Visa Europe (Tables)

9 Months Ended

Jun. 30, 2016

Schedule of Estimated Purchase Consideration

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.

Schedule of Estimated Purchase Price Allocation

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.

Schedule of Pro Forma Information

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