Visa Earnings 2019-12-31

V 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Comparables ($MM TTM)
Ticker	M Cap	Assets	Liab	Rev	G Profit	Net Inc	EBITDA	EV	G Margin	EV/EBITDA	ROA
LHC		206	11	0	0	-0	-0	-0		0.0	-0%
QIWI		73,023		0	0	0	0	-3			0%
MFAC		175	7	0	0	2	2	-0		-0.2	1%
FTCH		1,351	223	0	0	0	0	-50			0%
MOSC		354	12	0	0	6	7	-1		-0.1	2%
PRTH		460	561	411	0	-27	42	456	0%	10.9	-6%
NEBU		281	10	0	0	3	5	-1		-0.2	1%
V		70,249	35,254	22,274	0	11,900	16,118	6,081	0%	0.4	17%
MUDS		214	7	0	0	3	4	-0		-0.1	1%
STNL		355	19	0	0	-0	-0	-1		6.9	-0%

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended December 31, 2019



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

Commission file number 001-33977

VISA INC.

(Exact name of Registrant as specified in its charter)



Delaware		26-0267673
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

P.O. Box 8999		94128-8999
San Francisco,	California
(Address of principal executive offices)		(Zip Code)

(650) 432-3200

(Registrant’s telephone number, including area code)

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



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

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

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

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



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

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

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

As of January 24, 2020, there were 1,706,024,403 shares outstanding of the registrant’s class A common stock, par value $0.0001 per share, 245,513,385 shares outstanding of the registrant’s class B common stock, par value $0.0001 per share, and 10,969,172 shares outstanding of the registrant’s class C common stock, par value $0.0001 per share.

Table of Contents

VISA INC.

TABLE OF CONTENTS




		Page
PART I.	Financial Information	4

Item 1.	Financial Statements (unaudited)	4
	Consolidated Balance Sheets—December 31, 2019 and September 30, 2019	4
	Consolidated Statements of Operations—Three Months Ended December 31, 2019 and 2018	5
	Consolidated Statements of Comprehensive Income—Three Months Ended December 31, 2019 and 2018	6
	Consolidated Statements of Changes in Equity—Three Months Ended December 31, 2019 and 2018	7
	Consolidated Statements of Cash Flows—Three Months Ended December 31, 2019 and 2018	9
	Notes to Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

PART II.	Other Information	32

Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
	Signatures	34

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.
Financial Statements

VISA INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



	December 31, 2019			September 30, 2019
	(in millions, except par value data)
Assets
Cash and cash equivalents	$	8,768		$	7,838
Restricted cash equivalents—U.S. litigation escrow (Note 3 and Note 4)	1,634			1,205
Investment securities (Note 5)	3,902			4,236
Settlement receivable	3,273			3,048
Accounts receivable	1,661			1,542
Customer collateral (Note 3 and Note 8)	1,698			1,648
Current portion of client incentives	803			741
Prepaid expenses and other current assets	580			712
Total current assets	22,319			20,970
Investment securities (Note 5)	1,719			2,157
Client incentives	2,481			2,084
Property, equipment and technology, net	2,739			2,695
Goodwill	15,767			15,656
Intangible assets, net	27,137			26,780
Other assets	2,619			2,232
Total assets	$	74,781		$	72,574
Liabilities
Accounts payable	$	133		$	156
Settlement payable	4,277			3,990
Customer collateral (Note 3 and Note 8)	1,698			1,648
Accrued compensation and benefits	527			796
Client incentives	4,270			3,997
Accrued liabilities	2,045			1,625
Current maturities of long-term debt (Note 7)	3,000			—
Accrued litigation (Note 13)	1,629			1,203
Total current liabilities	17,579			13,415
Long-term debt (Note 7)	13,688			16,729
Deferred tax liabilities	4,810			4,807
Other liabilities	3,434			2,939
Total liabilities	39,511			37,890
Equity
Preferred stock, $0.0001 par value, 25 shares authorized and 5 shares issued and outstanding as follows:
Series A convertible participating preferred stock, none issued (the “class A equivalent preferred stock”) (Note 9)	—			—
Series B convertible participating preferred stock, 2 shares issued and outstanding at December 31, 2019 and September 30, 2019 (the “UK&I preferred stock”) (Note 4 and Note 9)	2,285			2,285
Series C convertible participating preferred stock, 3 shares issued and outstanding at December 31, 2019 and September 30, 2019 (the “Europe preferred stock”) (Note 4 and Note 9)	3,177			3,177
Class A common stock, $0.0001 par value, 2,001,622 shares authorized, 1,709 and 1,718 shares issued and outstanding at December 31, 2019 and September 30, 2019, respectively (Note 9)	—			—
Class B common stock, $0.0001 par value, 622 shares authorized, 245 shares issued and outstanding at December 31, 2019 and September 30, 2019 (Note 9)	—			—
Class C common stock, $0.0001 par value, 1,097 shares authorized, 11 shares issued and outstanding at December 31, 2019 and September 30, 2019 (Note 9)	—			—
Right to recover for covered losses (Note 4)	(175		)	(171		)
Additional paid-in capital	16,424			16,541
Accumulated income	13,899			13,502
Accumulated other comprehensive income (loss), net:
Investment securities	4			6
Defined benefit pension and other postretirement plans	(203		)	(192		)
Derivative instruments	49			199
Foreign currency translation adjustments	(190		)	(663		)
Total accumulated other comprehensive income (loss), net	(340		)	(650		)
Total equity	35,270			34,684
Total liabilities and equity	$	74,781		$	72,574

