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EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - VISA INC.vex32233115.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 - VISA INC.vex31133115.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - VISA INC.vex32133115.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2015
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
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
San Francisco, California
 
94128-8999
(Address of principal executive offices)
 
(Zip Code)

(650) 432-3200
(Registrant’s telephone number, including area code)
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  þ    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes  þ    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  þ
Accelerated filer   o
Non-accelerated filer   o (Do not check if a smaller reporting company.)
Smaller Reporting Company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o    No  þ
As of April 27, 2015, there were 1,957,430,803 shares of class A common stock, par value $0.0001 per share, 245,513,385 shares of class B common stock, par value $0.0001 per share, and 21,198,427 shares of class C common stock, par value $0.0001 per share, of Visa Inc. outstanding.

1


VISA INC.
TABLE OF CONTENTS
 
 
 
 
 
 
Page
PART I.
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II.
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 

2


PART I. FINANCIAL INFORMATION
 
ITEM 1.
Financial Statements
VISA INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
March 31,
2015
 
September 30,
2014
 
(in millions, except par value data)
Assets
 
 
 
Cash and cash equivalents
$
2,039

 
$
1,971

Restricted cash—litigation escrow (Note 2)
1,178

 
1,498

Investment securities (Note 3):
 
 
 
Trading
71

 
69

Available-for-sale
2,496

 
1,910

Settlement receivable
679

 
786

Accounts receivable
896

 
822

Customer collateral (Note 6)
1,079

 
961

Current portion of client incentives
243

 
210

Deferred tax assets
838

 
1,028

Prepaid expenses and other current assets
586

 
307

Total current assets
10,105

 
9,562

Investment securities, available-for-sale (Note 3)
2,779

 
3,015

Client incentives
89

 
81

Property, equipment and technology, net
1,843

 
1,892

Other assets
887

 
855

Intangible assets, net
11,379

 
11,411

Goodwill
11,753

 
11,753

Total assets
$
38,835

 
$
38,569

Liabilities
 
 
 
Accounts payable
$
81

 
$
147

Settlement payable
1,126

 
1,332

Customer collateral (Note 6)
1,079

 
961

Accrued compensation and benefits
334

 
450

Client incentives
987

 
1,036

Accrued liabilities
701

 
624

Accrued litigation (Note 12)
1,135

 
1,456

Total current liabilities
5,443

 
6,006

Deferred tax liabilities
4,131

 
4,145

Other liabilities (Note 7)
1,024

 
1,005

Total liabilities
10,598

 
11,156

 

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

3


VISA INC.
CONSOLIDATED BALANCE SHEETS—(Continued)
(UNAUDITED)
 
March 31,
2015
 
September 30,
2014
 
(in millions, except par value data)
Equity
 
 
 
Preferred stock, $0.0001 par value, 25 shares authorized and none issued
$

 
$

Class A common stock, $0.0001 par value, 2,001,622 shares authorized, 1,964 and 1,978 shares issued and outstanding at March 31, 2015 and September 30, 2014, respectively (Note 8)

 

Class B common stock, $0.0001 par value, 622 shares authorized, 245 shares issued and outstanding at March 31, 2015 and September 30, 2014 (Note 8)

 

Class C common stock, $0.0001 par value, 1,097 shares authorized, 20 and 22 shares issued and outstanding at March 31, 2015 and September 30, 2014, respectively (Note 8)

 

Additional paid-in capital
18,098

 
18,299

Accumulated income
10,108

 
9,131

Accumulated other comprehensive income (loss), net:
 
 
 
Investment securities, available-for-sale
6

 
31

Defined benefit pension and other postretirement plans
(84
)
 
(84
)
Derivative instruments classified as cash flow hedges
110

 
38

Foreign currency translation adjustments
(1
)
 
(2
)
Total accumulated other comprehensive income (loss), net
31

 
(17
)
Total equity
28,237

 
27,413

Total liabilities and equity
$
38,835

 
$
38,569



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

4


VISA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2015
 
2014
 
2015
 
2014
 
(in millions, except per share data)
Operating Revenues
 
 
 
 
 
 
 
Service revenues
$
1,577

 
$
1,462

 
$
3,115

 
$
2,881

Data processing revenues
1,340

 
1,234

 
2,723

 
2,498

International transaction revenues
964

 
871

 
1,934

 
1,762

Other revenues
204

 
183

 
408

 
363

Client incentives
(676
)
 
(587
)
 
(1,389
)
 
(1,186
)
Total operating revenues
3,409

 
3,163

 
6,791

 
6,318

Operating Expenses
 
 
 
 
 
 
 
Personnel
483

 
446

 
992

 
916

Marketing
190

 
245

 
395

 
431

Network and processing
109

 
120

 
223

 
252

Professional fees
77

 
77

 
147

 
152

Depreciation and amortization
125

 
107

 
245

 
214

General and administrative
141

 
120

 
267

 
228

Litigation provision (Note 12)
3

 

 
3

 

Total operating expenses
1,128

 
1,115

 
2,272

 
2,193

Operating income
2,281

 
2,048

 
4,519

 
4,125

Non-operating income
1

 
13

 
25

 
19

Income before income taxes
2,282

 
2,061

 
4,544

 
4,144

Income tax provision (Note 11)
732

 
463

 
1,425

 
1,139

Net income
$
1,550

 
$
1,598

 
$
3,119

 
$
3,005

 


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

5


VISA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS—(Continued)
(UNAUDITED)
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2015
 
2014
 
2015
 
2014
 
(in millions, except per share data)
Basic earnings per share (Note 9)
 
 
 
 
 
 
 
Class A common stock
$
0.63

 
$
0.63

 
$
1.27

 
$
1.18

Class B common stock
$
1.04

 
$
1.06

 
$
2.09

 
$
1.99

Class C common stock
$
2.53

 
$
2.53

 
$
5.06

 
$
4.74

Basic weighted-average shares outstanding (Note 9)
 
 
 
 
 
 
 
Class A common stock
1,963

 
2,003

 
1,969

 
2,011

Class B common stock
245

 
245

 
245

 
245

Class C common stock
20

 
26

 
21

 
26

Diluted earnings per share (Note 9)
 
 
 
 
 
 
 
Class A common stock
$
0.63

 
$
0.63

 
$
1.26

 
$
1.18

Class B common stock
$
1.04

 
$
1.06

 
$
2.08

 
$
1.99

Class C common stock
$
2.52

 
$
2.52

 
$
5.05

 
$
4.72

Diluted weighted-average shares outstanding (Note 9)
 
 
 
 
 
 
 
Class A common stock
2,460

 
2,534

 
2,469

 
2,544

Class B common stock
245

 
245

 
245

 
245

Class C common stock
20

 
26

 
21

 
26



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

6


VISA INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Net income
$
1,550

 
$
1,598

 
$
3,119

 
$
3,005

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Investment securities, available-for-sale:
 
 
 
 
 
 
 
Net unrealized (loss) gain
(9
)
 
11

 
(19
)
 
28

Income tax effect
4

 
(4
)
 
7

 
(10
)
Reclassification adjustment for net gain realized in net income

 

 
(21
)
 

Income tax effect

 

 
8

 

Defined benefit pension and other postretirement plans:
 
 
 
 
 
 
 
Net unrealized actuarial loss and prior service credit
(6
)
 
(8
)
 

 
(7
)
Income tax effect
1

 
3

 

 
3

Amortization of actuarial gain (loss) and prior service credit realized in net income
1

