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EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 - VISA INC.vex32163016.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - VISA INC.vex32263016.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 - VISA INC.vex31263016.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PERSUANT TO SECTION 302 - VISA INC.vex31163016.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 June 30, 2016
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 July 15, 2016 there were 1,886,433,824 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 17,424,121 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)
 
June 30,
2016
 
September 30,
2015
 
(in millions, except par value data)
Assets
 
 
 
Cash and cash equivalents
$
5,887

 
$
3,518

Restricted cash—litigation escrow (Note 3)
1,027

 
1,072

Investment securities (Note 4):
 
 
 
Trading
69

 
66

Available-for-sale
2,796

 
2,431

Settlement receivable
1,499

 
408

Accounts receivable
1,066

 
847

Customer collateral (Note 7)
1,032

 
1,023

Current portion of client incentives
291

 
303

Prepaid expenses and other current assets
707

 
353

Total current assets
14,374

 
10,021

Investment securities, available-for-sale (Note 4)
3,762

 
3,384

Client incentives
537

 
110

Property, equipment and technology, net
2,136

 
1,888

Other assets
936

 
778

Intangible assets, net
27,078

 
11,361

Goodwill
15,044

 
11,825

Total assets
$
63,867

 
$
39,367

Liabilities
 
 
 
Accounts payable
$
115

 
$
127

Settlement payable
1,999

 
780

Customer collateral (Note 7)
1,032

 
1,023

Accrued compensation and benefits
511

 
503

Client incentives
1,953

 
1,049

Accrued liabilities
1,195

 
849

Accrued litigation (Note 13)
978

 
1,024

Total current liabilities
7,783

 
5,355

Long-term debt (Note 5)
15,879

 

Deferred tax liabilities
4,977

 
3,273

Deferred purchase consideration (Note 2)
1,209

 

Other liabilities
1,192

 
897

Total liabilities
31,040

 
9,525

 

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

3


VISA INC.
CONSOLIDATED BALANCE SHEETS—(Continued)
(UNAUDITED)
 
June 30,
2016
 
September 30,
2015
 
(in millions, except par value data)
Equity
 
 
 
Preferred stock, $0.0001 par value, 25 shares authorized and 5 issued and outstanding as follows:
 
 
 
Series A convertible participating preferred stock, none issued (Note 2 and Note 9)
$

 
$

Series B convertible participating preferred stock, 2 shares issued and outstanding at June 30, 2016 (Note 2 and Note 9)
2,516

 

Series C convertible participating preferred stock, 3 shares issued and outstanding at June 30, 2016 (Note 2 and Note 9)
3,201

 

Class A common stock, $0.0001 par value, 2,001,622 shares authorized, 1,891 and 1,950 shares issued and outstanding at June 30, 2016 and September 30, 2015, respectively (Note 9)

 

Class B common stock, $0.0001 par value, 622 shares authorized, 245 shares issued and outstanding at June 30, 2016 and September 30, 2015 (Note 9)

 

Class C common stock, $0.0001 par value, 1,097 shares authorized, 17 and 20 shares issued and outstanding at June 30, 2016 and September 30, 2015, respectively (Note 9)

 

Treasury stock (Note 2 and Note 9)
(170
)
 

Right to recover for covered losses (Note 3)
(25
)
 

Additional paid-in capital
17,514

 
18,073

Accumulated income
10,334

 
11,843

Accumulated other comprehensive loss, net:
 
 
 
Investment securities, available-for-sale
30

 
5

Defined benefit pension and other postretirement plans
(126
)
 
(161
)
Derivative instruments classified as cash flow hedges
(42
)
 
83

Foreign currency translation adjustments
(405
)
 
(1
)
Total accumulated other comprehensive loss, net
(543
)
 
(74
)
Total equity
32,827

 
29,842

Total liabilities and equity
$
63,867

 
$
39,367



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
June 30,
 
Nine Months Ended
June 30,
 
2016 (1)
 
2015
 
2016 (1)
 
2015
 
(in millions, except per share data)
Operating Revenues
 
 
 
 
 
 
 
Service revenues
$
1,635

 
$
1,550

 
$
4,979

 
$
4,665

Data processing revenues
1,541

 
1,400

 
4,493

 
4,123

International transaction revenues
1,084

 
1,039

 
3,160

 
2,973

Other revenues
209

 
199

 
605

 
607

Client incentives
(839
)
 
(670
)
 
(2,416
)
 
(2,059
)
Total operating revenues
3,630

 
3,518

 
10,821

 
10,309

Operating Expenses
 
 
 
 
 
 
 
Personnel
509

 
566

 
1,536

 
1,558

Marketing
189

 
224

 
569

 
619

Network and processing
123

 
117

 
377

 
340

Professional fees
138

 
82

 
276

 
229

Depreciation and amortization
120

 
130

 
361

 
375

General and administrative
246

 
137

 
566

 
404

Litigation provision (Note 13)

 

 
1

 
3

Visa Europe Framework Agreement loss (Note 2)
1,877

 

 
1,877

 

Total operating expenses
3,202

 
1,256

 
5,563

 
3,528

Operating income
428

 
2,262

 
5,258

 
6,781

Non-operating (Expense) Income
 
 
 
 
 
 
 
Interest expense
(131
)
 
8

 
(292
)
 
(2
)
Other (Note 4 and Note 8)
125

 
(102
)
 
536

 
(67
)
Total non-operating (expense) income
(6
)
 
(94
)
 
244

 
(69
)
Income before income taxes
422

 
2,168

 
5,502

 
6,712

Income tax provision (Note 12)
10

 
471

 
1,442

 
1,896

Net income
$
412

 
$
1,697

 
$
4,060

 
$
4,816

(1) 
The Company did not include Visa Europe's financial results in the Company's unaudited consolidated statements of operations from the acquisition date, June 21, 2016, through June 30, 2016 as the impact is immaterial. See Note 2—Visa Europe to these unaudited consolidated financial statements.



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
June 30,
 
Nine Months Ended
June 30,
 
2016 (1)
 
2015
 
2016 (1)
 
2015
 
(in millions, except per share data)
Basic earnings per share (Note 10)
 
 
 
 
 
 
 
Class A common stock
$
0.17

 
$
0.69

 
$
1.69

 
$
1.96

Class B common stock
$
0.29

 
$
1.14

 
$
2.79

 
$
3.23

Class C common stock
$
0.69

 
$
2.78

 
$
6.76

 
$
7.84

Basic weighted-average shares outstanding (Note 10)
 
 
 
 
 
 
 
Class A common stock
1,899

 
1,955

 
1,915

 
1,964

Class B common stock
245

 
245

 
245

 
245

Class C common stock
18

 
20

 
19

 
21

Diluted earnings per share (Note 10)
 
 
 
 
 
 
 
Class A common stock
$
0.17

 
$
0.69

 
$
1.69

 
$
1.96

Class B common stock
$
0.28

 
$
1.14

 
$
2.78

 
$
3.22

Class C common stock
$
0.69

 
$
2.77

 
$
6.75

 
$
7.82

Diluted weighted-average shares outstanding (Note 10)
 
 
 
 
 
 
 
Class A common stock
2,386

 
2,448

 
2,406

 
2,462

Class B common stock
245

 
245

 
245

 
245

Class C common stock
18

 
20

 
19

 
21

(1) 
The Company did not include Visa Europe's financial results in the Company's unaudited consolidated statements of operations from the acquisition date, June 21, 2016, through June 30, 2016 as the impact is immaterial. The dilutive impact of the outstanding shares of series B and C convertible participating preferred stock from June 21, 2016 through June 30, 2016 was also not included in the calculation of basic or diluted earnings per share as the effect is immaterial. See Note 2—Visa Europe and Note 10—Earnings Per Share to these unaudited consolidated financial statements.