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

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VISA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



	Three Months Ended December 31,
	2019			2018
	(in millions, except per share data)
Net revenues	$	6,054		$	5,506

Operating Expenses
Personnel	982			807
Marketing	274			276
Network and processing	181			173
Professional fees	106			91
Depreciation and amortization	182			159
General and administrative	313			276
Litigation provision (Note 13)	—			7
Total operating expenses	2,038			1,789
Operating income	4,016			3,717

Non-operating Income (Expense)
Interest expense, net	(111		)	(145		)
Investment income and other	69			58
Total non-operating income (expense)	(42		)	(87		)
Income before income taxes	3,974			3,630
Income tax provision (Note 12)	702			653
Net income	$	3,272		$	2,977

Basic Earnings Per Share (Note 10)
Class A common stock	$	1.46		$	1.30
Class B common stock	$	2.37		$	2.12
Class C common stock	$	5.85		$	5.20

Basic Weighted-average Shares Outstanding (Note 10)
Class A common stock	1,713			1,760
Class B common stock	245			245
Class C common stock	11			12

Diluted Earnings Per Share (Note 10)
Class A common stock	$	1.46		$	1.30
Class B common stock	$	2.37		$	2.12
Class C common stock	$	5.84		$	5.20

Diluted Weighted-average Shares Outstanding (Note 10)
Class A common stock	2,240			2,291
Class B common stock	245			245
Class C common stock	11			12

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

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VISA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



	Three Months Ended December 31,
	2019			2018
	(in millions)
Net income	$	3,272		$	2,977
Other comprehensive income (loss), net of tax:
Investment securities:
Net unrealized gain (loss)	—			8
Income tax effect	—			(2		)
Defined benefit pension and other postretirement plans:
Net unrealized actuarial gain (loss) and prior service credit (cost)	(1		)	(7		)
Income tax effect	—			1
Reclassification adjustments	4			—
Income tax effect	(1		)	—
Derivative instruments:
Net unrealized gain (loss)	(188		)	38
Income tax effect	39			(10		)
Reclassification adjustments	(2		)	(25		)
Income tax effect	1			5
Foreign currency translation adjustments	483			(287		)
Other comprehensive income (loss), net of tax	335			(279		)
Comprehensive income	$	3,607		$	2,698

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

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VISA INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)



