VISA INC. 10-K

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This management’s discussion and analysis provides a review of the results of operations, financial condition and liquidity and capital resources of Visa Inc. and its subsidiaries (Visa, we, us, our and the Company) on a historical basis and outlines the factors that have affected recent earnings, as well as those factors that may affect future earnings. 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. This section of this Form 10-K generally discusses fiscal 2022 compared to fiscal 2021. Discussions of fiscal 2021 compared to 2020 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 Annual Report on Form 10-K for the year ended September 30, 2021, filed with the United States Securities and Exchange Commission. Overview Visa is a global payments technology company that facilitates global commerce and money movement across more than 200 countries and territories among a global set of consumers, merchants, financial institutions and government entities through innovative technologies. We provide transaction processing services (primarily authorization, clearing and settlement) to our financial institution and merchant clients through VisaNet, our advanced transaction processing network. We offer products and solutions that facilitate secure, reliable, and efficient money movement for all participants in the ecosystem. Financial overview. A summary of our as-reported U.S. GAAP and non-GAAP operating results is as follows: For the Years Ended September 30, % Change (1) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (in millions, except percentages and per share data) Net revenues $ 29,310 $ 24,105 $ 21,846 22 % 10 % Operating expenses $ 10,497 $ 8,301 $ 7,765 26 % 7 % Net income $ 14,957 $ 12,311 $ 10,866 21 % 13 % Diluted earnings per share $ 7.00 $ 5.63 $ 4.89 24 % 15 % Non-GAAP operating expenses (2) $ 9,387 $ 8,077 $ 7,702 16 % 5 % Non-GAAP net income (2) $ 16,034 $ 12,933 $ 11,193 24 % 16 % Non-GAAP diluted earnings per share (2) $ 7.50 $ 5.91 $ 5.04 27 % 17 % (1) Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers. (2) For a full reconciliation of our GAAP to non-GAAP financial results, see tables in Non-GAAP financial results below. Russia & Ukraine. During the quarter ended March 31, 2022, economic sanctions were imposed on Russia by the U.S., European Union, United Kingdom and other jurisdictions and authorities, impacting Visa and its clients. In March 2022, we suspended our operations in Russia and as a result, are no longer generating revenue from domestic and cross-border activities related to Russia. Since 2015, domestic transactions have been processed by Russia’s state-owned payments operator, National Payment Card System. With respect to cross-border activities, all transactions initiated with Visa cards issued by financial institutions outside Russia no longer work within Russia, and all transactions on cards issued by financial institutions in Russia may be processed on a domestic network, unrelated to Visa, and no longer work outside the country. Furthermore, during the quarter ended March 31, 2022 we deconsolidated our Russian subsidiary, as required under U.S. GAAP. For fiscal 2022 and 2021, total net revenues from Russia, including revenues driven by domestic as well as cross-border activities, were approximately 2% and 4% of our consolidated net revenues, respectively. The continuing effects of the war in Ukraine are difficult to predict due to numerous uncertainties 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. 32 Table of Contents Highlights for fiscal 2022 . Net revenues increased 22% over the prior year, primarily due to the year-over-year growth in nominal payments volume, processed transactions and nominal cross-border volume, partially offset by higher client incentives. Exchange rate movements, partially offset by our hedging program, negatively impacted our net revenues growth by approximately two-and-a-half percentage points. GAAP operating expenses increased 26% over the prior year, primarily driven by higher expenses for litigation provision and personnel. See Results of Operations—Operating Expenses below for further discussion. Non-GAAP operating expenses increased 16% over the prior year, primarily driven by higher expenses related to personnel and general and administrative. Exchange rate movements positively impacted our operating expense growth by approximately two-and-a-half percentage points. Release of preferred stock. In July 2022, we released $3.5 billion of the as-converted value from our series B and C preferred stock and issued 176,655 shares of series A preferred stock in connection with the second 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 15—Stockholders’ Equity to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. Senior notes. In June 2022, we issued €3.0 billion in Euro-denominated fixed-rate senior notes with maturities ranging between 4 and 12 years. See Note 10—Debt to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. Acquisitions. On December 20, 2021, we acquired The Currency Cloud Group Limited (Currencycloud), a global platform that enables financial institutions and fintechs to provide innovative cross-border foreign exchange solutions, for a total purchase consideration of $893 million (which includes the fair value of our previously held equity