 
(5
)
 

 
(7
)
Income tax effect

 
2

 

 
3

Derivative instruments classified as cash flow hedges:
 
 
 
 
 
 
 
Net unrealized gain (loss)
65

 
(7
)
 
128

 
17

Income tax effect
(20
)
 
1

 
(37
)
 
(3
)
Reclassification adjustment for net gain realized in net income
(20
)
 
(12
)
 
(26
)
 
(23
)
Income tax effect
5

 
2

 
7

 
4

Foreign currency translation adjustments

 

 
1

 

Other comprehensive income (loss), net of tax
21

 
(17
)
 
48

 
5

Comprehensive income
$
1,571

 
$
1,581

 
$
3,167

 
$
3,010




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

7


VISA INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
 
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Income
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Equity
 
Class A
 
Class B
 
Class C
 
 
 
 
 
(in millions, except per share data)
Balance as of September 30, 2014
1,978

 
245

 
22

 
$
18,299

 
$
9,131

 
$
(17
)
 
$
27,413

Net income
 
 
 
 
 
 
 
 
3,119

 
 
 
3,119

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
 
 
48

 
48

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
3,167

Issuance of restricted stock awards
2

 
 
 
 
 
 
 
 
 
 
 

Conversion of class C common stock upon sale into public market
10

 
 
 
(2
)
 
 
 
 
 
 
 

Share-based compensation
 
 
 
 
 
 
93

 
 
 
 
 
93

Excess tax benefit for share-based compensation
 
 
 
 
 
 
70

 
 
 
 
 
70

Cash proceeds from exercise of stock options
1

 
 
 
 
 
46

 
 
 
 
 
46

Restricted stock and performance-based shares settled in cash for taxes
2

 
 
 
 
 
(106
)
 
 
 
 
 
(106
)
Cash dividends declared and paid, at a quarterly amount of $0.12 per as-converted share (Note 8)
 
 
 
 
 
 
 
 
(591
)
 
 
 
(591
)
Repurchase of class A common stock (Note 8)
(29
)
 
 
 
 
 
(304
)
 
(1,551
)
 
 
 
(1,855
)
Balance as of March 31, 2015
1,964

 
245

 
20

 
$
18,098

 
$
10,108

 
$
31

 
$
28,237



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

8


VISA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Six Months Ended
March 31,
 
2015
 
2014
 
(in millions)
Operating Activities
 
 
 
Net income
$
3,119

 
$
3,005

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of client incentives
1,389

 
1,186

Share-based compensation
93

 
89

Excess tax benefit for share-based compensation
(70
)
 
(68
)
Depreciation and amortization of property, equipment, technology and intangible assets
245

 
214

Deferred income taxes
173

 
(375
)
Other
15

 
12

Change in operating assets and liabilities:
 
 
 
Settlement receivable
107

 
47

Accounts receivable
(74
)
 
(71
)
Client incentives
(1,479
)
 
(1,251
)
Other assets
(467
)
 
(350
)
Accounts payable
(44
)
 
(68
)
Settlement payable
(206
)
 
(126
)
Accrued and other liabilities
262

 
171

Accrued litigation (Note 12)
(324
)
 
1,055

Net cash provided by operating activities
2,739

 
3,470

Investing Activities
 
 
 
Purchases of property, equipment, technology and intangible assets
(202
)
 
(217
)
Proceeds from sales of property, equipment and technology
10

 

Investment securities, available-for-sale:
 
 
 
Purchases
(1,267
)
 
(1,292
)
Proceeds from sales and maturities
895

 
1,406

Purchases of / contributions to other investments
(2
)
 
(3
)
Proceeds / distributions from other investments
9

 

Net cash used in investing activities
(557
)
 
(106
)
 

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

9


VISA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(UNAUDITED)
 
 
Six Months Ended
March 31,
 
2015
 
2014
 
(in millions)
Financing Activities
 
 
 
Repurchase of class A common stock (Note 8)
$
(1,855
)
 
$
(2,210
)
Dividends paid (Note 8)
(591
)
 
(507
)
Payments from (return to) litigation escrow account—retrospective responsibility plan (Note 2 and Note 12)
321

 
(1,056
)
Cash proceeds from exercise of stock options
46

 
58

Restricted stock and performance-based shares settled in cash for taxes
(106
)
 
(83
)
Excess tax benefit for share-based compensation
70

 
68

Net cash used in financing activities
(2,115
)
 
(3,730
)
Effect of exchange rate changes on cash and cash equivalents
1

 

Increase (decrease) in cash and cash equivalents
68

 
(366
)
Cash and cash equivalents at beginning of year
1,971

 
2,186

Cash and cash equivalents at end of period
$
2,039

 
$
1,820

Supplemental Disclosure
 
 
 
Income taxes paid, net of refunds
$
1,376

 
$
1,392

Accruals related to purchases of property, equipment, technology and intangible assets
$
26

 
$
27






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

10


VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2015
(UNAUDITED)
Note 1—Summary of Significant Accounting Policies
Organization. Visa Inc. (“Visa” or the “Company”) is a global payments technology company that connects consumers, businesses, financial institutions and governments in more than 200 countries and territories to fast, secure and reliable electronic payments. Visa and its wholly-owned consolidated subsidiaries, including Visa U.S.A. Inc. (“Visa U.S.A.”), Visa International Service Association (“Visa International”), Visa Worldwide Pte. Limited, Visa Canada Corporation, Inovant LLC and CyberSource Corporation (“CyberSource”), operate one of the world’s most advanced processing networks — VisaNet — which facilitates authorization, clearing and settlement of payment transactions worldwide. VisaNet also offers fraud protection for account holders and assured payment for merchants. Visa is not a bank and does not issue cards, extend credit or set rates and fees for account holders on Visa-branded cards and payment products. In most cases, account holder and merchant relationships belong to, and are managed by, Visa's financial institution clients. Visa provides a wide variety of payment solutions that support payment products that issuers can offer to their account holders: pay now with debit, pay ahead with prepaid or pay later with credit products. Visa also offers a growing suite of innovative digital, eCommerce and mobile products and services. These services facilitate transactions on Visa's network among account holders, merchants, financial institutions and governments in mature and emerging markets globally.
Consolidation and basis of presentation. The accompanying unaudited consolidated financial statements include the accounts of Visa and its consolidated entities and are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company consolidates its majority-owned and controlled entities, including variable interest entities ("VIEs") for which the Company is the primary beneficiary. The Company’s investments in VIEs have not been material to its consolidated financial statements as of and for the periods presented. All significant intercompany accounts and transactions are eliminated in consolidation.
On March 18, 2015, the Company completed a four-for-one split of its class A common stock effected in the form of a stock dividend. All per share amounts and number of shares outstanding in these unaudited consolidated financial statements and accompanying notes are presented on a post-split basis. See Note 8—Stockholders' Equity.
Certain prior period amounts within the accompanying unaudited consolidated financial statements have been reclassified to conform to current period presentation. These reclassifications did not affect the Company's financial position, total operating revenues, net income, comprehensive income, or cash flows as of and for the periods presented.
The accompanying unaudited consolidated financial statements are presented in accordance with the U.S. Securities and Exchange Commission ("SEC") requirements for Quarterly Reports on Form 10-Q and, consequently, do not include all of the annual disclosures required by U.S. GAAP. Reference should be made to the Visa Annual Report on Form 10-K for the year ended September 30, 2014 for additional disclosures, including a summary of the Company’s significant accounting policies.
In the opinion of management, the accompanying unaudited consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the Company's financial position, results of operations and cash flows for the interim periods presented.
Recently Issued and Adopted Accounting Pronouncements.
In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-04, which provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The Company adopted the standard effective October 1, 2014. The adoption did not have a material impact on the consolidated financial statements.
In March 2013, the FASB issued ASU 2013-05, which clarifies guidance for the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity, or