	Three Months Ended December 31, 2019
	Preferred Stock		Common Stock					Preferred Stock		Right to Recover for Covered Losses			Additional Paid-In Capital			Accumulated Income			Accumulated Other Comprehensive Income (Loss), Net			Total Equity
	Series B	Series C	Class A		Class B	Class C
	(in millions, except per share data)
Balance as of September 30, 2019	2	3	1,718		245	11		$	5,462	$	(171	)	$	16,541		$	13,502		$	(650	)	$	34,684
Net income																3,272						3,272
Other comprehensive income (loss), net of tax																			335			335
Comprehensive income																						3,607
Adoption of new accounting standards (Note 1)																25			(25		)	—
VE territory covered losses incurred (Note 4)										(4		)										(4		)
Conversion of class C common stock upon sales into public market			1			—	⁽¹⁾															—
Vesting of restricted stock and performance-based shares			3																			—
Share-based compensation, net of forfeitures (Note 11)													116									116
Restricted stock and performance-based shares settled in cash for taxes			(1	)									(147		)							(147		)
Cash proceeds from issuance of common stock under employee equity plans			1										55									55
Cash dividends declared and paid, at a quarterly amount of $0.30 per as-converted share (Note 9)																(671		)				(671		)
Repurchase of class A common stock (Note 9)			(13	)									(141		)	(2,229		)				(2,370		)
Balance as of December 31, 2019	2	3	1,709		245	11		$	5,462	$	(175	)	$	16,424		$	13,899		$	(340	)	$	35,270


⁽¹⁾	Increase or decrease is less than one million shares.

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

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VISA INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)

(UNAUDITED)



	Three Months Ended December 31, 2018
	Preferred Stock		Common Stock						Preferred Stock			Right to Recover for Covered Losses			Additional Paid-In Capital			Accumulated Income			Accumulated Other Comprehensive Income (Loss), Net			Total Equity
	Series B	Series C	Class A			Class B	Class C
	(in millions, except per share data)
Balance as of September 30, 2018	2	3	1,768			245	12		$	5,470		$	(7	)	$	16,678		$	11,318		$	547		$	34,006
Net income																		2,977						2,977
Other comprehensive income (loss), net of tax																					(279		)	(279		)
Comprehensive income																								2,698
Adoption of new accounting standards																		393			7			400
VE territory covered losses incurred (Note 4)												(91		)										(91		)
Recovery through conversion rate adjustment (Note 4 and Note 9)									(6		)	6												—
Conversion of class C common stock upon sales into public market			—		⁽¹⁾		—	⁽¹⁾																—
Vesting of restricted stock and performance-based shares			3																					—
Share-based compensation, net of forfeitures (Note 11)															100									100
Restricted stock and performance-based shares settled in cash for taxes			(1	)											(101		)							(101		)
Cash proceeds from issuance of common stock under employee equity plans			1												48									48
Cash dividends declared and paid, at a quarterly amount of $0.25 per as-converted share (Note 9)																		(572		)				(572		)
Repurchase of class A common stock (Note 9)			(17	)											(185		)	(2,208		)				(2,393		)
Balance as of December 31, 2018	2	3	1,754			245	12		$	5,464		$	(92	)	$	16,540		$	11,908		$	275		$	34,095


⁽¹⁾	Increase or decrease is less than one million shares.

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

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VISA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Three Months Ended December 31,
	2019			2018
	(in millions)
Operating Activities
Net income	$	3,272		$	2,977
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Client incentives (Note 2)	1,748			1,456
Share-based compensation (Note 11)	116			100
Depreciation and amortization of property, equipment, technology and intangible assets	182			159
Deferred income taxes	(47		)	139
VE territory covered losses incurred (Note 4)	(4		)	(91		)
Other	(50		)	9
Change in operating assets and liabilities:
Settlement receivable	(183		)	(1,551		)
Accounts receivable	(107		)	(200		)
Client incentives	(1,943		)	(1,361		)
Other assets	123			(37		)
Accounts payable	(12		)	(46		)
Settlement payable	218			1,739
Accrued and other liabilities	136			(54		)
Accrued litigation (Note 13)	426			55
Net cash provided by (used in) operating activities	3,875			3,294
Investing Activities
Purchases of property, equipment and technology	(191		)	(157		)
Investment securities:
Purchases	(400		)	(1,124		)
Proceeds from maturities and sales	1,202			1,233
Acquisitions, net of cash acquired	(77		)	—
Purchases of / contributions to other investments	(9		)	(22		)
Proceeds / distributions from other investments	1			—
Other investing activities	36			—
Net cash provided by (used in) investing activities	562			(70		)
Financing Activities
Repurchase of class A common stock (Note 9)	(2,370		)	(2,393		)
Dividends paid (Note 9)	(671		)	(572		)
Cash proceeds from issuance of common stock under employee equity plans	55			48
Restricted stock and performance-based shares settled in cash for taxes	(147		)	(101		)
Net cash provided by (used in) financing activities	(3,133		)	(3,018		)
Effect of exchange rate changes on cash and cash equivalents	127			(68		)
Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents	1,431			138
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period (Note 3)	10,832			10,977
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period (Note 3)	$	12,263		$	11,115
Supplemental Disclosure
Income taxes paid, net of refunds	$	345		$	168
Interest payments on debt	$	234		$	234
Accruals related to purchases of property, equipment and technology	$	66		$	34

