Visa 10-Q 2021-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2021

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-33977

VISA INC.

(Exact name of Registrant as specified in its charter)

Delaware									26-0267673
(State or other jurisdiction of incorporation or organization)									(IRS Employer Identification No.)
P.O. Box 8999									94128-8999
San Francisco,			California
(Address of principal executive offices)									(Zip Code)

(650) 432-3200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class						Trading Symbol						Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share						V						New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer			☑						Accelerated filer			☐
Non-accelerated filer			☐						Smaller reporting company			☐
									Emerging growth company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of January 19, 2022, there were 1,658,423,632 shares outstanding of the registrant’s class A common stock, par value $0.0001 per share, 245,513,385 shares outstanding of the registrant’s class B common stock, par value $0.0001 per share, and 10,281,997 shares outstanding of the registrant’s class C common stock, par value $0.0001 per share.

VISA INC.

TABLE OF CONTENTS

						Page
PART I.			Financial Information			4
Item 1.			Financial Statements (Unaudited)			4
			Consolidated Balance Sheets—December 31, 2021 and September 30, 2021			4
			Consolidated Statements of Operations—Three Months Ended December 31, 2021 and 2020			5
			Consolidated Statements of Comprehensive Income—Three Months Ended December 31, 2021 and 2020			6
			Consolidated Statements of Changes in Equity—Three Months Ended December 31, 2021 and 2020			7
			Consolidated Statements of Cash Flows—Three Months Ended December 31, 2021 and 2020			9
			Notes to Consolidated Financial Statements (Unaudited)			10
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			31
Item 4.			Controls and Procedures			32
PART II.			Other Information			33
Item 1.			Legal Proceedings			33
Item 1A.			Risk Factors			33
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			33
Item 3.			Defaults Upon Senior Securities			34
Item 4.			Mine Safety Disclosures			34
Item 5.			Other Information			34
Item 6.			Exhibits			35
			Signatures			37

PART I. FINANCIAL INFORMATION

VISA INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

			December 31, 2021						September 30, 2021
			(in millions, except per share data)
Assets
Cash and cash equivalents			$	14,720					$	16,487
Restricted cash equivalents—U.S. litigation escrow			1,144						894
Investment securities			1,201						2,025
Settlement receivable			1,788						1,758
Accounts receivable			2,168						1,968
Customer collateral			2,284						2,260
Current portion of client incentives			1,334						1,359
Prepaid expenses and other current assets			1,267						856
Total current assets			25,906						27,607
Investment securities			2,087						1,705
Client incentives			3,290						3,245
Property, equipment and technology, net			2,908						2,715
Goodwill			16,555						15,958
Intangible assets, net			27,272						27,664
Other assets			3,911						4,002
Total assets			$	81,929					$	82,896
Liabilities
Accounts payable			$	252					$	266
Settlement payable			2,774						2,443
Customer collateral			2,284						2,260
Accrued compensation and benefits			725						1,211
Client incentives			5,294						5,243
Accrued liabilities			2,965						2,334
Current maturities of debt			3,247						999
Accrued litigation			1,027						983
Total current liabilities			18,568						15,739
Long-term debt			17,673						19,978
Deferred tax liabilities			6,078						6,128
Other liabilities			3,416						3,462
Total liabilities			45,735						45,307
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 December 31, 2021 and September 30, 2021 (the “series A preferred stock”)			430						486
Series B convertible participating preferred stock, 2 shares issued and outstanding at December 31, 2021 and September 30, 2021 (the “series B preferred stock”)			1,045						1,071
Series C convertible participating preferred stock, 3 shares issued and outstanding at December 31, 2021 and September 30, 2021 (the “series C preferred stock”)			1,520						1,523
Class A common stock, $0.0001 par value, 2,001,622 shares authorized, 1,661 and 1,677 shares issued and outstanding at December 31, 2021 and September 30, 2021 respectively			—						—
Class B common stock, $0.0001 par value, 622 shares authorized, 245 shares issued and outstanding at December 31, 2021 and September 30, 2021			—						—
Class C common stock, $0.0001 par value, 1,097 shares authorized, 10 shares issued and outstanding at December 31, 2021 and September 30, 2021			—						—
Right to recover for covered losses			(111)						(133)
Additional paid-in capital			18,776						18,855
Accumulated income			14,606						15,351
Accumulated other comprehensive income (loss), net:
Investment securities			(9)						(1)
Defined benefit pension and other postretirement plans			(47)						(49)
Derivative instruments			(171)						(257)
Foreign currency translation adjustments			155						743
Total accumulated other comprehensive income (loss), net			(72)						436
Total equity			36,194						37,589
Total liabilities and equity			$	81,929					$	82,896

See accompanying notes, which are an integral part of these unaudited consolidated financial statements.

