VISA INC. 10-Q

ITEM 1. Financial Statements (Unaudited) VISA INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, 2021 September 30, 2020 (in millions, except per share data) Assets Cash and cash equivalents $ 18,034 $ 16,289 Restricted cash equivalents—U.S. litigation escrow 894 901 Investment securities 1,206 3,752 Settlement receivable 1,663 1,264 Accounts receivable 1,852 1,618 Customer collateral 2,221 1,850 Current portion of client incentives 1,321 1,214 Prepaid expenses and other current assets 851 757 Total current assets 28,042 27,645 Investment securities 1,111 231 Client incentives 3,219 3,175 Property, equipment and technology, net 2,707 2,737 Goodwill 16,021 15,910 Intangible assets, net 28,023 27,808 Other assets 3,548 3,413 Total assets $ 82,671 $ 80,919 Liabilities Accounts payable $ 172 $ 174 Settlement payable 2,376 1,736 Customer collateral 2,221 1,850 Accrued compensation and benefits 1,044 821 Client incentives 5,114 4,176 Accrued liabilities 2,196 1,840 Current maturities of debt — 2,999 Accrued litigation 900 914 Total current liabilities 14,023 14,510 Long-term debt 20,996 21,071 Deferred tax liabilities 6,240 5,237 Other liabilities 3,622 3,891 Total liabilities 44,881 44,709 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 June 30, 2021 and September 30, 2020 (the “series A preferred stock”) 538 2,437 Series B convertible participating preferred stock, 2 shares issued and outstanding at June 30, 2021 and September 30, 2020 (the “UK&I preferred stock”) 1,071 1,106 Series C convertible participating preferred stock, 3 shares issued and outstanding at June 30, 2021 and September 30, 2020 (the “Europe preferred stock”) 1,523 1,543 Class A common stock, $ 0.0001 par value, 2,001,622 shares authorized, 1,689 and 1,683 shares issued and outstanding at June 30, 2021 and September 30, 2020, respectively — — Class B common stock, $ 0.0001 par value, 622 shares authorized, 245 shares issued and outstanding at June 30, 2021 and September 30, 2020 — — Class C common stock, $ 0.0001 par value, 1,097 shares authorized, 10 and 11 shares issued and outstanding at June 30, 2021 and September 30, 2020, respectively — — Right to recover for covered losses ( 24 ) ( 39 ) Additional paid-in capital 18,787 16,721 Accumulated income 15,294 14,088 Accumulated other comprehensive income (loss), net: Investment securities ( 1 ) 3 Defined benefit pension and other postretirement plans ( 187 ) ( 196 ) Derivative instruments ( 371 ) ( 291 ) Foreign currency translation adjustments 1,160 838 Total accumulated other comprehensive income (loss), net 601 354 Total equity 37,790 36,210 Total liabilities and equity $ 82,671 $ 80,919 See accompanying notes, which are an integral part of these unaudited consolidated financial statements. 4 Table of Contents VISA INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED ) Three Months Ended June 30, Nine Months Ended June 30, 2021 2020 2021 2020 (in millions, except per share data) Net revenues $ 6,130 $ 4,837 $ 17,546 $ 16,745 Operating Expenses Personnel 1,098 941 3,193 2,863 Marketing 268 174 679 683 Network and processing 186 172 538 536 Professional fees 108 95 273 304 Depreciation and amortization 204 197 602 571 General and administrative 204 258 770 840 Litigation provision ( 2 ) 1 2 9 Total operating expenses 2,066 1,838 6,057 5,806 Operating income 4,064 2,999 11,489 10,939 Non-operating Income (Expense) Interest expense, net ( 131 ) ( 142 ) ( 388 ) ( 371 ) Investment income and other 456 75 664 167 Total non-operating income (expense) 325 ( 67 ) 276 ( 204 ) Income before income taxes 4,389 2,932 11,765 10,735 Income tax provision 1,814 559 3,038 2,006 Net income $ 2,575 $ 2,373 $ 8,727 $ 8,729 Basic Earnings Per Share Class A common stock $ 1.18 $ 1.07 $ 3.99 $ 3.92 Class B common stock $ 1.92 $ 1.74 $ 6.47 $ 6.37 Class C common stock $ 4.72 $ 4.29 $ 15.94 $ 15.70 Basic Weighted-average Shares Outstanding Class A common stock 1,691 1,690 1,693 1,702 Class B common stock 245 245 245 245 Class C common stock 10 11 11 11 Diluted Earnings Per Share Class A common stock $ 1.18 $ 1.07 $ 3.98 $ 3.92 Class B common stock $ 1.91 $ 1.74 $ 6.46 $ 6.36 Class C common stock $ 4.72 $ 4.29 $ 15.92 $ 15.68 Diluted Weighted-average Shares Outstanding Class A common stock 2,184 2,214 2,192 2,227 Class B common stock 245 245 245 245 Class C common stock 10 11 11 11 See accompanying notes, which are an integral part of these unaudited consolidated financial statements. 5 Table of Contents VISA INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended June 30, Nine Months Ended June 30, 2021 2020 2021 2020 (in millions) Net income $ 2,575 $ 2,373 $ 8,727 $ 8,729 Other comprehensive income (loss), net of tax: Investment securities: Net unrealized gain (loss) ( 2 ) ( 3 ) ( 4 ) 2 Income tax effect 1 1 1 — Reclassification adjustments ( 1 ) ( 1 ) ( 1 ) ( 3 ) Income tax effect — 1 — 1 Defined benefit pension and other postretirement plans: Net unrealized actuarial gain (loss) and prior service credit (cost) — — ( 3 ) 2 Income tax effect — — 2 ( 1 ) Reclassification adjustments 7 9 13 15 Income tax effect ( 2 ) ( 2 ) ( 3 ) ( 3 ) Derivative instruments: Net unrealized gain (loss) ( 95 ) ( 106 ) ( 112 ) ( 247 ) Income tax effect 22 23 28 54 Reclassification adjustments 14 ( 43 ) 1 ( 58 ) Income tax effect ( 2 ) 9 3 13 Foreign currency translation adjustments 287 277 322 621 Other comprehensive income (loss), net of tax 229 165 247 396 Comprehensive income $ 2,804 $ 2,538 $ 8,974 $ 9,125 See accompanying notes, which are an integral part of these unaudited consolidated financial statements. 6 Table of Contents VISA INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED) Three Months Ended June 30, 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 March 31, 2021 — (1) 2 3 1,694 245 11 $ 3,347 $ ( 41 ) $ 18,505 $ 15,513 $ 372 $ 37,696 Net income 2,575 2,575 Other comprehensive income (loss), net of tax 229 229 Comprehensive income 2,804 VE territory covered losses incurred ( 21 ) ( 21 ) Recovery through conversion rate adjustment ( 40 ) 38 ( 2 ) Conversion of series A preferred stock upon sales into public market — (1) 3 ( 175 ) 175 — Conversion of class C common stock upon sales into public market 2 ( 1 ) — Vesting of restricted stock and performance-based shares — (1) — Share-based compensation, net of forfeitures 159 159 Restricted stock and performance-based shares settled in cash for taxes — (1) ( 2 ) ( 2 ) Cash proceeds from issuance of class A common stock under employee equity plans — (1) 54 54 Cash dividends declared and paid, at a quarterly amount of $ 0.32 per class A common stock ( 698 ) ( 698 ) Repurchase of class A common stock ( 10 ) ( 104 ) ( 2,096 ) ( 2,200 ) Balance as of June 30, 2021 — (1) 2 3 1,689 245 10 $ 3,132 $ ( 24 ) $ 18,787 $ 15,294 $ 601 $ 37,790 (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 Table of Contents