Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q

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

For the quarterly period ended March 31, 2019

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      
Commission file number 001-33977
logoa09.gif
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 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  þ    No  o
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  þ
Accelerated filer   o
Smaller reporting company   o
Non-accelerated filer   o
Emerging growth company o
 
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o    No  þ
As of April 19, 2019 there were 1,738,987,989 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 11,565,095 shares of class C common stock, par value $0.0001 per share, of Visa Inc. outstanding.

Table of Contents

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
Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1.
Financial Statements
VISA INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
March 31,
2019
 
September 30,
2018
 
(in millions, except par value data)
Assets
 
 
 
Cash and cash equivalents
$
7,648

 
$
8,162

Restricted cash equivalents—U.S. litigation escrow (Note 3 and Note 4)
899

 
1,491

Investment securities (Note 5)
3,876

 
3,547

Settlement receivable
1,574

 
1,582

Accounts receivable
1,404

 
1,208

Customer collateral (Note 3 and Note 7)
1,735

 
1,324

Current portion of client incentives
589

 
340

Prepaid expenses and other current assets
765

 
562

Total current assets
18,490

 
18,216

Investment securities (Note 5)
3,506

 
4,082

Client incentives
1,664

 
538

Property, equipment and technology, net
2,456

 
2,472

Goodwill
15,088

 
15,194

Intangible assets, net 
26,966

 
27,558

Other assets
1,695

 
1,165

Total assets
$
69,865

 
$
69,225

Liabilities
 
 
 
Accounts payable
$
119

 
$
183

Settlement payable
2,081

 
2,168

Customer collateral (Note 7)
1,735

 
1,325

Accrued compensation and benefits
578

 
901

Client incentives
3,484

 
2,834

Accrued liabilities
1,207

 
1,160

Deferred purchase consideration
1,262

 
1,300

Accrued litigation (Note 13)
914

 
1,434

Total current liabilities
11,380

 
11,305

Long-term debt (Note 6)
16,630

 
16,630

Deferred tax liabilities
4,911

 
4,618

Other liabilities
2,669

 
2,666

Total liabilities
35,590

 
35,219

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 March 31, 2019 and September 30, 2018 (the “UK&I preferred stock”) (Note 9)
2,286

 
2,291

Series C convertible participating preferred stock, 3 shares issued and outstanding at March 31, 2019 and September 30, 2018 (the “Europe preferred stock”) (Note 9)
3,178

 
3,179

Class A common stock, $0.0001 par value, 2,001,622 shares authorized, 1,741 and 1,768 shares issued and outstanding at March 31, 2019 and September 30, 2018, respectively (Note 9)
—

 
—

Class B common stock, $0.0001 par value, 622 shares authorized, 245 shares issued and outstanding at March 31, 2019 and September 30, 2018 (Note 9)
—

 
—

Class C common stock, $0.0001 par value, 1,097 shares authorized, 12 shares issued and outstanding at March 31, 2019 and September 30, 2018 (Note 9)
—

 
—

Right to recover for covered losses (Note 4)
(163
)
 
(7
)
Additional paid-in capital
16,547

 
16,678

Accumulated income
12,513

 
11,318

Accumulated other comprehensive income (loss), net:
 
 
 
Investment securities
1

 
(17
)
Defined benefit pension and other postretirement plans
(67
)
 
(61
)
Derivative instruments
96

 
60

Foreign currency translation adjustments
(116
)
 
565

Total accumulated other comprehensive income (loss), net
(86
)
 
547

Total equity
34,275

 
34,006

Total liabilities and equity
$
69,865

 
$
69,225


See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
3
Table of Contents

VISA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2019
 
2018
 
2019
 
2018
 
(in millions, except per share data)
Net revenues
$
5,494

 
$
5,073

 
$
11,000

 
$
9,935

 
 
 
 
 
 
 
 
Operating Expenses 
 
 
 
 
 
 
 
