What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-11-19 compared with 2019-11-14 · 243 added, 216 removed, 367 unchanged (56% of the section changed)

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The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in Item 8—Financial Statements and Supplementary Data of this report.

Visa is a global payments technology company that enables fast, secure and reliable electronic payments across more than 200 countries and territories.

We facilitate global commerce through the transfer of value and information among a global network of consumers, merchants, financial institutions, businesses, strategic partners and government entities.

This section of this Form 10-K generally discusses fiscal 2020 compared to fiscal 2019.

Discussions of fiscal 2019 compared to 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2019 Form 10-K, filed with the United States Securities and Exchange Commission on November 14, 2019.

Visa is a global payments technology company that enables innovative, secure and reliable electronic payments across more than 200 countries and territories.

We facilitate digital payments across a global network of consumers, merchants, financial institutions, businesses, strategic partners and government entities through innovative technologies.

Our advanced transaction processing network, VisaNet, enables authorization, clearing and settlement of payment transactions and allows us to provide our financial institution and merchant clients a wide range of products, platforms and value added services.

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For the Years Ended

September 30,

September 30, % Change (1)

2020 2019 2018 2020

(in millions, except percentages and per share data)

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Non-GAAP net income (2)

$ 11,193 $ 12,274 $ 10,656 (9) % 15 %

Non-GAAP diluted earnings per share (2)

$ 5.04 $ 5.40 $ 4.58 (7) % 18 %

(1) Figures in the table may not recalculate exactly due to rounding.

Percentage changes are calculated based on unrounded numbers.

Non-GAAP net income and non-GAAP diluted earnings per share in fiscal 2019 , 2018 and 2017 exclude the impact of certain significant items that we believe are not indicative of our operating performance in these or future periods, as they are either non-recurring or have no cash impact.

(2) For a full reconciliation of our non-GAAP financial results, see tables in Non-GAAP financial results below.

COVID-19 continues to have an impact globally.

While we have been actively monitoring the worldwide spread of COVID-19, the extent to which COVID-19 will ultimately impact our business remains difficult to predict.

Our priority remains the safety of our employees, clients and the communities in which we live and operate.

We are taking a measured approach in bringing our employees back in the office and will continue to have most of our employees work remotely for the rest of 2020.

We continue to remain in close and regular contact with our employees, clients, partners and governments globally to help them navigate these challenging times.

Revenues in the latter half of fiscal 2020 were impacted by declines in volumes and transactions as a result of COVID-19, although we are exiting the year with improved results and most countries had stable to positive year-over-year domestic spending growth in the fiscal fourth quarter.

Cross-border volume however, remained depressed, led by travel spending, as the majority of borders remain closed.

While we have taken measures to modify our business practices and reduce operating expenses, including scaling back hiring plans, restricting travel, lowering marketing spend and the use of external resources, the impact that COVID-19 will have on our business remains difficult to predict due to numerous uncertainties, including the transmissibility, severity and duration of the outbreak, the effectiveness of social distancing measures or actions that are voluntarily adopted by the public or required by governments or public health authorities, the development and availability of effective treatments or vaccines, and the impact to our employees and our operations, the business of our clients, supplier and business partners, and other factors identified in Part I, Item 1A “Risk Factors” in this Form 10-K.

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

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Highlights for fiscal 2020 .

Our business is affected by overall economic conditions and consumer spending.

Our business performance during fiscal 2019 reflects continued global consumer spending growth amidst uneven global economic conditions.

We recorded net revenues of $23.0 billion for fiscal 2019 , an increase of 11% over the prior year, primarily reflecting continued growth in nominal payments volume, nominal cross-border volume and processed transactions.

Exchange rate movements in fiscal 2019 , partially mitigated by our hedging program, negatively impacted our net revenues growth by approximately one-and-a-half percentage points .

Total operating expenses for fiscal 2019 were $8.0 billion , compared to $7.7 billion in fiscal 2018 .

The increase over the prior year was primarily driven by higher personnel and marketing as we continue to invest in growing our business, offset by a lower litigation provision.

Net revenues for fiscal 2020 were $21.8 billion, a decrease of 5% over the prior year, primarily due to the year-over-year changes payments volume, cross-border volume and processed transactions, which were impacted by the spread of COVID-19 globally starting in the latter part of March 2020.

Exchange rate movements in fiscal 2020, partially mitigated by our hedging program, negatively impacted our net revenues growth by approximately half a percentage point.

Total operating expenses for fiscal 2020 were $7.8 billion on a GAAP basis, and decreased 3% over the prior year, driven by lower litigation provision and our overall cost reduction strategy, offset by higher personnel and depreciation and amortization from our ongoing investments in support of our strategy for future growth.

Total operating expenses for fiscal 2020 were $7.7 billion on a non-GAAP basis, and increased 1% over the prior year primarily driven by higher personnel, offset by our overall cost reduction strategy.

Non-GAAP financial results.

Our financial results for fiscal 2019 , 2018 and 2017 reflect the impact of certain significant items that we do not believe are indicative of our ongoing operating performance in these or future periods, as they are either non-recurring or have no cash impact.

As such, we believe the presentation of our non-GAAP financial results excluding the following items provides a clearer understanding of our operating performance for the periods presented.

We use non-GAAP financial measures of our performance which exclude certain items which we believe are not representative of our continuing operations, as they may be non-recurring or have no cash impact, and may distort our longer-term operating trends.

We consider non-GAAP measures useful to investors because they provide greater transparency into management’s view and assessment of our ongoing operating performance.

Starting in fiscal 2020, we revised our non-GAAP methodology to also exclude the impact of gains and losses on our equity investments, amortization of acquired intangible assets and acquisition-related costs for acquisitions that closed in fiscal 2019 and subsequent periods.

Prior year amounts have been restated to conform to our current presentation.

• Gains and losses on equity investments.

Gains and losses on equity investments include periodic non-cash fair value adjustments and gains and losses upon sale of an investment.