VISA INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued) (UNAUDITED) Nine Months Ended June 30, 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, 2020 — (1) 2 3 1,683 245 11 $ 5,086 $ ( 39 ) $ 16,721 $ 14,088 $ 354 $ 36,210 Net income 8,727 8,727 Other comprehensive income (loss), net of tax 247 247 Comprehensive income 8,974 Adoption of new accounting standards 3 3 VE territory covered losses incurred ( 38 ) ( 38 ) Recovery through conversion rate adjustment ( 55 ) 53 ( 2 ) Conversion of series A preferred stock upon sales into public market — (1) 28 ( 1,899 ) 1,899 — Conversion of class C common stock upon sales into public market 2 ( 1 ) — Vesting of restricted stock and performance-based shares 3 — Share-based compensation, net of forfeitures 434 434 Restricted stock and performance-based shares settled in cash for taxes ( 1 ) ( 142 ) ( 142 ) Cash proceeds from issuance of common stock under employee equity plans 1 162 162 Cash dividends declared and paid, at a quarterly amount of $ 0.32 per class A common stock ( 2,102 ) ( 2,102 ) Repurchase of class A common stock ( 27 ) ( 287 ) ( 5,422 ) ( 5,709 ) Balance as of June 30, 2021 — (1) 2 3 1,689 245 10 $ 3,132 $ ( 24 ) $ 18,787 $ 15,294 $ 601 $ 37,790 (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 Table of Contents VISA INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued) (UNAUDITED) Three Months Ended June 30, 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 B Series C Class A Class B Class C (in millions, except per share data) Balance as of March 31, 2020 2 3 1,693 245 11 $ 5,462 $ ( 184 ) $ 16,385 $ 13,366 $ ( 444 ) $ 34,585 Net income 2,373 2,373 Other comprehensive income (loss), net of tax 165 165 Comprehensive income 2,538 VE territory covered losses incurred ( 9 ) ( 9 ) Recovery through conversion rate adjustment ( 164 ) 169 5 Vesting of restricted stock and performance-based shares — (1) — Share-based compensation, net of forfeitures 107 107 Restricted stock and performance-based shares settled in cash for taxes — (1) ( 3 ) ( 3 ) Cash proceeds from issuance of class A common stock under employee equity plans — (1) 33 33 Cash dividends declared and paid, at a quarterly amount of $ 0.30 per class A common stock ( 663 ) ( 663 ) Repurchase of class A common stock ( 6 ) ( 65 ) ( 1,004 ) ( 1,069 ) Balance as of June 30, 2020 2 3 1,687 245 11 $ 5,298 $ ( 24 ) $ 16,457 $ 14,072 $ ( 279 ) $ 35,524 (1) Increase or decrease is less than one million shares. See accompanying notes, which are an integral part of these unaudited consolidated financial statements. 9 Table of Contents VISA INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued) (UNAUDITED) Nine Months Ended June 30, 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 B Series C Class A Class B Class C (in millions, except per share data) Balance as of September 30, 2019 2 3 1,718 245 11 $ 5,462 $ ( 171 ) $ 16,541 $ 13,502 $ ( 650 ) $ 34,684 Net income 8,729 8,729 Other comprehensive income (loss), net of tax 396 396 Comprehensive income 9,125 Adoption of new accounting standards 25 ( 25 ) — VE territory covered losses incurred ( 22 ) ( 22 ) Recovery through conversion rate adjustment ( 164 ) 169 5 Conversion of class C common stock upon sales into public market 3 — (1) — Vesting of restricted stock and performance-based shares 3 — Share-based compensation, net of forfeitures 322 322 Restricted stock and performance-based shares settled in cash for taxes ( 1 ) ( 158 ) ( 158 ) Cash proceeds from issuance of common stock under employee equity plans 1 142 142 Cash dividends declared and paid, at a quarterly amount of $ 0.30 per class A common stock ( 2,002 ) ( 2,002 ) Repurchase of class A common stock ( 37 ) ( 390 ) ( 6,182 ) ( 6,572 ) Balance as of June 30, 2020 2 3 1,687 245 11 $ 5,298 $ ( 24 ) $ 16,457 $ 14,072 $ ( 279 ) $ 35,524 (1) Increase or decrease is less than one million shares. See accompanying notes, which are an integral part of these unaudited consolidated financial statements. 10 Table of Contents VISA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended June 30, 2021 2020 (in millions) Operating Activities Net income $ 8,727 $ 8,729 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Client incentives 5,980 4,966 Share-based compensation 434 322 Depreciation and amortization of property, equipment, technology and intangible assets 602 571 Deferred income taxes 981 ( 116 ) VE territory covered losses incurred ( 38 ) ( 22 ) (Gains) losses on equity investments, net ( 611 ) ( 62 ) Other ( 82 ) ( 87 ) Change in operating assets and liabilities: Settlement receivable ( 351 ) 966 Accounts receivable ( 220 ) 108 Client incentives ( 5,202 ) ( 6,261 ) Other assets ( 164 ) ( 464 ) Accounts payable 1 7 Settlement payable 574 ( 1,324 ) Accrued and other liabilities 639 1,058 Accrued litigation ( 14 ) ( 47 ) Net cash provided by (used in) operating activities 11,256 8,344 Investing Activities Purchases of property, equipment and technology ( 497 ) ( 568 ) Investment securities: Purchases ( 3,223 ) ( 549 ) Proceeds from maturities and sales 5,286 3,675 Acquisitions, net of cash acquired ( 75 ) ( 77 ) Purchases of / contributions to other investments ( 50 ) ( 254 ) Other investing activities 105 81 Net cash provided by (used in) investing activities 1,546 2,308 Financing Activities Repurchase of class A common stock ( 5,709 ) ( 6,572 ) Repayments of debt ( 3,000 ) — Dividends paid ( 2,102 ) ( 2,002 ) Proceeds from issuance of senior notes — 3,985 Cash proceeds from issuance of class A common stock under employee equity plans 162 142 Restricted stock and performance-based shares settled in cash for taxes ( 142 ) ( 158 ) Other financing activities — ( 118 ) Net cash provided by (used in) financing activities ( 10,791 ) ( 4,723 ) Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents 92 173 Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents 2,103 6,102 Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period 19,171 10,832 Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 21,274 $ 16,934 Supplemental Disclosure Cash paid for income taxes, net $ 2,134 $ 1,793 Interest payments on debt $ 583 $ 503 Accruals related to purchases of property, equipment and technology $ 52 $ 34 See accompanying notes, which are an integral part of these unaudited consolidated financial statements. 11 Table of Contents 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 enables innovative, secure and reliable electronic payments across more than 200 countries and territories. Visa and its wholly-owned consolidated subsidiaries, including Visa U.S.A. Inc. (“Visa U.S.A.”), Visa International Service Association (“Visa International”), Visa Worldwide Pte. Limited, Visa Europe Limited (“Visa Europe”), Visa Canada Corporation (“Visa Canada”), Visa Technology & Operations LLC and CyberSource Corporation, operate one of the world’s largest electronic payments network — VisaNet — which facilitates authorization, clearing and settlement of payment transactions and enables the Company to provide its financial institution and seller clients a wide range of products, platforms and value added services. 