11


no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The Company adopted the standard effective October 1, 2014. The adoption did not have a material impact on the consolidated financial statements.
In July 2013, the FASB issued ASU 2013-11, which provides guidance for the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The standard impacts presentation only. The Company adopted the standard effective October 1, 2014. The adoption did not have a material impact on the consolidated financial statements.
In November 2014, the FASB issued ASU 2014-17, which permits an acquired entity to elect the option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtained control of the acquired entity. The Company adopted the standard prospectively effective November 18, 2014. The adoption did not have a material impact on the consolidated financial statements.
In January 2015, the FASB issued ASU 2015-01, which simplifies the classification, presentation and disclosure requirements for extraordinary events and unusual transactions by eliminating the concept of extraordinary items from U.S. GAAP. The Company will adopt the standard effective October 1, 2016. The adoption is not expected to have a material impact on the consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, which amends guidance relating to the assessment for determining when an entity should consolidate variable interest entities and limited partnerships. The Company will adopt the standard effective October 1, 2016. The adoption is not expected to have a material impact on the consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, which simplifies the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The standard impacts presentation only. The Company will adopt the standard effective October 1, 2016. The adoption is not expected to have a material impact on the consolidated financial statements.
In April 2015, the FASB issued ASU 2015-05, which provides guidance about a customer’s accounting for fees paid in a cloud computing arrangement. The amendment will help entities evaluate whether such an arrangement includes a software license, which should be accounted for consistent with the acquisition of other software licenses; otherwise, it should be accounted for as a service contract. The Company will adopt the standard effective October 1, 2016. The adoption is not expected to have a material impact on the consolidated financial statements.
Note 2—Retrospective Responsibility Plan
Under the terms of the retrospective responsibility plan, the Company maintains an escrow account from which settlements of, or judgments in, the covered litigation are paid. At March 31, 2015 and September 30, 2014, the balance of the escrow account was $1.2 billion and $1.5 billion, respectively. The Company paid $321 million to opt-out merchants from the litigation escrow account during the six months ended March 31, 2015 to settle their claims associated with the interchange multidistrict litigation. See Note 12—Legal Matters.
The accrual related to the covered litigation could be either higher or lower than the litigation escrow account balance. The Company did not record an additional accrual for the covered litigation during the six months ended March 31, 2015 . See Note 12—Legal Matters.


VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Note 3—Fair Value Measurements and Investments
Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
Fair Value Measurements
Using Inputs Considered as
 
Level 1
 
Level 2
 
Level 3
 
March 31,
2015
 
September 30,
2014
 
March 31,
2015
 
September 30,
2014
 
March 31,
2015
 
September 30,
2014
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents and restricted cash:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
2,160

 
$
2,277

 
 
 
 
 
 
 
 
Commercial paper
 
 
 
 
$
48

 
$
37

 
 
 
 
Investment securities, trading:
 
 
 
 
 
 
 
 
 
 
 
Equity securities
71

 
69

 
 
 
 
 
 
 
 
Investment securities, available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. government-sponsored debt securities
 
 
 
 
2,112

 
2,162

 
 
 
 
U.S. Treasury securities
2,580

 
2,176

 
 
 
 
 
 
 
 
Equity securities
13

 
58

 
 
 
 
 
 
 
 
Corporate debt securities
 
 
 
 
563

 
522

 
 
 
 
Auction rate securities
 
 
 
 
 
 
 
 
$
7

 
$
7

Prepaid and other current assets:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange derivative instruments
 
 
 
 
119

 
40

 
 
 
 
Total
$
4,824

 
$
4,580

 
$
2,842

 
$
2,761

 
$
7

 
$
7

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
 
 
 
 
Visa Europe put option
 
 
 
 
 
 
 
 
$
145

 
$
145

Foreign exchange derivative instruments
 
 
 
 
$
11

 
$
6

 
 
 
 
Total
$

 
$

 
$
11

 
$
6

 
$
145

 
$
145

There were no significant transfers between Level 1 and Level 2 assets during the six months ended March 31, 2015 and 2014.    
Level 1 assets measured at fair value on a recurring basis. Money market funds, publicly-traded equity securities and U.S. Treasury securities are classified as Level 1 within the fair value hierarchy, as fair value is based on quoted prices in active markets.
Level 2 assets and liabilities measured at fair value on a recurring basis. The fair value of U.S. government-sponsored debt securities and corporate debt securities, as provided by third-party pricing vendors, is based on quoted prices in active markets for similar, not identical, assets. The pricing data obtained from outside sources is reviewed internally for reasonableness, compared against benchmark quotes from independent pricing sources, then confirmed or revised accordingly. Commercial paper and foreign exchange derivative instruments are valued

13

VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


using inputs that are observable in the market or can be derived principally from or corroborated by observable market data. There were no substantive changes to the valuation techniques and related inputs used to measure fair value during the six months ended March 31, 2015.
Level 3 assets and liabilities measured at fair value on a recurring basis. Auction rate securities are classified as Level 3 due to a lack of trading in active markets and a lack of observable inputs in measuring fair value. There were no substantive changes to the valuation techniques and related inputs used to measure fair value during the six months ended March 31, 2015.
Visa Europe put option agreement. The Company has granted Visa Europe a perpetual put option, or the put option, which, if exercised, will require Visa Inc. to purchase all of the outstanding shares of capital stock of Visa Europe from its members. The put option provides a formula for determining the purchase price of the Visa Europe shares, which, subject to certain adjustments, applies Visa Inc.’s forward price-to-earnings multiple (as defined in the put option agreement), or the P/E ratio, at the time the option is exercised, to Visa Europe’s adjusted net income for the forward 12-month period (as defined in the put option agreement), or the adjusted sustainable income. The calculation of Visa Europe’s adjusted sustainable income under the terms of the put option agreement includes potentially material adjustments for cost synergies and other negotiated items. Upon exercise, the key inputs to this formula, including Visa Europe’s adjusted sustainable income, will be the result of negotiation between the Company and Visa Europe. The put option provides an arbitration mechanism in the event that the two parties are unable to agree on the ultimate purchase price.
The fair value of the put option represents the value of Visa Europe’s option, which under certain conditions could obligate the Company to purchase its member equity interest for an amount above fair value. While the put option is in fact non-transferable, its fair value represents the Company’s estimate of the amount the Company would be required to pay a third-party market participant to transfer the potential obligation in an orderly transaction at the measurement date. The valuation of the put option therefore requires substantial judgment. The most subjective estimates applied in valuing the put option are the assumed probability that Visa Europe will elect to exercise its option and the estimated differential between the P/E ratio and the P/E ratio applicable to Visa Europe on a standalone basis at the time of exercise, or the P/E differential. The liability is classified within Level 3, as the assumed probability that Visa Europe will elect to exercise its option, the estimated P/E differential, and other inputs used to value the put option are unobservable.
At March 31, 2015 and September 30, 2014, the Company determined the fair value of the put option to be $145 million. While $145 million represents the fair value of the put option at March 31, 2015, it does not represent the actual purchase price that the Company may be required to pay if the option is exercised. Given current economic conditions, the purchase price under the terms of the put option would likely be in excess of $10 billion. During the six months ended March 31, 2015, there were no changes to the valuation methodology used to estimate the fair value of the put option. At March 31, 2015, the key unobservable inputs included a 40% probability of exercise by Visa Europe at some point in the future and an estimated P/E differential of 1.9x. At March 31, 2015, the Company's spot P/E was 21.8x, and there was a differential of 2.3x between this ratio and the estimated spot ratio applicable to Visa Europe. These ratios are for reference only and are not necessarily indicative of the ratio or differential that could be applicable if the put option was exercised at any point in the future. The use of an assumed probability of exercise that is 5% higher than the Company's estimate would have resulted in an increase of approximately $18 million in the value of the put option. An increase of 1.0x in the assumed P/E differential would have resulted in an increase of approximately $84 million in the value of the put option.
The put option is exercisable at any time at the sole discretion of Visa Europe. As such, the put option liability is included in accrued liabilities on the Company's consolidated balance sheet at March 31, 2015. Classification in current liabilities is not an indication of management’s expectation of exercise and simply reflects the fact that the obligation resulting from the exercise of the instrument could become payable within 12 months. Changes in fair value are recorded as non-cash, non-operating income on the consolidated statements of operations.

