | | 2021 | | 2020 |
| | | | | (in millions, except per share data) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net revenues | | | | | $ | 7,059 | | | $ | 5,687 | |
| | | | | | | |
Operating Expenses | | | | | | | |
Personnel | | | | | 1,125 | | | 981 | |
Marketing | | | | | 280 | | | 205 | |
Network and processing | | | | | 190 | | | 173 | |
Professional fees | | | | | 100 | | | 83 | |
Depreciation and amortization | | | | | 198 | | | 197 | |
General and administrative | | | | | 242 | | | 203 | |
Litigation provision | | | | | 148 | | | 1 | |
| | | | | | | |
Total operating expenses | | | | | 2,283 | | | 1,843 | |
Operating income | | | | | 4,776 | | | 3,844 | |
| | | | | | | |
Non-operating Income (Expense) | | | | | | | |
Interest expense, net | | | | | (134) | | | (136) | |
Investment income and other | | | | | 255 | | | 40 | |
Total non-operating income (expense) | | | | | 121 | | | (96) | |
Income before income taxes | | | | | 4,897 | | | 3,748 | |
Income tax provision | | | | | 938 | | | 622 | |
Net income | | | | | $ | 3,959 | | | $ | 3,126 | |
| | | | | | | |
Basic Earnings Per Share | | | | | | | |
Class A common stock | | | | | $ | 1.84 | | | $ | 1.42 | |
Class B common stock | | | | | $ | 2.98 | | | $ | 2.31 | |
Class C common stock | | | | | $ | 7.35 | | | $ | 5.69 | |
| | | | | | | |
Basic Weighted-average Shares Outstanding | | | | | | | |
Class A common stock | | | | | 1,669 | | | 1,694 | |
Class B common stock | | | | | 245 | | | 245 | |
Class C common stock | | | | | 10 | | | 11 | |
| | | | | | | |
Diluted Earnings Per Share | | | | | | | |
Class A common stock | | | | | $ | 1.83 | | | $ | 1.42 | |
Class B common stock | | | | | $ | 2.98 | | | $ | 2.31 | |
Class C common stock | | | | | $ | 7.34 | | | $ | 5.68 | |
| | | | | | | |
Diluted Weighted-average Shares Outstanding | | | | | | | |
Class A common stock | | | | | 2,159 | | | 2,200 | |
Class B common stock | | | | | 245 | | | 245 | |
Class C common stock | | | | | 10 | | | 11 | |
See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
5
VISA INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
| | | | | | | | | | | | | | | |
| | | Three Months Ended December 31, |
| | | | | 2021 | | 2020 |
| | | | | (in millions) |
Net income | | | | | $ | 3,959 | | | $ | 3,126 | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Investment securities: | | | | | | | |
Net unrealized gain (loss) | | | | | (10) | | | (1) | |
Income tax effect | | | | | 2 | | | — | |
| | | | | | | |
| | | | | | | |
Defined benefit pension and other postretirement plans: | | | | | | | |
Net unrealized actuarial gain (loss) and prior service credit (cost) | | | | | 1 | | | (1) | |
Income tax effect | | | | | — | | | 1 | |
Reclassification adjustments | | | | | 1 | | | 3 | |
Income tax effect | | | | | — | | | (1) | |
Derivative instruments: | | | | | | | |
Net unrealized gain (loss) | | | | | 114 | | | (297) | |
Income tax effect | | | | | (22) | | | 63 | |
Reclassification adjustments | | | | | (6) | | | (18) | |
Income tax effect | | | | | — | | | 5 | |
Foreign currency translation adjustments | | | | | (588) | | | 1,046 | |
Other comprehensive income (loss), net of tax | | | | | (508) | | | 800 | |
Comprehensive income | | | | | $ | 3,451 | | | $ | 3,926 | |
See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
6
VISA INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2021 |
| Preferred Stock | | Common Stock | | Preferred Stock | | Right to Recover for Covered Losses | | Additional Paid-In Capital | | Accumulated Income | | Accumulated Other Comprehensive Income (Loss), Net | | Total Equity |
| Series A | | Series B | | Series C | | Class A | | Class B | | Class C | |
| (in millions, except per share data) |
Balance as of September 30, 2021 | — | | (1) | 2 | | | 3 | | | 1,677 | | | 245 | | | 10 | | | $ | 3,080 | | | $ | (133) | | | $ | 18,855 | | | $ | 15,351 | | | $ | 436 | | | $ | 37,589 | |
Net income | | | | | | | | | | | | | | | | | | | 3,959 | | | | | 3,959 | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | | | | | | | | | (508) | | | (508) | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 3,451 | |