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

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VISA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019

(UNAUDITED)

Note 1—Summary of Significant Accounting Policies

Organization. Visa Inc. (“Visa” or the “Company”) is a global payments technology company that enables fast, secure and reliable electronic payments across more than 200 countries and territories. 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 (“Visa Canada”), Visa Technology & Operations LLC and CyberSource Corporation, operate one of the world’s largest electronic payments networks — VisaNet — which facilitates authorization, clearing and settlement of payment transactions and enables the Company to provide its financial institution and merchant clients a wide range of products, platforms and value-added services. Visa is not a financial institution and does not issue cards, extend credit or set rates and fees for account holders on Visa products. In most cases, account holder and merchant relationships belong to, and are managed by, Visa’s financial institution clients.

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 unaudited consolidated financial statements as of and for the periods presented. All significant intercompany accounts and transactions are eliminated in consolidation.

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, 2019 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 2016, the FASB issued ASU 2016-02, which requires the recognition of lease assets and lease liabilities arising from operating leases on the balance sheet. Subsequently, the FASB also issued a series of amendments to this new leases standard that address the transition methods available and clarify the guidance for lessor costs and other aspects of the new leases standard. The Company adopted the standard effective October 1, 2019 using the modified retrospective transition method with comparative periods continuing to be reported using the prior leases standard. The Company elected to apply the package of practical expedients permitted under the transition guidance, allowing the Company to carry forward the historical assessment of whether a contract was or contains a lease, lease classification and capitalization of initial direct costs. The adoption did not have a material impact on the consolidated financial statements.

In accordance with ASU 2016-02, the Company determines if an arrangement is a lease at its inception. Right-of-use (“ROU”) assets, and corresponding lease liabilities, are recognized at the commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As a majority of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. The Company does not record a ROU asset and corresponding liability for leases with terms of 12 months or less.

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VISA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company does not include renewals in the determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. Lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. The Company does not combine lease payments with non-lease components for any of its leases. Operating leases are recorded as ROU assets, which are included in other assets. The current portion of lease liabilities are included in accrued liabilities and the long-term portion is included in other liabilities on the consolidated balance sheet. The Company’s lease cost consists of amounts recognized under lease agreements in the results of operations adjusted for impairment and sublease income.

In February 2018, the FASB issued ASU 2018-02, which allows a reclassification from accumulated other comprehensive income to retained earnings for adjustments to tax effects that were originally recorded in other comprehensive income due to changes in the U.S. federal corporate income tax rate resulting from the enactment of the U.S. tax reform legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Company adopted the ASU effective October 1, 2019. The adoption did not have a material impact on the consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in the existing guidance for income taxes and making other minor improvements. The amendments in the ASU are effective for the Company on October 1, 2021. The Company does not plan to early adopt the ASU at this time. The adoption is not expected to have a material impact on the consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, which clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the fair value measurement alternative. The amendments in the ASU are effective for the Company on October 1, 2021. The adoption is not expected to have a material impact on the consolidated financial statements.

Note 2—Revenues

The nature, amount, timing and uncertainty of the Company’s revenues and cash flows and how they are affected by economic factors are most appropriately depicted through the Company’s revenue categories and geographical markets. The following tables disaggregate the Company’s net revenues by revenue category and by geography for the three months ended December 31, 2019 and 2018:



	Three Months Ended December 31,
	2019			2018
	(in millions)
Service revenues	$	2,555		$	2,342
Data processing revenues	2,864			2,470
International transaction revenues	2,018			1,851
Other revenues	365			299
Client incentives	(1,748		)	(1,456		)
Net revenues	$	6,054		$	5,506



	Three Months Ended December 31,
	2019		2018
	(in millions)
U.S.	$	2,717	$	2,508
International	3,337		2,998
Net revenues	$	6,054	$	5,506

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VISA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 3—Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents

The Company’s cash and cash equivalents include cash and certain highly liquid investments with original maturities of 90 days or less from the date of purchase. Cash equivalents are primarily recorded at cost, which approximates fair value due to their generally short maturities. The Company defines restricted cash and restricted cash equivalents as cash and cash equivalents that cannot be withdrawn or used for general operating activities.