VISA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED**)**

									Three Months Ended December 31,
															2021						2020
															(in millions, except per share data)
Net revenues															$	7,059					$	5,687
Operating Expenses
Personnel															1,125						981
Marketing															280						205
Network and processing															190						173
Professional fees															100						83
Depreciation and amortization															198						197
General and administrative															242						203
Litigation provision															148						1
Total operating expenses															2,283						1,843
Operating income															4,776						3,844
Non-operating Income (Expense)
Interest expense, net															(134)						(136)
Investment income and other															255						40
**Total non-operating income

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This management’s discussion and analysis provides a review of the results of operations, financial condition and the liquidity and capital resources of Visa Inc. and its subsidiaries (“Visa,” “we,” “us,” “our” or 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 our unaudited consolidated financial statements and related notes included in Item 1—Financial Statements of this report.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 that relate to, among other things, the impact on our future financial position, results of operations and cash flows as a result of the ongoing effects of the coronavirus (“COVID-19”) pandemic, the measures taken in response, as well as the speed and strength of an economic recovery, including the reopening of borders and resumption of international travel; prospects, developments, strategies and growth of our business; anticipated expansion of our products in certain countries; industry developments; anticipated timing and benefits of our acquisitions; expectations regarding litigation matters, investigations and proceedings; timing and amount of stock repurchases; sufficiency of sources of liquidity and funding; effectiveness of our risk management programs; and expectations regarding the impact of recent accounting pronouncements on our consolidated financial statements. Forward-looking statements generally are identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “projects,” “could,” “should,” “will,” “continue” and other similar expressions. All statements other than statements of historical fact could be forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, many of which are beyond our control and are difficult to predict. We describe risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, any of these forward-looking statements in our SEC filings, including our Annual Report on Form 10-K, for the year ended September 30, 2021 and our subsequent reports on Forms 10-Q and 8-K. Except as required by law, we do not intend to update or revise any forward-looking statements as a result of new information, future events or otherwise.

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 network of consumers, merchants, financial institutions and government entities through innovative technologies. We provide transaction processing services (primarily authorization, clearing and settlement) to our financial institutions and merchants 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:

			Three Months Ended December 31,
			2021						2020						% Change**(1)**
			(in millions, except percentages and per share data)
Net revenues			$	7,059					$	5,687					24		%
Operating expenses			$	2,283					$	1,843					24		%
Net income			$	3,959					$	3,126					27		%
Diluted earnings per share			$	1.83					$	1.42					29		%
Non-GAAP operating expenses(2)			$	2,115					$	1,828					16		%
Non-GAAP net income(2)			$	3,901					$	3,125					25		%
Non-GAAP diluted earnings per share(2)			$	1.81					$	1.42					27		%

(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.

Coronavirus. As the effects of the evolving coronavirus (“COVID-19”) pandemic continue, much remains uncertain. Our priority remains the safety of our employees, clients and the communities in which we live and operate. We are taking a phased approach to reopening our offices, with most of our employees currently working remotely. We continue to remain in close and regular contact with our employees, clients, partners and governments globally to help them navigate these challenging times.

The ongoing effects of COVID-19 remain difficult to predict due to numerous uncertainties, including the transmissibility, severity, duration and resurgence of the outbreak, new variants of the virus, the uptake and effectiveness of health and safety measures or actions that are voluntarily adopted by the public or required by governments or public health authorities, including vaccines and treatments, the speed and strength of an economic recovery, including the reopening of borders and the resumption of international travel, and the impact to our employees and our operations, the business of our clients, suppliers and business partners, and other factors identified in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30 2021. We will continue to evaluate the nature and extent of the impact to our business.