Personnel
894

 
824

 
1,701

 
1,503

Marketing
241

 
261

 
517

 
484

Network and processing
171

 
169

 
344

 
329

Professional fees
101

 
108

 
192

 
200

Depreciation and amortization
160

 
153

 
319

 
298

General and administrative
264

 
222

 
540

 
458

Litigation provision (Note 13)
22

 
—

 
29

 
—

Total operating expenses
1,853

 
1,737

 
3,642

 
3,272

Operating income
3,641

 
3,336

 
7,358

 
6,663

 
 
 
 
 
 
 
 
Non-operating Income (Expense)
 
 
 
 
 
 
 
Interest expense, net
(140
)
 
(153
)
 
(285
)
 
(307
)
Investment income and other
176

 
34

 
234

 
100

Total non-operating income (expense)
36

 
(119
)
 
(51
)
 
(207
)
Income before income taxes
3,677

 
3,217

 
7,307

 
6,456

Income tax provision (Note 12)
700

 
612

 
1,353

 
1,329

Net income
$
2,977

 
$
2,605

 
$
5,954

 
$
5,127

 
 
 
 
 
 
 
 
Basic Earnings Per Share (Note 10)
 
 
 
 
 
 
 
Class A common stock
$
1.31

 
$
1.12

 
$
2.61

 
$
2.19

Class B common stock
$
2.13

 
$
1.84

 
$
4.25

 
$
3.61

Class C common stock
$
5.23

 
$
4.46

 
$
10.44

 
$
8.76

 
 
 
 
 
 
 
 
Basic Weighted-average Shares Outstanding (Note 10)
 
 
 
 
 
 
 
Class A common stock
1,748

 
1,798

 
1,754

 
1,805

Class B common stock
245

 
245

 
245

 
245

Class C common stock
12

 
12

 
12

 
13

 
 
 
 
 
 
 
 
Diluted Earnings Per Share (Note 10)
 
 
 
 
 
 
 
Class A common stock
$
1.31

 
$
1.11

 
$
2.61

 
$
2.19

Class B common stock
$
2.13

 
$
1.84

 
$
4.25

 
$
3.60

Class C common stock
$
5.23

 
$
4.46

 
$
10.42

 
$
8.74

 
 
 
 
 
 
 
 
Diluted Weighted-average Shares Outstanding (Note 10)
 
 
 
 
 
 
 
Class A common stock
2,279

 
2,337

 
2,285

 
2,345

Class B common stock
245

 
245

 
245

 
245

Class C common stock
12

 
12

 
12

 
13



See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
4
Table of Contents

VISA INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2019
 
2018
 
2019
 
2018
 
(in millions)
Net income
$
2,977

 
$
2,605

 
$
5,954

 
$
5,127

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Investment securities:
 
 
 
 
 
 
 
Net unrealized gain (loss)
7

 
41

 
15

 
50

Income tax effect
(2
)
 
(9
)
 
(4
)
 
(12
)
Reclassification adjustment for net (gain) loss realized in net income
—

 
—

 
—

 
(28
)
Income tax effect
—

 
—

 
—

 
10

Defined benefit pension and other postretirement plans:
 
 
 
 
 
 
 
Net unrealized actuarial gain (loss) and prior service credit (cost)
—

 
(2
)
 
(7
)
 
(2
)
Income tax effect
—

 
1

 
1

 
1

Derivative instruments:
 
 
 
 
 
 
 
Net unrealized gain (loss)
59

 
(41
)
 
97

 
(42
)
Income tax effect
(13
)
 
2

 
(23
)
 
(3
)
Reclassification adjustment for net (gain) loss realized in net income
(22
)
 
24

 
(47
)
 
35

Income tax effect
4

 
(3
)
 
9

 
(5
)
Foreign currency translation adjustments
(394
)
 
512

 
(681
)
 
846

Other comprehensive income (loss), net of tax
(361
)
 
525

 
(640
)
 
850

Comprehensive income
$
2,616

 
$
3,130

 
$
5,314

 
$
5,977




See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
5
Table of Contents

VISA INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
 
Three Months Ended March 31, 2019
 
Preferred Stock
 
Common Stock
 
Preferred Stock
 
Right to Recover for Covered Losses
 
Additional
Paid-In Capital
 
Accumulated
Income
 
Accumulated
Other
Comprehensive
Income
 
Total
Equity
 
UK&I
 
Europe
 
Class A
 
Class B
 
Class C
 
 
(in millions, except per share data)
Balance as of December 31, 2018
2

 
3

 
1,754

 
245

 
12

 
$
5,464

 
$
(92
)
 