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, 2020 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. 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 unaudited consolidated financial statements in the period in which such changes occur. Future actual results could differ materially from these estimates. Coronavirus (“COVID-19”) has continued to create significant uncertainty in the global economy. There have been no comparable recent events that provide guidance as to the effect COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of COVID-19 and the extent to which COVID-19 continues 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 June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Board Update (“ASU”) 2016-13, which requires the measurement and recognition of expected credit losses for financial assets and certain other instruments held at amortized cost. The Company adopted the standard effective October 1, 2020 using the modified retrospective transition method with comparative periods continuing to be reported using the previous applicable guidance. The adoption did not have a material impact on the consolidated financial statements. In accordance with ASU 2016-13, the Company uses a forward-looking expected credit loss model for financial instruments measured at amortized cost. For available-for-sale debt securities, when credit loss indicators exist and a discounted cash flow approach results in a credit loss, the credit loss will be recorded through an allowance rather 12 Table of Contents VISA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) than through an other-than-temporary impairment. In addition to recording the fair value of its settlement indemnification liability, under the new standard, the Company estimates expected credit losses and recognizes an allowance for those credit losses related to its settlement indemnification obligations. In January 2017, the FASB issued ASU 2017-04, which simplifies the accounting for goodwill impairments by eliminating Step 2 from the goodwill impairment test. Under the amendments in ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, which is Step 1 of the goodwill impairment test. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The Company adopted the standard effective October 1, 2020. The adoption had no impact on the consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, which modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The Company adopted this standard effective October 1, 2020. The adoption did not have a material impact on the consolidated financial statements. Note 2—Acquisitions Terminated Acquisition On January 12, 2021, Visa and Plaid Inc. mutually terminated their merger agreement announced on January 13, 2020. See Note 13—Legal Matters . Pending Acquisitions 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. On July 22, 2021, Visa entered into a definitive agreement to acquire 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. The acquisition values Currencycloud at £ 700 million, inclusive of cash and retention incentives. The financial consideration will be reduced by the outstanding equity of Currencycloud that Visa already owns. 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 for the three and nine months ended June 30, 2021 and 2020: Three Months Ended June 30, Nine Months Ended June 30, 2021 2020 2021 2020 (in millions) Service revenues $ 2,828 $ 2,409 $ 8,350 $ 7,587 Data processing revenues 3,327 2,525 9,356 8,100 International transaction revenues 1,696 1,102 4,635 4,953 Other revenues 409 314 1,185 1,071 Client incentives ( 2,130 ) ( 1,513 ) ( 5,980 ) ( 4,966 ) Net revenues $ 6,130 $ 4,837 $ 17,546 $ 16,745 13 Table of Contents VISA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) Three Months Ended June 30, Nine Months Ended June 30, 2021 2020 2021 2020 (in millions) U.S. $ 2,806 $ 2,380 $ 8,156 $ 7,747 International 3,324 2,457 9,390 8,998 Net revenues $ 6,130 $ 4,837 $ 17,546 $ 16,745 At June 30, 2021 and September 30, 2020, deferred revenue included in accrued liabilities on the consolidated balance sheets was $ 696 million and $ 533 million, respectively. 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: June 30, 2021 September 30, 2020 (in millions) Cash and cash equivalents $ 18,034 $ 16,289 Restricted cash and restricted cash equivalents: U.S. litigation escrow 894 901 Customer collateral 2,221 1,850 Prepaid expenses and other current assets 125 131 Cash, cash equivalents, restricted cash and restricted cash equivalents $ 21,274 $ 19,171 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 escrow funds are held in money market investments along with interest income earned, less applicable taxes, and are classified as restricted cash equivalents on the consolidated balance sheets. 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 sets forth the changes in the restricted cash equivalents—U.S. litigation escrow account: Nine Months Ended June 30, 2021 2020 (in millions) Balance at beginning of period $ 901 $ 1,205 Return of takedown payment to the litigation escrow account — 467 Payments to opt-out merchants (1) and interest earned on escrow funds ( 7 ) ( 524 ) Balance at end of period $ 894 $ 1,148 (1) These payments are associated with the Interchange Multidistrict Litigation. See Note 13—Legal Matters . 14 Table of Contents VISA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) 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 UK&I and Europe 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 and nine months ended June 30, 2021, the Company recovered $ 40 million and $ 55 million, respectively, of VE territory covered losses through adjustments to the class A common stock conversion rates applicable to the UK&I and Europe preferred stock. The following table sets forth the activities related to VE territory covered losses in preferred stock and “right to recover for covered losses” within stockholders’ equity during the nine months ended June 30, 2021: Preferred Stock Right to Recover for Covered Losses UK&I Europe (in millions) Balance as of September 30, 2020 $ 1,106 $ 1,543 $ ( 39 ) VE territory covered losses incurred (1) — — ( 38 ) Recovery through conversion rate adjustment (2) ( 35 ) ( 20 ) 53 Balance as of June 30, 2021 $ 1,071 $ 1,523 $ ( 24 ) (1) VE territory covered losses incurred reflect settlements with merchants and additional legal costs. See Note 13—Legal Matters . (2) Adjustment to right to recover for covered losses for the conversion rate adjustment differs from the actual recovered amount due to differences in foreign exchange