These long-term investments are strategic in nature and are primarily private company investments.

Gains and losses and the related tax impacts associated with these investments are tied to the performance of the companies that we invest in and therefore do not correlate to the underlying performance of our business.

• Amortization of acquired intangible assets.

Amortization of acquired intangible assets consists of amortization of intangible assets such as developed technology, customer relationships and brands acquired in connection with business combinations executed beginning in fiscal 2019.

Amortization charges for our acquired intangible assets are non-cash and are significantly affected by the timing, frequency and size of our acquisitions, rather than our core operations.

As such, we have excluded this amount and the related tax impact to facilitate an evaluation of our current operating performance and comparison to our past operating performance.

• Acquisition-related costs.

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.

It also includes 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.

We have excluded these amounts and the related tax impacts as the expenses are recognized for a limited duration and do not reflect the underlying performance of our business.

• Litigation provision.

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See Note 5—U.S.

and Europe Retrospective Responsibility Plans and Note 20—Legal Matters to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data .

and Europe Retrospective Responsibility Plans and Note 20—Legal Matters to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

• Charitable contributions .

During fiscal 2018, we donated investment securities to the Visa Foundation and recognized a non-cash general and administrative expense of $195 million, before tax, and recorded $193 million of realized gain on the donation of these investments as non-operating income.

Net of the related cash tax benefit of $51 million , determined by applying applicable tax rates, adjusted net income decreased by $49 million .

During fiscal 2017, associated with our legal entity reorganization, we recognized a non-cash general and administrative expense of $192 million, before tax, related to the charitable donation of Visa Inc.

shares that were acquired as part of the Visa Europe acquisition and held as treasury stock.

Net of the related cash tax benefit of $71 million, determined by applying applicable tax rates, adjusted net income increased by $121 million.

Net of the related cash tax benefit of $51 million, determined by applying applicable tax rates, non-GAAP net income decreased by $49 million.

• Remeasurement of deferred tax balances.

During fiscal 2020, in connection with the UK enacted legislation that repealed the previous tax rate reduction from 19% to 17% that was effective on April 1, 2020, we

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remeasured our net deferred tax liabilities as of the enactment date, resulting in the recognition of a non-recurring, non-cash income tax expense of $329 million.

During fiscal 2018, in connection with the Tax Cuts and Jobs Act (the “Tax Act”) reduction of the corporate income tax rate, we remeasured our net deferred tax liabilities as of the enactment date, resulting in the recognition of a non-recurring, non-cash income tax benefit of $1.1 billion.

See Note 19—Income Taxes to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data .

See Note 19—Income Taxes to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

• Transition tax on foreign earnings.

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subsidiaries in our fiscal 2018 taxable income, we recorded a one-time transition tax estimate of approximately $1.1 billion.

See Note 19—Income Taxes to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data .

Elimination of deferred tax balances.

During fiscal 2017, in connection with our legal entity reorganization, we eliminated deferred tax balances originally recognized upon the acquisition of Visa Europe, resulting in the recognition of a non-recurring, non-cash income tax provision of $1.5 billion.

See Note 19—Income Taxes to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data .

Non-GAAP operating expenses, operating margin, non-operating income (expense), income before income taxes, income tax provision, effective income tax rate, net income and diluted earnings per share should not be relied upon as substitutes for measures calculated in accordance with U.S.

See Note 19—Income Taxes to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

• Resolution of a tax item.

During fiscal 2020, we resolved a long-outstanding tax matter, dating back more than 12 years, relating to certain tax filing positions taken prior to our initial public offering.

The resolution of this matter resulted in the recognition of a one-time charge to income tax expense of $28 million, which we believe is not representative of our continuing operations and ongoing effective tax rate.

Non-GAAP operating expenses, non-operating income (expense), income tax provision, effective income tax rate, net income and diluted earnings per share should not be relied upon as substitutes for measures calculated in accordance with U.S.

The following tables reconcile our as-reported financial measures, calculated in accordance with U.S.

GAAP to the respective non-GAAP financial measures for fiscal 2019 , 2018 and 2017 :

Year ended September 30, 2019

Operating Expenses

Operating Margin

Non-operating Income (Expense)

Income Before Income Taxes

Income Tax Provision

Effective Income Tax Rate (2)

Diluted Earnings Per Share (2)

GAAP, to the respective non-GAAP financial measures:

For the Year Ended

September 30, 2020

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

Net Income Diluted Earnings Per Share (1)

(in millions, except percentages and per share data)

As reported $ 7,765 $ (291) $ 2,924 21.2 % $ 10,866 $ 4.89

(Gains) Losses on equity investments, net — (101) (23) (78) (0.04)

Amortization of acquired intangible assets (46) — 11 35 0.02

Acquisition-related costs (17) — 4 13 0.01

Remeasurement of deferred tax balances — — (329) 329 0.15

Resolution of a tax item — — (28) 28 0.01

Non-GAAP $ 7,702 $ (392) $ 2,559 18.6 % $ 11,193 $ 5.04

For the Year Ended

September 30, 2019

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

Net Income Diluted Earnings Per Share (1)

(in millions, except percentages and per share data)

As reported $ 7,976 $ (117) $ 2,804 18.8 % $ 12,080 $ 5.32

(Gains) Losses on equity investments, net — (131) (30) (101) (0.04)

Amortization of acquired intangible assets (6) — 1 5 —

Acquisition-related costs (4) — 1 3 —

Litigation provision (370) — 83 287 0.13

Year ended September 30, 2018

Operating Expenses

Operating Margin

Non-operating Income (Expense)

Income Before Income Taxes

Income Tax Provision

Effective Income Tax Rate (2)

Diluted Earnings Per Share (2)

Non-GAAP $ 7,596 $ (248) $ 2,859 18.9 % $ 12,274 $ 5.40

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For the Year Ended

September 30, 2018

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

Net Income Diluted Earnings Per Share (1)

(in millions, except percentages and per share data)

As reported $ 7,655 $ (148) $ 2,505 19.6 % $ 10,301 $ 4.42

(Gains) Losses on equity investments, net — (98) (25) (73) (0.03)

Charitable contribution (195) (193) 51 (49) (0.02)

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Transition tax on foreign earnings — — (1,147) 1,147 0.49

Year ended September 30, 2017

Operating Expenses

Operating Margin

Non-operating Income (Expense)

Income Before Income Taxes

Income Tax Provision

Effective Income Tax Rate (2)

Diluted Earnings Per Share (2)

(in millions, except percentages and per share data)

Charitable contribution

Elimination of deferred tax balances

Operating margin is calculated as operating income divided by net revenues.