$
16,540

 
$
11,908

 
$
275

 
$
34,095

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,977

 
 
 
2,977

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(361
)
 
(361
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,616

Adoption of new accounting standards (Note 1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(8
)
 
—

 
(8
)
VE territory covered losses incurred (Note 4)
 
 
 
 
 
 
 
 
 
 
 
 
(71
)
 
 
 
 
 
 
 
(71
)
Conversion of class C common stock upon sales into public market
 
 
 
 
1

 
 
 
—

(1) 
 
 
 
 
 
 
 
 
 
 
—

Vesting of restricted stock and performance-based shares
 
 
 
 
—

(1) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

Share-based compensation, net of forfeitures (Note 11)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
111

 
 
 
 
 
111

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

(1) 
 
 
 
 
 
 
 
 
(2
)
 
 
 
 
 
(2
)
Cash proceeds from issuance of common stock under employee equity plans
 
 
 
 
—

(1) 
 
 
 
 
 
 
 
 
41

 
 
 
 
 
41

Cash dividends declared and paid, at a quarterly amount of $0.25 per Class A share (Note 9)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(569
)
 
 
 
(569
)
Repurchase of class A common stock (Note 9)
 
 
 
 
(14
)
 
 
 
 
 
 
 
 
 
(143
)
 
(1,795
)
 
 
 
(1,938
)
Balance as of March 31, 2019
2

 
3

 
1,741

 
245

 
12

 
$
5,464

 
$
(163
)
 
$
16,547

 
$
12,513

 
$
(86
)
 
$
34,275

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

See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
6
Table of Contents

VISA INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)
(UNAUDITED)
 
Six Months Ended March 31, 2019
 
Preferred Stock
 
Common Stock
 
Preferred Stock
 
Right to Recover for Covered Losses
 
Additional
Paid-In Capital
 
Accumulated
Income
 
Accumulated
Other
Comprehensive
Income
 
Total
Equity
 
UK&I
 
Europe
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5,954

 
 
 
5,954

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(640
)
 
(640
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5,314

Adoption of new accounting standards (Note 1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
385

 
7

 
392

VE territory covered losses incurred (Note 4)
 
 
 
 
 
 
 
 
 
 
 
 
(162
)
 
 
 
 
 
 
 
(162
)
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)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
211

 
 
 
 
 
211

Restricted stock and performance-based shares settled in cash for taxes
 
 
 
 
(1
)
 
 
 
 
 
 
 
 
 
(103
)
 
 
 
 
 
(103
)
Cash proceeds from issuance of common stock under employee equity plans
 
 
 
 
1

 
 
 
 
 
 
 
 
 
89

 
 
 
 
 
89

Cash dividends declared and paid, at a quarterly amount of $0.25 per Class A share (Note 9)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1,141
)
 
 
 
(1,141
)
Repurchase of class A common stock (Note 9)
 
 
 
 
(31
)
 
 
 
 
 
 
 
 
 
(328
)
 
(4,003
)
 
 
 
(4,331
)
Balance as of March 31, 2019
2

 
3

 
1,741

 
245

 
12

 
$
5,464

 
$
(163
)
 
$
16,547

 
$
12,513

 
$
(86
)
 
$
34,275

(1) 
Decrease is less than one million shares.