VE territory covered losses incurred | | | | | | | | | | | | | | | (7) | | | | | | | | | (7) | |
Recovery through conversion rate adjustment | | | | | | | | | | | | | (29) | | | 29 | | | | | | | | | — | |
Conversion of series A preferred stock upon sales into public market | — | | (1) | | | | | 1 | | | | | | | (56) | | | | | 56 | | | | | | | — | |
Conversion of class C common stock upon sales into public market | | | | | | | — | | (1) | | | — | | (1) | | | | | | | | | | | — | |
Share-based compensation, net of forfeitures | | | | | | | | | | | | | | | | | 128 | | | | | | | 128 | |
Vesting of restricted stock and performance-based shares | | | | | | | 2 | | | | | | | | | | | | | | | | | — | |
Restricted stock and performance-based shares settled in cash for taxes | | | | | | | — | | (1) | | | | | | | | | (113) | | | | | | | (113) | |
Cash proceeds from issuance of class A common stock under employee equity plans | | | | | | | | (1) | | | | | | | | | 59 | | | | | | | 59 | |
Cash dividends declared and paid, at a quarterly amount of $0.375 per class A common stock | | | | | | | | | | | | | | | | | | | (809) | | | | | (809) | |
Repurchase of class A common stock | | | | | | | (19) | | | | | | | | | | | (209) | | | (3,895) | | | | | (4,104) | |
Balance as of December 31, 2021 | — | | (1) | 2 | | | 3 | | | 1,661 | | | 245 | | | 10 | | | $ | 2,995 | | | $ | (111) | | | $ | 18,776 | | | $ | 14,606 | | | $ | (72) | | | $ | 36,194 | |
(1)Increase, decrease or balance is less than one million shares.
See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
7
VISA INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2020 |
| Preferred Stock | | Common Stock | | Preferred Stock | | Right to Recover for Covered Losses | | Additional Paid-In Capital | | Accumulated Income | | Accumulated Other Comprehensive Income (Loss), Net | | Total Equity |
| Series A | | Series B | | Series C | | Class A | | Class B | | Class C | |
| (in millions, except per share data) |
Balance as of September 30, 2020 | — | | (1) | 2 | | | 3 | | | 1,683 | | | 245 | | | 11 | | | $ | 5,086 | | | $ | (39) | | | $ | 16,721 | | | $ | 14,088 | | | $ | 354 | | | $ | 36,210 | |
Net income | | | | | | | | | | | | | | | | | | | 3,126 | | | | | 3,126 | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | | | | | | | | | 800 | | | 800 | |
Comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 3,926 | |
Adoption of new accounting standards | | | | | | | | | | | | | | | | | | | 3 | | | | | 3 | |
VE territory covered losses incurred | | | | | | | | | | | | | | | (10) | | | | | | | | | (10) | |
Recovery through conversion rate adjustment | | | | | | | | | | | | | (15) | | | 15 | | | | | | | | | — | |
Conversion of series A preferred stock upon sales into public market | — | | (1) | | | | | 20 | | | | | | | (1,388) | | | | | 1,388 | | | | | | | — | |
Conversion of class C common stock upon sales into public market | | | | | | | — | | (1) | | | — | | (1) | | | | | | | | | | | — | |
Share-based compensation, net of forfeitures | | | | | | | |
| | | | | | | | | 122 | | | | | | | 122 | |
Vesting of restricted stock and performance-based shares | | | | | | | 3 | | | | | | | | | | | | | | | | | — | |
Restricted stock and performance-based shares settled in cash for taxes | | | | | | | (1) | | | | | | | | | | | (134) | | | | | | | (134) | |
Cash proceeds from issuance of class A common stock under employee equity plans | | | | | | | — | | (1) | | | | | | | | | 61 | | | | | | | 61 | |
Cash dividends declared and paid, at a quarterly amount of $0.32 per class A common stock | | | | | | | | | | | | | | | | | | | (703) | | | | | (703) | |
Repurchase of class A common stock | | | | | | | (9) | | | | | | | | | | | (95) | | | (1,701) | | | | | (1,796) | |
Balance as of December 31, 2020 | — | | (1) | 2 | | | 3 | | | 1,696 | | | 245 | | | 11 | | | $ | 3,683 | | | $ | (34) | | | $ | 18,063 | | | $ | 14,813 | | | $ | 1,154 | | | $ | 37,679 | |
(1)Increase, decrease or balance is less than one million shares.