rates between the time the losses were incurred and the subsequent recovery through the conversion rate adjustment. The following table sets forth 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 as of June 30, 2021 and September 30, 2020: June 30, 2021 September 30, 2020 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) UK&I preferred stock $ 3,666 $ 1,071 $ 3,168 $ 1,106 Europe preferred stock 5,044 1,523 4,331 1,543 Total 8,710 2,594 7,499 2,649 Less: right to recover for covered losses ( 24 ) ( 24 ) ( 39 ) ( 39 ) Total recovery for covered losses available $ 8,686 $ 2,570 $ 7,460 $ 2,610 (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 June 30, 2021, the as-converted value of preferred stock is calculated as the product of: (a) 2 million and 3 million shares of the UK&I and Europe preferred stock outstanding, respectively; (b) 6.321 and 6.834 , the class A common stock conversion rate applicable to the UK&I and Europe preferred stock, respectively; and (c) $ 233.82 , Visa’s class A common stock closing stock price. (3) As of September 30, 2020, the as-converted value of preferred stock is calculated as the product of: (a) 2 million and 3 million shares of the UK&I and Europe preferred stock outstanding, respectively; (b) 6.387 and 6.861 , the class A common stock conversion rate applicable to the UK&I and Europe preferred stock respectively; and (c) $ 199.97 , Visa’s class A common stock closing stock price. 15 Table of Contents 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 June 30, 2021 September 30, 2020 June 30, 2021 September 30, 2020 (in millions) Assets Cash equivalents and restricted cash equivalents: Money market funds $ 14,830 $ 12,522 $ — $ — U.S. government-sponsored debt securities — — 600 1,469 U.S. Treasury securities 750 650 — — Investment securities: Marketable equity securities 550 148 — — U.S. government-sponsored debt securities — — 486 2,582 U.S. Treasury securities 1,271 1,253 — — Other current and non-current assets: Money market funds 3 — — — Derivative instruments — — 389 512 Total $ 17,404 $ 14,573 $ 1,475 $ 4,563 Liabilities Accrued compensation and benefits: Deferred compensation liability $ 168 $ 135 $ — $ — Accrued and other liabilities: Derivative instruments — — 216 181 Total $ 168 $ 135 $ 216 $ 181 Level 1 assets. 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 June 30, 2021 and September 30, 2020, the Company held $ 1.8 billion and $ 3.8 billion of these available-for-sale investment securities, respectively. All of the Company’s long-term available-for-sale investment securities are due within one to five years . 16 Table of Contents 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 June 30, 2021 including cumulative unrealized gains and losses: June 30, 2021 (in millions) Initial cost basis $ 857 Adjustments: Upward adjustments 446 Downward adjustments (including impairment) ( 13 ) Carrying amount, end of period $ 1,290 During the three and nine months ended June 30, 2021 and 2020, unrealized gains and losses included in the carrying value of the Company’s non-marketable equity securities still held as of June 30, 2021 and 2020 were as follows: Three Months Ended June 30, Nine Months Ended June 30, 2021 2020 2021 2020 (in millions) Upward adjustments $ 180 $ 56 $ 323 $ 65 Downward adjustments (including impairment) $ — $ ( 6 ) $ ( 2 ) $ ( 6 ) The Company recognized net unrealized gains on marketable and non-marketable equity securities still held as of quarter end of $ 434 million and $ 68 million for the three months ended June 30, 2021 and 2020, respectively, and $ 610 million and $ 59 million for the nine months ended June 30, 2021 and 2020, respectively. Non-financial assets and liabilities. Long-lived assets such as goodwill, indefinite-lived intangible assets, finite-lived intangible assets and property, equipment and technology are considered non-financial assets. The Company does not have any non-financial liabilities measured at fair value on a non-recurring basis. Finite-lived intangible assets primarily consist of customer relationships and trade names, all of which were obtained through acquisitions. If the Company were required to perform a quantitative assessment for impairment testing of goodwill and indefinite-lived intangible assets, the fair values would generally be estimated using an income approach. As the assumptions employed to measure these assets on a non-recurring basis are based on management’s judgment using internal and external data, these fair value determinations are classified as Level 3 in the fair value hierarchy. The Company completed its annual impairment review of its indefinite-lived intangible assets and goodwill as of February 1, 2021, and concluded that there was no impairment. No recent events or changes in circumstances indicate that impairment existed at June 30, 2021. 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 June 30, 2021, the carrying value and estimated fair value of debt was $ 21.0 billion and $ 22.9 billion, respectively. As of September 30, 2020, the carrying value and estimated fair value of debt was $ 24.1 billion and $ 26.6 billion, respectively. 17 Table of Contents VISA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) Other financial instruments not measured at fair value. The following financial instruments are not measured at fair value on the Company’s unaudited consolidated balance sheet at June 30, 2021, but disclosure of their fair values is required: settlement receivable and payable and customer collateral. The estimated fair value of such instruments at June 30, 2021 approximates their carrying 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. Note 7—Debt The Company had outstanding debt as follows: June 30, 2021 September 30, 2020 Effective Interest Rate (1) (in millions, except percentages) 2.20 % Senior Notes due December 2020 $ — $ 3,000 2.30 % 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 500 500 0.84 % 2.75 % Senior Notes due September 2027 750 750 2.91 % 2.05 % Senior Notes due April 2030 1,500 1,500 2.13 % 1.10 % Senior Notes due February 2031 1,000 1,000 1.20 % 4.15 % Senior Notes due December 2035 1,500 1,500 4.23 % 2.70 % Senior Notes due April 2040 1,000 1,000 2.80 % 4.30 % Senior Notes due December 2045 3,500 3,500 4.37 % 3.65 % Senior Notes due September 2047 750 750 3.73 % 2.00 % Senior Notes due August 2050 1,750 1,750 2.09 % Total debt 21,000 24,000 Unamortized discounts and debt issuance costs ( 165 ) ( 178 ) Hedge accounting fair value adjustments (2) 161 248 Total carrying value of debt $ 20,996 $ 24,070 Reported as: Current maturities of debt $ — $ 2,999 Long-term debt 20,996 21,071 Total carrying value of debt $ 20,996 $ 24,070 (1) Effective interest rates disclosed do not reflect hedge accounting adjustments. (2) Represents the change in fair value of interest rate swap agreements entered into on a portion of outstanding senior notes. Senior Notes During the nine months ended June 30, 2021, the Company repaid $ 3.0 billion of principal upon maturity of its senior notes due December 14, 2020. Note 8—Settlement Guarantee Management The Company indemnifies its clients for settlement losses suffered due to failure of any other client to fund its settlement obligations in accordance with the Visa operating rules. This indemnification creates settlement risk for the Company due to the difference in timing between the date of a payment transaction and the date of subsequent settlement. 