See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
7
Table of Contents

VISA INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)
(UNAUDITED)
 
Three Months Ended March 31, 2018
 
Preferred Stock
 
Common Stock
 
Preferred Stock
 
Right to Recover for Covered Losses
 
Additional
Paid-In Capital
 
Accumulated
Income
 
Accumulated
Other
Comprehensive
Income
 
Total
Equity
 
UK&I
 
Europe
 
Class A
 
Class B
 
Class C
 
 
(in millions, except per share data)
Balance as of December 31, 2017
2

 
3

 
1,805

 
245

 
12

 
$
5,476

 
$
(5
)
 
$
16,761

 
$
9,966

 
$
1,203

 
$
33,401

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,605

 
 
 
2,605

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
525

 
525

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3,130

VE territory covered losses incurred (Note 4)
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
 
 
 
 
 
 
 
(1
)
Conversion of class C common stock upon sales into public market
 
 
 
 
1

 
 
 
—

(1) 
 
 
 
 
 
 
 
 
 
 
—

Vesting of restricted stock and performance-based shares
 
 
 
 
—

(1) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

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

(1) 
 
 
 
 
 
 
 
 
85

 
 
 
 
 
85

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

(1) 
 
 
 
 
 
 
 
 
—

 
 
 
 
 
—

Cash proceeds from issuance of common stock under employee equity plans
 
 
 
 
1

 
 
 
 
 
 
 
 
 
50

 
 
 
 
 
50

Cash dividends declared and paid, at a quarterly amount of $0.210 per Class A share (Note 9)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(490
)
 
 
 
(490
)
Repurchase of class A common stock (Note 9)
 
 
 
 
(17
)
 
 
 
 
 
 
 
 
 
(183
)
 
(1,889
)
 
 
 
(2,072
)
Balance as of March 31, 2018
2

 
3

 
1,790

 
245

 
12

 
$
5,476

 
$
(6
)
 
$
16,713

 
$
10,192

 
$
1,728

 
$
34,103

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

See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
8
Table of Contents

VISA INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)
(UNAUDITED)
 
Six Months Ended March 31, 2018
 
Preferred Stock
 
Common Stock
 
Preferred Stock
 
Right to Recover for Covered Losses
 
Additional
Paid-In Capital
 
Accumulated
Income
 
Accumulated
Other
Comprehensive
Income
 
Total
Equity
 
UK&I
 
Europe
 
Class A
 
Class B
 
Class C
 
 
(in millions, except per share data)
Balance as of September 30, 2017
2

 
3

 
1,818

 
245

 
13

 
$
5,526

 
$
(52
)
 
$
16,900

 
$
9,508

 
$
878

 
$
32,760

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5,127

 
 
 
5,127

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
850

 
850

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5,977

VE territory covered losses incurred (Note 4)
 
 
 
 
 
 
 
 
 
 
 
 
(4
)
 
 
 
 
 
 
 
(4
)
Recovery through conversion rate adjustment (Note 4 and Note 9)
 
 
 
 
 
 
 
 
 
 
(50
)
 
50

 
 
 
 
 
 
 
—

Conversion of class C common stock upon sales into public market
 
 
 
 
2

 
 
 
(1
)
 
 
 
 
 
 
 
 
 
 
 
—

Vesting of restricted stock and performance-based shares
 
 
 
 
2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

Share-based compensation, net of forfeitures (Note11)
 
 
 
 
—

(1) 
 
 
 
 
 
 
 
 
153

 
 
 
 
 
153

Restricted stock and performance-based shares settled in cash for taxes
 
 
 
 
(1
)
 
 
 
 
 
 
 
 
 
(88
)
 
 
 
 
 
(88
)
Cash proceeds from issuance of common stock under employee equity plans
 
 
 
 
2

 
 
 
 
 
 
 
 
 
103

 
 
 
 
 
103

Cash dividends declared and paid, at a quarterly amount of $0.195 per Class A share in the first quarter and $0.210 per Class A share in the second quarter (Note 9)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(948
)
 
 
 
(948
)
Repurchase of class A common stock (Note 9)
 
 
 
 
(33
)
 
 
 
 
 
 
 
 
 
(355
)
 
(3,495
)
 
 
 
(3,850
)
Balance as of March 31, 2018
2

 
3

 
1,790

 
245

 
12

 
$
5,476

 
$
(6
)
 
$
16,713

 
$
10,192

 
$
1,728

 
$
34,103

(1) 
Decrease is less than one million shares.