Non-GAAP $ 6,860 $ (439) $ 2,654 20.3 % $ 10,656 $ 4.58

(1) Figures in the table may not recalculate exactly due to rounding.

Operating margin, effective income tax rate, diluted earnings per share and their respective totals are calculated based on unrounded numbers.

Interchange multidistrict litigation .

During fiscal 2019 , we recorded an additional accrual of $370 million to address claims associated with the interchange multidistrict litigation, resulting in an accrued litigation balance related to U.S.

covered litigation of $1.2 billion at September 30, 2019 .

We also deposited $300 million of operating cash into the U.S.

litigation escrow account.

See Note 5—U.S.

and Europe Retrospective Responsibility Plans and Note 20—Legal Matters to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data .

Reduction in as-converted shares.

During fiscal 2019 , total as-converted class A common stock was reduced by 58 million shares at an average price of $154.62 per share.

Of the 58 million shares, 56 million were repurchased in the open market using $8.6 billion of operating cash on hand.

Additionally, in September 2019, we deposited $300 million of operating cash into the litigation escrow account previously established under the U.S.

retrospective responsibility plan.

Also, we recovered $8 million of VE territory covered losses in accordance with the Europe retrospective responsibility plan during fiscal 2019 .

The deposit and recovery have the same economic effect on earnings per share as repurchasing our class A common stock because they reduce the class B common stock conversion rate and the UK&I and Europe preferred stock conversion rates and consequently, reduce the as-converted class A common stock share count.

Effective income tax rate, diluted earnings per share and their respective totals are calculated based on unrounded numbers.

Release of preferred stock.

In September 2020, we released $7.3 billion of the as-converted value from our series B and C preferred stock (alternatively referred to as UK&I and Europe preferred stock, respectively) and issued 374,819 shares of series A preferred stock in connection with the first mandatory release assessment, as required by the litigation management deed entered into at the time of the Visa Europe acquisition.

See Note 5—U.S.

and Europe Retrospective Responsibility Plans and Note 14—Stockholders’ Equity to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data .

and Europe Retrospective Responsibility Plans and Note 15—Stockholders’ Equity to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

Common stock repurchases.

In January 2019 , our board of directors authorized an additional $8.5 billion share repurchase program.

As of September 30, 2019 , the program had remaining authorized funds of $4.1 billion for share repurchase.

All share repurchase programs authorized prior to January 2019 have been completed.

See Note 14—Stockholders’ Equity to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data .

In January 2020, our board of directors authorized a $9.5 billion share repurchase program (the “January 2020 Program”).

During fiscal 2020, we repurchased 44 million shares of our class A common stock in the open market for $8.1 billion.

As of September 30, 2020, our January 2020 Program had remaining authorized funds of $5.5 billion for share repurchase.

See Note 15—Stockholders’ Equity to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

Senior notes.

In fiscal 2020, we issued fixed-rate senior notes in public offerings in an aggregate principal amount of $7.3 billion with maturities ranging between 7 and 30 years.

See Note 10—Debt to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

On January 13, 2020, we entered into a definitive agreement to acquire Plaid Inc.

for $5.3 billion.

We will pay approximately $4.9 billion of cash and $0.4 billion of retention equity and deferred equity consideration.

This acquisition is subject to customary closing conditions, including regulatory reviews and approvals.

On November 5, 2020, the U.S.

Department of Justice filed a complaint in the U.S.

District Court for the Northern District of California seeking a permanent injunction to prevent Visa from acquiring Plaid, alleging that the proposed acquisition would substantially lessen competition in violation of Section 7 of the Clayton Act and would constitute monopolization under Section 2 of the Sherman Act.

Visa intends to vigorously defend the lawsuit.

See Note 2—Acquisitions and Note 20—Legal Matters to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

Payments volume and processed transactions.

Payments volume is the primary driver for our service revenues, and the number of processed transactions is the primary driver for our data processing revenues.

During the three months ended December 31, 2018, we updated our definition of payments volume to now include all disbursement volume related to Visa Direct, in addition to the funding volume previously included.

All prior periods presented have been adjusted accordingly.

Please refer to the Operational Performance Data section of Exhibit 99.1 on Form 8-K filed on January 30, 2019 for more details on the impact from this update in payments volume definition.

Nominal payments volume over the prior year posted low double-digit growth in the U.S.

and in line with 2018 growth.

Nominal international payments volume growth of 3% for the 12 months ended June 30, 2019 (1) was negatively impacted by the overall strengthening of the U.S.

On a constant-dollar basis, which excludes the impact of exchange rate movements, our international payments volume growth rate for the 12 months ended June 30, 2019 and 2018 was 10% and 11%, respectively.

Growth in processed transactions reflects the ongoing worldwide shift to electronic payments.

Nominal payments volume growth in the U.S.

for the 12 months ended June 30, 2020 and 2019 was 4% and 10%, respectively.

The decrease in nominal international payments volume of 1% for the 12 months ended June 30, 2020 (1) was negatively impacted by the overall strengthening of the U.S.

On a constant-dollar basis, which excludes the impact of exchange rate movements, our international payments volume growth for the 12 months ended June 30, 2020 and 2019 was 2% and 9%, respectively.

Growth in processed transactions reflects the ongoing worldwide shift to electronic payments, partially offset by the impact of COVID-19.