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
June 30,
 
Nine Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
 
(in millions)
Net income
$
412

 
$
1,697

 
$
4,060

 
$
4,816

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Investment securities, available-for-sale:
 
 
 
 
 
 
 
Net unrealized (loss) gain
(18
)
 
(2
)
 
42

 
(21
)
Income tax effect
8

 
1

 
(15
)
 
8

Reclassification adjustment for net gain realized in net income

 

 
(3
)
 
(21
)
Income tax effect

 

 
1

 
8

Defined benefit pension and other postretirement plans:
 
 
 
 
 
 
 
Net unrealized actuarial gain and prior service credit

 

 
61

 

Income tax effect

 

 
(23
)
 

Amortization of actuarial gain and prior service credit realized in net income

 
(3
)
 
(5
)
 
(3
)
Income tax effect

 
1

 
2

 
1

Derivative instruments classified as cash flow hedges:
 
 
 
 
 
 
 
Net unrealized (loss) gain
(22
)
 
(10
)
 
(60
)
 
118

Income tax effect
3

 
4

 
9

 
(33
)
Reclassification adjustment for net gain realized in net income
(22
)
 
(35
)
 
(107
)
 
(61
)
Income tax effect
8

 
9

 
33

 
16

Foreign currency translation adjustments
(404
)
 

 
(404
)
 
1

Other comprehensive (loss) income, net of tax
(447
)
 
(35
)
 
(469
)
 
13

Comprehensive (loss) income
$
(35
)
 
$
1,662

 
$
3,591

 
$
4,829




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

7


VISA INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
 
Preferred Stock(1)
 
Common Stock
 
Preferred Stock
 
Treasury Stock
 
Right to Recover for Covered Losses
 
Additional Paid-in Capital
 
Accumulated Income
 
Accumulated
Other
Comprehensive
Loss
 
Total
Equity
 
Series B
 
Series C
 
Class A
 
Class B
 
Class C
 
 
 
 
 
 
 
 
(in millions, except per share data)
Balance as of September 30, 2015

 

 
1,950

 
245

 
20

 
$

 
$

 
$

 
$
18,073

 
$
11,843

 
$
(74
)
 
$
29,842

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4,060

 
 
 
4,060

Other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(469
)
 
(469
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3,591

Issuance of preferred stock (Note 2 and Note 9)
2

 
3

 
 
 
 
 
 
 
5,717

 
 
 
 
 
 
 
 
 
 
 
5,717

VE territory covered losses incurred (Note 3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(25
)
 
 
 
 
 
 
 
(25
)
Class C common stock held by Visa Europe, a wholly-owned subsidiary of Visa Inc. (Note 2 and Note 9)
 
 
 
 
 
 
 
 
(1
)
 
 
 
(170
)
 
 
 
 
 
 
 
 
 
(170
)
Conversion of class C common stock upon sale into public market
 
 
 
 
8

 
 
 
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
 

Issuance and vesting of restricted stock and performance-based shares
 
 
 
 
2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Share-based compensation, net of forfeitures (Note 11)
 
 
 
 

(2) 
 
 
 
 
 
 
 
 
 
 
152

 
 
 
 
 
152

Restricted stock and performance-based shares settled in cash for taxes
 
 
 
 
(1
)
 
 
 
 
 
 
 
 
 
 
 
(89
)
 
 
 
 
 
(89
)
Excess tax benefit for share-based compensation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51

 
 
 
 
 
51

Cash proceeds from issuance of common stock under employee equity plans
 
 
 
 
2

 
 
 
 
 
 
 
 
 
 
 
69

 
 
 
 
 
69

Cash dividends declared and paid, at a quarterly amount of $0.14 per as-converted share (Note 9)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1,011
)
 
 
 
(1,011
)
Repurchase of class A common stock (Note 9)
 
 
 
 
(70
)
 
 
 
 
 
 
 
 
 
 
 
(742
)
 
(4,558
)
 
 
 
(5,300
)
Balance as of June 30, 2016
2

 
3

 
1,891

 
245

 
17

 
$
5,717

 
$
(170
)
 
$
(25
)
 
$
17,514

 
$
10,334

 
$
(543
)
 
$
32,827

(1)
Series B and C preferred stock are alternatively referred to as U.K.&I and Europe preferred stock, respectively.
(2)
Decrease in class A common stock related to forfeitures of restricted stock awards is less than 1 million shares.

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

8


VISA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Nine Months Ended
June 30,
 
2016
 
2015
 
(in millions, except noted otherwise)
Operating Activities
 
 
 
Net income
$
4,060

 
$
4,816

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Client incentives
2,416

 
2,059

Fair value adjustment for the Visa Europe put option
(255
)
 
110

Share-based compensation
152

 
139

Excess tax benefit for share-based compensation
(51
)
 
(78
)
Depreciation and amortization of property, equipment, technology and intangible assets
361

 
375

Deferred income taxes
(603
)
 
196

Litigation provision
1

 
3

Other
43

 
15

Change in operating assets and liabilities:
 
 
 
Settlement receivable
332

 
82

Accounts receivable
(92
)
 
(64
)
Client incentives
(2,638
)
 
(2,093
)
Other assets
(552
)
 
(342
)
Accounts payable
(35
)
 
(52
)
Settlement payable
(368
)
 
(95
)
Accrued and other liabilities
398

 
141

Accrued litigation (Note 13)
(47
)
 
(362
)
Net cash provided by operating activities
3,122

 
4,850

Investing Activities
 
 
 
Purchases of property, equipment, technology and intangible assets
(382
)
 
(276
)
Proceeds from sales of property, equipment and technology

 
10

Investment securities, available-for-sale:


 

Purchases
(26,883
)
 
(2,315
)
Proceeds from maturities and sales
26,193

 
1,410

Acquisitions, net of $2.8 billion cash received from Visa Europe (Note 2)
(9,082
)
 
(93
)
Purchases of / contributions to other investments
(9
)
 
(22
)
Proceeds / distributions from other investments
4

 
10

Net cash used in investing activities
(10,159
)
 
(1,276
)
 




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

9


VISA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(UNAUDITED)
 
 
Nine Months Ended
June 30,
 
2016
 
2015
 
(in millions, except noted otherwise)
Financing Activities
 
 
 
Repurchase of class A common stock (Note 9)
$
(5,300
)
 
$
(2,910
)
Treasury stock—class C common stock (Note 2)
(170
)
 

Dividends paid (Note 9)
(1,011
)
 
(885
)
Proceeds from issuance of senior notes (Note 5)
15,971

 

Debt issuance costs (Note 5)
(98
)
 

Payments from litigation escrow account—U.S. retrospective responsibility plan (Note 3 and Note 13)
45

 
355

Cash proceeds from issuance of common stock under employee equity plans
69

 
68

Restricted stock and performance-based shares settled in cash for taxes
(89
)
 
(105
)
Excess tax benefit for share-based compensation
51

 
78

Net cash provided by (used in) financing activities
9,468

 
(3,399
)
Effect of exchange rate changes on cash and cash equivalents
(62
)
 
1

Increase in cash and cash equivalents
2,369

 
176

Cash and cash equivalents at beginning of year
3,518

 
1,971

Cash and cash equivalents at end of period
$
5,887

 
$
2,147

Supplemental Disclosure
 
 
 
Series B and C convertible participating preferred stock issued in Visa Europe acquisition (Note 2)
$
5,717

 
$

Deferred purchase consideration recorded for Visa Europe acquisition (Note 2)
$
1,236