See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
9
Table of Contents

VISA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Six Months Ended
March 31,
 
2019
 
2018
 
(in millions)
Operating Activities
 
 
 
Net income
$
5,954


$
5,127

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Client incentives (Note 2)
2,934


2,615

Share-based compensation (Note 11)
211


153

Depreciation and amortization of property, equipment, technology and intangible assets
319


298

Deferred income taxes
256


(945
)
Right to recover for covered losses recorded in equity (Note 4)
(162
)

(4
)
Other
(106
)

(10
)
Change in operating assets and liabilities:




Settlement receivable
(23
)

(1,039
)
Accounts receivable
(203
)

(113
)
Client incentives
(3,142
)

(2,177
)
Other assets
(245
)

41

Accounts payable
(48
)

(26
)
Settlement payable
(38
)

986

Accrued and other liabilities
170


975

Accrued litigation (Note 13)
(519
)

(152
)
Net cash provided by operating activities
5,358


5,729

Investing Activities
 
 
 
Purchases of property, equipment and technology
(313
)

(354
)
Investment securities:




Purchases
(1,806
)

(2,342
)
Proceeds from maturities and sales
2,038


1,771

Acquisitions, net of cash acquired
—


(196
)
Purchases of / contributions to other investments
(236
)
 
(16
)
Proceeds / distributions from other investments
10

 
—

Other investing activities
(89
)

—

Net cash used in investing activities
(396
)

(1,137
)
Financing Activities
 
 
 
Repurchase of class A common stock (Note 9)
(4,331
)
 
(3,850
)
Repayments of long-term debt
—

 
(1,750
)
Dividends paid (Note 9)
(1,141
)
 
(948
)
Cash proceeds from issuance of common stock under employee equity plans
89

 
103

Restricted stock and performance-based shares settled in cash for taxes
(103
)
 
(88
)
Net cash used in financing activities
(5,486
)
 
(6,533
)
Effect of exchange rate changes on cash and cash equivalents
(171
)
 
206

Decrease in cash, cash equivalents, restricted cash and restricted cash equivalents
(695
)
 
(1,735
)
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period (Note 3)
10,977

 
12,011

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period (Note 3)
$
10,282

 
$
10,276

Supplemental Disclosure
 
 
 
Income taxes paid, net of refunds
$
1,381

 
$
1,197

Interest payments on debt (Note 6)
$
269

 
$
276

Accruals related to purchases of property, equipment and technology
$
51

 
$
21

 

See accompanying notes, which are an integral part of these unaudited consolidated financial statements.
10
Table of Contents

VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 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 retail 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. 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 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 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, 2018 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 May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of goods or services to customers. This new revenue standard replaces all existing revenue recognition guidance in U.S. GAAP. Subsequently, the FASB also issued a series of amendments to the new revenue standard. The new revenue standard changes the classification and timing of recognition of certain client incentives and marketing-related funds paid to customers, as well as revenues and expenses for market development funds and services provided to customers as an incentive. The Company adopted the standard effective October 1, 2018 using the modified retrospective transition method applied to the aggregate of all modifications for contracts not completed as of October 1, 2018. Results for reporting periods beginning after October 1, 2018 are presented under the new revenue standard. The comparative prior period amounts appearing on the financial statements have not been restated and continue to be reported under the prior revenue standard. See Note 2—Revenues for the impact of the new revenue standard on the accompanying unaudited consolidated financial statements as of and for the three and six months ended March 31, 2019.

11
Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


The following table summarizes the cumulative transition adjustments for the adoption of the new revenue standard recorded on the October 1, 2018 consolidated balance sheet to reflect the aggregate impact to all contracts not completed as of October 1, 2018:
 
Fiscal Year 2018 Closing Balance Sheet
 
Cumulative Transition Adjustment for New Revenue Standard
 
Fiscal Year 2019 Opening Balance Sheet
 
(in millions)
Assets
 
Current portion of client incentives
$
340

 
$
199

 
$
539

Client incentives
538

 
614

 
1,152

Liabilities
 
 
 
 
 
Client incentives
2,834

 
241

 
3,075

Accrued liabilities
1,160

 
6

 
1,166

Deferred tax liabilities
4,618

 
108

 
4,726

Other liabilities
2,666

 
58

 
2,724

Equity
 
 
 
 
 