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The following tables present nominal payments and cash volume:

International

International Visa Inc.

ended June 30, (1)

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Consumer credit

$ 1,518 $ 1,540 (1) % $ 2,361 $ 2,484 (5) % $ 3,879 $ 4,025 (4) %

Consumer debit (3)

1,851 1,699 9 % 1,974 1,877 5 % 3,824 3,576 7 %

Commercial (4)

641 634 1 % 369 381 (3) % 1,010 1,015 — %

Total nominal payments volume (2)

$ 4,009 $ 3,873 4 % $ 4,704 $ 4,742 (1) % $ 8,713 $ 8,615 1 %

573 573 — % 2,046 2,261 (9) % 2,620 2,834 (8) %

Total nominal volume (2),(5)

International

$ 4,583 $ 4,447 3 % $ 6,750 $ 7,003 (4) % $ 11,333 $ 11,450 (1) %

International Visa Inc.

ended June 30, (1)

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Consumer credit

$ 1,540 $ 1,441 7 % $ 2,484 $ 2,455 1 % $ 4,025 $ 3,897 3 %

Consumer debit (3)

1,699 1,521 12 % 1,877 1,792 5 % 3,576 3,313 8 %

Commercial (4)

634 564 12 % 381 364 5 % 1,015 927 9 %

Total nominal payments volume (2)

$ 3,873 $ 3,526 10 % $ 4,742 $ 4,611 3 % $ 8,615 $ 8,137 6 %

573 563 2 % 2,261 2,437 (7) % 2,834 3,000 (6) %

Total nominal volume (2),(5)

The following table (2) presents nominal and constant payments and cash volume growth:

International

$ 4,447 $ 4,089 9 % $ 7,003 $ 7,048 (1) % $ 11,450 $ 11,137 3 %

The following table presents the change in nominal and constant payments and cash volume:

International Visa Inc.

12 months ended

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2019 vs 2018 (1)

Nominal Constant (6)

Payments volume growth

Consumer credit

Consumer debit (3)

Commercial (4)

Consumer credit growth (5) % (2) % 1 % 8 % (4) % (2) % 3 % 7 %

Consumer debit growth (3)

5 % 9 % 5 % 11 % 7 % 9 % 8 % 11 %

Commercial growth (4)

(3) % — % 5 % 13 % — % 1 % 9 % 12 %

Total payments volume growth (2)

(1) % 2 % 3 % 9 % 1 % 3 % 6 % 10 %

Cash volume growth

(9) % (6) % (7) % — % (8) % (5) % (6) % — %

Total volume growth (2)

(4) % (1) % (1) % 6 % (1) % 1 % 3 % 7 %

(1) Service revenues in a given quarter are assessed based on nominal payments volume in the prior quarter.

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(3) Includes consumer prepaid volume and interlink volume.

Includes large, middle and small business credit and debit, as well as commercial prepaid volume.

(4) Includes large, medium and small business credit and debit, as well as commercial prepaid volume.

(5) Total nominal volume is the sum of total nominal payments volume and cash volume.

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(6) Growth on a constant-dollar basis excludes the impact of foreign currency fluctuations against the U.S.

The following table (1) provides the number of transactions involving cards and other form factors carrying the Visa, Visa Electron, Interlink, VPAY and PLUS cards processed on Visa’s networks during the fiscal periods presented:

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The following table provides the number of transactions involving cards and other form factors carrying the Visa, Visa Electron, Interlink, VPAY and PLUS cards processed on Visa’s networks:

For the Years Ended

September 30, % Change (1)

2020 2019 2018 2020

(in millions, except percentages)

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International transaction revenues are recognized in the same period the cross-border transactions occur or services are performed.

Other revenues consist mainly of value-added services, license fees for use of the Visa brand or technology, account holder services, certification, licensing and product enhancements, such as extended account holder protection and concierge services.

Other revenues consist mainly of value added services, license fees for use of the Visa brand or technology, fees for account holder services, certification, licensing and product enhancements, such as extended account holder protection and concierge services.

Other revenues are recognized in the same period the related transactions occur or services are performed.

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Marketing expenses include expenses associated with advertising and marketing campaigns, sponsorships and other related promotions of the Visa brand.

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Network and processing expenses mainly represent expenses for the operation of our processing network, including maintenance, equipment rental and fees for other data processing services.

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Non-operating income (expense) primarily includes interest expense, gains and losses earned on investments, income from derivative instruments not associated with our core business, as well as the non-service components of net periodic pension income and expenses.

For discussion related to the results of operations and liquidity and capital resources for fiscal 2018 compared to fiscal 2017 refer to Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2018 Form 10-K, filed with the United States Securities and Exchange Commission on November 16, 2018.

Results of Operations

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For the Years Ended

September 30,

September 30, $ Change % Change (1)

2020 2019 2018 2020

(in millions, except percentages)

$ 10,125 $ 10,279 $ 9,332 $ (154) $ 947 (1) % 10 %

International 11,721 12,698 11,277 (977) 1,421 (8) % 13 %

Net revenues $ 21,846 $ 22,977 $ 20,609 $ (1,131) $ 2,368 (5) % 11 %

(1) Figures in the table may not recalculate exactly due to rounding.

Percentage changes are calculated based on unrounded numbers.

The increase in net revenues in fiscal 2019 reflects the continued growth in nominal payments volume, nominal cross-border volume, and processed transactions.

The increase in revenues were partially offset by increases in client incentives in fiscal 2019 .

Net revenues decreased in fiscal 2020 primarily due to the year-over-year changes in payments volume, cross-border volume and processed transactions, which were impacted by COVID-19 starting in the latter part of March 2020.

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.

Exchange rate movements in fiscal 2019 , as partially mitigated by our hedging program, negatively impacted our net revenues growth by approximately one-and-a-half percentage points .

Exchange rate movements in fiscal 2020, as partially mitigated by our hedging program, negatively impacted our net revenues growth by approximately half a percentage point.