Highlights for the first quarter of fiscal 2022. For the three months ended December 31, 2021, net revenues were $7.1 billion, an increase of 24% over the prior-year comparable period, primarily due to the growth in nominal payments volume, processed transactions and nominal cross-border volume, partially offset by higher client incentives. During the three months ended December 31, 2021, exchange rate movements and our hedging program negatively impacted our net revenues growth by approximately one percentage point.

For the three months ended December 31, 2021, GAAP operating expenses were $2.3 billion, an increase of 24% over the prior-year comparable period, primarily driven by higher litigation provision, higher personnel expenses reflecting our strategy to invest in future growth and higher marketing expenses as we lapped planned reductions in spending in the prior year.

For the three months ended December 31, 2021, non-GAAP operating expenses were $2.1 billion, an increase of 16% over the prior-year comparable period, primarily due to higher personnel expenses reflecting our strategy to invest in future growth and higher marketing expenses as we lapped planned reductions in spending in the prior year.

Closed acquisition. On December 20, 2021, we acquired 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, for a total purchase consideration of $893 million (which includes the fair value of our previously held equity interest in Currencycloud). See Note 2—Acquisitions to our unaudited consolidated financial statements.

Pending acquisition. On June 24, 2021, we 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.

Interchange multidistrict litigation. During the three months ended December 31, 2021, we recorded an additional accrual of $145 million to address claims associated with the interchange multidistrict litigation. We also deposited $250 million into the U.S. litigation escrow account. See Note 5—U.S. and Europe Retrospective Responsibility Plans and Note 13—Legal Matters to our unaudited consolidated financial statements*.*

Common stock repurchases. In December 2021, our board of directors authorized a new $12.0 billion share repurchase program*.* Previously, in January 2021, our board of directors authorized an $8.0 billion share repurchase program. During the three months ended December 31, 2021, we repurchased 19 million shares of our class A common stock in the open market for $4.1 billion. As of December 31, 2021, our repurchase programs had remaining authorized funds of $12.7 billion. See Note 9—Stockholders’ Equity to our unaudited consolidated financial statements.

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

*•*Acquisition-related costs. Acquisition-related costs consist primarily of one-time transaction and integration costs associated with our business combinations. These costs include professional fees, technology integration fees, restructuring activities and other direct costs related to the purchase and integration of acquired entities. It also includes retention equity and deferred equity compensation when they are agreed upon as part of the purchase price of the transaction but are required to be recognized as expense post-combination. We have excluded these amounts and the related tax impacts as the expenses are recognized for a limited duration and do not reflect the underlying performance of our business.

*•*Litigation provision. During the three months ended December 31, 2021, we recorded an additional accrual to address claims associated with the interchange multidistrict litigation of $145 million, and related tax benefit of $32 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 conversion rate of our class B common stock to shares of class A common stock. See Note 5—U.S. and Europe Retrospective Responsibility Plans and Note 13—Legal Matters to our unaudited consolidated financial statements.

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:

			Three Months Ended December 31, 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			$	2,283											$	121											$	938					19.1		%				$	3,959					$	1.83
(Gains) losses on equity investments, net			—												(231)												(42)												(189)						(0.09)
Amortization of acquired intangible assets			(13)												—												3												10						—
Acquisition-related costs			(10)												—												2												8						—
Litigation provision			(145)												—												32												113						0.05
Non-GAAP			$	2,115											$	(110)											$	933					19.3		%				$	3,901					$	1.81

			Three Months Ended December 31, 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			$	1,843											$	(96)											$	622					16.6		%				$	3,126					$	1.42
(Gains) losses on equity investments, net			—												(16)												(4)												(12)						(0.01)
Amortization of acquired intangible assets			(12)												—												3												9						—
Acquisition-related costs			(3)												—												1												2						—
Non-GAAP			$	1,828											$	(112)											$	622					16.6		%				$	3,125					$	1.42

(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/local 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 table presents nominal payments and cash volume:

			U.S.																		International																		Visa Inc.
			Three Months Ended September 30,****(1)																		Three Months Ended September 30,****(1)																		Three Months Ended September 30,****(1)
			2021						2020						% Change**(2)**						2021						2020						% Change**(2)**						2021						2020						% Change**(2)**
			(in billions, except percentages)
Nominal payments volume
Consumer credit			$	480					$	378					27		%				$	651					$	574					13		%				$	1,131					$	951					19		%
Consumer debit(3)			640						555						15		%				690						585						18		%				1,330						1,140						17		%
Commercial(4)			205						164						25		%				117						94						24		%				322						258						25		%
Total nominal payments volume**(2)**			$	1,325					$	1,097					21		%				$	1,458					$	1,253					16		%				$	2,784					$	2,349					18		%
Cash volume(5)			180						165						9		%				496						482						3		%				676						647						5		%
Total nominal volume**(2),(6)**			$	1,506					$	1,262					19		%				$	1,955					$	1,734					13		%				$	3,460					$	2,996					15		%