18 Table of Contents VISA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) Historically, the Company has experienced minimal losses as a result of its settlement risk guarantee. However, the Company’s future obligations, which could be material under its guarantees, are not determinable as they are dependent upon future events. The Company’s settlement exposure is limited to the amount of unsettled Visa payment transactions at any point in time, which vary significantly day to day. During the nine months ended June 30, 2021, the Company’s maximum daily settlement exposure was $ 104.1 billion and the average daily settlement exposure was $ 63.9 billion. The Company maintains and regularly reviews global settlement risk policies and procedures to manage settlement exposure, which may require clients to post collateral if certain credit standards are not met. At June 30, 2021 and September 30, 2020, the Company held the following collateral to manage settlement exposure: June 30, 2021 September 30, 2020 (in millions) Restricted cash and restricted cash equivalents $ 2,221 $ 1,850 Pledged securities at market value 253 228 Letters of credit 1,402 1,306 Guarantees 729 717 Total $ 4,605 $ 4,101 Note 9—Stockholders’ Equity As-converted class A common stock. The number of shares of each series and class, and the number of shares of class A common stock on an as-converted basis were as follows: June 30, 2021 September 30, 2020 Shares Outstanding Conversion Rate Into Class A Common Stock As-converted Class A Common Stock (1) Shares Outstanding Conversion Rate Into Class A Common Stock As-converted Class A Common Stock (1) (in millions, except conversion rates) Series A preferred stock — (2) 100.0000 8 — (2) 100.0000 35 UK&I preferred stock 2 6.3210 16 2 6.3870 16 Europe preferred stock 3 6.8340 22 3 6.8610 22 Class A common stock (3) 1,689 — 1,689 1,683 — 1,683 Class B common stock 245 1.6228 (4) 398 245 1.6228 (4) 398 Class C common stock 10 4.0000 41 11 4.0000 43 Total 2,174 2,197 (1) Figures in the table may not recalculate exactly due to rounding. As-converted class A common stock is calculated based on unrounded numbers. (2) The number of shares outstanding was less than one million. (3) Class A common stock shares outstanding reflect repurchases that settled on or before June 30, 2021 and September 30, 2020, respectively. (4) The class B to class A common stock conversion rate is presented on a rounded basis. Conversion calculations for dividend payments are based on a conversion rate rounded to the tenth decimal. Reduction in as-converted shares. Under the terms of the Europe retrospective responsibility plan, the Company is entitled to recover VE territory covered losses through periodic adjustments to the class A common stock conversion rates applicable to the UK&I and Europe preferred stock. The recovery has the same economic effect on earnings per share as repurchasing the Company’s class A common stock, because it reduces the UK&I and Europe preferred stock conversion rates and consequently, reduces the as-converted class A common stock share count. 19 Table of Contents VISA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) The following table presents the reduction in as-converted UK&I and Europe preferred stock after the Company recovered VE territory covered losses through conversion rate adjustments in the nine months ended June 30, 2021 and 2020: Nine Months Ended June 30, 2021 Nine Months Ended June 30, 2020 UK&I Europe UK&I Europe (in millions, except per share data) Reduction in equivalent number of as-converted shares of class A common stock — (1) — (1) — (1) 1 Effective price per share (2) $ 220.84 $ 220.71 $ 180.00 $ 180.00 Recovery through conversion rate adjustment $ 35 $ 20 $ 72 $ 92 (1) The reduction in equivalent number of shares of class A common stock was less than one million shares. (2) Effective price per share for the quarter is calculated using the volume-weighted average price of the Company’s class A common stock over a pricing period in accordance with the Company’s current certificates of designations for its series B and C convertible participating preferred stock. Effective price per share is calculated using the weighted-average effective prices of the respective adjustments made during the year. Common stock repurchases. The following table presents share repurchases in the open market for the following periods: Three Months Ended June 30, Nine Months Ended June 30, 2021 2020 2021 2020 (in millions, except per share data) Shares repurchased in the open market (1) 10 6 27 37 Average repurchase price per share (2) $ 227.11 $ 177.86 $ 213.02 $ 179.91 Total cost (2) $ 2,200 $ 1,069 $ 5,709 $ 6,572 (1) Shares repurchased in the open market reflect repurchases that settled during the three and nine months ended June 30, 2021 and 2020, respectively. All shares repurchased in the open market have been retired and constitute authorized but unissued shares. (2) Figures in the table may not recalculate exactly due to rounding. Average repurchase price per share and total cost is calculated based on unrounded numbers. In January 2020, the Company’s board of directors authorized a $ 9.5 billion share repurchase program and in January 2021, authorized an additional $ 8.0 billion share repurchase program (the “January 2021 Program”). These authorizations have no expiration date. As of June 30, 2021, the Company’s repurchase program had remaining authorized funds of $ 7.8 billion. All share repurchase programs authorized prior to the January 2021 Program have been completed. Dividends. On July 23, 2021, the Company’s 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), which will be paid on September 1, 2021, to all holders of record as of August 13, 2021. The Company declared and paid dividends of $ 698 million and $ 663 million during the three months ended June 30, 2021 and 2020, respectively, and $ 2.1 billion and $ 2.0 billion during the nine months ended June 30, 2021 and 2020, respectively. Note 10—Earnings Per Share Basic earnings per share is computed by dividing net income available to each class of shares by the weighted-average number of shares of common stock outstanding and participating securities during the period. Net income is allocated to each class of common stock and participating securities based on its proportional ownership on an as-converted basis. The weighted-average number of shares outstanding of each class of common stock reflects changes in ownership over the periods presented. See Note 9—Stockholders’ Equity . 