interest in Currencycloud). On March 10, 2022, we acquired 100% of the share capital of Tink AB (Tink) for $1.9 billion in cash. Tink is an open banking platform that enables financial institutions, fintechs and merchants to build financial products and services and move money. See Note 2—Acquisitions to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. Interchange multidistrict litigation. During fiscal 2022, we recorded additional accruals of $861 million to address claims associated with the interchange multidistrict litigation. We also made deposits of $850 million 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 of this report . Common stock repurchases. In December 2021, our board of directors authorized a $12.0 billion share repurchase program. During fiscal 2022, we repurchased 56 million shares of our class A common stock in the open market for $11.6 billion. As of September 30, 2022, our share repurchase program had remaining authorized funds of $5.2 billion. In October 2022, our board of directors authorized a new $12.0 billion share repurchase program. See Note 15—Stockholders’ Equity to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. Non-GAAP financial results. 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. • 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 33 Table of Contents 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. These costs also include 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. During fiscal 2022, we recorded additional accruals to address claims associated with the interchange multidistrict litigation of $861 million and related tax benefit of $191 million, determined by applying applicable tax rates. Under the U.S. retrospective responsibility plan, we recover the monetary liabilities related to the U.S. covered litigation through a downward adjustment to the rate at which shares of our class B common stock convert into shares of class A common stock. 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. • Russia-Ukraine charges. During fiscal 2022, we recorded a loss within general and administrative expense of $35 million from the deconsolidation of our Russian subsidiary. See Note 1—Summary of Significant Accounting Policies to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. We also incurred charges of $25 million in personnel expense as a result of steps taken to support our employees in Russia and Ukraine. We have excluded these amounts and the related tax benefit of $4 million, determined by applying applicable tax rates, as they are one-time charges and do not reflect the underlying performance of our business. • Remeasurement of deferred tax balances. During fiscal 2021, in connection with the UK enacted legislation on June 10, 2021 that increases the tax rate from 19% to 25%, effective April 1, 2023, we remeasured our UK deferred tax liabilities, resulting in the recognition of a non-recurring, non-cash income tax expense of $1.0 billion. 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 remeasured our UK deferred tax liabilities as of the enactment date, resulting in the recognition of a non-recurring, non-cash income tax expense of $329 million. • Indirect taxes. During fiscal 2021, we recognized a one-time charge within general and administrative expense of $152 million, and related tax benefit of $40 million, determined by applying applicable tax rates. This charge is to record our estimate of probable additional indirect taxes, related to prior periods, for which we could be liable as a result of certain changes in applicable law. This one-time charge is not representative of our ongoing operations. • 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. 34 Table of Contents 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, or considered in isolation from, measures calculated in accordance with U.S. GAAP. The following tables reconcile our as-reported financial measures, calculated in accordance with U.S. GAAP, to our respective non-GAAP financial measures: For the Year Ended September 30, 2022 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 $ 10,497 $ (677) $ 3,179 17.5 % $ 14,957 $ 7.00 (Gains) losses on equity investments, net — 264 67 197 0.09 Amortization of acquired intangible assets (120) — 26 94 0.04 Acquisition-related costs (69) — 9 60 0.03 Litigation provision (861) — 191 670 0.31 Russia-Ukraine charges (60) — 4 56 0.03 Non-GAAP $ 9,387 $ (413) $ 3,476 17.8 % $ 16,034 $ 7.50 For the Year Ended September 30, 2021 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 $ 8,301 $ 259 $ 3,752 23.4 % $ 12,311 $ 5.63 (Gains) losses on equity investments, net — (712) (159) (553) (0.25) Amortization of acquired intangible assets (51) — 12 39 0.02 Acquisition-related costs (21) — 4 17 0.01 Remeasurement of deferred tax balances — — (1,007) 1,007 0.46 Indirect taxes (152) — 40 112 0.05 Non-GAAP $ 8,077 $ (453) $ 2,642 17.0 % $ 12,933 $ 5.91 35 Table of Contents 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 (1) Figures in the table may not recalculate exactly due to rounding. Effective income tax rate, diluted earnings per share and their respective totals are calculated based on unrounded numbers. 