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

			International												Visa Inc.
			Three Months Ended September 30, 2021 vs. 2020**(1),(2)**												Three Months Ended September 30, 2021 vs. 2020**(1),(2)**
			Nominal						Constant**(7)**						Nominal						Constant**(7)**
Payments volume growth
Consumer credit growth			13		%				11		%				19		%				17		%
Consumer debit growth(3)			18		%				14		%				17		%				15		%
Commercial growth(4)			24		%				21		%				25		%				24		%
Total payments volume growth			16		%				13		%				18		%				17		%
Cash volume growth(5)			3		%				4		%				5		%				5		%
Total volume growth			13		%				11		%				15		%				14		%

(1)Service revenues in a given quarter are assessed based on nominal payments volume in the prior quarter. Therefore, service revenues reported for the three months ended December 31, 2021 and 2020, respectively, were based on nominal payments volume reported by our financial institution clients for the three months ended September 30, 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:

			Three Months Ended December 31,
2021						2020						% Change**(1)**
(in millions, except percentages)
Visa processed transactions			47,558						39,213						21		%

(1)Figures in the table may not recalculate exactly due to rounding. Percentage change is calculated based on unrounded numbers. On occasion, previously presented information may be updated. Prior period updates are not material.

Results of Operations

Net Revenues

The following table presents our net revenues earned in the U.S. and internationally:

			Three Months Ended December 31,
			2021						2020												% Change**(1)**
			(in millions, except percentages)
U.S.			$	3,178					$	2,667											19		%
International			3,881						3,020												28		%
Net revenues			$	7,059					$	5,687											24		%

(1)Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers.

Net revenues increased primarily due to the 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. During the three months ended December 31, 2021, exchange rate movements and our hedging program negatively impacted our net revenues growth by approximately one percentage point.

The following table presents the components of our net revenues:

			Three Months Ended December 31,
			2021						2020												% Change**(1)**
			(in millions, except percentages)
Service revenues			$	3,193					$	2,677											19		%
Data processing revenues			3,614						3,033												19		%
International transaction revenues			2,174						1,451												50		%
Other revenues			449						384												17		%
Client incentives			(2,371)						(1,858)												28		%
Net revenues			$	7,059					$	5,687											24		%

(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 18% growth in nominal payments volume.

*•*Data processing revenues increased primarily due to overall growth in processed transactions of 21%.

• International transaction revenues increased primarily due to growth in nominal cross-border volumes, excluding transactions within Europe, of 49%.

• Other revenues increased primarily due to higher consulting revenues and other value added services.

• Client incentives increased primarily due to growth in payments volume. The amount of client incentives we record in future periods will vary based on changes in performance expectations, actual client performance, amendments to existing contracts or execution of new contracts.

Operating Expenses

The following table presents the components of our total operating expenses:

			Three Months Ended December 31,
			2021						2020												% Change**(1)**
			(in millions, except percentages)
Personnel			$	1,125					$	981											15		%
Marketing			280						205												36		%
Network and processing			190						173												9		%
Professional fees			100						83												19		%
Depreciation and amortization			198						197												1		%
General and administrative			242						203												19		%
Litigation provision			148						1												NM
Total operating expenses			$	2,283					$	1,843											24		%

NM - Not meaningful

(1)Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers.

Total operating expenses increased primarily due to our planned reduction and delay of our spend as revenue was impacted by the COVID-19 pandemic in the first half of the prior year.

*•*Personnel expenses increased primarily due to higher headcount and compensation, reflecting our strategy to invest in future growth.

• Marketing expenses increased as we lapped planned reductions in spending in the prior year as well as higher spending in various campaigns.

*•*Network and processing expenses increased mainly due to higher continued technology and processing network investments to support growth.

• Professional fees increased primarily due to higher consulting fees as we lapped planned reductions in spending in the prior year.

