Visa's share will be paid from the previously funded litigation escrow account established pursuant to the Company's Retrospective Responsibility Plan.
Excluding the litigation provision of $4.1 billion and related tax benefit, adjusted net income for the quarter was $1.1 billion, or $1.56 per diluted class A common share, an increase of 25% over the prior year on an adjusted basis. The adjusted weighted-average number of diluted class A common shares outstanding during the third quarter was 675 million. The Company's adjusted quarterly net income per share of class A common stock is a non-GAAP financial measure that is reconciled to its most directly comparable GAAP measure in the accompanying financial tables.
GAAP net operating revenue in the fiscal third quarter of 2012 was $2.6 billion, an increase of 10% over the prior year and driven by strong double-digit growth in service revenues, data processing revenues and international transaction revenues. There was no significant impact on current quarter results related to the strengthening or weakening of the U.S. dollar over the prior year.
"Visa once again reported solid global growth in payments volume, cross border transactions and processed transactions outside the U.S., executing on our strategy of growing the electronification of payments worldwide. We are pleased that we were able to come to a resolution in the merchant litigation which was acceptable to most parties while ensuring the long-term health of the U.S. payments industry," said Joseph Saunders, chairman and chief executive officer of Visa Inc. "As we look forward, we remain focused on launching new payment solutions and products for our financial and merchant partners and consumers, while supporting the Visa brand and the advancement of electronic payments."
Fiscal Third Quarter 2012 Financial Highlights:
Payments volume growth, on a constant dollar basis, for the three months ended March 31, 2012, on which fiscal third quarter service revenue is recognized, was a positive 11% over the prior year at $958 billion.
Payments volume growth, on a constant dollar basis, for the three months ended June 30, 2012, was a positive 6% over the prior year at $979 billion.
Cross-border volume growth, on a constant dollar basis, was a positive 14% for the three months ended June 30, 2012.
Total processed transactions, which represent transactions processed by VisaNet, for the three months ended June 30, 2012, were 13.1 billion, a positive 1% increase over the prior year.
Fiscal third quarter 2012 service revenues were $1.2 billion, an increase of 15% versus the prior year, and are recognized based on payments volume in the prior quarter. All other revenue categories are recognized based on current quarter activity. Data processing revenues rose 17% over the prior year to $1.0 billion. International transaction revenues, which are driven by cross-border activity, grew 13% over the prior year to $748 million. Other revenues, which include the Visa Europe licensing fee, were $175 million, a 7% increase over the prior year. Client incentives, which are a contra revenue item, were $614 million and represent 19% of gross revenues.
The Company recorded a $4.1 billion pre-tax provision, or $2.9 billion on an after-tax basis, in the fiscal third quarter of 2012. This represents the Company's financial portion in the settlement of the Multi-District Litigation case.
Excluding the litigation provision, total operating expenses increased 10% to $1.1 billion during the fiscal third quarter, primarily due to higher personnel expense and professional fees associated with investments in technology projects to support our growth initiatives.
Cash, cash equivalents, restricted cash, and available-for-sale investment securities were $9.4 billion at June 30, 2012.
Excluding the litigation provision and the related tax benefit, the Company's adjusted effective tax rate was 29.2% for the quarter ended June 30, 2012. The Company's adjusted effective tax rate is a non-GAAP financial measure that is reconciled to its most directly comparable GAAP measure in the accompanying financial tables.
During the three months ended June 30, 2012, the Company repurchased approximately 4.0 million class A common shares, at an average price of $115.51 per share, for a total cost of $461 million.
As announced on July 13, 2012, the Company, MasterCard and U.S. financial institution defendants signed a memorandum of understanding to enter into a settlement agreement to resolve the Class Plaintiffs' claims in the Multi-District Litigation case, and announced an agreement in principle to settle with the individual plaintiffs whose claims were consolidated into the case for pre-trial purposes. The proposed settlement payments for both the Class and individual claims would be approximately $6.6 billion, of which Visa's share would represent approximately $4.4 billion. Visa's share will be paid from the litigation escrow account established pursuant to the Company's Retrospective Responsibility Plan.
As announced on July 19, 2012, the Board of Directors declared a quarterly dividend in the aggregate amount of $0.22 per share of class A common stock (determined in the case of class B and class C common stock on an as-converted basis) payable on September 4, 2012, to all holders of record of the Company's class A, class B and class C common stock as of August 17, 2012.
The Company's Board of Directors has authorized a new $1 billion class A share repurchase program. The authorization will be in place through July 2013, and is subject to further change at the discretion of the Board.
On July 24, 2012, the Company deposited $150 million into the litigation escrow account previously established under its Retrospective Responsibility Plan. Under the terms of the plan, when the Company funds the litigation escrow account, the value of the Company's class B shares - which are held by U.S. financial institutions and their affiliates and successors - is correspondingly adjusted via a reduction in the class B shareholders' as-converted share count. The $150 million deposit by the Company reduced the number of common shares outstanding on an as-converted basis from 104,452,843 to 103,257,583. The funding calculations were conducted in accordance with the Company's certificate of incorporation using the volume-weighted average price over the 3-day pricing period from July 19, 2012, through July 23, 2012. As a result of the deposit, the conversion rate applicable to the Company's class B common stock has decreased from 0.4254 to 0.4206 as of July 24, 2012.
Visa Inc. updates its financial outlook for the following metric through 2012:
- Adjusted annual diluted class A common stock earnings per share growth in the low twenties.*
Visa Inc. affirms its financial outlook for the following metrics for 2012:
- Annual net revenue growth in the low double digits;
- Client incentives as a percent of gross revenues: 17% to 18% range;
- Marketing expenses: Under $1 billion;
- Adjusted annual operating margin of about 60%*;
- Adjusted tax rate: 33% to 34% range*;
- Capital expenditures $350 million to $400 million range; and
- Annual free cash flow greater than $4 billion.
*Financial Outlook excludes (i) the impact of the litigation provision and related tax benefit recorded in Q3 2012; and (ii) a non-cash benefit related to the remeasurement of deferred tax liabilities recorded in the tax provision during Q2 2012. These deferred tax liabilities are primarily associated with indefinite-lived intangible assets recorded as part of Visa's October 2007 reorganization. Including the net impact of the litigation provision and remeasurement of deferred tax liabilities, the annual GAAP tax rate is expected to be between 30 - 31%.
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