Accumulated income
11,318

 
400

 
11,718

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 adopted the standard effective October 1, 2018, using the modified retrospective transition method for marketable equity securities and the prospective method for non-marketable equity securities. The Company has elected to use the measurement alternative for non-marketable equity securities, defined as cost adjusted for changes from observable transactions for identical or similar investments of the same issuer, less impairment. The adoption did not 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 on the balance sheet. Subsequently, the FASB also issued a series of amendments to this new lease standard that address the transition methods available and clarify the guidance for lessor costs and other aspects of the new lease standard. The Company will adopt the standard effective October 1, 2019 and expects to adopt using the modified retrospective transition method without restating comparative periods. The adoption is not expected to have a material impact on the consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, which requires that entities recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company adopted the standard effective October 1, 2018. The adoption did not have a material impact on the consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, which requires that a statement of cash flows includes the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts. The Company adopted the standard effective October 1, 2018. The adoption impacted the presentation of transactions related to the U.S. litigation escrow account and customer collateral on the consolidated statements of cash flows. The prior period statement of cash flows have been retrospectively adjusted to reflect the impact of this ASU, which had no impact on the Company’s balance sheets, statements of operations or statements of comprehensive income for any period.

12
Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


In March 2017, the FASB issued ASU 2017-07, which requires that the service cost component of net periodic pension and postretirement benefit cost be presented in the same line item as other employee compensation costs, while the other components be presented separately as non-operating income (expense). In addition, only the service cost component is eligible for capitalization, when applicable. Retrospective application is required for the change in income statement presentation while the change in capitalized benefit cost is required to be applied prospectively. The Company adopted the standard effective October 1, 2018, which did not have a material impact on the consolidated financial statements. The service cost component of net periodic pension and postretirement benefit cost is presented in personnel expenses while the other components are presented in other non-operating expense on the Company’s consolidated statement of operations. The Company did not apply the standard retrospectively for the change in income statement presentation as the impact would have been immaterial.
In May 2017, the FASB issued ASU 2017-09, which amends the scope of modification accounting for share-based payment arrangements. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The Company adopted the standard effective October 1, 2018. The adoption did not have a material impact on the consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, which improves the financial reporting of hedging instruments to better portray the economic results of an entity’s risk management activities in its financial statements. Visa early adopted the standard effective January 1, 2019, which did not have a material impact on the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted the standard effective October 1, 2018. The adoption did not have a material impact on the consolidated financial statements.
Note 2—Revenues
Impact of the New Revenue Standard
The following tables summarize the impact of the new revenue standard on the Company’s consolidated statement of operations for the three and six months ended March 31, 2019 and the consolidated balance sheet as of March 31, 2019:
 
For the Three Months Ended
March 31, 2019
 
For the Six Months Ended
March 31, 2019
 
As Reported
 
Impact of the New Revenue Standard
 
Results Under Prior Revenue Standard
 
As Reported
 
Impact of the New Revenue Standard
 
Results Under Prior Revenue Standard
 
(in millions)
Net revenues
$
5,494

 
$
(39
)
 
$
5,455

 
$
11,000

 
$
(91
)
 
$
10,909

 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses 
 
 
 
 
 
 
 
 
 
 
 
Marketing
241

 
(39
)
 
202

 
517

 
(69
)
 
448

Professional fees
101

 
(3
)
 
98

 
192

 
(6
)
 
186

General and administrative
264

 
(7
)
 
257

 
540

 
(10
)
 
530

Total operating expenses
1,853

 
(49
)
 
1,804

 
3,642

 
(85
)
 
3,557

Operating income
3,641

 
10

 
3,651

 
7,358

 
(6
)
 
7,352

 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
3,677

 
10

 
3,687

 
7,307

 
(6
)
 
7,301

Income tax provision
700

 
2

 
702

 
1,353

 
1

 
1,354

Net income
2,977

 
8

 
2,985

 
5,954

 
(7
)
 
5,947


13
Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


 
March 31, 2019
 
As Reported
 
Impact of the New Revenue Standard
 
Results Under Prior Revenue Standard
 
(in millions)
Assets
 
 
 
 
 
Current portion of client incentives
$
589

 
$
(262
)
 