*•*General and administrative expenses increased primarily as a result of higher usage of travel related card benefits and unfavorable foreign currency fluctuations, partially offset by lower indirect taxes.

• Litigation provision increased primarily due to an additional $145 million accrual related to the U.S. covered litigation. See Note 5—U.S. and Europe Retrospective Responsibility Plans and Note 13—Legal Matters to our unaudited consolidated financial statements.

Non-operating Income (Expense)

The following table presents the components of our non-operating income (expense):

									Three Months Ended December 31,
																											2021						2020						% Change**(1)**
																											(in millions, except percentages)
Interest expense, net																											$	(134)					$	(136)					(1		%)
Investment income and other																											255						40						544		%
Total non-operating income (expense)																											$	121					$	(96)					(225		%)

(1)Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers.

*•*Interest expense, net decreased primarily as a result of lower interest expense due to lower outstanding debt and derivative instruments that lowered the cost of borrowing, partially offset by an increase in interest expense related to income tax liabilities.

• Investment income and other increased primarily due to higher gains on our equity investments.

Effective Income Tax Rate

The following table presents our effective income tax rates:

			Three Months Ended December 31,
			2021						2020
Effective income tax rate			19		%				17		%

The difference in the effective tax rates is primarily due to an $81 million tax benefit recognized during the three months ended December 31, 2020 as a result of the conclusion of audits by taxing authorities.

Liquidity and Capital Resources

Cash Flow Data

The following table summarizes our cash flow activity for the periods presented:

			Three Months Ended December 31,
			2021						2020
			(in millions)
Total cash provided by (used in):
Operating activities			$	4,232					$	3,513
Investing activities			(547)						639
Financing activities			(4,967)						(5,572)
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents			(194)						304
Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents			$	(1,476)					$	(1,116)

Operating activities. Cash provided by operating activities for the three months ended December 31, 2021 was higher than the prior-year comparable period primarily due to growth in our underlying business, partially offset by higher client incentive payments.

Investing activities. Cash was used in investing activities for the three months ended December 31, 2021 as compared to cash provided by investing activities during the prior-year comparable period, primarily due to higher cash paid for acquisitions and lower proceeds from sales and maturities, net of purchases of investment securities. See Note 2—Acquisitions to our unaudited consolidated financial statements.

Financing activities. Cash used in financing activities for the three months ended December 31, 2021 was lower than the prior-year comparable period primarily due to the absence of the principal debt payment made in the prior year, partially offset by higher share repurchases and higher dividends paid. See Note 9—Stockholders’ Equity to our unaudited consolidated financial statements*.*

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. 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.

Uses of Liquidity

There has been no significant change to our primary uses of liquidity since September 30, 2021, except as discussed below.

Common stock repurchases. In December 2021, our board of directors authorized a new $12.0 billion share repurchase program. During the three months ended December 31, 2021, we repurchased 19 million shares of our class A common stock in the open market for $4.1 billion. As of December 31, 2021, our repurchase programs had remaining authorized funds of $12.7 billion. See Note 9—Stockholders’ Equity to our unaudited consolidated financial statements.

Dividends. During the three months ended December 31, 2021, we declared and paid $809 million in dividends to holders of our common and preferred stock. On January 25, 2022, our board of directors declared a cash dividend in the amount of $0.375 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), which will be paid on March 1, 2022, to all holders of record as of February 11, 2022. See Note 9—Stockholders’ Equity to our unaudited consolidated financial statements. 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.

Senior notes. Principal payments on our fixed-rate senior notes of $1.0 billion and $2.3 billion are due in September 2022 and December 2022, respectively, for which we have sufficient liquidity. See Note 7—Debt to our unaudited consolidated financial statements.

Litigation. During December 2021, we deposited $250 million into the U.S. litigation escrow account to address claims associated with the interchange multidistrict litigation. See Note 5—U.S. and Europe Retrospective Responsibility Plans and Note 13—Legal Matters to our unaudited consolidated financial statements.

Closed acquisition. 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). See Note 2—Acquisitions to our unaudited consolidated financial statements.

Pending acquisition. On June 24, 2021, we entered into a definitive agreement to acquire Tink for €1.8 billion, inclusive of cash and retention incentives. This acquisition is subject to customary closing conditions, including regulatory reviews and approvals.

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.