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. Payments volume represents the aggregate dollar amount of purchases made with cards and other form factors carrying the Visa, Visa Electron, V PAY and Interlink brands and excludes Europe co-badged volume. Nominal payments volume is denominated in U.S. dollars and is calculated each quarter by applying an established U.S. dollar/foreign currency exchange rate for each local currency in which our volumes are reported. Processed transactions represent transactions using cards and other form factors carrying the Visa, Visa Electron, V PAY, Interlink and PLUS brands processed on Visa’s networks. The following tables present nominal payments and cash volume: U.S. International Visa Inc. Twelve Months Ended June 30, (1) Twelve Months Ended June 30, (1) Twelve Months Ended June 30, (1) 2022 2021 % Change (2) 2022 2021 % Change (2) 2022 2021 % Change (2) (in billions, except percentages) Nominal payments volume Consumer credit $ 2,047 $ 1,641 25 % $ 2,684 $ 2,398 12 % $ 4,732 $ 4,039 17 % Consumer debit (3) 2,617 2,388 10 % 2,692 2,440 10 % 5,309 4,828 10 % Commercial (4) 882 696 27 % 542 407 33 % 1,423 1,104 29 % Total nominal payments volume (2) $ 5,546 $ 4,725 17 % $ 5,918 $ 5,245 13 % $ 11,464 $ 9,971 15 % Cash volume (5) 631 635 (1 %) 1,931 1,924 — % 2,562 2,559 — % Total nominal volume (2),(6) $ 6,177 $ 5,360 15 % $ 7,849 $ 7,170 9 % $ 14,025 $ 12,530 12 % 36 Table of Contents U.S. International Visa Inc. Twelve Months Ended June 30, (1) Twelve Months Ended June 30, (1) Twelve Months Ended June 30, (1) 2021 2020 % Change (2) 2021 2020 % Change (2) 2021 2020 % Change (2) (in billions, except percentages) Nominal payments volume Consumer credit $ 1,641 $ 1,518 8 % $ 2,398 $ 2,363 1 % $ 4,039 $ 3,880 4 % Consumer debit (3) 2,388 1,849 29 % 2,440 1,976 24 % 4,828 3,824 26 % Commercial (4) 696 641 9 % 407 370 10 % 1,104 1,010 9 % Total nominal payments volume (2) $ 4,725 $ 4,007 18 % $ 5,245 $ 4,708 11 % $ 9,971 $ 8,715 14 % Cash volume (5) 635 573 11 % 1,924 2,046 (6 %) 2,559 2,619 (2 %) Total nominal volume (2),(6) $ 5,360 $ 4,580 17 % $ 7,170 $ 6,753 6 % $ 12,530 $ 11,334 11 % The following table presents the change in nominal and constant payments and cash volume: International Visa Inc. Twelve Months Ended June 30, 2022 vs 2021 (1),(2) Twelve Months Ended June 30, 2021 vs 2020 (1),(2) Twelve Months Ended June 30, 2022 vs 2021 (1),(2) Twelve Months Ended June 30, 2021 vs 2020 (1),(2) Nominal Constant (7) Nominal Constant (7) Nominal Constant (7) Nominal Constant (7) Payments volume growth Consumer credit growth 12 % 15 % 1 % (1 %) 17 % 19 % 4 % 3 % Consumer debit growth (3) 10 % 13 % 24 % 20 % 10 % 11 % 26 % 25 % Commercial growth (4) 33 % 39 % 10 % 7 % 29 % 31 % 9 % 8 % Total payments volume growth 13 % 16 % 11 % 9 % 15 % 17 % 14 % 13 % Cash volume growth (5) — % 4 % (6 %) (4 %) — % 3 % (2 %) — % Total volume growth 9 % 13 % 6 % 5 % 12 % 14 % 11 % 10 % (1) Service revenues in a given quarter are assessed based on nominal payments volume in the prior quarter. Therefore, service revenues reported for the twelve months ended September 30, 2022, 2021 and 2020, were based on nominal payments volume reported by our financial institution clients for the twelve months ended June 30, 2022, 2021 and 2020, respectively. On occasion, previously presented volume information may be updated. Prior period updates are not material. (2) Figures in the table may not recalculate exactly due to rounding. Percentage changes and totals are calculated based on unrounded numbers. (3) Includes consumer prepaid volume and Interlink volume. (4) Includes large, medium and small business credit and debit, as well as commercial prepaid volume. (5) Cash volume generally consists of cash access transactions, balance access transactions, balance transfers and convenience checks. (6) Total nominal volume is the sum of total nominal payments volume and cash volume. Total nominal volume is provided by our financial institution clients, subject to review by Visa. (7) Growth on a constant-dollar basis excludes the impact of foreign currency fluctuations against the U.S. dollar. The following table presents the number of processed transactions: For the Years Ended September 30, % Change (1) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (in millions, except percentages) Visa processed transactions 192,530 164,734 140,839 17 % 17 % (1) Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers. On occasion, previously presented information may be updated. Prior period updates are not material. 37 Table of Contents Results of Operations Net Revenues Our net revenues are primarily generated from payments volume on Visa products for purchased goods and services, as well as the number of transactions processed on our network. See Note 1—Summary of Significant Accounting Policies to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report for further discussion on the components of our net revenues. The following table presents our net revenues earned in the U.S. and internationally: For the Years Ended September 30, % Change (1) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (in millions, except percentages) U.S. $ 12,851 $ 11,160 $ 10,125 15 % 10 % International 16,459 12,945 11,721 27 % 10 % Net revenues $ 29,310 $ 24,105 $ 21,846 22 % 10 % (1) Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers. Net revenues increased in fiscal 2022 primarily due to the year-over-year growth in nominal payments volume, processed transactions and nominal cross-border volume, partially offset by higher client incentives. 