14

VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Assets Measured at Fair Value on a Non-recurring Basis.
Non-marketable equity investments and investments accounted for under the equity method. These investments are classified as Level 3 due to the absence of quoted market prices, the inherent lack of liquidity, and the fact that inputs used to measure fair value are unobservable and require management's judgment. When certain events or circumstances indicate that impairment may exist, the Company revalues the investments using various assumptions, including the financial metrics and ratios of comparable public companies. There were no
events or circumstances that indicated these investments became impaired during the six months ended March 31, 2015 or 2014. At March 31, 2015 and September 30, 2014, these investments totaled $28 million and $35 million, respectively. These assets are classified in other assets on the consolidated balance sheets.
Non-financial assets and liabilities. Long-lived assets such as goodwill, indefinite-lived intangible assets, finite-lived intangible assets, and property, equipment and technology are considered non-financial assets. The Company does not have any non-financial liabilities measured at fair value on a non-recurring basis. Finite-lived intangible assets primarily consist of customer relationships, tradenames and reseller relationships, all of which were obtained through acquisitions.
If the Company were required to perform a quantitative assessment for impairment testing of goodwill and indefinite-lived intangible assets, the fair values would generally be estimated using an income approach. As the assumptions employed to measure these assets on a non-recurring basis are based on management's judgment using internal and external data, these fair value determinations are classified as Level 3 in the fair value hierarchy. The Company completed its annual impairment review of its indefinite-lived intangible assets and goodwill as of February 1, 2015, and concluded that there was no impairment. No recent events or changes in circumstances indicate that impairment existed at March 31, 2015.
Other Financial Instruments Not Measured at Fair Value
The following financial instruments are not measured at fair value on the Company's consolidated balance sheet at March 31, 2015, but require disclosure of their fair values: time deposits recorded in prepaid expenses and other current assets, settlement receivable and payable, and customer collateral. The estimated fair value of such instruments at March 31, 2015, approximates their carrying value due to their generally short maturities. If measured at fair value in the financial statements, these financial instruments would be classified as Level 2 in the fair value hierarchy.
Investments
Available-for-sale investment securities
The Company had $11 million in gross unrealized gains and $2 million in gross unrealized losses at March 31, 2015. There were $48 million gross unrealized gains and no gross unrealized losses at September 30, 2014. The gross unrealized gains at March 31, 2015 and September 30, 2014 primarily relate to the Company's available-for-sale equity securities. A majority of the Company's available-for-sale investment securities with stated maturities are due within one to two years.
Note 4—Debt
Credit facility. On January 28, 2015, the Company entered into an unsecured $3.0 billion revolving credit facility (the “Credit Facility”). The Credit Facility, which expires on January 27, 2016, replaced the Company's previous $3.0 billion credit facility, which expired on January 28, 2015. The Credit Facility contains covenants and events of default customary for facilities of this type. The participating lenders in the Credit Facility include affiliates of certain holders of the Company's class B and class C common stock and some of the Company's clients or affiliates of its clients. This facility is maintained to provide liquidity in the event of settlement failures by the Company's clients, to back up the commercial paper program and for general corporate purposes.
Interest on borrowings under the Credit Facility would be charged at the London Interbank Offered Rate or an alternative base rate, in each case plus applicable margins that fluctuate based on the applicable credit rating of the Company's senior unsecured long-term debt. Visa also agreed to pay a commitment fee, which will fluctuate based on the credit rating of the Company's senior unsecured long-term debt. Currently, the applicable margin is 0.00% to 0.75% depending on the type of the loan, and the commitment fee is 0.07%. There were no borrowings under either

15


facility and the Company was in compliance with all related covenants during the six months ended March 31, 2015.
Note 5—Pension and Other Postretirement Benefits
The Company sponsors various qualified and non-qualified defined benefit pension and other postretirement benefit plans that provide for retirement and medical benefits for substantially all employees residing in the United States. The Company also sponsors other pension benefit plans that provide benefits for internationally-based employees at certain non-U.S. locations, which are not presented below as they are not material.
The components of net periodic benefit cost are as follows:
 
Pension Benefits
 
Other Postretirement Benefits
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2015
 
2014
 
2015

2014
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Service cost
$
11

 
$
12

 
$
23

 
$
23

 
$

 
$

 
$

 
$

Interest cost
10

 
11

 
20

 
21

 

 

 

 

Expected return on assets
(18
)
 
(17
)
 
(36
)
 
(34
)
 

 

 

 

Amortization of prior service credit
(1
)
 
(2
)
 
(3
)
 
(4
)
 
(1
)
 
(1
)
 
(2
)
 
(2
)
Curtailment gain

 
(3
)
 

 
(3
)
 

 

 

 

Settlement loss
2

 

 
4

 
1

 

 

 

 

Total net periodic benefit cost
$
4

 
$
1

 
$
8

 
$
4

 
$
(1
)
 
$
(1
)
 
$
(2
)
 
$
(2
)
Note 6—Settlement Guarantee Management
The Company indemnifies its financial institution clients for settlement losses suffered due to failure of any other clients to fund its settlement obligations in accordance with Visa’s operating regulations. The indemnification creates settlement risk for the Company due to the difference in timing between the date of a payment transaction and the date of subsequent settlement. The exposure to settlement losses through Visa's settlement indemnification is accounted for as a settlement risk guarantee. The Company’s settlement exposure is limited to the amount of unsettled Visa payment transactions at any point in time. The Company requires certain financial institution clients that do not meet its credit standards to post collateral to offset potential loss from their estimated unsettled transactions. The Company’s estimated maximum settlement exposure was $58.6 billion for the quarter ended March 31, 2015, compared to $56.9 billion for the quarter ended September 30, 2014. Of these settlement exposure amounts, $2.8 billion and $3.2 billion were covered by collateral at March 31, 2015 and September 30, 2014, respectively.
The Company maintained collateral as follows:
 
March 31,
2015
 
September 30,
2014
 
(in millions)
Cash equivalents
$
1,079

 
$
961

Pledged securities at market value
153

 
148

Letters of credit
1,196

 
1,242

Guarantees
1,211

 
1,554

Total
$
3,639

 
$
3,905

The total available collateral balances presented in the table above were greater than the settlement exposure covered by customer collateral held due to instances in which the available collateral exceeded the total settlement exposure for certain financial institutions at each date presented.
The fair value of the settlement risk guarantee is estimated based on a proprietary probability-weighted model and was approximately $2 million at March 31, 2015 and September 30, 2014, respectively. These amounts are reflected in accrued liabilities on the consolidated balance sheets.

