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," "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 Visa Inc.'s unaudited consolidated financial statements and related notes included elsewhere in this report.

Forward-Looking statements

This management's discussion and analysis of financial condition and results of operations contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the terms "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "will," and similar expressions, which are intended to identify forward-looking statements. In addition, any underlying assumptions are forward-looking statements.

By their nature, forward-looking statements are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from these forward-looking statements as a result of a variety of factors, including all the risks discussed in Part I, Item 1A-"Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2008. You are cautioned not to place undue reliance on such statements, which are made only at the date of this report. Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.

Overview

Visa operates the world's largest retail electronic payments network and manages the world's most recognized global financial services brand. We provide financial institutions with platforms that encompass consumer credit, debit, prepaid and commercial payments. We facilitate global commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses and government entities. Each of these constituencies has played a key role in the ongoing worldwide migration from paper-based to electronic forms of payment, and we believe that this transformation continues to yield significant growth opportunities. We continue to explore additional opportunities to enhance our competitive position by expanding the scope of payment services to benefit our existing customers and to position Visa to serve more and different constituencies.

Overall Economic Conditions

Our business is affected by overall economic conditions and consumer spending patterns. We expect that poor economic conditions will continue to moderate consumer and commercial spending, and our rate of payments volume growth, in the near term. However, we believe that the continued behavioral shift to electronic payment products for non-discretionary spending will buffer the impact to our overall payments volume growth. This shift is particularly clear in debit products, where Visa has a very strong market position.

Funding of the Litigation Escrow

During December 2008, we deposited $1.1 billion into the litigation escrow account previously established under the Retrospective Responsibility Plan (the "Plan"). Under the terms of the Plan, when Visa funds the litigation escrow, its U.S. financial institutions, the sole holders of class B shares,

bear the cost through a reduction in their as-converted class A share count. The funding of the escrow had the effect of a repurchase of 20,800,824 class A common stock equivalents from our class B shareholders. See Note 2-Retrospective Responsibility Plan to our unaudited consolidated financial statements included elsewhere in this report.

Expansion of Our Processing Capabilities

Expanding our processing capabilities worldwide is a core component of our long-term growth strategy. As part of this strategy, we created Visa Processing Services Pte. Ltd. ("VPS"), a joint venture with Yalamanchili International Pte. Ltd. ("Yalamanchili"), in which we hold a majority interest. Yalamanchili is a payments processor and software company with operations in Asia.

VPS will allow us to extend our industry-leading processing capabilities in geographies where electronic payments are growing rapidly, providing multi-currency and multi-language debit, credit and prepaid processing services to financial institutions, processors and payment companies. VPS will also have capabilities to provide ATM, money transfer and private label processing, as well as a range of payments services, including risk and fraud management, mobile applications, loyalty and cardholder support. Initially, VPS is expected to provide prepaid and debit processing solutions and we believe it will complement Visa's Debit Processing Service.

Payments Volume and Transaction Counts

We believe that payments volume and processed transactions are key drivers of our business. Payments volume is the basis for service revenues and processed transactions are the basis for data processing revenues.

The following tables set forth product payments volumes for the periods presented in nominal dollars:

                                                U.S.A.                                       Rest of World                                      Visa Inc.
                                3 months          3 months                       3 months          3 months                       3 months          3 months
                                  ended             ended                          ended             ended                          ended             ended
                                September         September         %            September         September         %            September         September         %
                               30, 2008(3)       30, 2007(3)      Change        30, 2008(3)       30, 2007(3)      Change        30, 2008(3)       30, 2007(3)      Change
                                                                                   (in billions, except percentages)
Payments Volume
Consumer credit               $         167     $         165          1 %     $         212     $         182         16 %     $         379     $         347          9 %
Consumer debit(1)                       195               171         14 %                39                28         38 %               234               199         18 %
Commercial and other                     59                52         13 %                29                25         15 %                88                77         13 %

Total Payments Volume         $         421     $         388          9 %     $         280     $         235         19 %     $         701     $         623         12 %
Cash volume                             103               101          2 %               323               248         30 %               426               349         22 %

Total Volume(2)               $         524     $         489          7 %     $         603     $         483         25 %     $       1,127     $         972         16 %

(1) Includes prepaid volume.