 
$

Income taxes paid, net of refunds
$
2,043

 
$
1,892

Interest payments on debt
$
244

 
$

Accruals related to purchases of property, equipment, technology and intangible assets
$
29

 
$
67









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

10


VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
(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 Europe Limited ("Visa Europe"), 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 June 21, 2016, the Company acquired 100% of the share capital of Visa Europe. The Company's unaudited consolidated balance sheets reflect preliminary balances of Visa Europe as of June 30, 2016, pending final valuation. The Company's unaudited consolidated statements of operations do not reflect the financial results of Visa Europe for the 10 days from the acquisition date through June 30, 2016 as the impact is immaterial. The functional currency of Visa Europe is the euro. Translation from the euro to the U.S. dollar is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate for the period. Resulting translation adjustments are reported as a component of accumulated other comprehensive income or loss on the unaudited consolidated balance sheets. These translation adjustments are partially offset by changes in the euro-denominated deferred cash consideration liability of $1.2 billion, attributable to the change in exchange rates at the end of each reporting period, which has been designated as a hedge against the Company's euro-denominated net investment in Visa Europe. See Note 2—Visa Europe and Note 8—Derivative and Non-derivative Financial Instruments. Changes in the euro exchange rate against the U.S. dollar from the acquisition date of June 21, 2016 to the balance sheet date of June 30, 2016 resulted in net foreign currency translation adjustments of $404 million.
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, 2015 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.

11

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


Recently Issued and Adopted Accounting Pronouncements.
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 elected to early adopt the standard effective October 1, 2015 and the carrying amount of the Company's debt liability is presented net of issuance costs on the unaudited consolidated financial statements. Also see Note 5—Debt.
In September 2015, the FASB issued ASU No. 2015-16, which simplifies the accounting for post-acquisition adjustments by eliminating the requirement to retrospectively account for the adjustments made to provisional amounts recognized in a business combination. The Company elected to early adopt this guidance on a prospective basis effective October 1, 2015. The adoption did not have a material impact on the consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be presented as non-current. The standard impacts presentation only. The Company elected to early adopt the standard on a retrospective basis effective October 1, 2015 and all deferred tax assets and liabilities are classified as non-current. Previously, current deferred tax assets had been presented separately and current deferred tax liabilities had been included in accrued liabilities on the consolidated balance sheets. All prior period amounts within the consolidated financial statements have been reclassified to conform to current period presentation. The reclassification did not affect the Company's total equity, operating revenues, net income, comprehensive income or cash flows as of and for the periods presented.
In January 2016, the FASB issued ASU 2016-01, which amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income. The Company will adopt the standard effective October 1, 2018. The adoption is not expected to have a material impact on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, which requires the recognition of lease assets and lease liabilities arising from operating leases in the statement of financial position. The Company will adopt the standard effective October 1, 2019 and does not anticipate that this new accounting guidance will have a material impact on its consolidated statement of operations. The Company estimates the value of leased assets and liabilities that may be recognized could be in the hundreds of millions of dollars. The actual impact will depend on the Company's lease portfolio at the time of adoption.
In March 2016, the FASB issued ASU 2016-05, which clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815, Derivatives and Hedging, does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The Company will adopt the standard effective October 1, 2017. The adoption is not expected to have a material impact on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-06, which clarifies the requirements for assessing whether contingent call/put options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment is required to assess the embedded call/put options solely in accordance with a four-step decision sequence. The Company will adopt the standard effective October 1, 2017. The adoption is not expected to have a material impact on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-07, which eliminates the requirement that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of influence. The equity method investor is required to add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The Company will adopt the standard effective October 1, 2017. The adoption is not expected to have a material impact on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08, which clarifies the implementation guidance on principal versus agent considerations under the new revenue recognition standard, ASU 2014-09, Revenue from Contracts

12

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


with Customers. In April 2016, the FASB issued ASU 2016-10, which clarifies the implementation guidance on identifying promised goods or services and on determining whether an entity's promise to grant a license with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access the entity's intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU 2016-11, which rescinds certain SEC staff observer comments upon adoption of ASU 2014-09, including the SEC comments related to consideration given by a vendor to a customer. In May 2016, the FASB also issued ASU 2016-12, which provides narrow scope improvements and technical expedients on assessing collectibility, presentation of sales taxes, evaluating contract modifications and completed contracts at transition and the disclosure requirement for the effect of the accounting change for the period of adoption. The Company will adopt the standard effective October 1, 2018. The Company is still evaluating the full effect that ASU 2014-09 and all of its related subsequent updates will have on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting for share-based payments, including immediate recognition of all excess tax benefits and deficiencies in the income statement, changing the threshold to qualify for equity classification up to the employees' maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, and clarifying the classification on the statement of cash flows for the excess tax benefit and employee taxes paid when an employer withholds shares for tax-withholding purposes. The Company is evaluating the full effect that ASU 2016-09 will have on its consolidated financial statements and will early adopt the standard effective October 1, 2016.
In May 2016, the FASB issued ASU 2016-13, which amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. The amendment requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected. The amendment in this update also requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down. The measurement of credit losses for newly recognized financial assets and subsequent changes in the allowance for credit losses are recorded in the statement of income. The Company is evaluating the full effect that ASU 2016-13 will have on its consolidated financial statements and will adopt the standard effective October 1, 2020.
Note 2—Visa Europe
On June 21, 2016, the Company acquired 100% of the share capital of Visa Europe, a payments technology business. The acquisition positions Visa to create additional value through increased scale, efficiencies realized by the integration of both businesses, and benefits related to Visa Europe's transition from an association to a for-profit enterprise. At the closing of the transaction (the "Closing"), the Company:
paid up-front cash consideration of €12.2 billion ($13.9 billion);
issued preferred stock of the Company convertible upon certain conditions into approximately 79 million shares of class A common stock of the Company, as described below, equivalent to a value of €5.3 billion ($6.1 billion) at the closing stock price of $77.33 on June 21, 2016; and
agreed to pay an additional €1.0 billion, plus 4% compound annual interest, on the third anniversary of the Closing.
Preferred stock. In connection with the transaction, three new series of preferred stock of the Company were created:
series A convertible participating preferred stock, par value $0.0001 per share, which is generally designed to be economically equivalent to the Company’s class A common stock (the “class A equivalent preferred stock”);
series B convertible participating preferred stock, par value $0.0001 per share (the “U.K.&I preferred stock”); and
series C convertible participating preferred stock, par value $0.0001 per share (the “Europe preferred stock”).
The Company issued 2,480,466 shares of U.K.&I preferred stock to Visa Europe’s member financial institutions in the United Kingdom and Ireland entitled to receive preferred stock at the Closing, and 3,156,823 shares of Europe preferred stock to Visa Europe’s other member financial institutions entitled to receive preferred stock at the Closing. Under certain conditions described below, the U.K.&I and Europe preferred stock is convertible into shares