See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
8
VISA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | | | | | | |
| Three Months Ended December 31, |
| 2021 | | 2020 |
| (in millions) |
Operating Activities | | | |
Net income | $ | 3,959 | | | $ | 3,126 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
Client incentives | 2,371 | | | 1,858 | |
Share-based compensation | 128 | | | 122 | |
Depreciation and amortization of property, equipment, technology and intangible assets | 198 | | | 197 | |
Deferred income taxes | (15) | | | 5 | |
VE territory covered losses incurred | (7) | | | (10) | |
(Gains) losses on equity investments, net | (231) | | | (16) | |
Other | (32) | | | 41 | |
Change in operating assets and liabilities: | | | |
Settlement receivable | (76) | | | (244) | |
Accounts receivable | (213) | | | (108) | |
Client incentives | (2,339) | | | (1,485) | |
Other assets | (163) | | | 235 | |
Accounts payable | (9) | | | (39) | |
Settlement payable | 409 | | | 194 | |
Accrued and other liabilities | 206 | | | (357) | |
Accrued litigation | 46 | | | (6) | |
Net cash provided by (used in) operating activities | 4,232 | | | 3,513 | |
Investing Activities | | | |
Purchases of property, equipment and technology | (173) | | | (160) | |
Investment securities: | | | |
Purchases | (951) | | | (1,315) | |
Proceeds from maturities and sales | 1,374 | | | 2,163 | |
Acquisitions, net of cash acquired | (832) | | | (75) | |
Purchases of / contributions to other investments | (37) | | | (18) | |
Other investing activities | 72 | | | 44 | |
Net cash provided by (used in) investing activities | (547) | | | 639 | |
Financing Activities | | | |
Repurchase of class A common stock | (4,104) | | | (1,796) | |
Repayments of debt | — | | | (3,000) | |
Dividends paid | (809) | | | (703) | |
| | | |
Cash proceeds from issuance of class A common stock under employee equity plans | 59 | | | 61 | |
Restricted stock and performance-based shares settled in cash for taxes | (113) | | | (134) | |
| | | |
Net cash provided by (used in) financing activities | (4,967) | | | (5,572) | |
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents | (194) | | | 304 | |
Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents | (1,476) | | | (1,116) | |
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period | 19,799 | | | 19,171 | |
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | $ | 18,323 | | | $ | 18,055 | |
Supplemental Disclosure | | | |
Cash paid for income taxes, net | $ | 268 | | | $ | 252 | |
Interest payments on debt | $ | 244 | | | $ | 281 | |
Accruals related to purchases of property, equipment and technology | $ | 53 | | | $ | 13 | |
See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
9
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1—Summary of Significant Accounting Policies
Organization. Visa Inc. (“Visa” or the “Company”) is a global payments technology company that facilitates global commerce and money movement across more than 200 countries and territories. Visa and its wholly-owned consolidated subsidiaries operate one of the world’s largest electronic payments network — VisaNet — which provides transaction processing services (primarily authorization, clearing and settlement). The Company offers products and solutions that facilitate secure, reliable and efficient money movement for all participants in the ecosystem. Visa is not a financial institution and does not issue cards, extend credit or set rates and fees for account holders of Visa products. In most cases, account holder and merchant relationships belong to, and are managed by, Visa’s financial institution clients.