The Company reconciles cash, cash equivalents, restricted cash and restricted cash equivalents reported in the consolidated balance sheets that aggregate to the beginning and ending balances shown in the consolidated statements of cash flows as follows:



	December 31, 2019		September 30, 2019
	(in millions)
Cash and cash equivalents	$	8,768	$	7,838
Restricted cash and restricted cash equivalents:
U.S. litigation escrow	1,634		1,205
Customer collateral	1,698		1,648
Prepaid expenses and other current assets	163		141
Cash, cash equivalents, restricted cash and restricted cash equivalents	$	12,263	$	10,832

Note 4—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, certain litigation referred to as the “U.S. covered litigation” are paid. The escrow funds are held in money market investments along with interest income earned, less applicable taxes, and are classified as restricted cash equivalents on the consolidated balance sheets.

On December 13, 2019, the district court entered the final judgment order approving the Amended Settlement Agreement with the Damages Class plaintiffs in the Interchange Multidistrict Litigation proceedings. A takedown payment of approximately $467 million was received on December 27, 2019, and deposited into the Company’s litigation escrow account. The deposit into the litigation escrow account and reestablishment of a prior accrual to address opt-out claims was recorded during the three months ended December 31, 2019. The accrual related to the U.S. covered litigation could be either higher or lower than the litigation escrow account balance. See Note 13—Legal Matters.

The following table sets forth the changes in the restricted cash equivalents—U.S. litigation escrow account:



	Three Months Ended December 31,
	2019			2018
	(in millions)
Balance at beginning of period	$	1,205		$	1,491
Return of takedown payment to the litigation escrow account	467			—
Payments to opt-out merchants⁽¹⁾ and interest earned on escrow funds	(38		)	5
Balance at end of period	$	1,634		$	1,496


⁽¹⁾	These payments are associated with the Interchange Multidistrict Litigation. See Note 13—Legal Matters.

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VISA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Europe Retrospective Responsibility Plan

Visa Inc., Visa International and Visa Europe are parties to certain existing and potential litigation relating to the setting of multilateral interchange fee rates in the Visa Europe territory (the “VE territory covered litigation”). Under the terms of the Europe retrospective responsibility plan, the Company is entitled to recover certain losses resulting from VE territory covered litigation (the “VE territory covered losses”) through a periodic adjustment to the class A common stock conversion rates applicable to the UK&I and Europe preferred stock. VE territory covered losses are recorded in “right to recover for covered losses” within equity 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 is then recorded against the book value of the preferred stock within stockholders’ equity. See Note 13—Legal Matters. There were no adjustments to the conversion rates during the three months ended December 31, 2019.

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 consolidated balance sheets as of December 31, 2019 and September 30, 2019:



	December 31, 2019						September 30, 2019
	As-Converted Value of Preferred Stock^(1),(2)			Book Value of Preferred Stock⁽¹⁾			As-Converted Value of Preferred Stock^(1),(3)			Book Value of Preferred Stock⁽¹⁾
	(in millions)
UK&I preferred stock	$	6,029		$	2,285		$	5,519		$	2,285
Europe preferred stock	8,236			3,177			7,539			3,177
Total	14,265			5,462			13,058			5,462
Less: right to recover for covered losses	(175		)	(175		)	(171		)	(171		)
Total recovery for covered losses available	$	14,090		$	5,287		$	12,887		$	5,291


⁽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 UK&I and Europe preferred stock outstanding, respectively, as of December 31, 2019; (b) 12.936 and 13.884, the class A common stock conversion rate applicable to the UK&I and Europe preferred stock as of December 31, 2019, respectively; and (c) $187.90, Visa’s class A common stock closing stock price as of December 31, 2019.

⁽³⁾

The as-converted value of preferred stock is calculated as the product of: (a) 2 million and 3 million shares of the UK&I and Europe preferred stock outstanding, respectively, as of September 30, 2019; (b) 12.936 and 13.884, the class A common stock conversion rate applicable to the UK&I and Europe preferred stock as of September 30, 2019, respectively; and (c) $172.01, Visa’s class A common stock closing stock price as of September 30, 2019.