13

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


of class A common stock or class A equivalent preferred stock, at an initial conversion rate of 13.952 shares of class A common stock for each share of U.K.&I preferred stock and Europe preferred stock. The conversion rates may be reduced from time to time to offset certain liabilities, if any, which may be incurred by the Company, Visa Europe or their affiliates as a result of certain existing and potential litigation relating to the setting of multilateral interchange fee rates in the Visa Europe territory, where, generally, the relevant claims (and resultant liabilities and losses) relate to the period before the Closing. Only seventy percent of such liabilities may be offset where the liability arises from a claim related to inter-regional multilateral interchange fees applied to transactions where the issuer is located outside the Visa Europe territory while the merchant outlet is located within the Visa Europe territory. A reduction in the conversion rates of the U.K.&I preferred stock and the Europe preferred stock have the same economic effect on diluted class A common stock earnings per share as repurchasing the Company's class A common stock because it reduces the as-converted class A common stock share count. Additionally, the shares of U.K.&I and Europe preferred stock are subject to restrictions on transfer and may become convertible in stages based on developments in the existing and potential litigation. The shares of U.K.&I and Europe preferred stock will become fully convertible on the 12th anniversary of the Closing, subject only to a holdback to cover any then-pending claims. See Note 3—U.S. and Europe Retrospective Responsibility Plans.
The holders of the U.K.&I and Europe preferred stock have no right to vote on any matters, except for certain defined matters, including, in specified circumstances, any consolidation, merger or combination of the Company. Holders of the class A equivalent preferred stock, upon issuance at conversion, will have similar voting rights to the rights of the holders of the U.K.&I and Europe preferred stock. With respect to those limited matters on which the holders of preferred stock may vote, approval by the holders of the preferred stock requires the affirmative vote of the outstanding voting power of each such series of preferred stock, each such series voting as a single class. Upon issuance, all three series of preferred stock will participate on an as-converted basis in regular quarterly cash dividends declared on the Company's class A common stock.
U.K. loss sharing agreement. On November 2, 2015, the Company, Visa Europe and certain of Visa Europe’s member financial institutions located in the United Kingdom (the “U.K. LSA members”) entered into a loss sharing agreement (the “U.K. loss sharing agreement”). Each of the U.K. LSA members has agreed, on a several and not joint basis, to compensate the Company for certain losses which may be incurred by the Company, Visa Europe or their affiliates as a result of certain existing and potential litigation relating to the setting and implementation of domestic multilateral interchange fee rates in the United Kingdom prior to the Closing (the "U.K. covered claims"), subject to the terms and conditions set forth therein and, with respect to each U.K. LSA member, up to a maximum amount of the up-front cash consideration to be received by such U.K. LSA member. The U.K. LSA members’ obligations under the U.K. loss sharing agreement are conditional upon, among other things, either (a) losses valued in excess of the sterling equivalent at the Closing of €1.0 billion having arisen in U.K covered claims (and such losses having reduced the conversion rate of the U.K.&I preferred stock accordingly), or (b) the conversion rate of the U.K.&I preferred stock having been reduced to zero pursuant to losses arising in claims relating to multilateral interchange fee rate setting in the Visa Europe territory. See Note 3—U.S. and Europe Retrospective Responsibility Plans.
Litigation management deed. On June 21, 2016, the Company and Visa Europe entered into a litigation management deed (the "litigation management deed"), which sets forth the agreed upon procedures for the management of the existing and potential litigation, as described above, relating to the setting and implementation of multilateral interchange fee rates in the Visa Europe territory (the "VE territory covered litigation"), the allocation of losses resulting from the VE territory covered litigation ("VE territory covered losses") between the U.K.&I and Europe preferred stock, and any accelerated conversion or reduction in the conversion rate of the shares of U.K.&I and Europe preferred stock. The litigation management deed applies only to VE territory covered litigation (and resultant losses and liabilities). Subject to the terms and conditions set forth therein, the litigation management deed provides that the Company will generally control the conduct of the VE territory covered litigation, subject to certain obligations to report and consult with the newly established litigation management committees for VE territory covered litigation ("VE territory litigation management committees"). The VE territory litigation management committees, which are composed of representatives of certain Visa Europe members, have also been granted consent rights to approve certain material decisions in relation to the VE territory covered litigation.
Acquisition-related costs. The Company incurred $152 million of non-recurring operating expense upon the Closing. This amount is comprised of $60 million of transaction expenses recorded in professional fees, and $92 million of expense related to U.K. stamp duty, which was recorded in general and administrative expenses.

14

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


Accounting treatment for the acquisition. The following table details the purchase consideration:
 
Accounting Purchase Consideration
 
(in millions)
Cash payment
$
13,882

Fair value of preferred stock(1)
5,692

Total upfront consideration
$
19,574

Fair value of deferred cash consideration(2)
1,236

Total consideration before adjustments
$
20,810

Less: Visa Europe Framework Agreement loss(3)
(1,856
)
Less: treasury stock(4)
(170
)
Total accounting purchase consideration
$
18,784

(1) 
The fair value of preferred stock was determined based on its as-converted value of $6.1 billion on June 21, 2016, less a 6% discount for illiquidity as these shares are subject to limitations on transferability. The fair value was also adjusted to reflect $25 million of "right to recover for covered losses" related to VE territory covered losses prior to the Closing. See Note 13—Legal Matters.
(2) 
This amount reflects the fair value of deferred cash consideration of €1.0 billion, plus 4% compound annual interest, payable on the third anniversary of the Closing, discounted at a rate of 1.2%.
Total consideration has been adjusted to account for the following items to arrive at the accounting purchase consideration:

(3) 
the loss upon consummation of the transaction resulting from the effective settlement of the Framework Agreement between Visa and Visa Europe. The Visa Europe Framework Agreement provided Visa Europe with a perpetual, exclusive right to operate the Visa business in the European Union in exchange for a license fee paid to Visa. Under the terms of the Framework Agreement, the license fee paid by Visa Europe has increased modestly since inception in 2007, while the value of the Visa Europe business has increased at a greater rate. Using an income approach, the Company assessed the contractual terms and conditions of the Framework Agreement as compared to current market conditions and the historical and expected financial performance of Visa Europe. Based on the analysis performed, the Company determined that the terms were not at fair value as determined under U.S. GAAP at the Closing. The present value of the expected differential between payments required by the Framework Agreement and those that would be required if the contract were at fair value under U.S. GAAP was calculated over the Framework Agreement's contractual perpetual term, resulting in a loss of $1.9 billion recognized within operating expense in the Company's unaudited consolidated statement of operations during the third quarter of fiscal 2016, and a reduction to the purchase accounting consideration; and
(4) 
the fair value of the Visa class C common stock held by Visa Europe as of the Closing.
Due to the timing of the acquisition, total purchase consideration has been allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on a preliminary valuation analysis. These preliminary values may change in future reporting periods upon finalization of the valuation, which will occur no later than the third quarter of fiscal 2017.

15

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


The following table summarizes the preliminary purchase price allocation.
 
Preliminary Purchase Price Allocation
 
(in millions)
Current assets(1)
$
4,452

Non-current assets(2)
258

Current liabilities(3)
(2,745
)
Non-current liabilities(2)
(2,599
)
Tangible assets and liabilities
$
(634
)
Intangible assets — customer relationships and reacquired rights(2)
16,137

Goodwill(4)
3,281

Fair value of net assets acquired
$
18,784

(1) 
Current assets are largely comprised of cash and cash equivalents and settlement receivable.
(2) 
Intangible assets consist of customer relationships and reacquired rights, which have been valued as a single composite intangible asset as they are inextricably linked. These intangibles are considered indefinite-lived assets as the associated customer relationships have historically not experienced significant attrition, and the reacquired rights are based on the Framework Agreement, which has a perpetual term. Non-current assets and liabilities include deferred tax assets and liabilities that result in net deferred tax liabilities of $2.4 billion, which are primarily related to these indefinite-lived assets, and are not expected to be realized in the foreseeable future.
(3) 
Current liabilities assumed mainly include settlement payable, client incentives liabilities and accrued liabilities.
(4) 
The excess of purchase consideration over net assets acquired was recorded as goodwill, which represents the value that is expected from increased scale and synergies as a result of the integration of both businesses.
Actual and pro forma impact of acquisition. The Company did not include Visa Europe's financial results in the Company's unaudited consolidated statements of operations from the acquisition date, June 21, 2016, through June 30, 2016 as the impact is immaterial.
The following table presents unaudited supplemental pro forma information as if the acquisition and related issuance of senior notes had occurred on October 1, 2014. The pro forma financial information is not necessarily indicative of the Company's consolidated results of operations that would have been realized had the acquisition been completed on October 1, 2014, nor does it purport to project the future results of operations of the combined company or reflect any reorganizations, or cost or other operating synergies that may occur subsequent to the Closing. The actual results of operations of the combined company may differ significantly from the pro forma results presented here due to many factors.
 