16

VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Note 7— Other Liabilities
Other non-current liabilities consisted of the following:
 
March 31,
2015
 
September 30,
2014
 
(in millions)
Accrued income taxes
$
860

 
$
855

Employee benefits
83

 
92

Other
81

 
58

Total
$
1,024

 
$
1,005

Note 8—Stockholders' Equity
Class A common stock split. In January 2015, Visa’s board of directors declared a four-for-one split of its class A common stock. Each class A common stockholder of record at the close of business on February 13, 2015 ("Record Date"), received a dividend of three additional shares on March 18, 2015 for every share held as of the Record Date. Trading began on a split-adjusted basis on March 19, 2015. Holders of class B and C common stock did not receive a stock dividend. Instead, the conversion rate for class B common stock increased to 1.6483 shares of class A common stock per share of class B common stock, and the conversion rate for class C common stock increased to 4.0 shares of class A common stock per share of class C common stock. Immediately following the split, the class A, B and C stockholders retained the same relative ownership percentages that they had prior to the stock split. All per share amounts and number of shares outstanding in these unaudited consolidated financial statements and accompanying notes are presented on a post-split basis. As a result of the stock split, all historical per share data and number of shares outstanding presented have been retroactively adjusted.
As-Converted Class A Common Stock. The number of shares of each class and the number of shares of class A common stock on an as-converted basis at March 31, 2015, are as follows:
(in millions, except conversion rates)
Shares Outstanding
 
Conversion Rate
Into Class A
Common Stock
 
As-converted Class A Common
Stock(1)
Class A common stock
1,964

 

 
1,964

Class B common stock
245

 
1.6483

(2) 
405

Class C common stock
20

 
4.0000

 
79

Total
 
 
 
 
2,448

(1) 
Figures in the table may not recalculate exactly due to rounding. As-converted class A common stock is calculated based on unrounded numbers.
(2) 
The class B to class A common stock conversion rate has been rounded for purposes of this disclosure. Conversion calculations for dividend payments are based on a conversion rate rounded to the tenth decimal.
Reduction in as-converted class A common stock. The following table presents share repurchases in the open market.
(in millions, except per share data)
Three Months Ended
March 31, 2015
 
Six Months Ended
March 31, 2015
Shares repurchased in the open market (1)
16

 
29

Average repurchase price per share (2)
$
64.84

 
$
64.86

Total cost
$
1,052

 
$
1,855

(1)  
All shares repurchased in the open market have been retired and constitute authorized but unissued shares.
(2) 
Figures in the table may not recalculate exactly due to rounding. Average repurchase price per share is calculated based on unrounded numbers.
As of March 31, 2015, the October 2014 program had remaining authorized funds of $3.8 billion for share repurchase. All share repurchase programs authorized prior to October 2014 have been completed.

17

VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Dividends. In April 2015, the Company’s board of directors declared a quarterly cash dividend of $0.12 per share of class A common stock (determined in the case of class B and class C common stock on an as-converted basis). The cash dividend will be paid on June 2, 2015, to all holders of record of the Company's class A, B and C common stock as of May 15, 2015. The Company declared and paid $591 million in dividends during the six months ended March 31, 2015.
Note 9—Earnings Per Share
The following table presents earnings per share for the three months ended March 31, 2015.(1)     
 
Basic Earnings Per Share
 
 
Diluted Earnings Per Share
 
(in millions, except per share data)
 
Income
Allocation
(A)(2)
 
Weighted-
Average
Shares
Outstanding (B)
 
Earnings per
Share =
(A)/(B)
 
 
Income
Allocation
(A)(2)
 
Weighted-
Average
Shares
Outstanding (B)
 
Earnings per
Share =
(A)/(B)
Class A common stock
$
1,240

 
1,963

 
$
0.63

 
 
$
1,550

 
2,460

(3) 
$
0.63

Class B common stock(4)
255

 
245

 
$
1.04

 
 
$
255

 
245

 
$
1.04

Class C common stock(4)
51

 
20

 
$
2.53

 
 
$
51

 
20

 
$
2.52

Participating securities(5)
4

 
Not presented

 
Not presented

 
 
$
4

 
Not presented

 
Not presented

Net income
$
1,550

 
 
 
 
 
 
 
 
 
 
 
The following table presents earnings per share for the six months ended March 31, 2015.(1)     
 
Basic Earnings Per Share
 
 
Diluted Earnings Per Share
 
(in millions, except per share data)
 
Income
Allocation
(A)(2)
 
Weighted-
Average
Shares
Outstanding (B)
 
Earnings per
Share =
(A)/(B)
 
 
Income
Allocation
(A)(2)
 
Weighted-
Average
Shares
Outstanding (B)
 
Earnings per
Share =
(A)/(B)
Class A common stock
$
2,492

 
1,969

 
$
1.27

 
 
$
3,119

 
2,469

(3) 
$
1.26

Class B common stock(4)
512

 
245

 
$
2.09

 
 
$
511

 
245

 
$
2.08

Class C common stock(4)
107

 
21

 
$
5.06

 
 
$
106

 
21

 
$
5.05

Participating securities(5)
8

 
Not presented

 
Not presented

 
 
$
8

 
Not presented

 
Not presented

Net income
$
3,119

 
 
 
 
 
 
 
 
 
 
 
The following table presents earnings per share for the three months ended March 31, 2014.(1)     
 
Basic Earnings Per Share
 
 
Diluted Earnings Per Share
 
(in millions, except per share data)
 
Income
Allocation
(A)(2)
 
Weighted-
Average
Shares
Outstanding (B)
 
Earnings per
Share =
(A)/(B)
 
 
Income
Allocation
(A)(2)
 
Weighted-
Average
Shares
Outstanding (B)
 
Earnings per
Share =
(A)/(B)
Class A common stock
$
1,266

 
2,003

 
$
0.63

 
 
$
1,598

 
2,534

(3) 
$
0.63

Class B common stock(4)
261

 
245

 
$
1.06

 
 
$
260

 
245

 
$
1.06

Class C common stock(4)
66

 
26

 
$
2.53

 
 
$
65

 
26

 
$
2.52

Participating securities(5)
5

 
Not presented

 
Not presented

 
 
$
5

 
Not presented

 
Not presented

Net income
$
1,598

 
 
 
 
 
 
 
 
 
 
 

18

VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


The following table presents earnings per share for the six months ended March 31, 2014.(1)    
 
Basic Earnings Per Share
 
 
Diluted Earnings Per Share
 
(in millions, except per share data)
 
Income
Allocation
(A)(2)
 
Weighted-
Average
Shares
Outstanding (B)
 
Earnings per
Share =
(A)/(B)
 
 
Income
Allocation
(A)(2)
 
Weighted-
Average
Shares
Outstanding (B)
 
Earnings per
Share =
(A)/(B)
Class A common stock
$
2,381

 
2,011

 
$
1.18

 
 
$
3,005

 
2,544

(3) 
$
1.18

Class B common stock(4)
489

 
245

 
$
1.99

 
 
$
488

 
245

 
$
1.99

Class C common stock(4)
125

 
26

 
$
4.74

 
 