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The following table sets forth the components of our net revenues:

For the Years Ended

September 30,

September 30, $ Change % Change (1)

2020 2019 2018 2020

(in millions, except percentages)

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Client incentives (6,664) (6,173) (5,491) (491) (682) 8 % 12 %

Net revenues $ 21,846 $ 22,977 $ 20,609 $ (1,131) $ 2,368 (5) % 11 %

(1) Figures in the table may not recalculate exactly due to rounding.

Percentage changes are calculated based on unrounded numbers.

Service revenues increased primarily due to 6% growth in nominal payments volume and select pricing modifications.

Data processing revenues increased mainly due to overall growth in processed transactions of 11% as well as select pricing modifications.

International transaction revenues increased primarily due to nominal cross-border volume growth of 2% and select pricing modifications.

Other revenues increased primarily due to changes in the classification and timing of recognition of revenue as a result of the adoption of the new revenue standard and an increase in revenues from value-added services.

Client incentives increased mainly due to incentives recognized on long-term client contracts that were initiated or renewed during fiscal 2019 and overall growth in global payments volume.

As a result of the adoption of the new revenue standard, client incentives were also impacted by changes in classification and timing of recognition.

• Service revenues increased primarily due to 1% growth in nominal payments volume.

• Data processing revenues increased due to 2% growth in processed transactions, growth in value added services and select pricing modifications.

• International transaction revenues decreased due to a 23% decline in nominal cross-border volumes, excluding transactions within Europe, as COVID-19 spread globally starting in the latter part of March 2020.

International transaction revenues were also impacted by select pricing modifications.

• Other revenues increased primarily due to the increase in consulting and marketing services related fees, other value added services and acquisition-related revenues.

• Client incentives increased mainly due to incentives recognized on long-term client contracts that were initiated or renewed during fiscal 2020 partially offset by the recent decline in global payments volume.

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 the execution of new contracts.

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For the Years Ended

September 30,

September 30, $ Change % Change (1)

2020 2019 2018 2020

(in millions, except percentages)

Personnel $ 3,785 $ 3,444 $ 3,170 $ 341 $ 274 10 % 9 %

Marketing 971 1,105 988 (134) 117 (12) % 12 %

Network and processing 727 721 686 6 35 1 % 5 %

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Total operating expenses (2)

$ 7,765 $ 7,976 $ 7,655 $ (211) $ 321 (3) % 4 %

(1) Figures in the table may not recalculate exactly due to rounding.

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• Personnel expenses increased due to continued headcount growth in support of our investment strategy for future growth.

Marketing expenses increased mainly due to changes in the classification and timing of recognition of certain marketing expenses as a result of the adoption of the new revenue standard.

The increase was partially offset by spend for the 2018 Winter Olympics in PyeongChang and 2018 FIFA World Cup TM in fiscal 2018, which did not recur in fiscal 2019 .

General and administrative expenses increased primarily as a result of unfavorable foreign currency fluctuations, changes in the classification and timing of recognition of certain general and administrative expenses as a result of the adoption of the new revenue standard, higher indirect taxes, higher product enhancement costs and global facilities expansion in support of our business growth.The increase was partially offset by a $195 million charitable contribution to the Visa Foundation in fiscal 2018, which did not recur in fiscal 2019 .

Litigation provision decreased primarily due to a $370 million accrual in fiscal 2019 compared to a $600 million accrual in fiscal 2018 related to the interchange multidistrict litigation.

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• Marketing expenses decreased reflecting our overall cost reduction strategy, the absence of FIFA women’s world cup and the delay of the Tokyo Olympics to fiscal 2021, partially offset by an increase in client marketing spend.

• Professional fees decreased reflecting our overall cost reduction strategy.

• Depreciation and amortization expenses increased primarily due to additional depreciation and amortization from our on-going investments, including acquisitions.

• General and administrative expenses decreased primarily due to travel restrictions and our overall cost reduction strategy.

• Litigation provision decreased primarily due to lower accruals for uncovered litigation in fiscal 2020 and a $370 million accrual in fiscal 2019 related to the interchange multidistrict litigation.

See Note 5—U.S.

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For the Years Ended

September 30,

September 30, $ Change % Change (1)

2020 2019 2018 2020

(in millions, except percentages)

4 unchanged sentences

Percentage changes are calculated based on unrounded numbers.

Interest expense decreased primarily as a result of entering into derivative instruments in fiscal 2019 that lowered the average cost of borrowing on a portion of our outstanding debt.

See Note 9—Debt and Note 12—Derivative and Non-derivative Financial Instruments to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

Investment income and other decreased primarily due to gains of $193 million from the donation of investment securities to the Visa Foundation in fiscal 2018 which did not recur fiscal 2019 , offset by higher gains on our equity investments and interest income on our cash and investments.

• Interest expense, net decreased primarily as a result of derivative instruments that lowered the cost of borrowing on a portion of our outstanding debt, offset by additional interest expense related to the issuance of debt in fiscal 2020.

See Note 10—Debt and Note 13—Derivative Financial Instruments to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

• Investment income and other decreased primarily due to lower gains on our equity investments and lower interest income on our cash and investments.

See Note 6—Fair Value Measurements and Investments to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

Effective Income Tax Rate

The following table sets forth our effective income tax rate:

For the Years Ended

September 30,

September 30, Change

2020 2019 2018 2020

Effective income tax rate 21 % 19 % 20 % 2 % (1) %

The effective tax rate in fiscal 2019 differs from the effective tax rate in fiscal 2018 primarily due to:

a decrease in federal statutory tax rate as a result of the Tax Act, from a blended rate of 24.5% in fiscal 2018 to a rate of 21% in fiscal 2019, as discussed below;

new provisions enacted as part of the Tax Act, including the deduction for foreign-derived intangible income (“FDII”) and tax on global intangible low-tax income (“GILTI”);

the absence of the following items recorded in fiscal 2018:

a $1.1 billion one-time transition tax expense on certain untaxed foreign earnings in accordance with the Tax Act;

a $1.1 billion non-recurring, non-cash benefit from the remeasurement of deferred tax balances due to the reduction in U.S.

federal tax rate enacted by the Tax Act;

$161 million of tax benefits due to various non-recurring audit settlements.