Consolidation and basis of presentation. The accompanying unaudited consolidated financial statements include the accounts of Visa and its consolidated entities and are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company consolidates its majority-owned and controlled entities, including variable interest entities (“VIEs”) for which the Company is the primary beneficiary. The Company’s investments in VIEs have not been material to its unaudited consolidated financial statements as of and for the periods presented. All significant intercompany accounts and transactions are eliminated in consolidation.
The accompanying unaudited consolidated financial statements are presented in accordance with the U.S. Securities and Exchange Commission (“SEC”) requirements for Quarterly Reports on Form 10-Q and, consequently, do not include all of the annual disclosures required by U.S. GAAP. Reference should be made to the Visa Annual Report on Form 10-K for the year ended September 30, 2021 for additional disclosures, including a summary of the Company’s significant accounting policies.
In the opinion of management, the accompanying unaudited consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented. The results of operations for interim periods are not necessarily indicative of results for the full year.
Use of estimates. The preparation of the accompanying unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and reported amounts of revenues and expenses during the reporting period. These estimates may change as new events occur and additional information is obtained, and will be recognized in the period in which such changes occur. Future actual results could differ materially from these estimates. As the effects of the evolving coronavirus (“COVID-19”) pandemic continue, much remains uncertain. There have been no comparable recent events and as a result the ultimate impact of COVID-19 and the extent to which COVID-19 and new variants continue to impact the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict.
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in the existing guidance and making other minor improvements. The Company adopted this guidance effective October 1, 2021. The adoption did not have a material impact on the consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, which clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for purposes of applying the fair value measurement alternative. The Company adopted this guidance effective October 1, 2021. The adoption did not have a material impact on the consolidated financial statements.
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)
Note 2—Acquisitions
Closed Acquisition
On December 20, 2021, Visa acquired The Currency Cloud Group Limited (“Currencycloud”), a UK-based global platform that enables banks and fintechs to provide innovative foreign exchange solutions for cross-border payments, for a total purchase consideration of $893 million (which includes the fair value of Visa’s previously held equity interest in Currencycloud). As a result of this transaction closing days before the quarter-end, the initial allocation of the purchase price has not yet been completed. On a provisional basis, the Company allocated $210 million to technology, intangible assets and deferred tax liabilities and $683 million to goodwill. The Company expects to finalize the purchase price allocation once the information required to complete the accounting is available, but no later than one year from the acquisition date.
Pending Acquisition
On June 24, 2021, Visa entered into a definitive agreement to acquire Tink AB (“Tink”) for €1.8 billion, inclusive of cash and retention incentives. Tink is a European open banking platform that enables financial institutions, fintechs and merchants to build tailored financial management tools, products and services for European consumers and businesses based on their financial data. This acquisition is subject to customary closing conditions, including regulatory reviews and approvals.