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. dollars. In fiscal 2022, exchange rate movements, partially offset by our hedging program, negatively impacted our net revenues growth by approximately two-and-a-half percentage points. The following table presents the components of our net revenues: For the Years Ended September 30, % Change (1) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (in millions, except percentages) Service revenues $ 13,361 $ 11,475 $ 9,804 16 % 17 % Data processing revenues 14,438 12,792 10,975 13 % 17 % International transaction revenues 9,815 6,530 6,299 50 % 4 % Other revenues 1,991 1,675 1,432 19 % 17 % Client incentives (10,295) (8,367) (6,664) 23 % 26 % Net revenues $ 29,310 $ 24,105 $ 21,846 22 % 10 % (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 15% growth in nominal payments volume. • Data processing revenues increased primarily due to 17% growth in processed transactions, partially offset by our suspension of operations in Russia and unfavorable currency fluctuations. • International transaction revenues increased primarily due to growth in nominal cross-border volumes, excluding transactions within Europe, of 40%. International transaction revenues also increased due to volatility of a broad range of currencies and select pricing modifications. • Other revenues increased primarily due to select pricing modifications, travel related card benefits, value added services revenues tied to marketing services, consulting revenues and other value added services. 38 Table of Contents • Client incentives increased primarily due to growth in payments volume during fiscal 2022. 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. Operating Expenses Our operating expenses consist of the following: • Personnel expenses include salaries, employee benefits, incentive compensation, share-based compensation and contractor expenses. • Marketing expenses include expenses associated with advertising and marketing campaigns, sponsorships and other related promotions of the Visa brand. • 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. • Professional fees mainly consist of fees for consulting, legal and other professional services. • Depreciation and amortization expenses include amortization of purchased and internally developed software, as well as depreciation expense for property and equipment. Also included in this amount is amortization of finite-lived intangible assets primarily obtained through acquisitions. • General and administrative expenses consist mainly of card benefits, facilities costs, indirect taxes, travel and meeting costs, foreign exchange gains and losses and other corporate expenses incurred in support of our business. • Litigation provision represents litigation expenses and is an estimate based on management’s understanding of our litigation profile, the specifics of each case, advice of counsel to the extent appropriate and management’s best estimate of incurred loss. The following table presents the components of our total operating expenses: For the Years Ended September 30, % Change (1) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (in millions, except percentages) Personnel $ 4,990 $ 4,240 $ 3,785 18 % 12 % Marketing 1,336 1,136 971 18 % 17 % Network and processing 743 730 727 2 % — % Professional fees 505 403 408 25 % (1 %) Depreciation and amortization 861 804 767 7 % 5 % General and administrative 1,194 985 1,096 21 % (10 %) Litigation provision 868 3 11 NM (76 %) Total operating expenses (2) $ 10,497 $ 8,301 $ 7,765 26 % 7 % NM - Not meaningful (1) Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers. (2) Operating expenses for fiscal 2022 and 2021 include significant items that we do not believe are indicative of our operating performance. See Overview within this Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations. Total operating expenses increased as we invested in future growth and due to the provision for U.S. covered litigation. • Personnel expenses increased primarily due to higher number of employees and compensation, reflecting our strategy to invest in future growth, including acquisitions. The increase also included expenses incurred as a result of steps taken to support our employees in Russia and Ukraine. • Marketing expenses increased due to higher spending in various campaigns, including the FIFA World Cup 2022 TM and the Olympic and Paralympic Winter Games Beijing 2022, and client marketing. 39 Table of Contents • Professional fees increased primarily due to consulting fees related to technology and other corporate projects. • General and administrative expenses increased due to higher usage of travel related card benefits, higher travel expenses, the suspension of our operations in Russia and deconsolidation of our Russian subsidiary and the inclusion of expenses from our acquisitions, partially offset by a one-time charge of indirect taxes in the prior year. • Litigation provision increased primarily due to additional accruals of $861 million related to the U.S. covered litigation. See Note 5—U.S. and Europe Retrospective Responsibility Plans and Note 20—Legal Matters included in Item 8—Financial Statements and Supplementary Data of this report. Non-operating Income (Expense) Non-operating income (expense) primarily includes interest expense related to borrowings, income from derivative