20 Table of Contents VISA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) Diluted earnings per share is computed by dividing net income available by the weighted-average number of shares of common stock outstanding, participating securities and, if dilutive, potential class A common stock equivalent shares outstanding during the period. Dilutive class A common stock equivalents may consist of: (1) shares of class A common stock issuable upon the conversion of series A, UK&I and Europe preferred stock and class B and C common stock based on the conversion rates in effect through the period, and (2) incremental shares of class A common stock calculated by applying the treasury stock method to the assumed exercise of employee stock options, the assumed purchase of stock under the Company’s Employee Stock Purchase Plan and the assumed vesting of unearned performance shares. The following table presents earnings per share for the three months ended June 30, 2021: Basic Earnings Per Share Diluted Earnings Per Share Income Allocation (A) (1) Weighted- Average Shares Outstanding (B) Earnings per Share = (A)/(B) (2) Income Allocation (A) (1) Weighted- Average Shares Outstanding (B) Earnings per Share = (A)/(B) (2) (in millions, except per share data) Class A common stock $ 1,996 1,691 $ 1.18 $ 2,575 2,184 (3) $ 1.18 Class B common stock 470 245 $ 1.92 $ 470 245 $ 1.91 Class C common stock 49 10 $ 4.72 $ 49 10 $ 4.72 Participating securities (4) 60 Not presented Not presented $ 60 Not presented Not presented Net income $ 2,575 The following table presents earnings per share for the nine months ended June 30, 2021: Basic Earnings Per Share Diluted Earnings Per Share Income Allocation (A) (1) Weighted- Average Shares Outstanding (B) Earnings per Share = (A)/(B) (2) Income Allocation (A) (1) Weighted- Average Shares Outstanding (B) Earnings per Share = (A)/(B) (2) (in millions, except per share data) Class A common stock $ 6,748 1,693 $ 3.99 $ 8,727 2,192 (3) $ 3.98 Class B common stock 1,588 245 $ 6.47 $ 1,586 245 $ 6.46 Class C common stock 169 11 $ 15.94 $ 169 11 $ 15.92 Participating securities (4) 222 Not presented Not presented $ 221 Not presented Not presented Net income $ 8,727 The following table presents earnings per share for the three months ended June 30, 2020: Basic Earnings Per Share Diluted Earnings Per Share Income Allocation (A) (1) Weighted- Average Shares Outstanding (B) Earnings per Share = (A)/(B) (2) Income Allocation (A) (1) Weighted- Average Shares Outstanding (B) Earnings per Share = (A)/(B) (2) (in millions, except per share data) Class A common stock $ 1,814 1,690 $ 1.07 $ 2,373 2,214 (3) $ 1.07 Class B common stock 428 245 $ 1.74 $ 427 245 $ 1.74 Class C common stock 46 11 $ 4.29 $ 47 11 $ 4.29 Participating securities (4) 85 Not presented Not presented $ 85 Not presented Not presented Net income $ 2,373 21 Table of Contents VISA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) The following table presents earnings per share for the nine months ended June 30, 2020: Basic Earnings Per Share Diluted Earnings Per Share Income Allocation (A) (1) Weighted- Average Shares Outstanding (B) Earnings per Share = (A)/(B) (2) Income Allocation (A) (1) Weighted- Average Shares Outstanding (B) Earnings per Share = (A)/(B) (2) (in millions, except per share data) Class A common stock $ 6,679 1,702 $ 3.92 $ 8,729 2,227 (3) $ 3.92 Class B common stock 1,564 245 $ 6.37 $ 1,561 245 $ 6.36 Class C common stock 172 11 $ 15.70 $ 172 11 $ 15.68 Participating securities (4) 314 Not presented Not presented $ 314 Not presented Not presented Net income $ 8,729 (1) Net income is allocated based on proportional ownership on an as-converted basis. The weighted-average number of shares of as-converted class B common stock used in the income allocation was 398 million for the three and nine months ended June 30, 2021 and 2020. The weighted-average number of shares of as-converted class C common stock used in the income allocation was 42 million for the three and nine months ended June 30, 2021 and 43 million and 44 million for the three and nine months ended June 30, 2020, respectively. The weighted-average number of shares of preferred stock included within participating securities was 9 million and 14 million of as-converted series A preferred stock for the three and nine months ended June 30, 2021, respectively, 16 million and 32 million of as-converted UK&I preferred stock for the three and nine months ended June 30, 2021 and 2020, respectively, and 22 million and 44 million of as-converted Europe preferred stock for the three and nine months ended June 30, 2021 and 2020, respectively. (2) Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated based on unrounded numbers. (3) Weighted-average diluted shares outstanding are calculated on an as-converted basis and include incremental common stock equivalents, as calculated under the treasury stock method. The computation includes common stock equivalents of 3 million for the three and nine months ended June 30, 2021 and 2020 because their effect would have been dilutive. The computation excludes common stock equivalents of less than 1 million for the three and nine months ended June 30, 2021 and 1 million for the three and nine months ended June 30, 2020, because their effect would have been anti-dilutive. (4) Participating securities include preferred stock outstanding and unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, such as the Company’s series A preferred stock, UK&I and Europe preferred stock and restricted stock units. Participating securities’ income is allocated based on the weighted-average number of shares of as-converted stock. Note 11—Share-based Compensation The Company granted the following equity awards to employees and non-employee directors under the 2007 Equity Incentive Compensation Plan, or the EIP, during the nine months ended June 30, 2021: Granted Weighted-Average Grant Date Fair Value Weighted-Average Exercise Price Non-qualified stock options 1,022,430 $ 39.51 $ 207.57 Restricted stock units 2,395,264 $ 208.05 Performance-based shares (1) 432,714 $ 229.81 (1) Represents the maximum number of performance-based shares which could be earned. Related to the EIP, the Company recorded share-based compensation cost, net of estimated forfeitures, of $ 153 million and $ 102 million for the three months ended June 30, 2021 and 2020, respectively, and $ 417 million and $ 306 million for the nine months ended June 30, 2021 and 2020, respectively. On January 26, 2021, the EIP was amended to extend the termination date from January 31, 2022 to January 26, 2031 and reduce the number of shares authorized for grant from 236 million to 198 million. Additionally, shares available for grant may be either unissued or previously issued shares subsequently acquired by the Company, except that shares withheld for taxes, or shares used to pay the exercise or purchase price of an award, shall not again be available for future grant. 