The Tax Act, enacted on December 22, 2017, transitioned the U.S.

tax system to a territorial system and lowered the statutory federal corporate income tax rate from 35% to 21% .

The reduction of the statutory federal corporate tax rate to 21% became effective on January 1, 2018.

In fiscal 2018, our statutory federal corporate tax rate was a blended rate of 24.5%, which was reduced to 21% in fiscal 2019.

The Tax Act enacted several new tax provisions effective for us on October 1, 2018, most notably FDII and GILTI.

The effective tax rate in fiscal 2020 differs from the effective tax rate in fiscal 2019 mainly due to a $329 million non-recurring, non-cash tax expense relating to the remeasurement of UK deferred tax liabilities, as a result of the enactment of UK legislation on July 22, 2020 that repealed the previous tax rate reduction from 19% to 17% that was effective on April 1, 2020.

The remeasurement of UK deferred tax liabilities was primarily related to deferred taxes on intangibles recorded upon the acquisition of Visa Europe in fiscal 2016.

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Liquidity and Capital Resources

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September 30,

2020 2019 2018

(in millions)

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Financing activities (3,968) (12,061) (10,790)

Effect of exchange rate changes on cash and cash equivalents

Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents 440 (277) (101)

Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents

$ 8,339 $ (145) $ (1,034)

Operating activiti es.

Cash provided by operating activities in fiscal 2019 was positively impacted by continued growth in our underlying business.

Fiscal 2019 was lower than the prior fiscal year primarily due to higher payments in the current year from the litigation escrow account and the first installment payment of the transition tax in connection with the Tax Act, partially offset by continued growth in our underlying business.

Cash provided by operating activities in fiscal 2020 was lower than the prior fiscal year primarily due to lower net income, higher client incentive payments and timing of settlement.

Investing activities.

Cash used in investing activities in fiscal 2019 was lower than the prior year due to higher proceeds from sales and maturities of investment securities, combined with fewer purchases, partially offset by $0.7 billion of purchase consideration paid for acquisitions, net of cash and restricted cash acquired, and $0.5 billion of purchases of other investments.

Cash provided by investing activities in fiscal 2020 was higher than the prior fiscal year primarily due to higher proceeds from sales and maturities of investment securities, combined with fewer investment security purchases, lower purchase consideration paid for acquisitions, net of cash and restricted cash acquired, due to fewer acquisitions and lower purchases of other investments.

Financing activities.

Cash used in financing activities in fiscal 2019 increased primarily due to higher class A common stock repurchases, higher dividends paid and a $1.2 billion payment of the deferred purchase consideration related to the Visa Europe acquisition.

See Note 14—Stockholders’ Equity , to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

Cash used in financing activities in fiscal 2020 was lower than the prior fiscal year primarily due to proceeds received from the issuance of senior notes, the absence of the deferred purchase consideration payment made in the prior year and lower share repurchases, partially offset by higher dividends paid.

See Note 10—Debt and Note 15—Stockholders’ Equity , to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

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Sources of Liquidity

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We believe that cash flow generated from operations, in conjunction with access to our other sources of liquidity, will be more than sufficient to meet our ongoing operational needs.

Foreign Earnings.

Pursuant to the Tax Act, we are required to pay U.S.

tax on most of the undistributed and untaxed foreign earnings of non-U.S.

subsidiaries accumulated as of December 31, 2017.

The transition tax will be paid over a period of eight years as permitted by the Tax Act.

As a result of the Tax Act, we are no longer subject to incremental U.S.

federal tax on foreign earnings of non-U.S.

subsidiaries in the event that we repatriate these earnings back to the U.S.

Available-for-sale debt securities.

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See Note 10—Debt to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

Universal shelf registration statement.

In July 2018, we filed a registration statement with the SEC using a shelf registration process.

As permitted by the registration statement, we may, from time to time, sell shares of debt or equity securities in one or more transactions.

This registration statement expires in July 2021.

Senior notes.

In fiscal 2020, we issued fixed-rate senior notes in public offerings in an aggregate principal amount of $7.3 billion with maturities between 7 and 30 years.

See Note 10—Debt to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

Litigation escrow account.

Pursuant to the terms of the U.S.

retrospective responsibility plan, we maintain a U.S.

retrospective responsibility plan, which was created to insulate Visa and our class A common shareholders from financial liability for certain litigation cases, we maintain a U.S.

litigation escrow account from which monetary liabilities from settlements of, or judgments in, the U.S.

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litigation escrow account, the shares of class B common stock held by our stockholders are subject to dilution through an adjustment to the conversion rate of the shares of class B common stock to shares of class A common stock.

In September 2019, we deposited $300 million into the U.S.

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

See Note 5—U.S.

and Europe Retrospective Responsibility Plans and Note 20—Legal Matters to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

The balance in this account at September 30, 2020, was $0.9 billion and is reflected as restricted cash equivalents in our consolidated balance sheets.

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covered litigation matters, as described below under Uses of Liquidity , we do not rely on them for other operational needs.

See Note 5—U.S.

and Europe Retrospective Responsibility Plans and Note 20—Legal Matters to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this repor t.

Credit Ratings

At September 30, 2020, our credit ratings by Standard and Poor’s and Moody’s were as follows:

Standard and Poor’s

Short-term unsecured debt

Long-term unsecured debt

Standard and Poor’s Moody’s

Debt type Rating Outlook Rating Outlook

Short-term unsecured debt A-1+ Stable P-1 Stable

Long-term unsecured debt AA- Stable Aa3 Stable

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Various factors affect our credit ratings, including changes in our operating performance, the economic environment, conditions in the electronic payment industry, our financial position and changes in our business strategy.