instruments, interest expense from tax liabilities, gains and losses on investments, as well as the non-service components of net periodic pension income and expense. The following table presents the components of our non-operating income (expense): For the Years Ended September 30, % Change (1) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (in millions, except percentages) Interest expense $ (538) $ (513) $ (516) 5 % (1 %) Investment income (expense) and other (139) 772 225 (118 %) 243 % Total non-operating income (expense) $ (677) $ 259 $ (291) (361 %) (189 %) (1) Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers. • Interest expense increased primarily due to higher interest expense related to income tax liabilities and the issuance of debt in fiscal 2022, combined with lower income from derivative instruments that decreased the cost of borrowing on a portion of our outstanding debt. See Note 10—Debt to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. • Investment income (expense) and other decreased primarily due to losses on our equity investments, offset by higher 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 presents our effective income tax rates: For the Years Ended September 30, 2022 2021 2020 Effective income tax rate 18 % 23 % 21 % The effective tax rate in fiscal 2022 differs from the effective tax rate in fiscal 2021 primarily due to the following: • during fiscal 2022, a decrease in the state tax apportionment ratio, including a $176 million tax benefit related to prior years, as a result of a tax position taken related to a recent ruling; • during fiscal 2021, a $1.0 billion non-recurring, non-cash tax expense related to the remeasurement of UK deferred tax liabilities as a result of the increase in UK tax rate from 19% to 25%, effective April 1, 2023; and • during fiscal 2021, $255 million of tax benefits recognized as a result of the conclusion of audits by taxing authorities. 40 Table of Contents Liquidity and Capital Resources Management of Our Liquidity We regularly evaluate cash requirements for current operations, commitments, development activities and capital expenditures, and we may elect to raise additional funds for these purposes in the future through the issuance of either debt or equity. Our treasury policies provide management with the guidelines and authority to manage liquidity risk in a manner consistent with our corporate objectives. The objectives of our treasury policies are to: • provide adequate liquidity to cover operating expenditures and liquidity contingency scenarios; • ensure timely completion of payments settlement activities; • ensure payments on required litigation settlements; • make planned capital investments in our business; • pay dividends and repurchase our shares at the discretion of our board of directors; and • invest excess cash in securities that enable us to first meet our working capital and liquidity needs, and earn additional income. Based on our current cash flow budgets and forecasts of our short-term and long-term liquidity needs, we believe that our current and projected sources of liquidity will be sufficient to meet our projected liquidity needs for more than the next 12 months. We will continue to assess our liquidity position and potential sources of supplemental liquidity in view of our operating performance, current economic and capital market conditions and other relevant circumstances. Cash Flow Data The following table summarizes our cash flow activity for the fiscal years presented: For the Years Ended September 30, 2022 2021 2020 (in millions) Total cash provided by (used in): Operating activities $ 18,849 $ 15,227 $ 10,440 Investing activities (4,288) (152) 1,427 Financing activities (12,696) (14,410) (3,968) Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents (1,287) (37) 440 Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents $ 578 $ 628 $ 8,339 Operating activiti es. Cash provided by operating activities in fiscal 2022 was higher than the prior fiscal year primarily due to growth in our underlying business, partially offset by higher litigation payments. Investing activities. Cash used in investing activities in fiscal 2022 was higher than the prior fiscal year primarily due to lower proceeds from sales and maturities of investment securities, combined with higher purchases of investment securities and higher cash paid for acquisitions, net of cash and restricted cash acquired. See Note 2—Acquisitions and Note 4—Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. Financing activities. Cash used in financing activities in fiscal 2022 was lower than the prior fiscal year primarily due to proceeds received from the issuance of senior notes and lower principal debt payment upon maturity of our senior notes, partially offset by higher share repurchases and 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. 