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 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, 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. See Note 3—U.S. and Europe Retrospective Responsibility Plans.

Updated purchase price allocation.

Upon the Closing, total purchase consideration of $18.8 billion was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on a preliminary valuation. During the second quarter of fiscal year 2017, based on additional information that became available, which impacted certain of the assumptions used, the Company updated the purchase price allocation.

The following table summarizes the updated purchase price allocation:



	Preliminary Purchase Price Allocation			Measurement Period Adjustments			Updated Purchase Price Allocation
	(in millions)
Current assets⁽¹⁾	$	4,457		$	—		$	4,457
Non-current assets⁽²⁾	258			(46		)	212
Current liabilities⁽³⁾	(2,731		)	(39		)	(2,770		)
Non-current liabilities⁽²⁾	(2,605		)	618			(1,987		)
Tangible assets and liabilities	$	(621	)	$	533		$	(88	)
Intangible assets — customer relationships and reacquired rights⁽²⁾	16,137			(232		)	15,905
Goodwill⁽⁴⁾	3,268			(301		)	2,967
Fair value of net assets acquired	$	18,784		$	—		$	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 $1.7 billion based on the updated valuation. In February 2017, the Company completed a legal entity reorganization, resulting in the elimination of most of these deferred tax assets and liabilities. See Note 12—Income Taxes.


⁽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 following table presents unaudited supplemental pro forma information for the three and six months ended March 31, 2016, 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.



	Consolidated Actual Results		Unaudited Pro Forma Consolidated Results		Consolidated Actual Results		Unaudited Pro Forma Consolidated Results
	Three Months Ended March 31,				Six Months Ended March 31,
	2017		2016		2017		2016
	(in millions, except per share data)
Net operating revenues	$	4,477	$	3,935	$	8,938	$	7,899
Net income	$	430	$	1,679	$	2,500	$	3,456
Diluted earnings per share	$	0.18	$	0.68	$	1.04	$	1.39

The unaudited pro forma financial information for the three and six months ended March 31, 2016 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 the six months ended March 31, 2016 for additional interest expense and amortization of debt issuance costs resulting from the issuance of the $16.0 billion senior notes;


•	exclusion of a $255 million gain related to the revaluation of the Visa Europe put option from the six months ended March 31, 2016⁽¹⁾; and


•	elimination of acquisition-related costs incurred by Visa Europe.


⁽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 six months ended March 31, 2016.

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.