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Payments settlement due to and from our financial institution clients can represent a substantial daily liquidity requirement.

dollar settlements are settled within the same day and do not result in a net receivable or payable balance, while settlements in currencies other than the U.S.

dollar settlements are settled within the same day and do not result in a receivable or payable balance, while settlements in currencies other than the U.S.

dollar generally remain outstanding for one to two business days, which is consistent with industry practice for such transactions.

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In September 2018, Visa and other defendants entered into an Amended Settlement Agreement with plaintiffs in the interchange multidistrict litigation purporting to represent a class of plaintiffs seeking monetary damages, which superseded and amended the 2012 Settlement Agreement.

On November 7, 2019, the district court held a hearing on whether to approve the Amended Settlement Agreement.

We expect a decision by the district court in the first half of calendar year 2020.

If approved, the final settlement amount would be approximately $5.5 billion.

Our share represents approximately $3.6 billion, which would be satisfied through funds previously deposited with the court.

No additional funds are required for this class settlement.

Under the Amended Settlement Agreement, defendants are entitled to receive takedown payments of up to 25% of the original cash payments made into the settlement fund, based on the percentage of payment card sales volume attributable to merchants who have chosen to opt out of the settlement class.

Visa’s portion of the maximum takedown payments, which we expect to receive and is calculated to be $467 million, would be returned to our U.S.

litigation escrow account.

This will increase our taxable income, thereby increasing our taxes paid.

During September 2019, we deposited $300 million into the U.S.

litigation escrow account to address individual claims for members who have chosen to opt out of the Amended Settlement Agreement.

In December 2019, the district court granted final approval of the Amended Settlement Agreement relating to claims by the Damages Class, which was subsequently appealed.

Settlement discussions with plaintiffs purporting to act on behalf of the putative Injunctive Relief Class are ongoing.

During fiscal 2020, we have reached settlements with a number of merchants representing approximately 40% of the Visa-branded payment card sales volume of merchants who opted out of the Amended Settlement Agreement with the Damages Class plaintiffs.

At September 30, 2020, the U.S.

litigation escrow account had an available balance of $1.2 billion .

The funds in the U.S.

litigation escrow account as well as the $467 million takedown payments that we expect to be returned will be available for settlement with these opt-out merchants.

Under the terms of the U.S.

retrospective responsibility plan, when we make a deposit into the litigation escrow account, the shares of class B common stock are subject to dilution through a reduction to the conversion rate of the shares of class B common stock to shares of class A common stock.

retrospective responsibility plan was created to insulate Visa and our class A common shareholders from financial liability for certain litigation cases.

See Note 5—U.S.

and Europe Retrospective Responsibility Plans and Note 20—Legal Matters to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

litigation escrow account had an available balance of $0.9 billion for settlement with opt-out merchants.

Other litigation.

Judgments in and settlements of litigation, other than the U.S.

covered litigation, including VE territory covered litigation or other fines imposed in investigations and proceeding, could give rise to future liquidity needs.

Reduction in as-converted shares.

During fiscal 2019 , share repurchases and escrow deposits reduced as-converted class A common stock by 58 million at an average price of $154.62 per share.

Of the 58 million shares, 56 million were repurchased in the open market using $8.6 billion of cash on hand.

Additionally, we deposited $300 million of operating cash into the U.S.

litigation escrow account previously established under the U.S.

retrospective responsibility plan.

The deposit has the same economic effect on earnings per share as repurchasing our class A common stock because it reduces the class B conversion rate and consequently the as-converted class A common stock share count.

See Note 5—U.S.

and Europe Retrospective Responsibility Plans and Note 14—Stockholders’ Equity to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

In January 2019, our board of directors authorized a share repurchase program for $8.5 billion .

This authorization has no expiration date.

As of September 30, 2019 , we had remaining authorized funds of $4.1 billion .

All share repurchase programs authorized prior to January 2019 have been completed.

covered litigation, including VE territory covered litigation or other fines imposed in investigations and proceedings, could give rise to future liquidity needs.

Common stock repurchases.

During fiscal 2020, we repurchased 44 million shares of our class A common stock in the open market for $8.1 billion.

As of September 30, 2020, our January 2020 Program had remaining authorized funds of $5.5 billion.

See Note 15—Stockholders’ Equity to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

During fiscal 2019 , we declared and paid $2.3 billion in dividends.

On October 22, 2019 , our board of directors declared a quarterly cash dividend of $0.30 per share of class A common stock (determined in the case of class B and C common stock and series B and C preferred stock on an as-converted basis).

During fiscal 2020, we declared and paid $2.7 billion in dividends at a quarterly rate of $0.30 per share.

On October 23, 2020, our board of directors declared a quarterly cash dividend of $0.32 per share of class A common stock (determined in the case of class B and C common stock and series A, UK&I and Europe preferred stock on an as-converted basis).

We expect to pay approximately $703 million in connection with this dividend on December 1, 2020.

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In fiscal 2020, we made contributions to our U.S.

pension and other postretirement benefit plans of $3 million .

For Visa Europe’s UK pension plans, we made contributions of $10 million in fiscal 2019 , subsequent to the acquisition date as agreed upon with the trustees to improve the funding level of the plans.

In fiscal 2020 , given current projections and assumptions, we anticipate funding our U.S.

pension and other postretirement benefit plans of $3 million and to our Visa Europe’s UK pension plans of $22 million.

In fiscal 2021, given current projections and assumptions, we anticipate funding

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pension and other postretirement benefit plans and Visa Europe’s UK defined benefit pension plans by approximately $2 million and $10 million, respectively.

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Capital expenditures.

Our capital expenditures increased during fiscal 2019 , due to investments in technology, infrastructure and growth initiatives.

Our capital expenditures decreased slightly during fiscal 2020.

We expect to continue investing in technology assets and payments system infrastructure to support our digital solutions and core business initiatives.

Senior notes.

A principal payment of $3.0 billion is due on December 14, 2020 on our fixed-rate senior notes issued in December 2015, for which we have sufficient liquidity.

See Note 10—Debt to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

Acquisitions.