Table of Contents

VISA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 5—Fair Value Measurements and Investments

Assets and Liabilities Measured at Fair Value on a Recurring Basis



	Fair Value Measurements Using Inputs Considered as
	Level 1				Level 2
	December 31, 2019		September 30, 2019		December 31, 2019		September 30, 2019
	(in millions)
Assets
Cash equivalents and restricted cash equivalents:
Money market funds	$	7,539	$	6,494
U.S. government-sponsored debt securities					$	350	$	150
Investment securities:
Marketable equity securities	154		126
U.S. government-sponsored debt securities					4,565		5,592
U.S. Treasury securities	902		675
Other current and non-current assets:
Derivative instruments					274		437
Total	$	8,595	$	7,295	$	5,189	$	6,179
Liabilities
Accrued compensation and benefits:
Deferred compensation liability	$	141	$	113
Accrued and other liabilities:
Derivative instruments					$	99	$	52
Total	$	141	$	113	$	99	$	52

There were no transfers between Level 1 and Level 2 assets during the three months ended December 31, 2019.

Level 1 assets. Money market funds, marketable 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. The Company’s deferred compensation liability is measured at fair value based on marketable equity securities held under the deferred compensation plan.

Level 2 assets and liabilities. The fair value of U.S. government-sponsored 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. 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 three months ended December 31, 2019.

U.S. government-sponsored debt securities and U.S. Treasury securities. The Company considers U.S. government-sponsored debt securities and U.S. Treasury securities to be available-for-sale and held $5.5 billion and $6.3 billion of these investment securities as of December 31, 2019 and September 30, 2019, respectively. All of the Company’s long-term available-for-sale investment securities are due within one to five years.

Table of Contents

VISA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Assets Measured at Fair Value on a Non-recurring Basis

Non-marketable equity securities. The Company’s non-marketable equity securities are investments in privately held companies without readily determinable market values. 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.

During the three months ended December 31, 2019, $9 million of upward adjustments and no downward adjustments were included in the carrying value of non-marketable equity securities. During the three months ended December 31, 2019 and 2018, there were no significant impairments. The following table summarizes the total carrying value of the Company’s non-marketable equity securities held as of December 31, 2019 including cumulative unrealized gains and losses:



	December 31, 2019
	(in millions)
Initial cost basis	$	595
Upward adjustments	119
Downward adjustments (including impairment)	(4		)
Carrying amount, end of period	$	710

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 and trade names, 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, 2019, and concluded that there was no impairment. No recent events or changes in circumstances indicate that impairment existed at December 31, 2019.

Gains and Losses on Marketable and Non-marketable Equity Securities

Gains and losses on the Company’s equity securities are summarized below.



	Three Months Ended December 31,
	2019		2018
	(in millions)
Net gain (loss) on equity securities sold during the period	$	4	$	—
Unrealized gain (loss) on equity securities held as of the end of the period	14		(20		)
Total gain (loss) recognized in non-operating income (expense), net	$	18	$	(20	)

Other Fair Value Disclosures

Long-term debt. Debt instruments are measured at amortized cost on the Company’s consolidated balance sheets. The fair value of the debt instruments, 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 carrying value and estimated fair value of long-term debt was $16.7 billion and $18.3 billion, respectively, as of December 31, 2019. The carrying value and estimated fair value of long-term debt was $16.7 billion and $18.4 billion, respectively, as of September 30, 2019.

Table of Contents

VISA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 December 31, 2019, but disclosure of their fair values is required: settlement receivable and payable, accounts receivable and customer collateral. The estimated fair value of such instruments at December 31, 2019 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.

Note 6—Leases

The Company entered into various operating lease agreements primarily for real estate. The Company's leases have original lease periods expiring between fiscal 2020 and 2030. Many leases include one or more options to renew. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. Payments under the Company’s lease arrangements are generally fixed. At December 31, 2019, the Company had no finance leases.

During the three months ended December 31, 2019, total operating lease cost was $26 million. At December 31, 2019, the weighted average remaining lease term for operating leases was approximately 7 years and the weighted average discount rate for operating leases was 2.31%.