Note 3—Revenues
The nature, amount, timing and uncertainty of the Company’s revenues and cash flows and how they are affected by economic factors are most appropriately depicted through the Company’s revenue categories and geographical markets. The following tables disaggregate the Company’s net revenues by revenue category and by geography:
| | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | |
| 2021 | | 2020 | | | | |
| (in millions) |
Service revenues | $ | 3,193 | | | $ | 2,677 | | | | | |
Data processing revenues | 3,614 | | | 3,033 | | | | | |
International transaction revenues | 2,174 | | | 1,451 | | | | | |
Other revenues | 449 | | | 384 | | | | | |
Client incentives | (2,371) | | | (1,858) | | | | | |
Net revenues | $ | 7,059 | | | $ | 5,687 | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | |
| 2021 | | 2020 | | | | |
| (in millions) |
U.S. | $ | 3,178 | | | $ | 2,667 | | | | | |
International | 3,881 | | | 3,020 | | | | | |
Net revenues | $ | 7,059 | | | $ | 5,687 | | | | | |
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)
Note 4—Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
The Company reconciles cash, cash equivalents, restricted cash and restricted cash equivalents reported in the consolidated balance sheets that aggregate to the beginning and ending balances shown in the consolidated statements of cash flows as follows:
| | | | | | | | | | | |
| | |
| December 31, 2021 | | September 30, 2021 |
| (in millions) |
Cash and cash equivalents | $ | 14,720 | | | $ | 16,487 | |
Restricted cash and restricted cash equivalents: | | | |
U.S. litigation escrow | 1,144 | | | 894 | |
Customer collateral | 2,284 | | | 2,260 | |
Prepaid expenses and other current assets | 175 | | | 158 | |
Cash, cash equivalents, restricted cash and restricted cash equivalents | $ | 18,323 | | | $ | 19,799 | |
Note 5—U.S. and Europe Retrospective Responsibility Plans
U.S. Retrospective Responsibility Plan
Under the terms of the U.S. retrospective responsibility plan, the Company maintains an escrow account from which settlements of, or judgments in, certain litigation referred to as the “U.S. covered litigation” are paid. The accrual related to the U.S. covered litigation could be either higher or lower than the U.S. litigation escrow account balance. See Note 13—Legal Matters.
The following table presents the changes in the restricted cash equivalents—U.S. litigation escrow account:
| | | | | | | | | | | |
| Three Months Ended December 31, |
| 2021 | | 2020 |
| (in millions) |
Balance at beginning of period | $ | 894 | | | $ | 901 | |
Deposits into the litigation escrow account | 250 | | | — | |
| | | |
Payments to opt-out merchants(1) and interest earned on escrow funds | — | | | (7) | |
Balance at end of period | $ | 1,144 | | | $ | 894 | |
(1)These payments are associated with the interchange multidistrict litigation. See Note 13—Legal Matters.
Europe Retrospective Responsibility Plan
Visa Inc., Visa International and Visa Europe are parties to certain existing and potential litigation relating to the setting of multilateral interchange fee rates in the Visa Europe territory (the “VE territory covered litigation”). Under the terms of the Europe retrospective responsibility plan, the Company is entitled to recover certain losses resulting from VE territory covered litigation (the “VE territory covered losses”) through a periodic adjustment to the class A common stock conversion rates applicable to the series B and C preferred stock. VE territory covered losses are recorded in “right to recover for covered losses” within stockholders’ equity before the corresponding adjustment to the applicable conversion rate is effected. Adjustments to the conversion rate may be executed once in any six-month period unless a single, individual loss greater than €20 million is incurred, in which case, the six-month limitation does not apply. When the adjustment to the conversion rate is made, the amount previously recorded in “right to recover for covered losses” as contra-equity is then recorded against the book value of the preferred stock within stockholders’ equity. During the three months ended December 31, 2021, the Company recovered $29 million of VE territory covered losses through adjustments to the class A common stock conversion rates applicable to the series B and C preferred stock.
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)
The following table presents the activities related to VE territory covered losses in preferred stock and “right to recover for covered losses” within stockholders’ equity:
| | | | | | | | | | | | | | | | | |
| | | | | |
| Preferred Stock | | Right to Recover for Covered Losses |
| Series B | | Series C | |
| (in millions) |
Balance as of September 30, 2021 | $ | 1,071 | | | $ | 1,523 | | | $ | (133) | |
VE territory covered losses incurred(1) | — | | | — | | | (7) | |
Recovery through conversion rate adjustment | (26) | | | (3) | | | 29 | |
Balance as of December 31, 2021 | $ | 1,045 | | | $ | 1,520 | | | $ | (111) | |
| | | | | | | | | | | | | | | | | |
| Preferred Stock | | Right to Recover for Covered Losses |
| Series B | | Series C | |
| (in millions) |
Balance as of September 30, 2020 | $ | 1,106 | | | $ | 1,543 | | | $ | (39) | |
VE territory covered losses incurred(1) | — | | | — | | | (10) | |
Recovery through conversion rate adjustment | (9) | | | (6) | | | 15 | |
Balance as of December 31, 2020 | $ | 1,097 | | | $ | 1,537 | | | $ | (34) | |
(1)VE territory covered losses incurred reflect settlements with merchants and additional legal costs. See Note 13—Legal Matters.