$
124

 
26

 
$
4.72

Participating securities(5)
10

 
Not presented

 
Not presented

 
 
$
10

 
Not presented

 
Not presented

Net income
$
3,005

 
 
 
 
 
 
 
 
 
 
 
(1) 
Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated based on unrounded numbers. The number of shares and per share amounts for the prior periods presented have been retroactively adjusted to reflect the four-for-one stock split effected in the fiscal second quarter of 2015. See Note 8—Stockholders' Equity.
(2) 
Net income is allocated based on proportional ownership on an as-converted basis. The weighted-average number of shares of as-converted class B common stock used in the income allocation was 405 million for the three and six months ended March 31, 2015, and 413 million for the three and six months ended March 31, 2014. The weighted-average number of shares of as-converted class C common stock used in the income allocation was 81 million and 84 million for the three and six months ended March 31, 2015, respectively, and 104 million and 105 million for the three and six months ended March 31, 2014, respectively.
(3) 
Weighted-average diluted shares outstanding are calculated on an as-converted basis, and include incremental common stock equivalents, as calculated under the treasury stock method. The computation includes approximately 5 million common stock equivalents for the three and six months ended March 31, 2015, and 7 million common stock equivalents for the three and six months ended March 31, 2014, because their effect would be dilutive. The calculation excludes 1 million of common stock equivalents for the three and six months ended March 31, 2015, and 1 million and 2 million of common stock equivalents for the three and six months ended March 31, 2014, respectively, because their effect would have been anti-dilutive.
(4) 
The outstanding number of shares of class B and C common stock was not impacted by the stock split as these stockholders received an adjustment to their respective conversion ratios instead of stock dividends. See Note 8—Stockholders' Equity. Weighted-average basic and diluted shares outstanding for class B and C common stock are calculated based on the common shares outstanding of each respective class rather than on an as-converted basis.
(5) 
Participating securities are unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, such as the Company's restricted stock awards, restricted stock units and earned performance-based shares.
Note 10—Share-based Compensation
The Company granted the following equity awards to employees and non-employee directors under the 2007 Equity Incentive Compensation Plan during the six months ended March 31, 2015. The amounts presented below reflect the four-for-one stock split that was effected in the second quarter of fiscal 2015. See Note 8—Stockholders' Equity.
 
Granted
 
Weighted-Average
Grant Date Fair
Value
 
Weighted-Average
Exercise Price
Non-qualified stock options
1,408,388

 
$
12.00

 
$
62.59

Restricted stock awards ("RSAs")
1,855,076

 
$
62.78

 
 
Restricted stock units ("RSUs")
733,340

 
$
62.56

 
 
Performance-based shares(1)
785,884

 
$
69.78

 
 
(1)  
Represents the maximum number of performance-based shares which could be earned.

19


The Company’s non-qualified stock options, RSAs and RSUs are equity awards with service-only conditions and are accordingly expensed on a straight-line basis over the vesting period. The Company's performance-based shares are equity awards with service, market and performance conditions that are accounted for using the graded-vesting method. Compensation cost is recorded net of estimated forfeitures, which are adjusted as appropriate.
Employee Stock Purchase Plan. In January 2015, the Company's class A stockholders approved the Visa Inc. Employee Stock Purchase Plan (the “ESPP”), under which substantially all employees are eligible to participate. The ESPP permits eligible employees to purchase the Company’s class A common stock at a 15% discount of the stock price on the purchase date, subject to certain restrictions. A total of 20 million shares of class A common stock have been reserved for issuance under the ESPP. The first offering date was April 1, 2015. The ESPP is not expected to have a material impact on the consolidated financial statements.
Note 11—Income Taxes
The effective income tax rates were 32% and 31% for the three and six months ended March 31, 2015, respectively, and 22% and 27% for the three and six months ended March 31, 2014, respectively. The effective tax rates for the three and six months ended March 31, 2015 differ from the effective tax rates in the same periods in fiscal 2014 primarily due to the absence of a one-time $201 million tax benefit recorded in the second quarter of fiscal 2014 related to a deduction for U.S. domestic production activities, of which, $184 million related to prior fiscal years and $17 million related to the first quarter of fiscal 2014.
During the three and six months ended March 31, 2015, there were no significant changes in total unrecognized tax benefits or interest and penalties related to uncertain tax positions.
The Company’s tax filings are subject to examination by the U.S. federal, state and foreign tax authorities. The timing and outcome of the final resolutions of the various ongoing income tax examinations are highly uncertain. It is reasonably possible that in the next six to twelve months the Company will recognize up to $300 million of tax benefits, resulting from the decrease in the current amount of unrecognized tax benefits.
Note 12—Legal Matters
The Company is party to various legal and regulatory proceedings. Some of these proceedings involve complex claims that are subject to substantial uncertainties and unascertainable damages. Accordingly, except as disclosed, the Company has not established reserves or ranges of possible loss related to these proceedings, as at this time in the proceedings, the matters do not relate to a probable loss and/or the amount or range of losses are not reasonably estimable. Although the Company believes that it has strong defenses for the litigation and regulatory proceedings described below, it could, in the future, incur judgments or fines or enter into settlements of claims that could have a material adverse effect on the Company's financial position, results of operations or cash flows. From time to time, the Company may engage in settlement discussions or mediations with respect to one or more of its outstanding litigation matters, either on its own behalf or collectively with other parties.
The litigation accrual is an estimate and is based on management’s understanding of its litigation profile, the specifics of each case, advice of counsel to the extent appropriate and management’s best estimate of incurred loss as of the balance sheet date.
The following table summarizes activity related to accrued litigation.
 
Fiscal 2015
 
Fiscal 2014
 
(in millions)
Balance at October 1
$
1,456

 
$
5

Reestablishment of obligation related to interchange multidistrict litigation

 
1,056

  Additional provision for legal matters
3

 

Payments on legal matters
(324
)
 
(1
)
Balance at March 31
$
1,135

 
$
1,060

Covered Litigation



Visa Inc., Visa U.S.A. and Visa International are parties to certain legal proceedings that are covered by the retrospective responsibility plan, which the Company refers to as the covered litigation. See Note 2—Retrospective Responsibility Plan. An accrual for the covered litigation and a charge to the litigation provision are recorded when loss is deemed to be probable and reasonably estimable. In making this determination, the Company evaluates available information, including but not limited to actions taken by the litigation committee. The total accrual related to the covered litigation could be either higher or lower than the escrow account balance.
The following table summarizes the activity related to covered litigation.
 