Unaudited Pro Forma Consolidated Results
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(in millions, except per share data)
Net operating revenues
$
3,930

 
$
3,955

 
$
11,829

 
$
11,493

Net income
$
1,686

 
$
1,851

 
$
5,141

 
$
3,916

Diluted earnings per share
$
0.68

 
$
0.73

 
$
2.07

 
$
1.54

The unaudited pro forma financial information above reflects the following material pro forma adjustments:
conversion of Visa Europe's historical results of operations from euro to U.S. dollar, and from International Financial Reporting Standards to U.S. GAAP;
elimination of transactions between Visa and Visa Europe upon consolidation, primarily related to annual license and various other fees paid by Visa Europe to Visa in accordance with the Framework Agreement;
an increase in non-operating expense for additional interest expense and amortization of debt issuance costs resulting from the issuance of the $16.0 billion senior notes;

16

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


exclusion of a $255 million gain in the nine months ended June 30, 2016 and $110 million loss in the three months ended June 30, 2015 related to the revaluation of the Visa Europe put option(1); and
the inclusion of non-recurring amounts on October 1, 2014, the date the acquisition is presumed to have occurred for purposes of presenting pro forma results, and a corresponding reduction of these amounts in the period originally recognized, as follows:
$1.9 billion Visa Europe Framework Agreement loss related to the effective settlement of the Framework Agreement recognized in the three months ended June 30, 2016;
$152 million of acquisition-related costs for the three and nine months ended June 30, 2016;
$145 million of foreign exchange gains related to euros held during the three months ended June 30, 2016; and
$42 million of losses and $74 million of gains for the three and nine months ended June 30, 2016 related to currency forward contracts entered into to mitigate a portion of the foreign currency exchange rate risk associated with the upfront cash consideration.
(1) 
For purposes of preparing this pro forma financial information, the fair value of the Visa Europe put option is presumed to have been reduced to zero prior to October 1, 2014. Therefore, the Company did not include any gains associated with a write-down in the fair value of the Visa Europe put option liability in the unaudited pro forma net income for the nine months ended June 30, 2015.
The pro forma results also reflect the applicable tax impact of the pro forma adjustments. The taxes associated with the adjustments reflect the statutory tax rate in effect during the respective periods.
Note 3—U.S. and Europe Retrospective Responsibility Plans
U.S. Retrospective Responsibility Plan
Under the terms of the U.S. retrospective responsibility plan, the Company maintains an escrow account from which settlements of, or judgments in, the U.S. covered litigation are paid. The balance of the escrow account was $1.0 billion at June 30, 2016 and $1.1 billion at September 30, 2015. The Company paid $45 million to opt-out merchants from the litigation escrow account during the nine months ended June 30, 2016 to settle their claims associated with the interchange multidistrict litigation. See Note 13—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 nine months ended June 30, 2016. See Note 13—Legal Matters.
Europe Retrospective Responsibility Plan
The Company obtained protection for VE territory covered losses through the U.K.&I and Europe preferred stock, the U.K. loss sharing agreement, and the litigation management deed, referred to as the "Europe retrospective responsibility plan." See Note 2—Visa Europe and Note 13—Legal Matters. The plan covers VE territory covered litigation (and resultant liabilities and losses) relating to the covered period, which generally refers to the period before the Closing. Visa's protection from the plan is further limited to seventy percent of any liabilities where the claim relates to inter-regional multilateral interchange fee rates where the issuer is located outside the Visa Europe territory, while the merchant is located within the Visa Europe territory. The plan does not protect the Company against all types of litigation in Europe, only the interchange litigation specifically covered by the plan's terms.
Unlike the U.S. retrospective responsibility plan, the Europe retrospective responsibility plan does not have an escrow account that is used to fund settlements or judgments. The Company is entitled to recover VE territory covered losses through a periodic adjustment to the class A common stock conversion rates applicable to the U.K.&I and Europe preferred stock. The total amount of protection available through the preferred stock component of the Europe retrospective responsibility plan is equivalent to the as-converted value of the preferred stock, which can be calculated at any point in time as the product of: (a) the outstanding number of shares of preferred stock; (b) the current conversion rate applicable to each class of preferred stock; and (c) Visa's class A common stock price. This amount differs from the value of the preferred stock recorded within stockholders' equity on the Company's unaudited consolidated balance sheet. The book value of the preferred stock reflects its historical value recorded at the Closing less VE territory covered losses recovered through a reduction of the applicable conversion rate. The book value does not reflect changes in the underlying class A common stock price subsequent to the Closing.

17

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


Visa Inc. net income will not be impacted by VE territory covered losses as long as the as-converted value of the preferred stock is greater than the covered loss. VE territory covered losses will be recorded when the loss is deemed to be probable and reasonably estimable, or in the case of attorney's fees, when incurred. Concurrently, the Company will record a reduction to stockholders' equity and operating expenses, which represents the Company's right to recover such losses through adjustments to the conversion rate applicable to the preferred stock. The reduction to stockholders' equity is recorded in a contra-equity account referred to as "right to recover for covered losses."
VE territory covered losses may be recorded before the corresponding adjustment to the applicable conversion rate is effected. Adjustments to the conversion rate may be executed once in any six-month period unless a single, individual loss greater than €20 million is incurred, in which case, the six-month limitation does not apply. When the adjustment to the conversion rate is made, the amount previously recorded in "right to recover for covered losses" as contra-equity will then be recorded against the book value of the preferred stock within stockholders' equity. As of June 30, 2016, the Company had recorded $25 million in the "right to recover for covered losses" related to VE territory covered losses incurred prior to the Closing.
The following table sets forth the as-converted value of the preferred stock available to recover VE territory covered losses compared to the book value of preferred shares recorded in stockholders' equity within the Company's unaudited consolidated balance sheet as of June 30, 2016(1):
 
June 30, 2016
 
As-Converted Value of Preferred Stock(2)
 
Book Value of Preferred Stock
 
(in millions)
U.K.&I preferred stock
$
2,567

 
$
2,516

Europe preferred stock
3,267

 
3,201

Total
$
5,834

 
$
5,717

Less: Right to recover for covered losses
(25
)
 
(25
)
Total recovery for covered losses available
$
5,809

 
$
5,692

(1) 
Figures in the table may not recalculate exactly due to rounding. As-converted and book values are based on unrounded numbers.
(2) 
The as-converted value of preferred stock is calculated as the product of: (a) 2 million and 3 million shares of the U.K.&I and Europe preferred stock outstanding, respectively, as of June 30, 2016; (b) the 13.952 class A common stock conversion rate applicable to both the U.K.&I and Europe preferred stock as of June 30, 2016; and (c) $74.17, Visa's class A common stock closing stock price as of June 30, 2016. Figures in the table may not recalculate exactly due to rounding. Earnings per share is calculated based on unrounded numbers.