In fiscal 2019, we acquired businesses using $0.7 billion of cash on hand, primarily reflecting total purchase price less cash and restricted cash received.

These acquisitions will help Visa’s clients and merchant partners accelerate digital commerce.

In connection with our purchase of Visa Europe in June 2016, we were required to pay an additional €1.0 billion, plus 4% compound annual interest, on the third anniversary of the closing of the Visa Europe acquisition.

In June 2019, we paid €1.1 billion in fulfillment of this obligation.

See Note 2—Acquisitions and Note 8—Intangible Assets and Goodwill to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

Derivative Financial Instruments

In fiscal 2019, we entered into interest rate and cross-currency swap agreements on a portion of our outstanding 3.15% Senior Notes due December 2025 that allow us to manage our interest rate exposure through a combination of fixed and floating rates and reduce our overall cost of borrowing.

Together these swap agreements effectively convert a portion of our U.S.

dollar denominated fixed-rate payments into euro denominated floating-rate payments.

See Note 6—Fair Value Measurements and Investments and Note 12—Derivative and Non-derivative Financial Instruments to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

Fair Value Measurements—Financial Instruments

The assessment of fair value of our financial instruments is based on a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability.

As of September 30, 2019 , our financial instruments measured at fair value on a recurring basis included approximately $13.5 billion of assets and $0.2 billion of liabilities.

None of these instruments were valued using significant unobservable inputs.

See Note 6—Fair Value Measurements and Investments to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

In fiscal 2020, we entered into a definitive agreement to acquire Plaid Inc.

for $5.3 billion.

We will pay approximately $4.9 billion of cash and $0.4 billion of retention equity and deferred equity consideration.

On November 5, 2020, the U.S.

Department of Justice filed a complaint in the U.S.

District Court for the Northern District of California seeking a permanent injunction to prevent Visa from acquiring Plaid.

See Note 2—Acquisitions and Note 20—Legal Matters to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements are primarily comprised of guarantees and indemnifications.

Visa has no off-balance sheet arrangements, other than lease and purchase order commitments, as discussed and reflected in our contractual obligations table below.

Visa has no off-balance sheet arrangements, other than purchase order commitments, as discussed and reflected in our contractual obligations table below.

Indemnifications

We indemnify our financial institution clients for settlement losses suffered due to the failure of any other client to fund its settlement obligations in accordance with our rules.

We indemnify our financial institution clients for settlement losses suffered due to the failure of any other client to fund its settlement obligations in accordance with our operating rules.

The amount of the indemnification is limited to the amount of unsettled Visa payment transactions at any point in time.

We maintain global credit settlement risk policies and procedures to manage settlement risk, which may require clients to post collateral if certain credit standards are not met.

We maintain and regularly review global settlement risk policies and procedures to manage settlement risk, which may require clients to post collateral if certain credit standards are not met.

See Note 1—Summary of Significant Accounting Policies and Note 12—Settlement Guarantee Management to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

In the ordinary course of business, we enter into contractual arrangements with financial institutions and other clients and partners under which we may agree to indemnify the client for certain types of losses incurred relating to the services we provide or otherwise relating to our performance under the applicable agreement.

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Contractual Obligations

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Payments Due by Period

Years More than

5 Years Total

(in millions)

Long-term debt (1)

$ 3,643 $ 4,411 $ 1,046 $ 23,754 $ 32,854

Purchase obligations (2)

1,541 746 413 712 3,412

108 216 209 554 1,087

Transition tax (4)

86 162 369 264 881

Dividends (5)

703 — — — 703

Total (6),(7),(8)

$ 6,081 $ 5,535 $ 2,037 $ 25,284 $ 38,937

(1) Amounts presented include payments for both interest and principal.

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For obligations where the individual years of spend are not specified in the contract, we have estimated the timing of when these amounts will be spent.

Includes operating leases for premises, equipment and software licenses, which range in terms from less than one year to twenty-six years.

(3) Includes operating leases for premises and equipment, which range in original lease terms from less than one year to twenty-six years.

(4) Amounts presented relate to the estimated transition tax, net of foreign tax credit carryovers, on certain foreign earnings of non-U.S.

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See Note 19—Income Taxes to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report.

Includes expected dividend amount of $673 million as dividends were declared on October 22, 2019 and will be paid on December 3, 2019 to all holders of record of Visa’s common stock as of November 15, 2019 .

(5) Includes expected dividend amount of $703 million as dividends were declared on October 23, 2020 and will be paid on December 1, 2020 to all holders of record of Visa’s common and preferred stock as of November 13, 2020.

(6) We have liabilities for uncertain tax positions of $2.0 billion as of September 30, 2020.

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(8) Future cash payments for long-term contracts with financial institution clients and other business partners are not included in the table as the amounts are unknowable due to the inherent unpredictability of payment and transaction volume.

These agreements, which range in terms from one to fifteen years, can provide card issuance and/or conversion support, volume/growth targets or marketing and program support based on specific performance requirements.

These agreements, which range in terms from less than one to fifteen years, can provide card issuance and/or conversion support, volume/growth targets or marketing and program support based on specific performance requirements.

As of September 30, 2020, we have $4.4 billion of client incentives liability recorded on the consolidated balance sheet related to these arrangements.

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We believe that the following accounting estimates are the most critical to fully understand and evaluate our reported financial results, as they require our most subjective or complex management judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain and unpredictable.

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Revenue Recognition — Client Incentives

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We are currently involved in various legal proceedings, the outcomes of which are not within our complete control or may not be known for prolonged periods of time.

Management is required to assess the probability of loss and estimate the amount of such loss, if any, in preparing our financial statements.

Management is required to assess the probability of loss and estimate the amount of such loss, if any, in preparing our consolidated financial statements.

Assumptions and judgment.

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In calculating our effective income tax rate, we make judgments regarding certain tax positions, including the timing and amount of deductions and allocations of income among various tax jurisdictions.

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Assumptions and judgment.

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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-K

Item 7. Management’s Discussion and Analysis