(2) Total volume is the sum of total payments volume and cash volume. Total payments volume is the total monetary value of transactions for goods and services that are purchased. Cash volume generally consists of cash access transactions, balances access transactions, balance transfers and convenience checks.

(3) Service revenues in a given quarter is assessed based on payments volume in the prior quarter, excluding PIN-based debit volume. Therefore, service revenues reported with respect to the three months ended December 31, 2008 and December 31, 2007 were based on payments volume reported by our financial institution customers for the three months ended September 30, 2008 and September 30, 2007, respectively.

The following table sets forth transaction volumes processed by our VisaNet system during the periods presented:

                                     Three months ended December 31,
                                      2008          2007      % Change
                                        (in millions)
              Total transactions        9,797         9,094          8 %


Results of Operations

Operating Revenues

The following table sets forth our operating revenues earned in the U.S.,
throughout the rest of the world and from Visa Europe. Revenues earned from Visa
Europe are a result of our contractual arrangement with Visa Europe, as governed
by the framework agreement that provides for trademark and technology licenses
and bilateral services.



                                              Three months ended December 31,
                                                                      $         %
                                           2008          2007       Change    Change
                                             (in millions, except percentages)
     U.S. operating revenues            $      994    $      886   $    108       12 %
     Rest of world operating revenues          690           547        143       26 %
     Visa Europe operating revenues             55            55         -        -

     Total Operating Revenues           $    1,739    $    1,488   $    251       17 %

Operating revenues earned throughout the rest of the world for the three month periods ended December 31, 2008 and 2007 represented 40% and 37% of total operating revenues, respectively. Growth in operating revenues earned throughout the rest of the world accounted for 57% of the increase in total operating revenues for the three month periods. In addition to payments and transactions volume growth, the increase in operating revenues throughout the rest of the world reflects the impact of pricing modifications made on various services during the second half of fiscal 2008, as a result of innovations in our product line and improvements in our service model. We regularly review our pricing strategy to ensure that it competitively aligns with the value and growth opportunities provided to our customers.

A significant portion of the revenues we earn outside the U.S. result from cross-border business and leisure travel. Revenues from processing foreign currency transactions for our customers fluctuate with cross-border travel and our customers' need for transactions to be converted into their base currency.

Our operating revenues are impacted by fluctuations in foreign currency rates. Operating revenues are impacted by the overall strengthening or weakening of the U.S. dollar compared to local or regional currencies in which our payments volumes are denominated. The strengthening of the U.S. dollar during the three months ended December 31, 2008 resulted in a 1% decline in total operating revenues compared to the prior year comparable period, which primarily impacted international transaction revenues.

The following table sets forth the components of our operating revenues for the periods presented.

                                                 Three months ended December 31,
                                                                         $           %
                                          2008            2007         Change      Change
                                                (in millions, except percentages)
   Service revenues                     $     793      $      732     $     61          8 %
   Data processing revenues                   554             492           62         13 %
   International transaction revenues         505             381          124         33 %
   Other revenues                             156             133           23         17 %
   Volume and support incentives             (269 )          (250 )        (19 )        8 %

   Total Operating Revenues             $   1,739      $    1,488     $    251         17 %

• Service revenues increased due to an increase in payments volume of 12% for the three months ended September 30, 2008 over the comparable period in 2007. We expect that current turbulence in the financial and credit markets will moderate consumer and commercial spending, and the rate of payments volume growth, in the near term.

• Data processing revenues increased due to growth in the number of transactions processed of 8%.

• International transaction revenues grew despite a decline in cross-border payments volume, primarily due to competitive pricing modifications which took place after the first quarter of fiscal 2008. We regularly review our pricing strategy to ensure that it competitively aligns with the value and growth opportunities provided to our customers. Cross border payments volume experienced negative growth in the single digits, reflecting a moderate decline in cross-border business and leisure travel.

• Other revenues increased primarily due to growth in fees related to the Visa Extras loyalty platform through which we earn revenues from our financial service institution customers for administrative and rewards fulfillment services performed in support of the platform.