18

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


Note 4—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
 
June 30,
2016
 
September 30,
2015
 
June 30,
2016
 
September 30,
2015
 
June 30,
2016
 
September 30,
2015
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents and restricted cash:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
4,712

 
$
3,051

 
 
 
 
 
 
 
 
U.S. government-sponsored debt securities
 
 
 
 
$
80

 
$
280

 
 
 
 
Investment securities, trading:
 
 
 
 
 
 
 
 
 
 
 
Equity securities
69

 
66

 
 
 
 
 
 
 
 
Investment securities, available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
2,407

 
2,656

 
 
 
 
 
 
 
 
U.S. government-sponsored debt securities
 
 
 
 
3,836

 
2,615

 
 
 
 
Equity securities
41

 
4

 
 
 
 
 
 
 
 
Corporate debt securities
 
 
 
 
273

 
533

 
 
 
 
Auction rate securities
 
 
 
 
 
 
 
 
$

 
$
7

Prepaid and other current assets:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange derivative instruments
 
 
 
 
163

 
76

 
 
 
 
Other assets:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange derivative instruments
 
 
 
 
5

 

 
 
 
 
Total
$
7,229

 
$
5,777

 
$
4,357

 
$
3,504

 
$

 
$
7

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
 
 
 
 
Visa Europe put option
 
 
 
 
 
 
 
 
$

 
$
255

Foreign exchange derivative instruments
 
 
 
 
$
258

 
$
13

 
 
 
 
Other liabilities:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange derivative instruments
 
 
 
 
17

 

 
 
 
 
Total
$

 
$

 
$
275

 
$
13

 
$

 
$
255

There were no transfers between Level 1 and Level 2 assets during the nine months ended June 30, 2016 and 2015.

19

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


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. Foreign exchange derivative instruments are valued 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 nine months ended June 30, 2016.
Level 3 assets and liabilities measured at fair value on a recurring basis. Auction rate securities were classified as Level 3 due to a lack of trading in active markets and a lack of observable inputs in measuring fair value.
Visa Europe put option agreement. On June 21, 2016, the Company acquired 100% of the share capital of Visa Europe, effected by the Visa Europe board of directors' exercise of the amended Visa Europe put option. Therefore, the Visa Europe put option was contractually terminated as a result of the transaction. During the first quarter of fiscal 2016, the Company recorded a $255 million non-cash decrease in the fair value of the put option as non-operating income in the Company's unaudited consolidated statements of operations, reducing the fair value of the liability to zero.
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
significant impairments during the nine months ended June 30, 2016 or 2015. These investments totaled $45 million at June 30, 2016 and September 30, 2015 and are classified in other assets on the consolidated balance sheets.
Due to the completion of an initial public offering by one of the Company's investees during fiscal 2016, the Company reclassified equity securities previously accounted for as a cost method investment, with a carrying value of $4 million, to short-term available-for-sale investment securities. The fair value of this investment at June 30, 2016 was $38 million, resulting in the recognition of a pre-tax unrealized gain of $34 million in other comprehensive income.
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, trade names 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, 2016, and concluded that there was no impairment. No recent events or changes in circumstances indicate that impairment existed at June 30, 2016.
Other Fair Value Disclosures
Long-term debt. In December 2015, the Company issued fixed-rate senior notes in an aggregate principal amount of $16.0 billion, with maturities ranging between 2 and 30 years. See Note 5—Debt. These debt

20

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


instruments are measured at amortized cost on the Company's unaudited consolidated balance sheet at June 30, 2016. The fair value of these notes, 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. If measured at fair value in the financial statements, these instruments would be classified as Level 2 in the fair value hierarchy.
The following table presents the carrying amount and estimated fair value of the Company’s debt in order of maturity:
 
June 30, 2016
 
Carrying Amount
 
Estimated Fair Value
 
(in millions)
1.20% Senior Notes due December 2017
$
1,746

 
$
1,761

2.20% Senior Notes due December 2020
2,987

 
3,093

2.80% Senior Notes due December 2022
2,237

 
2,375

3.15% Senior Notes due December 2025
3,963

 
4,276

4.15% Senior Notes due December 2035
1,485

 
1,696

4.30% Senior Notes due December 2045
3,461

 
4,052

 
$
15,879

 
$
17,253

Other financial instruments not measured at fair value. The following financial instruments are not measured at     fair value on the Company's unaudited consolidated balance sheet at June 30, 2016, 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 June 30, 2016 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 $46 million in gross unrealized gains and $1 million in gross unrealized losses at June 30, 2016. The unrealized gains were primarily related to the Company's reclassified equity investment discussed above. There were $7 million gross unrealized gains and no gross unrealized losses at September 30, 2015. A majority of the Company's available-for-sale investment securities with stated maturities are due within one to two years.

21

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


Note 5—Debt
The Company had outstanding debt as follows:
 
June 30, 2016
 
 
 
Principal Amount
 
Unamortized Discounts and Debt Issuance Costs
 
Carrying Amount
 
Effective Interest Rate
 
(in millions, except percentages)
1.20% Senior Notes due December 2017 (the "2017 Notes")
$
1,750

 
$
(4
)
 
$
1,746

 
1.37
%
2.20% Senior Notes due December 2020 (the "2020 Notes")
3,000

 
(13
)
 
2,987

 
2.30
%
2.80% Senior Notes due December 2022 (the "2022 Notes")
2,250

 
(13
)
 
2,237

 
2.89
%
3.15% Senior Notes due December 2025 (the "2025 Notes")
4,000

 
(37
)
 
3,963

 
3.26
%
4.15% Senior Notes due December 2035 (the "2035 Notes")
1,500

 
(15
)
 
1,485

 
4.23
%
4.30% Senior Notes due December 2045 (the "2045 Notes")
3,500

 
(39
)
 
3,461

 
4.37
%
Total long-term debt
$
16,000

 
$
(121
)
 
$
15,879

 
 
Senior Notes
In December 2015, the Company issued fixed-rate senior notes (the 2017 Notes, 2020 Notes, 2022 Notes, 2025 Notes, 2035 Notes and 2045 Notes, or collectively, the "Notes") in conjunction with the acquisition of Visa Europe, in an aggregate principal amount of $16.0 billion, with maturities ranging between 2 and 30 years. Interest on the Notes, at a rate ranging between 1.20% and 4.30%, is payable semi-annually on June 14 and December 14 of each year, commencing June 14, 2016. The Company recognized related interest expense of $125 million and $274 million for the three and nine months ended June 30, 2016, respectively, as non-operating expense. The net aggregate proceeds from the issuance of the Notes, after deducting discounts and debt issuance costs, were $15.9 billion. The discounts and debt issuance costs are amortized over the respective term of each note using the effective interest method. The indenture governing the Notes contains customary event of default provisions. The Notes are senior unsecured obligations of the Company, ranking equally and ratably among themselves and with the Company's existing and future unsecured and unsubordinated debt. The Notes are not secured by any assets of the Company and are not guaranteed by any of the Company's subsidiaries. The Company was in compliance with all related covenants as of June 30, 2016.
Each series of the Notes may be redeemed as a whole or in part, at the Company’s option at any time, prior to, with respect to the 2017 Notes, their maturity date, and with respect to the 2020 Notes, the 2022 Notes, the 2025 Notes, the 2035 Notes and the 2045 Notes, the applicable par call date (as set forth in the table below), at a price equal to the greater of:
100% of the principal amount of such Notes; and
the sum of the present value of the remaining scheduled payments of principal and interest through the maturity or par call date for each of the Notes below at the treasury rate defined under the terms of the Notes, plus the applicable spread for such Notes (as set forth in the table below),
plus, in each case, accrued and unpaid interest to, but excluding, the date of redemption.