22 Table of Contents VISA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) Note 12—Income Taxes The effective income tax rates were 41 % and 26 % for the three and nine months ended June 30, 2021, respectively, and 19 % for the three and nine months ended June 30, 2020. The effective tax rates for the three and nine months ended June 30, 2021 differ from the effective tax rates for the same periods in the prior year primarily due to the following: • during the three months ended June 30, 2021, a $ 1.0 billion non-recurring, non-cash tax expense related to the remeasurement of UK deferred tax liabilities, as discussed below; • during the three months ended June 30, 2021, a $ 51 million tax benefit as a result of a tax position taken on certain expenses; and • during the nine months ended June 30, 2021, $ 147 million of tax benefits as a result of the conclusion of audits by taxing authorities. On June 10, 2021, the UK enacted legislation that will increase the tax rate from 19% to 25%, effective April 1, 2023. As a result, the Company recorded a non-recurring, non-cash tax expense related to the remeasurement of its net UK deferred tax liabilities, primarily related to intangibles recorded upon the acquisition of Visa Europe in fiscal 2016. During the three months ended June 30, 2021, the Company’s gross and net unrecognized tax benefits increased by $ 80 million and $ 39 million, respectively. During the nine months ended June 30, 2021, the Company’s gross and net unrecognized tax benefits decreased by $ 37 million and $ 137 million, respectively. The change in unrecognized tax benefits is related to various tax positions across several jurisdictions. Additionally, for the nine month period, the decrease in unrecognized tax benefits is primarily due to the recognition of previously unrecognized tax benefits as a result of the conclusion of audits by taxing authorities, partially offset by increases in gross timing differences. During the three and nine months ended June 30, 2021, there were no significant changes in accrued interest related to uncertain tax positions. During the three and nine months ended June 30, 2020, the Company’s accrued interest related to uncertain tax positions increased by $ 18 million and $ 56 million, respectively. The Company’s tax filings are subject to examination by U.S. federal, state and foreign taxing authorities. The timing and outcome of the final resolutions of the various ongoing income tax examinations are highly uncertain. It is not reasonably possible to estimate the increase or decrease in unrecognized tax benefits within the next twelve months. In September 2020, the Company accepted a settlement offer related to the examination of Canadian tax returns dating back to fiscal 2003, which was subject to approval by the Tax Court of Canada. On January 21, 2021, the Tax Court of Canada approved the settlement agreement related to the examination. The Company’s income tax provision was adjusted to reflect the estimated impact of the settlement in fiscal 2020. The American Rescue Plan Act of 2021 (the “ARP Act”) was enacted in the U.S. on March 11, 2021. The ARP Act is not expected to have a material impact on the Company’s financial results. Note 13—Legal Matters The Company is party to various legal and regulatory proceedings. Some of these proceedings involve complex claims that are subject to substantial uncertainties and unascertainable damages. Accordingly, except as disclosed, the Company has not established reserves or ranges of possible loss related to these proceedings, as at this time in the proceedings, the matters do not relate to a probable loss and/or the amount or range of losses are not reasonably estimable. Although the Company believes that it has strong defenses for the litigation and regulatory proceedings described below, it could, in the future, incur judgments or fines or enter into settlements of claims that could have a material adverse effect on the Company’s financial position, results of operations or cash flows. From time to time, the Company may engage in settlement discussions or mediations with respect to one or more of its outstanding litigation matters, either on its own behalf or collectively with other parties. The litigation accrual is an estimate and is based on management’s understanding of the Company’s litigation profile, the specifics of each case, advice of counsel to the extent appropriate and management’s best estimate of incurred loss as of the balance sheet date. 23 Table of Contents VISA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) The following table summarizes the activity related to accrued litigation: Nine Months Ended June 30, 2021 2020 (in millions) Balance at beginning of period $ 914 $ 1,203 Provision for uncovered legal matters 5 7 Provision for covered legal matters 23 14 Reestablishment of prior accrual related to interchange multidistrict litigation — 467 Payments for legal matters ( 42 ) ( 535 ) Balance at end of period $ 900 $ 1,156 Accrual Summary—U.S. Covered Litigation Visa Inc., Visa U.S.A. and Visa International are parties to certain legal proceedings that are covered by the U.S. retrospective responsibility plan, which the Company refers to as the U.S. covered litigation. An accrual for the U.S. covered litigation and a charge to the litigation provision are recorded when a loss is deemed to be probable and reasonably estimable. In making this determination, the Company evaluates available information, including but not limited to actions taken by the Company’s litigation committee. The total accrual related to the U.S. covered litigation could be either higher or lower than the escrow account balance. See further discussion below under U.S. Covered Litigation and Note 5—U.S. and Europe Retrospective Responsibility Plans. The following table summarizes the accrual activity related to U.S. covered litigation: Nine Months Ended June 30, 2021 2020 (in millions) Balance at beginning of period $ 888 $ 1,198 Reestablishment of prior accrual related to interchange multidistrict litigation — 467 Payments for U.S. covered litigation ( 7 ) ( 529 ) Balance at end of period $ 881 $ 1,136 Accrual Summary—VE Territory Covered Litigation Visa Inc., Visa International and Visa Europe are parties to certain legal proceedings that are covered by the Europe retrospective responsibility plan. Unlike the U.S. retrospective responsibility plan, the Europe retrospective responsibility plan does not have an escrow account that is used to fund settlements or judgments. The Company is entitled to recover VE territory covered losses through periodic adjustments to the conversion rates applicable to the UK&I preferred stock and Europe preferred stock. An accrual for the VE territory covered losses and a reduction to stockholders’ equity will be recorded when the loss is deemed to be probable and reasonably estimable. See further discussion below under VE Territory Covered Litigation and Note 5—U.S. and Europe Retrospective Responsibility Plans . 