41 Table of Contents Sources of Liquidity Our primary sources of liquidity are cash on hand, cash flow from our operations, our investment portfolio and access to various equity and borrowing arrangements. Funds from operations are maintained in cash and cash equivalents and short-term or long-term investment securities based upon our funding requirements, access to liquidity from these holdings and the returns that these holdings provide. Cash, cash equivalents and investments. As of September 30, 2022, our cash and cash equivalents balance were $15.7 billion and our available-for-sale debt securities were $4.5 billion. Our investment portfolio is designed to invest cash in securities which enables us to meet our working capital and liquidity needs. Our investment portfolio consists of debt securities issued by the U.S. Treasury or U.S. government-sponsored agencies. $2.3 billion of the investments are classified as current and are available to meet short-term liquidity needs. The remaining non-current investments have stated maturities of more than one year from the balance sheet date; however, they are also generally available to meet short-term liquidity needs. Factors that may impact the liquidity of our investment portfolio include, but are not limited to, changes to credit ratings of the securities, uncertainty related to regulatory developments, actions by central banks and other monetary authorities and the ongoing strength and quality of credit markets. We will continue to review our portfolio in light of evolving market and economic conditions. However, if current market conditions deteriorate, the liquidity of our investment portfolio may be impacted and we could determine that some of our investments are impaired, which could adversely impact our financial results. We have policies that limit the amount of credit exposure to any one financial institution or type of investment. Commercial paper program . We maintain a commercial paper program to support our working capital requirements and for other general corporate purposes. During the year ended September 30, 2022, we issued and repaid $950 million of commercial paper. As of September 30, 2022, we had no outstanding obligations under the program. See Note 10—Debt to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. Credit facility. We have an unsecured $5.0 billion revolving credit facility (Credit Facility) which expires on July 25, 2024. As of September 30, 2022, there were no amounts outstanding under the Credit Facility. See Note 10—Debt to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. Senior notes. In June 2022, we issued €3.0 billion ($3.2 billion) in Euro-denominated fixed-rate senior notes, with maturities ranging between 4 and 12 years. See Note 10—Debt to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. U.S. Litigation escrow account. Pursuant to the terms of the 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. covered litigation will be payable. As these funds are restricted for the sole purpose of making payments related to the U.S. covered litigation matters, 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 Various factors affect our credit ratings, including changes in our operating performance, the economic environment, conditions in the electronic payments industry, our financial position and changes in our business strategy. Our credit ratings are published by nationally recognized statistical rating organizations in the U.S. and have not changed from the prior-year comparable period. We do not currently foresee any reasonable circumstances under which our credit ratings would be significantly downgraded. If a downgrade were to occur, it could adversely impact, among other things, our future borrowing costs and access to capital markets. 42 Table of Contents Uses of Liquidity Payments settlement. Payments settlement due to and from our financial institution clients can represent a substantial daily liquidity requirement. Most 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. In general, during fiscal 2022, we were not required to fund settlement-related working capital. As of September 30, 2022, we held $9.2 billion of our total available liquidity to fund daily settlement in the event one or more of our financial institution clients are unable to settle, with the remaining liquidity available to support our working capital and other liquidity needs. See Note 12—Settlement Guarantee Management to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report . Litigation. Judgments in and settlements of litigation or other fines imposed in investigations and proceedings, other than the U.S. covered litigation and VE territory covered litigation, which are covered by the U.S. and Europe retrospective responsibility plans, could give rise to future liquidity needs. During fiscal 2022, we deposited $850 million into the U.S. litigation escrow account to address claims associated with the interchange multidistrict litigation. The balance of this account as of September 30, 2022 was $1.4 billion and is reflected as restricted cash in our consolidated balance sheets. 