At December 31, 2019, the present value of future minimum lease payments was as follows:



	December 31, 2019
	(in millions)
Remainder of 2020	$	82
2021	108
2022	93
2023	86

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$0.00	-0	$-0

10-Q	2020-01-31	Quarter: 2019-12-31
10-K	2019-11-14	Annual: 2019-09-30
10-Q	2019-07-26	Quarter: 2019-06-30
10-Q	2019-04-26	Quarter: 2019-03-31
10-Q	2019-01-31	Quarter: 2018-12-31
10-K	2018-11-16	Annual: 2018-09-30
10-Q	2018-07-27	Quarter: 2018-06-30
10-Q	2018-04-27	Quarter: 2018-03-31
10-Q	2018-02-01	Quarter: 2017-12-31
10-K	2017-11-17	Annual: 2017-09-30
10-Q	2017-07-20	Quarter: 2017-06-30
10-Q	2017-04-21	Quarter: 2017-03-31
10-Q	2017-02-02	Quarter: 2016-12-31
10-K	2016-11-15	Annual: 2016-09-30
10-Q	2016-07-25	Quarter: 2016-06-30
10-Q	2016-04-25	Quarter: 2016-03-31
10-Q	2016-01-28	Quarter: 2015-12-31
10-K	2015-11-20	Annual: 2015-09-30
10-Q	2015-07-23	Quarter: 2015-06-30
10-Q	2015-04-30	Quarter: 2015-03-31
10-Q	2015-01-29	Quarter: 2014-12-31
10-K	2014-11-21	Annual: 2014-09-30
10-Q	2014-07-24	Quarter: 2014-06-30
10-Q	2014-04-24	Quarter: 2014-03-31
10-Q	2014-01-30	Quarter: 2013-12-31
10-K	2013-11-22	Annual: 2013-09-30
10-Q	2013-07-24	Quarter: 2013-06-30
10-Q	2013-05-01	Quarter: 2013-03-31
10-Q	2013-02-06	Quarter: 2012-12-31
10-K	2012-11-16	Annual: 2012-09-30
10-Q	2012-07-27	Quarter: 2012-06-30
10-Q	2012-05-02	Quarter: 2012-03-31
10-Q	2012-02-08	Quarter: 2011-12-31
10-K	2011-11-18	Annual: 2011-09-30
10-Q	2011-07-29	Quarter: 2011-06-30
10-Q	2011-05-05	Quarter: 2011-03-31
10-Q	2011-02-02	Quarter: 2010-12-31
10-K	2010-11-19	Annual: 2010-09-30
10-Q	2010-08-02	Quarter: 2010-06-30
10-Q	2010-05-03	Quarter: 2010-03-31
10-Q	2010-02-03	Quarter: 2009-12-31

8-K	2020-01-28	Earnings, Other Events, Exhibits
8-K	2020-01-28	Shareholder Vote
8-K	2019-11-13	Officers, Exhibits
8-K	2019-10-22	Earnings, Other Events, Exhibits
8-K	2019-09-30	Other Events
8-K	2019-09-25	Other Events
8-K	2019-07-23	Earnings, Exhibits
8-K	2019-07-15	Amend Bylaw, Other Events, Exhibits
8-K	2019-04-24	Earnings, Exhibits
8-K	2019-04-16	Other Events, Exhibits
8-K	2019-04-16	Other Events, Exhibits
8-K	2019-01-29	Earnings, Other Events, Exhibits
8-K	2019-01-29	Shareholder Vote
8-K	2018-10-24	Earnings, Exhibits
8-K	2018-10-16	Other Events, Exhibits
8-K	2018-09-17	Enter Agreement, Other Events, Exhibits
8-K	2018-08-02	Officers, Exhibits
8-K	2018-07-25	Earnings, Exhibits
8-K	2018-07-16	Other Events, Exhibits
8-K	2018-07-05	Other Events, Exhibits
8-K	2018-06-25	Other Events, Exhibits
8-K	2018-04-25	Earnings, Exhibits
8-K	2018-04-17	Other Events, Exhibits
8-K	2018-03-29	Officers, Exhibits
8-K	2018-01-30	Earnings, Other Events, Exhibits
8-K	2018-01-30	Shareholder Vote

EX-10.1	vex101formofindemnitya.htm
EX-31.1	vex311123119.htm
EX-31.2	vex312123119.htm
EX-32.1	vex321123119.htm
EX-32.2	vex322123119.htm