The following table presents the as-converted value of the preferred stock available to recover VE territory covered losses compared to the book value of preferred stock recorded in stockholders’ equity within the Company’s consolidated balance sheets:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | September 30, 2021 |
| As-converted Value of Preferred Stock(1),(2) | | Book Value of Preferred Stock(1) | | As-converted Value of Preferred Stock(1),(3) | | Book Value of Preferred Stock(1) |
| (in millions) |
Series B preferred stock | $ | 3,371 | | | $ | 1,045 | | | $ | 3,493 | | | $ | 1,071 | |
Series C preferred stock | 4,672 | | | 1,520 | | | 4,806 | | | 1,523 | |
Total | 8,043 | | | 2,565 | | | 8,299 | | | 2,594 | |
Less: right to recover for covered losses | (111) | | | (111) | | | (133) | | | (133) | |
Total recovery for covered losses available | $ | 7,932 | | | $ | 2,454 | | | $ | 8,166 | | | $ | 2,461 | |
(1)Figures in the table may not recalculate exactly due to rounding. As-converted and book values are based on unrounded numbers.
(2)As of December 31, 2021, the as-converted value of preferred stock is calculated as the product of: (a) 2 million and 3 million shares of the series B and C preferred stock outstanding, respectively; (b) 6.271 and 6.829, the class A common stock conversion rate applicable to the series B and C preferred stock outstanding, respectively; and (c) $216.71, Visa’s class A common stock closing stock price.
(3)As of September 30, 2021, the as-converted value of preferred stock is calculated as the product of: (a) 2 million and 3 million shares of the series B and C preferred stock outstanding, respectively; (b) 6.321 and 6.834, the class A common stock conversion rate applicable to the series B and C preferred stock outstanding, respectively; and (c) $222.75, Visa’s class A common stock closing stock price.
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)
Note 6—Fair Value Measurements and Investments
Assets and Liabilities Measured at Fair Value on a Recurring Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements Using Inputs Considered as |
| Level 1 | | Level 2 | | |
| December 31, 2021 | | September 30, 2021 | | December 31, 2021 | | September 30, 2021 | | | | |
| (in millions) |
Assets | | | | | | | | | | | |
Cash equivalents and restricted cash equivalents: | | | | | | | | | | | |
Money market funds | $ | 11,084 | | | $ | 11,779 | | | $ | — | | | $ | — | | | | | |
U.S. government-sponsored debt securities | — | | | — | | | 541 | | | 100 | | | | | |
U.S. Treasury securities | 1,075 | | | 2,400 | | | — | | | — | | | | | |
Investment securities: | | | | | | | | | | | |
Marketable equity securities | 481 | | | 490 | | | — | | | — | | | | | |
U.S. government-sponsored debt securities | — | | | — | | | 510 | | | 245 | | | | | |
U.S. Treasury securities | 2,287 | | | 2,985 | | | — | | | — | | | | | |
Other current and non-current assets: | | | | | | | | | | | |
Money market funds | 4 | | | 4 | | | — | | | — | | | | | |
Derivative instruments | — | | | — | | | 408 | | | 410 | | | | | |
Total | $ | 14,931 | | | $ | 17,658 | | | $ | 1,459 | | | $ | 755 | | | | | |
Liabilities | | | | | | | | | | | |
Accrued compensation and benefits: | | | | | | | | | | | |
Deferred compensation liability | $ | 209 | | | $ | 167 | | | $ | — | | | $ | — | | | | | |
Accrued and other liabilities: | | | | | | | | | | | |
Derivative instruments | — | | | — | | | 62 | | | 109 | | | | | |
Total | $ | 209 | | | $ | 167 | | | $ | 62 | | | $ | 109 | | | | | |
Level 1 assets and liabilities. Money market funds, marketable equity securities and U.S. Treasury securities are classified as Level 1 within the fair value hierarchy, as fair value is based on unadjusted quoted prices in active markets for identical assets and liabilities. The Company’s deferred compensation liability is measured at fair value based on marketable equity securities held under the deferred compensation plan.