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. Common stock repurchases. During fiscal 2022, we repurchased shares of our class A common stock in the open market for $11.6 billion. As of September 30, 2022, our repurchase program had remaining authorized funds of $5.2 billion. In October 2022, our board of directors authorized a new $12.0 billion share repurchase program. Share repurchases will be executed at prices we deem appropriate subject to various factors, including market conditions and our financial performance, and may be effected through accelerated share repurchase programs, open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans . See Note 15—Stockholders’ Equity to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. Dividends . During fiscal 2022, we declared and paid $3.2 billion in dividends to holders of our common and preferred stock. On October 21, 2022, our board of directors declared a quarterly cash dividend of $0.45 per share of class A common stock (determined in the case of class B and C common stock and series A, B and C convertible participating preferred stock on an as-converted basis). We expect to pay approximately $950 million in connection with this dividend on December 1, 2022. See Note 15—Stockholders’ Equity to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. We expect to continue paying quarterly dividends in cash, subject to approval by the board of directors. All preferred and class B and C common stock will share ratably on an as-converted basis in such future dividends. Capital expenditures. During fiscal 2022, our capital expenditures increased. We expect to continue investing in technology assets and payments system infrastructure. Senior notes. As of September 30, 2022, we had an outstanding aggregate principal amount relating to our senior notes of $22.9 billion. During fiscal 2022, we repaid $1.0 billion of principal upon maturity of certain senior notes. A principal payment on certain senior notes of $2.3 billion is due in December 2022, for which we have sufficient liquidity. As of September 30, 2022, we allocated $243 million to eligible green projects from the $500 million green bond issued as part of our commitment to environmental sustainability and a sustainable payments ecosystem. See Note 10—Debt to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. Client incentives. As of September 30, 2022, we had short-term and long-term liabilities recorded on the consolidated balance sheet related to these agreements of $6.1 billion and $0.2 billion, respectively. See Note 1—Summary of Significant Accounting Policies to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. Uncertain tax positions. As of September 30, 2022, we had long-term liabilities for uncertain tax positions of $1.8 billion. See Note 19—Income Taxes to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. 43 Table of Contents Acquisitions. On December 20, 2021, we acquired Currencycloud for a total purchase consideration of $893 million (which includes the fair value of our previously held equity interest in Currencycloud), and on March 10, 2022, we acquired 100% of the share capital of Tink for $1.9 billion in cash. See Note 2—Acquisitions to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. Purchase obligations. As of September 30, 2022, we had short-term and long-term obligations of $1.6 billion and $1.1 billion, respectively, related to agreements to purchase goods and services that specify significant terms, including fixed or minimum quantities to be purchased, minimum or variable price provisions, and the approximate timing of the transaction. 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. For future obligations related to software licenses, see Note 18—Commitments to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. Leases. As of September 30, 2022, we had short-term and long-term obligations of $3 million and $528 million, respectively, related to leases that have not yet commenced. For future lease payments related to leases that have commenced and are included in the consolidated balance sheet, see Note 9—Leases to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. Tax Cuts and Jobs Act. As of September 30, 2022, we had short-term and long-term obligations of $87 million and $589 million, respectively, related to the estimated transition tax, net of foreign tax credit carryovers, on certain foreign earnings of non-U.S. subsidiaries recognized during fiscal 2018. 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 operating rules. The amount of the indemnification is limited to the amount of unsettled Visa payment transactions at any point in time. 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. Accounting Pronouncements Not Yet Adopted In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate or another reference rate expected to be discontinued because of reference rate reform. Subsequently, the FASB also issued an amendment to this standard. The amendments in the ASU are effective upon issuance through December 31, 2022. We are evaluating the effect ASU 2020-04 and its subsequent amendment will have on our consolidated financial statements. The adoption is not expected to have a material impact on our consolidated financial statements. Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require us to make judgments, assumptions and estimates that affect the amounts reported. See Note 1—Summary of Significant Accounting Policies to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data of this report. We have established policies and control procedures which seek to ensure that estimates and assumptions are appropriately governed and applied consistently from period to period. However, actual results could differ from our assumptions and estimates, and such differences could be material. 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. 