Fiscal 2015
 
Fiscal 2014
 
(in millions)
Balance at October 1
$
1,449

 
$

Payments on covered litigation
(321
)
 

Reestablishment of obligation related to interchange multidistrict litigation

 
1,056

Balance at March 31
$
1,128

 
$
1,056

Interchange Multidistrict Litigation (MDL)
On January 14, 2015, following a court-approved process to give class members who previously opted out of the damages portion of the class settlement an option to rejoin it, the class administrator submitted a report stating that it had received 1,179 requests by merchants to rejoin the cash settlement class, some of which may include multiple merchants.
Consumer Interchange Litigation
On November 26, 2014, in the putative class action filed on behalf of an alleged class of Visa and MasterCard payment cardholders, the court dismissed plaintiffs’ federal law claim and declined to exercise jurisdiction over plaintiffs’ state law claim. Both sides have asked the court to reconsider aspects of its decision, and have filed notices of appeal.
Interchange Opt-out Litigation
Beginning in May 2013, more than 40 opt-out cases have been filed by hundreds of merchants in various federal district courts, generally pursuing damages claims on allegations similar to those raised in MDL 1720. A number of the cases also include allegations that Visa has monopolized, attempted to monopolize, and/or conspired to monopolize debit card-related market segments, and one of the cases seeks an injunction against the fixed acquirer network fee. The cases name as defendants Visa Inc., Visa U.S.A., Visa International, MasterCard Incorporated, and MasterCard International Incorporated, although some also include certain U.S. financial institutions as defendants.
Wal-Mart Stores Inc. and its subsidiaries filed an opt-out complaint that also added Visa Europe Limited and Visa Europe Services Inc. as defendants. Visa Europe Limited and Visa Europe Services Inc. filed a motion to dismiss Wal-Mart’s claims against them.
As of the date of filing this quarterly report, Visa has reached settlement agreements with a number of merchants representing approximately 24% of the Visa-branded payment card sales volume of merchants who opted out.
On December 23, 2014, a similar case was filed in New Mexico state court by New Mexico’s attorney general on behalf of the state, state agencies, and citizens of the state, generally pursuing claims on allegations similar to those raised in MDL 1720. If this case is transferred to or otherwise included in MDL 1720, it will be covered litigation for purposes of the retrospective responsibility plan. See Note 2—Retrospective Responsibility Plan.
In the Texas state court case filed by merchants, which generally pursues claims on allegations similar to those raised in MDL 1720, on April 2, 2015, the court granted plaintiffs’ motion for partial summary judgment regarding standing and denied defendants’ cross-motion. The court has set a trial date of September 21, 2015.
Other Litigation

21


"Indirect Purchaser" Actions
In early December 2014, objectors to the settlement in the consolidated Credit/Debit Card Tying Cases petitioned for review by the California Supreme Court, which the court denied on February 11, 2015.
European Competition Proceedings
U.K. Merchant Litigation. On defendants’ application for summary judgment, the court has limited the potential damages of most merchants who have commenced proceedings to 6 years prior to the filing of their claims. The claimants have been granted permission to appeal the court’s ruling.
Data Pass Litigation
On January 9, 2015, Webloyalty.com, GameStop, and Visa each filed motions to dismiss the second amended class action complaint.
Korean Fair Trade Commission
On March 13, 2015, the Korean Fair Trade Commission notified Visa that it is discontinuing the investigation into Visa’s requirements for processing of international transactions over VisaNet.
Target Data Breach
On December 30, 2014, the court granted plaintiffs’ notice of voluntary dismissal without prejudice of all claims against Visa and MasterCard.
Pulse Network
On November 25, 2014, Pulse Network LLC filed suit against Visa Inc. in federal district court in Texas. Pulse alleges that Visa has monopolized and attempted to monopolize debit card network services markets. Pulse also alleges that Visa has entered into agreements in restraint of trade, engaged in unlawful exclusive dealing and tying, violated the Texas Free Enterprise and Antitrust Act, and engaged in tortious interference with prospective business relationships. Pulse seeks unspecified treble damages, attorneys’ fees, and injunctive relief, including to enjoin the fixed acquirer network fee structure, Visa’s conduct regarding PIN-Authenticated Visa Debit, and Visa agreements with merchants and acquirers relating to debit acceptance. On January 23, 2015, Visa filed a motion to dismiss the complaint.

22


ITEM 2.
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 the liquidity and capital resources of Visa Inc. and its subsidiaries (“Visa,” “we,” “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 elsewhere in 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. Forward-looking statements generally are identified by words such as "believes," "estimates," "expects," "may," "projected," "could," "will," "will continue" and other similar expressions. Examples of forward-looking statements include, but are not limited to, statements we make about our revenue, client incentives, operating margin, tax rate, earnings per share, free cash flow, and the growth of those items.
By their nature, forward-looking statements: (i) speak only as of the date they are made; (ii) are not statements of historical fact or guarantees of future performance; and (iii) are subject to risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from our forward-looking statements due to a variety of factors, including the following:
the impact of laws, regulations and marketplace barriers, including:
rules capping debit interchange reimbursement rates and expanding financial institutions' and merchants' choices among debit payments networks promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act;
increased regulation in jurisdictions outside of the United States and in other product categories;
increased government support of national payments networks outside the United States; and
increased regulation of consumer privacy, data use and security;
developments in litigation and government enforcement, including those affecting interchange reimbursement fees, antitrust and tax;
new lawsuits, investigations or proceedings, or changes to our potential exposure in connection with pending lawsuits, investigations or proceedings;
economic factors, such as:
economic fragility in the Eurozone and in the United States;
general economic, political and social conditions in mature and emerging markets globally;
general stock market fluctuations which may impact consumer spending;
material changes in cross-border activity, foreign exchange controls and fluctuations in currency exchange rates;
volatility in market prices for oil and natural gas; and
material changes in our financial institution clients' performance compared to our estimates;
industry developments, such as competitive pressure, rapid technological developments and disintermediation from our payments network;
system developments, such as:
disruption of our transaction processing systems or the inability to process transactions efficiently;
account data breaches or increased fraudulent or other illegal activities involving Visa-branded cards or payment products; and

23


failure to maintain systems interoperability with Visa Europe;
costs arising if Visa Europe were to exercise its right to require us to acquire all of its outstanding stock;
the loss of organizational effectiveness or key employees;
the failure to integrate acquisitions successfully or to effectively develop new products and businesses;
natural disasters, terrorist attacks, military or political conflicts, and public health emergencies; and

various other factors, including those contained in our Annual Report on Form 10-K for the year ended September 30, 2014 and our other filings with the U.S. Securities and Exchange Commission. You should not place undue reliance on such statements. Except as required by law, we do not intend to update or revise any forward-looking statements as a result of new information, future developments or otherwise.
Overview
Visa is a global payments technology company that connects consumers, businesses, financial institutions and governments around the world to fast, secure and reliable electronic payments. We provide our financial institution clients with a global payments infrastructure and support services for the delivery of Visa-branded payment products, including credit, debit, and prepaid. 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, particularly outside the United States. We continue to explore additional opportunities to enhance our competitive position by expanding the scope of payment solutions we provide.
Overall economic conditions. Our business is affected by overall economic conditions and consumer spending. Our business performance during the first half of fiscal 2015 reflects the impacts of a modest global economic recovery.
Financial highlights. During the three months ended March 31, 2015, we recorded net income of $1.6 billion, a decrease of 3% over the prior year comparable period. Diluted class A earnings per share for the same period was $0.63, flat over prior year. During the six months ended March 31, 2015, we recorded net income of $3.1 billion, or diluted class A earnings per share of $1.26, an increase of 4% and 7%, respectively, over the prior year comparable period. Our financial results for the three and six months ended March 31, 2014 reflect a one-time tax benefit of $201 million related to a deduction for U.S. domestic production activities, of which, $184 million related to prior fiscal years and $17 million related to the first quarter of fiscal 2014.
We recorded total operating revenues of $3.4 billion and $6.8 billion, an increase of 8% and 7% over the prior year, for the three and six months ended March 31, 2015, respectively. Increases in total operating revenues were driven by continued growth in our underlying business drivers: nominal payments volume; processed transactions; and cross-border volume. The general strengthening of the U.S. dollar during the three and six months resulted in a negative two-and-a-half percentage point impact and a negative two percentage point impact, respectively, to our total operating revenue growth compared to the prior year comparable periods.
Total operating expenses for the three and six months ended March 31, 2015 were $1.1 billion and $2.3 billion, a 1% and 4% increase over prior year, respectively, primarily due to increases in personnel, general and administrative expenses and additional depreciation from our ongoing investments in technology assets and infrastructure. The increases were partially offset by the absence of a number of marketing campaigns in the prior year such as the 2014 Winter Olympics and 2014 FIFA World Cup.
Class A common stock split. In January 2015, Visa’s board of directors declared a four-for-one split of its class A common stock. Each class A common stockholder of record at the close of business on February 13, 2015 ("Record Date"), received a dividend of three additional shares on March 18, 2015 for every share held as of the Record Date. Trading began on a split-adjusted basis on March 19, 2015. Holders of class B and C common stock did not receive a stock dividend. Instead, the conversion rate for class B common stock increased to 1.6483 shares of class A common stock per share of class B common stock, and the conversion rate for class C common stock increased to 4.0 shares of class A common stock per share of class C common stock. Immediately following the split, the class A, B and C stockholders retained the same relative ownership percentages that they had prior to the stock split. See Note 8—Stockholders' Equity to our unaudited consolidated financial statements.