22

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


Series
 
Maturity/Par Call Date
 
Spread
2017 Notes
 
December 14, 2017
 
5 bps
2020 Notes
 
November 14, 2020
 
10 bps
2022 Notes
 
October 14, 2022
 
12.5 bps
2025 Notes
 
September 14, 2025
 
15 bps
2035 Notes
 
June 14, 2035
 
20 bps
2045 Notes
 
June 14, 2045
 
20 bps
On or after the applicable par call date, the Notes, except the 2017 Notes, may be redeemed as a whole or in part, at the Company’s option at any time, at a redemption price equal to 100% of the principal amount of the Notes being redeemed plus accrued interest.
Future principal payments on the Company's outstanding debt are as follows:
Fiscal Year
2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
 
Total
(in millions)
$

 
$

 
$
1,750

 
$

 
$

 
$
14,250

 
$
16,000

Credit Facility Renewal. On January 27, 2016, the Company, Visa International Service Association and Visa U.S.A. Inc. (collectively, the "Borrowers") entered into a 5-year, unsecured $4.0 billion revolving credit facility (the "Credit Facility") with Bank of America, N.A., as administrative agent and the lenders party thereto. JP Morgan Chase Bank, N.A., acted as syndication agent in connection with the Credit Facility; Bank of China, Los Angeles Branch, Barclays Bank PLC, Citibank, N.A., HSBC Bank USA, N.A., Royal Bank of Canada, Standard Chartered Bank, The Bank of Tokyo-Mitsubishi UFJ, Ltd., U.S. Bank National Association, Wells Fargo Bank, National Association, Deutsche Bank Securities Inc. and Toronto Dominion (New York) LLC, acted as Documentation Agents; and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bank of China, Los Angeles Branch, Barclays Bank PLC, Citigroup Global Markets, Inc., HSBC Bank USA, N.A., RBC Capital Markets, Standard Chartered Bank, The Bank of Tokyo-Mitsubishi UFJ, Ltd., U.S. Bank National Association, Wells Fargo Securities, LLC, Deutsche Bank Securities Inc. and TD Securities (USA) LLC, acted as joint lead arrangers and joint book runners. The Credit Facility, which expires on January 27, 2021, replaced the Company's prior $3.0 billion credit facility, which expired on January 27, 2016.
The Credit Facility provides the Borrowers with a borrowing capacity of up to $4.0 billion. Borrowings under the Credit Facility are available for general corporate purposes. Interest on the borrowings under the Credit Facility would be charged at the London Interbank Offered Rate (LIBOR) or an alternative base rate, in each case plus applicable margins that fluctuate based on the applicable rating of senior unsecured long-term debt securities of the Company. The Borrowers have agreed to pay a commitment fee which will fluctuate based on such applicable rating of the Company.
Other material terms are:
a financial covenant which requires the Company to maintain a Consolidated Indebtedness to Consolidated EBITDA Ratio (as defined in the Credit Facility) of not greater than 3.75 to 1.00;
customary restrictive covenants, which limit the Borrowers' ability to, among other things, create certain liens, effect fundamental changes to their business, or merge or dispose of substantially all of their assets, subject in each case to customary exceptions and amounts;
customary events of default, upon the occurrence of which, after any applicable grace period, the requisite lenders will have the ability to accelerate all outstanding loans thereunder and terminate the commitments; and
other customary and standard terms and conditions.
The Borrowers currently have no borrowings under the Credit Facility. The participating lenders in the Credit Facility include certain holders of the Company's class B and class C common stock and U.K.&I and Europe preferred stock, certain of the Borrowers' customers and their affiliates.

23

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


Note 6—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 U.S. 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.
As a result of the acquisition of Visa Europe, the Company assumed the obligations related to Visa Europe's defined benefit plan, which primarily consists of the U.K. funded and unfunded pension plans, under which retirement benefits are provided based on the participants' final pensionable pay. Currently, Visa Europe U.K. pension plans are closed to new entrants, but future benefits continue to accrue for active participants. The amounts and disclosures presented below do not include Visa Europe pension plans as the net periodic pension cost for this quarter is not material.
In October 2015, the Company's board of directors approved an amendment of the U.S. qualified defined benefit pension plan such that the Company discontinued employer provided credits after December 31, 2015. Plan participants continue to earn interest credits on existing balances at the time of the freeze. As a result, a curtailment gain totaling $8 million was recognized as part of the Company's net periodic benefit cost. The Company also recorded a net unrealized actuarial gain of $56 million from the remeasurement of its pension plan in the first quarter of fiscal 2016 within other comprehensive income.
The components of net periodic benefit cost, excluding Visa Europe's defined benefit plan, are as follows:
 
Pension Benefits
 
Other Postretirement Benefits
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
2016
 
2015
 
2016

2015
 
2016
 
2015
 
2016
 
2015
 
(in millions)
Service cost
$

 
$
12

 
$
13

 
$
35

 
$

 
$

 
$

 
$

Interest cost
9

 
10

 
30

 
30

 

 

 

 

Expected return on assets
(17
)
 
(18
)
 
(52
)
 
(54
)
 

 

 

 

Amortization of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       Prior service credit

 
(2
)
 
(1
)
 
(5
)
 

 

 
(2
)
 
(2
)
       Actuarial loss (gain)
2

 

 
6

 

 
(1
)
 
(1
)
 
(1
)
 
(1
)
Curtailment gain

 

 
(8
)
 

 

 

 

 

Settlement loss

 
1

 

 
5

 

 

 

 

Total net periodic benefit cost
$
(6
)
 
$
3

 
$
(12
)
 
$
11

 
$
(1
)
 
$
(1
)
 
$
(3
)
 
$
(3
)
Note 7—Settlement Guarantee Management
The Company indemnifies its clients for settlement losses suffered due to failure of any other clients to fund its settlement obligations in accordance with the Visa Rules. This indemnification creates settlement risk for the Company due to the difference in timing between the date of a payment transaction and the date of subsequent settlement. 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 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 $64.0 billion for the quarter ended June 30, 2016, including Visa Europe, compared to $43.5 billion for the quarter ended September 30, 2015. Of these amounts, $2.8 billion and $2.2 billion were covered by collateral at June 30, 2016 and September 30, 2015, respectively.

24

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


The Company maintained collateral as follows:

June 30,
2016
 
September 30,
2015
 
(in millions)
Cash equivalents
$
1,266

 
$
1,023

Pledged securities at market value
159

 
154

Letters of credit
1,275

 
1,178

Guarantees
1,365

 
971

Total
$
4,065

 
$
3,326

The balances above included collateral held by Visa Europe as follows:
 
June 30,
2016
 
(in millions)
Cash equivalents (1)
$
233

Pledged securities at market value

Letters of credit
164

Guarantees
326

Total
$
723

(1) 
Cash collateral held by Visa Europe is not included on the Company's unaudited consolidated balance sheet as its clients retain beneficial ownership and the cash is only accessible to the Company in the event of default by the client on its settlement obligations.
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 and $1 million at June 30, 2016 and September 30, 2015, respectively. These amounts are reflected in accrued liabilities on the consolidated balance sheets.