• Volume and support incentives growth is primarily attributable to the impact of new contractual agreements executed during the quarter. The actual amount of volume and support incentives will vary based on modifications to performance expectations for these contracts, amendments to contracts or new contracts.

The net asset (liability) of volume and support incentives changed as follows:

                                                          Fiscal 2009           Fiscal 2008
                                                                    (in millions)
Beginning balance at October 1, net asset
(liability)(1)                                           $         130         $         (87 )
Provision
Current year provision                                            (299 )                (261 )
Performance adjustments(2)                                          34                    10
Contractual amendments(3)                                           (4 )                   1

Subtotal volume and support incentives                            (269 )                (250 )

Payments                                                           254                   269

Ending balance at December 31, net asset
(liability)(1)                                           $         115         $         (68 )

(1) Balance represents the net of the current and long term asset and current liability portions of volume and support incentives as presented in the unaudited consolidated balance sheets of Visa Inc.

(2) Amount represents downward adjustments resulting from management's refinement of its estimate of projected sales performance as new information becomes available.

(3) Amount represents adjustments resulting from amendments to existing contractual terms.

Operating Expenses

We continue to focus on driving operating efficiencies across our enterprise and
manage our operating expenses accordingly. The following table sets forth the
components of our operating expenses for the periods presented:



                                                Three months ended December 31,
                                                                       $          %
                                            2008         2007       Change      Change
                                               (in millions, except percentages)
   Personnel                              $     275    $     283    $    (8 )       (3 )%
   Network, EDP and communications               93           83         10         12 %
   Advertising, marketing and promotion         210          210         -          -  %
   Professional and consulting fees              80           98        (18 )      (18 )%
   Depreciation and amortization                 52           62        (10 )      (16 )%
   Administrative and other                      63           74        (11 )      (15 )%
   Litigation provision                          -            -          -          NM

   Total Operating Expenses               $     773    $     810    $   (37 )       (5 )%

• Network, EDP and Communications increased primarily due to higher fees paid for debit processing services related to processing transactions through non-Visa networks.

• Professional and consulting fees decreased due to the absence of consulting and legal fees incurred in the prior year in connection with our reorganization.

• Depreciation and amortization decreased reflecting the absence of amortization expense which was incurred in the prior year comparable quarter on licenses acquired in connection with the PrivaSys litigation settlement in that quarter. The decline also reflects technology assets in our current east coast data center which were fully depreciated following the first quarter of fiscal 2008. The data center will be decommissioned and replaced by a new facility during the second quarter of fiscal 2009. We expect depreciation and amortization to increase when our new east coast data center is placed into service later in fiscal 2009.

• Administrative and other expense decreased primarily due to foreign exchange gains recorded upon remeasurement of U.S. dollar-denominated net assets held in Canada as the U.S. dollar strengthened against the Canadian dollar during the quarter.

Other Income (Expense)

The following table sets forth the components of our other income (expense)
during the three months ended December 31, 2008 compared to the prior year
comparable period.



                                                                 Three months ended December 31,
                                                                                           $             %
                                                       2008              2007            Change        Change
                                                                (in millions, except percentages)
Equity in earnings of unconsolidated affiliates     $       (1 )      $        1        $     (2 )         NM
Interest expense                                           (30 )             (45 )            15          (33 )%
Investment income, net                                      19                41             (22 )        (54 )%
Other                                                       (1 )               8              (9 )         NM

Total Other Income (Expense)                        $      (13 )      $        5        $    (18 )         NM

• Interest expense decreased primarily due to lower interest accretion from declining litigation balances. See Note 11-Legal Matters to our unaudited consolidated financial statements included elsewhere in this report.

Income Taxes

Our effective income tax rate is a combination of federal, state and foreign statutory rates and certain required adjustments to taxable income. The effective income tax rates were 40% and 38% for the three months ended December 31, 2008 and 2007, respectively. The rate for the three months ended December 31, 2008 was higher than the rate for the same period in the prior year primarily due to the loss of a California special deduction for which we were eligible prior to our IPO.

Beginning October 1, 2008, our subsidiary in Singapore operates under a tax incentive agreement, which is effective through September 30, 2014, and may be extended through September 30, 2023, if certain additional requirements are satisfied. The tax incentive agreement is conditional upon our meeting certain employment and investment thresholds. We anticipate that the impact to fiscal 2009's effective tax rate to be less than one percent.