24 Table of Contents VISA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) The following table summarizes the accrual activity related to VE territory covered litigation: Nine Months Ended June 30, 2021 2020 (in millions) Balance at beginning of period $ 21 $ 5 Provision for VE territory covered litigation 23 14 Payments for VE territory covered litigation ( 29 ) ( 5 ) Balance at end of period $ 15 $ 14 U.S. Covered Litigation Interchange Multidistrict Litigation (MDL) – Putative Class Actions On December 18, 2020, the plaintiffs purporting to act on behalf of the putative Injunctive Relief Class moved for class certification. On April 28, 2021, a complaint was filed by Hayley Lanning and others, and on June 16, 2021, a complaint was filed by Camp Grounds Coffee and others, each against Visa and Mastercard on behalf of a purported class of merchants located in 25 states and the District of Columbia who have taken payment using the Square card acceptance service. The complaints allege violations of the antitrust laws of those jurisdictions and seek recovery for plaintiffs as indirect purchasers. To the extent that those plaintiffs’ claims are not released by the Amended Settlement Agreement, Visa believes they are covered by the U.S. Retrospective Responsibility Plan. Interchange Multidistrict Litigation (MDL) - Individual Merchant Actions Visa has 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. VE Territory Covered Litigation Europe Merchant Litigation Since July 2013, in excess of 700 Merchants (the capitalized term “Merchant,” when used in this section, means a merchant together with subsidiary/affiliate companies that are party to the same claim) have commenced proceedings against Visa Europe, Visa Inc. and other Visa subsidiaries in the UK, Belgium and Poland primarily relating to interchange rates in Europe and in some cases relating to fees charged by Visa and certain Visa rules. As of the filing date, Visa Europe, Visa Inc. and other Visa subsidiaries have settled the claims asserted by over 100 Merchants, leaving more than 550 Merchants with outstanding claims. In addition, over 30 additional Merchants have threatened to commence similar proceedings. Standstill agreements have been entered into with respect to some of those threatened Merchant claims, several of which have been settled. With regard to the claim asserted by one Merchant, trial before the UK Competition Appeal Tribunal to determine the lawful amount, if any, the plaintiff may be entitled to recover is set for June 2022. Other plaintiffs, whose claims were effectively stayed pending the Supreme Court of the United Kingdom's judgment, are moving their claims forward, mostly before the UK Competition Appeal Tribunal. 25 Table of Contents VISA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued) Other Litigation Canadian Merchant Litigation All defendants have settled with the plaintiffs. The appeals by Wal-Mart Canada and/or Home Depot of Canada Inc. of the decisions approving the Visa and Mastercard settlements have been rejected in all five provinces. Wal-Mart Canada and Home Depot of Canada Inc. sought leave to appeal the British Columbia, Quebec, Ontario and Saskatchewan Courts of Appeal decisions to the Supreme Court of Canada, and those applications were denied. Wal-Mart Canada and Home Depot of Canada Inc. chose not to appeal the Alberta Court of Appeal decision to the Supreme Court of Canada, and the Visa and Mastercard settlements are now final. EMV Chip Liability Shift On January 19, 2021, the U.S. Court of Appeals for the Second Circuit denied defendants’ request to appeal the district court’s decision granting plaintiffs’ motion for class certification. Australian Competition and Consumer Commission On March 9, 2021, the Australian Competition and Consumer Commission accepted an undertaking by Visa to resolve the investigation. The investigation is now closed. Euronet Litigation In the claim by Euronet 360 Finance Limited, Euronet Polska Spolka z.o.o. and Euronet Services spol. s.r.o., trial has been scheduled for a date on or after October 2, 2023. Plaid Inc. Acquisition On January 12, 2021, the case filed by the U.S. Department of Justice against Visa and Plaid was dismissed. German ATM Litigation In December 2020 and January 2021, six savings banks and cooperative banks filed claims in Germany against Visa Europe challenging Visa’s ATM rules prohibiting the charging of access fees on domestic cash withdrawals with a credit card as anti-competitive. No damages are currently sought. On December 24, 2020, 275 German savings banks initiated conciliation proceedings against Visa Europe, Visa Europe Services, LLC., and Visa Europe Services, Inc. asserting claims related to the same rules. Visa declined participation in these proceedings on March 22, 2021. On April 30, 2021, Visa filed defenses challenging the jurisdiction of the German courts to hear claims brought by certain banks. U.S. Department of Justice Civil Investigative Demand (2021) On March 26, 2021, the Antitrust Division of the U.S. Department of Justice (the “Division”) issued a Civil Investigative Demand (“CID”) to Visa seeking documents and information regarding a potential violation of Section 1 or 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. The CID focuses on U.S. debit and competition with other payment methods and networks. Visa is cooperating with the Division in connection with the CID. On June 11, 2021, the Division issued a further CID seeking additional documents and information on the same subjects. Foreign Currency Exchange Rate Litigation On July 9, 2021, a class action complaint was filed against Visa in the U.S. District Court for the Northern District of California by several individuals on behalf of a nationwide class, and/or California, Washington, or Illinois subclasses, of cardholders who made a transaction in a foreign currency. The complaint alleges that Visa sets foreign exchange rates in violation of Visa’s rules and bank cardholder agreements, and asserts claims for unjust enrichment and restitution as well as violations of the California Unfair Competition Law, the Washington Consumer Protection Act, and the Illinois Consumer Fraud Act. Plaintiffs seek an injunction, damages, disgorgement, and attorneys’ fees among other relief. 26 Table of Contents