24


Reduction in as-converted class A common stock. During the three months ended March 31, 2015, we repurchased 16 million shares of our class A common stock in the open market using $1.1 billion of cash on hand. As of March 31, 2015, we had remaining authorized funds of $3.8 billion. All share repurchase programs authorized prior to October 2014 have been completed. See Note 8—Stockholders' Equity to our unaudited consolidated financial statements.
Interchange reimbursement fees. On March 21, 2014, the Court of Appeals for the D.C. Circuit reversed a district court ruling invalidating the debit regulations implemented by the Federal Reserve in accordance with the Dodd-Frank Act. The appeals court agreed with the Federal Reserve on its interpretation, except for a single issue related to the interchange cost calculation which was referred back to the Federal Reserve for reconsideration. On January 20, 2015, the Supreme Court declined to hear a further appeal of the case, leaving in place the Court of Appeals decision.
Nominal payments volume and transaction counts. 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. Nominal payments volume over the prior year posted double-digit growth in the U.S., driven mainly by consumer credit. International payments volume nominal growth was negatively impacted by the overall strengthening of the U.S. dollar. On a constant dollar basis, which excludes the impact of exchange rate movements, our international payments volume growth rate for the three and six months ended December 31, 2014 is 13%. Processed transactions sustained double-digit growth reflecting the ongoing worldwide shift to electronic currency.
The following tables present nominal payments volume.(1)     
 
U.S.
 
International
 
Visa Inc.
 
3 Months
Ended
December 31,
2014(2)
 
3 Months
Ended
December 31,
2013(2)
 
%
Change
 
3 Months
Ended
December 31,
2014(2)
 
3 Months
Ended
December 31,
2013 (2)
 
%
Change
 
3 Months
Ended
December 31,
2014(2)
 
3 Months
Ended
December 31,
2013(2)
 
%
Change
 
(in billions, except percentages)
Nominal payments volume
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer credit
$
253

 
$
223

 
13
%
 
$
433

 
$
416

 
4
 %
 
$
686

 
$
640

 
7
 %
Consumer debit(3)
296

 
278

 
6
%
 
122

 
119

 
2
 %
 
417

 
397

 
5
 %
Commercial(4)
102

 
90

 
14
%
 
40

 
38

 
5
 %
 
142

 
128

 
11
 %
Total nominal payments volume
$
651

 
$
591

 
10
%
 
$
594

 
$
573

 
4
 %
 
$
1,245

 
$
1,164

 
7
 %
Cash volume
121

 
115

 
5
%
 
533

 
559

 
(5
)%
 
654

 
674

 
(3
)%
Total nominal volume(5)
$
772

 
$
706

 
9
%
 
$
1,128

 
$
1,132

 
 %
 
$
1,900

 
$
1,838

 
3
 %
 
U.S.
 
International
 
Visa Inc.
 
6 Months
Ended
December 31,
2014(2)
 
6 Months
Ended
December 31,
2013(2)
 
%
Change
 
6 Months
Ended
December 31,
2014(2)
 
6 Months
Ended
December 31,
2013(2)
 
%
Change
 
6 Months
Ended
December 31,
2014(2)
 
6 Months
Ended
December 31,
2013(2)
 
%
Change
 
(in billions, except percentages)
Nominal payments volume
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer credit
$
491

 
$
436

 
13
%
 
$
857

 
$
805

 
6
 %
 
$
1,348

 
$
1,241

 
9
%
Consumer debit(3)
587

 
550

 
7
%
 
244

 
224

 
9
 %
 
831

 
774

 
7
%
Commercial(4)
205

 
181

 
13
%
 
79

 
73

 
9
 %
 
284

 
253

 
12
%
Total nominal payments volume
$
1,283

 
$
1,166

 
10
%
 
$
1,180

 
$
1,102

 
7
 %
 
$
2,462

 
$
2,269

 
9
%
Cash volume
245

 
232

 
6
%
 
1,077

 
1,083

 
(1
)%
 
1,322

 
1,314

 
1
%
Total nominal volume(5)
$
1,528

 
$
1,398

 
9
%
 
$
2,257

 
$
2,185

 
3
 %
 
$
3,784

 
$
3,583

 
6
%

25


The following table presents nominal and constant payments volume growth.(1) 
 
International
 
Visa Inc.
 
International
 
Visa Inc.
 
3 Months
Ended December 31,
2014 vs. 2013(2)
 
3 Months
Ended December 31,
2014 vs. 2013
(2)
 
6 Months
Ended December 31,
2014 vs. 2013(2)
 
6 Months
Ended December 31,
2014 vs. 2013(2)
 
Nominal
 
Constant(6)
 
Nominal
 
Constant(6)
 
Nominal
 
Constant(6)
 
Nominal
 
Constant(6)
Payments volume growth
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer credit
4
 %
 
12
%
 
7
 %
 
13
%
 
6
 %
 
12
%
 
9
%
 
12
%
Consumer debit(3)
2
 %
 
15
%
 
5
 %
 
9
%
 
9
 %
 
17
%
 
7
%
 
10
%
Commercial(4)
5
 %
 
14
%
 
11
 %
 
14
%
 
9
 %
 
14
%
 
12
%
 
13
%
Total payments volume growth
4
 %
 
13
%
 
7
 %
 
11
%
 
7
 %
 
13
%
 
9
%
 
11
%
Cash volume growth
(5
)%
 
10
%
 
(3
)%
 
9
%
 
(1
)%
 
9
%
 
1
%
 
9
%
Total volume growth
 %
 
11
%
 
3
 %
 
10
%
 
3
 %
 
11
%
 
6
%
 
10
%
(1) 
Figures in the table may not recalculate exactly due to rounding. Percentage changes are calculated based on unrounded numbers.
(2) 
Service revenues in a given quarter are assessed based on nominal payments volume in the prior quarter. Therefore, service revenues reported for the three and six months ended March 31, 2015 and 2014, were based on nominal payments volume reported by our financial institution clients for the three and six months ended December 31, 2014 and 2013, respectively.
(3) 
Includes prepaid volume.
(4) 
Includes large, middle and small business credit and debit, as well as prepaid volume.
(5) 
Total nominal volume is the sum of total nominal payments volume and cash volume. Total nominal payments volume is the total monetary value of transactions for goods and services that are purchased on Visa-branded cards and payment products. Cash volume generally