Liquidity and Capital Resources

Cash Flows

The following table summarizes our cash flows for the periods presented:



                                                                        Three months ended
                                                                           December 31,
                                                                        2008            2007
                                                                           (in millions)
Total cash provided by (used in):
Operating activities                                                 $       185       $   182
Investing activities                                                         901         1,251
Financing activities                                                      (3,432 )         (10 )
Effect of exchange rate translation on cash and cash equivalents             (20 )          -

(Decrease) increase in cash and cash equivalents                     $    (2,366 )     $ 1,423

Cash provided by operating activities during the three months ended December 31, 2008 primarily reflects our net income of $574 million, adjusted for non-cash items of $559 million, and use of cash to fund significant operational payments including those related to litigation settlements, volume and support incentives, and our annual compensation benefits. We believe that cash flow generated from operating activities sufficiently meets the demands of our ongoing operational needs.

Cash provided by investing activities during the three months ended December 31, 2008 primarily reflects $775 million of cash distribution received from the Reserve Primary Fund and net cash proceeds of $195 million from the sales and maturities of investment securities, which were reinvested in money market funds. Currently, all of our money market fund balances, except for the Reserve Primary Fund, are covered under the U.S. Treasury Department Temporary Guarantee Program. We also purchased property, equipment and technology of $68 million primarily related to construction of the new data center discussed below.

Cash used in financing activities during the three months ended December 31, 2008 reflects redemption of our class C (series II) and class C (series III) liability shares for $2.6 billion, funding of $1.1 billion to the litigation escrow account and our quarterly dividend payment of $81 million, offset by funding of covered litigation payments totaling $397 million covered by the litigation escrow account.

Liquidity

Our primary sources of liquidity are cash on hand, a fixed income investment portfolio, cash flow from our operations and access to various borrowing arrangements. There has been no significant changes to our primary uses of liquidity since September 30, 2008 except as discussed below. Based on our cash flow budgets and forecasts of our short-term and long-term liquidity needs, management believes that our projected sources of liquidity will be sufficient to meet our projected liquidity needs for more than the next 12 months. Management 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.

Dividends. On January 22, 2009, our board of directors declared a dividend in the aggregate amount of $0.105 per share of class A common stock (determined in the case of class B and class C common stock on an as-converted basis). We expect to pay approximately $80 million in connection with this dividend on March 3, 2009. We intend to continue paying quarterly dividends in cash, subject to approval by our board of directors. Class B and class C common stock will share ratably on an as-converted basis in such future dividends.

Pension and other postretirement benefits. Our policy with respect to our qualified pension plan is to contribute annually not less than the minimum required under the Employee Retirement Income Security Act ("ERISA"). We typically fund our qualified pension plan in September of each year. Our nonqualified pension and other postretirement benefit plans are funded on a current basis. Funding of the plans only impacts current period operating cash flow. Funding does not impact current period pension expense but has the positive impact of reducing future period pension expense for the qualified pension plan. In fiscal 2009, based on market conditions experienced to date, we believe we will fund our pension and other postretirement benefit plans by approximately $104 million compared to $190 million in the prior year. Recent market conditions have resulted in an unusually high degree of volatility associated with certain plan assets. Should deterioration in market conditions continue, our pension asset portfolio could be adversely impacted, and we may be required to make additional contributions. The ultimate impact on the funded status and the amount of our annual funding of our qualified pension plan will be determined based on market conditions in effect at September 30, 2009.

Fair Value Measurements-Financial Instruments

Beginning in the first quarter of fiscal 2009, the assessment of fair value of our financial instruments is based on the provisions of SFAS 157. SFAS 157 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability.

As of December 31, 2008, our financial instruments measured at fair value on a recurring basis included approximately $6 billion of assets, of which $80 million, or approximately 1%, had significant unobservable inputs when measuring fair value. For these instruments, we lacked observable market data to corroborate either the non-binding market consensus prices or the non-binding broker quotes. Marketable debt instruments in this category include corporate debt, other asset backed, auction rate and mortgage backed securities. See Note 3-Fair Value Measurements to our unaudited consolidated financial statements . . .