25

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


Note 8—Derivative and Non-derivative Financial Instruments
Derivative Financial Instruments
The Company entered into currency forward contracts during the second and third quarters of fiscal 2016 to mitigate a portion of the foreign currency exchange rate risk associated with the upfront cash consideration paid in the Visa Europe acquisition. Subsequently, the Company entered into additional offsetting currency forward contracts to eliminate its risk-mitigation positions at June 30, 2016. All contracts outstanding at June 30, 2016 are set to mature during the fourth quarter of fiscal 2016. As these contracts are not designated in hedging relationships, related gains and losses are recorded directly in earnings as part of non-operating income. The Company recorded gains and losses related to these contracts as follows:
 
Three Months Ended
March 31, 2016
 
Three Months Ended
June 30, 2016
 
Nine Months Ended
June 30, 2016
 
(in millions)
Gains (losses) on currency forward contracts — Visa Europe acquisition
$
116

 
$
(42
)
 
$
74

The Company maintains a rolling cash flow hedge program with the objective of reducing foreign currency exchange rate risk from forecasted net exposures of revenues derived from and payments made in non-functional currencies during the following twelve months. The aggregate notional amount of the Company's derivative contracts outstanding in its hedge program was $1.6 billion at June 30, 2016 and $1.2 billion at September 30, 2015. The increase in the aggregate notional amounts of the Company's derivative contracts includes the addition of $202 million notional of derivative contracts entered into for Visa Europe after the Closing.
The Company utilizes foreign exchange derivative contracts to hedge against foreign currency exchange rate fluctuations related to certain monetary assets and liabilities denominated in foreign currency held by Visa Europe. As of June 30, 2016, the aggregate notional amount of these balance sheet hedges was $900 million. The Company did not have any balance sheet hedges outstanding at September 30, 2015. Gains and losses on the derivative contracts partially offset gains and losses on the hedged monetary assets and liabilities denominated in foreign currency. These amounts are recorded in general and administrative expense in the Company's unaudited consolidated statement of operations as these instruments are not designated for hedge accounting.
Non-derivative Financial Instrument Designated as a Net Investment Hedge
The Company designated the euro-denominated deferred cash consideration liability of $1.2 billion (see Note 2—Visa Europe), a non-derivative financial instrument, as a hedge against a portion of the foreign currency exchange rate exposure of the Company's euro-denominated net investment of $18.8 billion in Visa Europe. Changes in the value of the deferred cash consideration liability, attributable to the change in exchange rates at the end of each reporting period, partially offset the foreign currency translation of the Company's net investment recorded in accumulated other comprehensive income in the Company's unaudited consolidated balance sheet.
Note 9—Stockholders' Equity
Visa Europe acquisition. In connection with the Visa Europe acquisition, three new series of preferred stock of the Company were created. Upon issuance, all three series of preferred stock participate on an as-converted basis in regular quarterly cash dividends declared on the Company's class A common stock. Additionally, Visa Europe holds shares of Visa Inc.'s class C common stock, which were treated as treasury stock in purchase accounting. See Note 2—Visa Europe.

26

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


As-Converted Class A Common Stock. The U.K.&I and Europe preferred stock, issued in the Visa Europe acquisition, is convertible upon certain conditions into shares of class A common stock or class A equivalent preferred stock, at an initial conversion rate of 13.952 shares of class A common stock for each share of U.K.&I preferred stock and Europe preferred stock. The conversion rates may be reduced from time to time to offset certain liabilities. See Note 2—Visa Europe and Note 3—U.S. and Europe Retrospective Responsibility Plans.
The number of shares of each series and class and the number of shares of class A common stock on an as-converted basis at June 30, 2016, are as follows:
(in millions, except conversion rates)
Shares Outstanding
 
Conversion Rate
Into Class A
Common Stock
 
As-converted Class A Common
Stock(1)
U.K.&I preferred stock
2

 
13.9520

 
35

Europe preferred stock
3

 
13.9520

 
44

Class A common stock (2)
1,891

 

 
1,891

Class B common stock
245

 
1.6483

(3) 
405

Class C common stock
17

 
4.0000

 
67

Total
 
 
 
 
2,442

(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) 
Class A common stock shares outstanding reflect repurchases settled on or before June 30, 2016. The Company repurchased an additional 2 million shares at the end of June, which did not settle until July 2016.
(3) 
The class B to class A common stock conversion rate is presented on a rounded basis. Conversion calculations for dividend payments are based on a conversion rate rounded to the tenth decimal.
Common stock repurchases. The following table presents share repurchases in the open market.(1)  
(in millions, except per share data)
Three Months Ended
June 30, 2016
 
Nine Months Ended
June 30, 2016
Shares repurchased in the open market (2)
20

 
70

Average repurchase price per share (3)
$
77.74

 
$
76.11

Total cost
$
1,536

 
$
5,300

(1)  
Shares repurchased in the open market reflect repurchases settled on or before June 30, 2016. The Company repurchased an additional 2 million shares for $150 million at the end of June, which did not settle until July 2016.
(2) 
All shares repurchased in the open market have been retired and constitute authorized but unissued shares.
(3) 
Figures in the table may not recalculate exactly due to rounding. Average repurchase price per share is calculated based on unrounded numbers.
As of June 30, 2016, the October 2015 program had remaining authorized funds of $2.5 billion for share repurchase. All share repurchase programs authorized prior to October 2015 have been completed. In July 2016, the Company's board of directors authorized an additional $5.0 billion share repurchase program.
Visa Europe held approximately 550,000 shares of the Company's class C common stock valued at $170 million at the Closing, which was recorded as treasury stock at the time of the acquisition.
Dividends. In July 2016, the Company’s board of directors declared a quarterly cash dividend of $0.14 per share of class A common stock (determined in the case of class B and C common stock and U.K.&I and Europe preferred stock on an as-converted basis). The cash dividend will be paid on September 6, 2016, to all holders of record of the Company's common and preferred stock as of August 19, 2016. The Company declared and paid $335 million and $1.0 billion in dividends to holders of the Company's common stock during the three and nine months ended June 30, 2016, respectively.

27

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


Note 10—Earnings Per Share
Basic earnings per share is computed by dividing net income available to each class by the weighted-average number of shares of common stock outstanding and participating securities in the form of unvested restricted stock awards, unvested restricted stock units and unvested earned performance-based shares during the period. Net income is allocated to each class of common stock and participating securities based on its proportional ownership on an as-converted basis. The weighted-average number of shares of each class of common stock outstanding reflects changes in ownership over the periods presented. See Note 9—Stockholders' Equity.
Diluted earnings per share is computed by dividing net income available by the weighted-average number of shares of common stock outstanding, participating securities in the form of unvested restricted stock awards, unvested restricted stock units and unvested earned performance-based shares and, if dilutive, potential class A common stock equivalent shares outstanding during the period. Dilutive class A common stock equivalents may consist of: (1) shares of class A common stock issuable upon the conversion of class B and class C common stock based on the conversion rate in effect through the period, and (2) incremental shares of class A common stock calculated by applying the treasury stock method to the assumed exercise of employee stock options, the assumed purchase of stock under the Employee Stock Purchase Plan and the assumed vesting of unearned performance shares.
The following table presents earnings per share for the three months ended June 30, 2016.(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
$
329

 
1,899

 
$
0.17

 
 
$
412

 
2,386

(3) 
$
0.17

Class B common stock
70

 
245

 
$
0.29

 
 
$
70

 
245

 
$
0.28

Class C common stock
12

 
18

 
$
0.69

 
 
$
13

 
18

 
$
0.69

Participating securities(4),(5)
1

 
Not presented

 
Not presented

 
 
$
1

 
Not presented

 
Not presented

Net income
$
412

 
 
 
 
 
 
 
 
 
 
 
The following table presents earnings per share for the nine months ended June 30, 2016.(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
$
3,238

 
1,915

 
$
1.69

 
 
$
4,060

 
2,406

(3) 
$
1.69

Class B common stock
684

 
245

 
$
2.79

 
 
$
683

 
245

 
$
2.78

Class C common stock
129

 
19

 
$
6.76

 
 
$
128

 
19

 
$
6.75

Participating securities(4),(5)
9

 
Not presented

 
Not presented

 
 
$
9

 
Not presented

 
Not presented

Net income
$
4,060

 
 
 
 
 
 
 
 
 
 
 

28

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


The following table presents earnings per share for the three months ended June 30, 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