Visa Inc. — FY2013 Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2013. The filing also reports the fourth quarter ended September 30, 2013. Visa operates a global payments network and is not a bank; it does not issue cards, extend credit, or earn interchange fees directly.
Financial performance
| Metric | FY2013 | FY2012 | Change / context |
|---|---|---|---|
| Operating revenues | $11.778 billion | $10.421 billion | Up 13% |
| Operating income | $7.239 billion | $2.139 billion | FY2012 included a $4.1 billion litigation provision |
| Operating margin | 61% | 21% reported; 60% adjusted | FY2013 had no comparable litigation or other specified adjustments |
| Net income attributable to Visa | $4.980 billion | $2.144 billion reported; $4.203 billion adjusted | FY2012 was also affected by tax items |
| Diluted Class A EPS | $7.59 | $3.16 reported; $6.20 adjusted | FY2012 adjusted for specified litigation and tax items |
| Operating cash flow | $3.022 billion | $5.009 billion | FY2013 included litigation-related cash-flow effects; management stated cash flow would have been $5.9 billion absent those impacts |
Fourth quarter: Revenue was $2.973 billion, operating income $1.751 billion, net income $1.192 billion, and diluted Class A EPS $1.85.
- Revenue growth reflected higher payments volume, processed transactions, cross-border volume, and pricing changes; increased client incentives and U.S. debit-related volume pressure partly offset growth.
- Service revenue rose 10% to $5.352 billion; data processing revenue rose 17% to $4.642 billion; international transaction revenue rose 12% to $3.389 billion. Client incentives were $2.321 billion, up 8%.
- Nominal payments volume grew 8% overall in the 12 months ended June 30, 2013; international volume grew 11%, while U.S. consumer debit volume was essentially flat. VisaNet processed transactions increased 10% to 58.472 billion.
- Cash and cash equivalents were $2.186 billion; available-for-sale investments totaled $4.754 billion. Total assets were $35.956 billion and equity was $26.870 billion. Visa reported no outstanding commercial paper or credit-facility borrowings and no long-term debt.
- Visa repurchased 33 million Class A shares for $5.365 billion and paid $864 million in dividends during FY2013. The annual dividend was $1.32 per share.
Changes and unusual items
- Reported FY2013 operating income and earnings are not directly comparable with FY2012 because FY2012 included the $4.1 billion covered-litigation provision. FY2012 also included a $208 million non-cash deferred-tax benefit and a $326 million increase in net income from reversal of tax reserves and accrued interest.
- Visa paid approximately $4.4 billion from its litigation escrow in FY2013, including approximately $4.0 billion for the merchant class settlement and $350 million to individual merchants. The class settlement remained subject to final court approval and appeals.
- Client incentives increased and represented 16% of gross operating revenues in FY2013. Management expected incentives to be 16.5%–17.5% of gross revenues in FY2014.
Outlook, risks, and contingencies
- Management described a slow-moving global recovery and continued opportunity in the migration from paper to electronic payments. No broad revenue, earnings, or margin guidance is provided in the filing.
- Visa expected a stronger U.S. dollar to reduce FY2014 operating-revenue growth by about two percentage points, net of hedges.
- Dodd-Frank debit interchange caps and routing rules had pressured U.S. debit pricing and transaction volumes. A federal court invalidated the rules in July 2013, but its order was stayed pending the Federal Reserve’s appeal; the rules remained in effect at filing.
- Merchant opt-outs and objections could affect the interchange settlement. Visa estimated its share of potential settlement-fund takedown payments at approximately $1.1 billion, with a related $387 million tax and cash-flow impact upon final approval.
- Visa Europe can exercise a perpetual put requiring Visa to acquire its member-owned shares within 285 days. The recorded fair-value liability was $145 million, but the possible purchase price could be several billion dollars or more and cannot be reliably estimated.
- Other material risks include competition and pricing pressure, regulation, client concentration, litigation and tax examinations, cyberattacks or processing disruptions, foreign exchange movements, and settlement indemnification. Maximum estimated settlement exposure was $53.8 billion at year-end; $3.0 billion was covered by collateral.
- Visa stated that projected liquidity was sufficient for more than 12 months. A $3.0 billion revolving credit facility was available through January 30, 2014; there were no borrowings at year-end.
Important facts for investors to verify
- Final approval and appeal outcomes for the interchange class settlement, including the effect of merchant opt-outs and related takedown payments.
- Developments in U.S. debit interchange and routing regulation, and the resulting impact on volumes, pricing, and client incentives.
- Whether FY2014 incentive costs and currency effects track management’s stated expectations.
- Potential exercise and purchase-price calculation under the Visa Europe put, including the disputed indemnification obligations for European competition proceedings.
- How much of reported cash and investments is practically available for U.S. needs, given $4.3 billion held by foreign subsidiaries and management’s intent to reinvest most of it abroad.