44 Table of Contents Revenue Recognition — Client Incentives Critical estimates. We enter into long-term incentive agreements with financial institution clients, merchants and other business partners for various programs that provide cash and other incentives designed to increase revenue by growing payments volume, increasing Visa product acceptance, winning merchant routing transactions over to our network and driving innovation. These incentives are primarily accounted for as reductions to net revenues; however, if a separate identifiable benefit at fair value can be established, they are accounted for as operating expenses. Incentives are recognized systematically and rationally based on management’s estimate of each client’s performance. These estimates are regularly reviewed and adjusted as appropriate based on changes in performance expectations, actual client performance, amendments to existing contracts or the execution of new contracts. Assumptions and judgment. Estimation of client incentives relies on forecasts of payments and transaction volume, card issuance and card conversion. Performance is estimated using client-reported information, transactional information accumulated from our systems, historical information, market and economic conditions and discussions with our clients, merchants and business partners. Impact if actual results differ from assumptions. If actual performance is not consistent with our estimates, client incentives may be materially different than initially recorded. Increases in incentive payments are generally driven by increased payments and transaction volume, which drive our net revenues. As a result, in the event incentive payments exceed estimates, such payments are not expected to have a material effect on our financial condition, results of operations or cash flows. The cumulative impact of a revision in estimates is recorded in the period such revisions become probable and estimable. For the year ended September 30, 2022, client incentives represented 26% of gross revenues. Legal and Regulatory Matters Critical estimates. We are currently involved in various legal proceedings, the outcomes of which are not within our complete control and 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 consolidated financial statements. Assumptions and judgment. We evaluate the likelihood of a potential loss from legal or regulatory proceedings to which we are a party. We record a liability for such claims when a loss is deemed probable and the amount can be reasonably estimated. Significant judgment may be required in the determination of both probability and whether a loss is reasonably estimable. Our judgments are subjective and based on a number of factors, including management’s understanding of the legal or regulatory profile and the specifics of each proceeding, our history with similar matters, advice of internal and external legal counsel and management’s best estimate of incurred loss. As additional information becomes available, we reassess the potential loss related to pending claims and may revise our estimates. We have entered into loss sharing agreements that reduce our potential liability under certain litigation. However, our U.S. retrospective responsibility plan only addresses monetary liabilities from settlements of, or final judgments in, the U.S. covered litigation. The plan’s mechanisms include the use of the U.S. litigation escrow account. The accrual related to the U.S. covered litigation could be either higher or lower than the U.S. litigation escrow account balance. Our Europe retrospective responsibility plan only covers Visa Europe territory covered litigation (and resultant liabilities and losses) relating to the covered period, subject to certain limitations, and does not cover any fines or penalties incurred in the European Commission proceedings or any other matter. 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 . Impact if actual results differ from assumptions. Due to the inherent uncertainties of the legal and regulatory processes in the multiple jurisdictions in which we operate, our judgments may be materially different than the actual outcomes, which could have material adverse effects on our business, financial conditions and results of operations in the period in which the effect becomes probable and reasonably estimable. See Note 20—Legal Matters to our consolidated financial statements included in Item 8—Financial Statements and Supplementary Data . Income Taxes Critical estimates. 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. 45 Table of Contents Assumptions and judgment. We have various tax filing positions with regard to the timing and amount of deductions and credits and the allocation of income among various tax jurisdictions, based on our interpretation of local tax laws. We also inventory, evaluate and measure all uncertain tax positions taken or expected to be taken on tax returns and record liabilities for the amount of such positions that may not be sustained, or may only be partially sustained, upon examination by the relevant taxing authorities. Impact if actual results differ from assumptions. Although we believe that our estimates and judgments are reasonable, actual results may differ from these estimates. Some or all of these judgments are subject to review by the taxing authorities. If one or more of the taxing authorities were to successfully challenge our right to realize some or all of the tax benefit we have recorded, and we were unable to realize this benefit, it could have a material adverse effect on our financial results and cash flows.