A Visa Moment - 2nd Qtr 2008 Earnings

Visa Inc. Reports Fiscal Second Quarter 2008 Earnings Results

GAAP net income of $314 million for the quarter -

Adjusted net income of $401 million for the quarter-

GAAP diluted class A common earnings per share of $0.39 for the quarter-

Adjusted diluted class A common earnings per share of $0.52 for the quarter-

Payment volume grew 19% over the prior year to $681 billion

SAN FRANCISCO, April 28 /PRNewswire-FirstCall/ -- Visa Inc. (NYSE: V) today announced financial results for our fiscal second quarter ended March 31, 2008. GAAP net income for the quarter was $314 million, or $0.39 per diluted class A common share. GAAP diluted class A common shares outstanding were 778 million. On an adjusted basis (reflective of a normalized tax rate and excluding litigation, restructuring and purchase amortization), net income for the quarter was $401 million, or $0.52 per diluted class A common share. Adjusted diluted class A common shares outstanding were 779 million.
Net operating revenue in the fiscal second quarter 2008 was $1.5 billion. Strong contributions were made by service fees, data processing fees, and international transaction fees as payment volumes and processed transactions rose across all regions worldwide.

Fiscal Second Quarter 2008 Financial Highlights:
Visa Inc. reports operational performance data on a trailing one quarter basis, based on information provided to the company from client financial institutions. This operational performance data, which includes payments volume for our clients, total volume, total payments transactions, and total cards carrying Visa brands, are in part the basis for financial results in the following quarter. For the period ending December 31, 2007, which impacts the March 2008 fiscal quarter, Visa's operational performance highlights include:

-- Payments volume grew 19% over the prior year to $681 billion;-- Total volume, inclusive of cash volume was $1.1 trillion, an increase of 21% over the prior year;-- Total cards carrying the Visa brands rose 16% worldwide to 1.6 billion over the prior year; and-- Total payment transactions increased by 16% over the prior year to 11 billion.
Total processed transactions, which are based on current fiscal second quarter results on Visa's processing system, were 8.8 billion, a 15% increase over the prior year.
For the fiscal second quarter 2008, service fees were $792 million, up 29% over the prior year on a pro forma basis, and were recognized based on payment volume in the prior quarter. All other fee categories are recognized based on current quarter activity and are also compared on a pro forma basis. Data processing fees rose 34% over the prior year to $494 million. International transaction fees, which are driven by cross-border payments volume, grew 35% over the prior year to $379 million, as we continued to benefit from higher multi-currency payments volumes across all regions during the fiscal second quarter. Other revenue, which includes the Visa Europe licensing fee, was $126 million for the fiscal second quarter. Volume and incentive payments, which are contra revenue, were $338 million for the fiscal second quarter.
Total operating expenses were $1.1 billion for the fiscal second quarter, up 39% over the prior year on a pro forma basis. The increase in total operating expenses over the prior year was primarily driven by a $285 million provision for covered litigation. This amount is expected to be fully covered for Visa Inc. under the terms of the retrospective responsibility plan. Excluding this provision, operating expenses grew only 3% over the prior year on a pro forma basis.
Cash, cash equivalents, restricted cash, and available-for-sale investment securities were $8 billion at March 31, 2008, and includes $2.7 billion that we intend to use to redeem all of the series II and a portion of the series III class C shares in October 2008.

Financial Outlook:
Visa Inc.'s financial outlook over the next three years includes the following metrics:
Annual net revenue growth of 11% to 15%;--

Annual adjusted operating margin (adjusted earnings before interest and taxes) in the low 40% range;--

Annual adjusted diluted class A common earnings per share growth of 20% or greater; and-- Annual free cash flow (cash flow from operations plus cash reimbursements from litigation escrow less capital spending) in excess of $1 billion.
This outlook reflects an assumed 41% percent GAAP tax rate for fiscal year 2008. Our intent is to reduce this rate to a level around 35-36% over the next five years.