Level 2 assets and liabilities. The fair value of U.S. government-sponsored debt securities, as provided by third-party pricing vendors, is based on quoted prices in active markets for similar, not identical, assets. Derivative instruments are valued using inputs that are observable in the market or can be derived principally from or corroborated by observable market data.
U.S. government-sponsored debt securities and U.S. Treasury securities. As of December 31, 2021 and September 30, 2021, gross unrealized gains and losses were not material. As of December 31, 2021, $2.3 billion of the Company’s debt securities are due within one year and $2.1 billion is due between one to five years.
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)
Assets Measured at Fair Value on a Non-recurring Basis
Non-marketable equity securities. The Company’s non-marketable equity securities are investments in privately held companies without readily determinable market values. These investments are classified as Level 3 due to the absence of quoted market prices, the inherent lack of liquidity and the fact that inputs used to measure fair value are unobservable and require management’s judgment.
The following table summarizes the total carrying value of the Company’s non-marketable equity securities held as of December 31, 2021 including cumulative unrealized gains and losses:
| | | | | |
| December 31, 2021 |
| (in millions) |
Initial cost basis | $ | 893 | |
Adjustments: | |
Upward adjustments | 818 | |
Downward adjustments (including impairment) | (13) | |
Carrying amount, end of period | $ | 1,698 | |
Unrealized gains and losses included in the carrying value of the Company’s non-marketable equity securities still held as of December 31, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | |
| 2021 | | 2020 | | | | |
| (in millions) |
Upward adjustments | $ | 224 | | | $ | 14 | | | | | |
Downward adjustments (including impairment) | $ | — | | | $ | (2) | | | | | |
The Company recognized net unrealized gains on marketable and non-marketable equity securities still held as of quarter end of $172 million and $29 million for the three months ended December 31, 2021 and 2020, respectively.
Non-financial assets and liabilities. Certain non-financial assets such as goodwill, intangible assets and property, equipment and technology are only recognized at fair value if they are deemed to be impaired. As of December 31, 2021, there were no impairment indicators.
Other Fair Value Disclosures
Debt. Debt instruments are measured at amortized cost on the Company’s unaudited consolidated balance sheets. The fair value of the debt instruments, as provided by third-party pricing vendors, is based on quoted prices in active markets for similar, not identical, assets. If measured at fair value in the financial statements, these instruments would be classified as Level 2 in the fair value hierarchy. As of December 31, 2021, the carrying value and estimated fair value of debt was $20.9 billion and $22.5 billion, respectively. As of September 30, 2021, the carrying value and estimated fair value of debt was $21.0 billion and $22.5 billion, respectively.
Other financial instruments not measured at fair value. At December 31, 2021, the carrying value of settlement receivable and payable and customer collateral approximates fair value due to their generally short maturities. If measured at fair value in the financial statements, these financial instruments would be classified as Level 2 in the fair value hierarchy.
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)
Note 7—Debt
The Company had outstanding debt as follows:
| | | | | | | | | | | | | | | | | |
| December 31, 2021 | | September 30, 2021 | | Effective Interest Rate(1) |
| (in millions, except percentages) |
| | | | | |
2.15% Senior Notes due September 2022 | $ | 1,000 | | | $ | 1,000 | | | 2.30 | % |
2.80% Senior Notes due December 2022 | 2,250 | | | 2,250 | | | 2.89 | % |
3.15% Senior Notes due December 2025 | 4,000 | | | 4,000 | | | 3.26 | % |
1.90% Senior Notes due April 2027 | 1,500 | | | 1,500 | | | 2.02 | % |
0.75% Senior Notes due August 2027 | 500 |