$
327

Client incentives
1,664

 
(725
)
 
939

Liabilities
 
 
 
 
 
Accounts payable
119

 
13

 
132

Client incentives
3,484

 
(401
)
 
3,083

Accrued liabilities
1,207

 
(8
)
 
1,199

Deferred tax liabilities
4,911

 
(105
)
 
4,806

Other liabilities
2,669

 
(79
)
 
2,590

Equity
 
 
 
 
 
Accumulated income
12,513

 
(407
)
 
12,106

Disaggregation of 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 and six months ended March 31, 2019 and 2018:
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2019
 
2018
 
2019
 
2018
 
(in millions)
Service revenues
$
2,417

 
$
2,253

 
$
4,759

 
$
4,399

Data processing revenues
2,432

 
2,127

 
4,902

 
4,274

International transaction revenues
1,796

 
1,752

 
3,647

 
3,418

Other revenues
327

 
230

 
626

 
459

Client incentives
(1,478
)
 
(1,289
)
 
(2,934
)
 
(2,615
)
Net revenues
$
5,494

 
$
5,073

 
$
11,000

 
$
9,935

 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2019
 
2018
 
2019
 
2018
 
(in millions)
U.S.
$
2,479

 
$
2,297

 
$
4,987

 
$
4,562

International
3,015

 
2,776

 
6,013

 
5,373

Net revenues
$
5,494

 
$
5,073

 
$
11,000

 
$
9,935

Revenue recognition. The Company's net revenues are comprised principally of the following categories: service revenues, data processing revenues, international transaction revenues, and other revenues, reduced by costs incurred under client incentives arrangements. As a payment network service provider, the Company’s obligation to the customer is to stand ready to provide continuous access to our payment network over the contractual term. Consideration is variable based primarily upon the amount and type of transactions and payments volume on Visa’s products. The Company recognizes revenues, net of sales and other similar taxes, as the payment network services are performed. Fixed fees for payment network services are generally recognized ratably over the related service period. The Company has elected the optional exemption to not disclose the remaining performance obligations related to payment network services.

14
Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Service revenues consist of revenues earned for services provided in support of client usage of Visa products. Current quarter service revenues are primarily assessed using a calculation of current pricing applied to the prior quarter's payments volume. The Company also earns revenues from assessments designed to support ongoing acceptance and volume growth initiatives, which are recognized in the same period the related volume is transacted.
Data processing revenues consist of revenues earned for authorization, clearing, settlement, network access and other maintenance and support services that facilitate transaction and information processing among the Company's clients globally. Data processing revenues are recognized in the same period the related transactions occur or services are performed.
International transaction revenues are earned for cross-border transaction processing and currency conversion activities. Cross-border transactions arise when the country of origin of the issuer is different from that of the merchant. International transaction revenues are primarily generated by cross-border payments and cash volume.
Other revenues consist mainly of license fees for use of the Visa brand, fees for account holder services, licensing and certification and other activities related to the Company's acquired entities. Other revenues also include optional services or product enhancements, such as extended account holder protection and concierge services. Other revenues are recognized in the same period the related transactions occur or services are performed.
Client incentives. The Company enters into long-term contracts with financial institution clients, merchants and strategic partners for various programs designed to increase revenues recognized by growing payments volume, increasing Visa product acceptance, winning merchant routing transactions over to Visa's network and driving innovation. These incentives are primarily accounted for as reductions to revenues or as operating expenses if the payment is in exchange for a distinct good or service provided by the customer. The Company generally capitalizes upfront and fixed incentive payments under these agreements and amortizes the amounts as a reduction to revenues ratably over the contractual term. Incentives that are earned by the customer based on performance targets are recorded as reductions to revenues based on management's estimate of each client's future performance. These accruals are regularly reviewed and estimates of performance are adjusted, as appropriate, based on changes in performance expectations, actual client performance, amendments to existing contracts or the execution of new contracts.
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:
 
March 31,
 
September 30,
 
2019
 
2018
 
2018
 
2017
 
(in millions)
Cash and cash equivalents
$
7,648

 
$
8,142

 
$
8,162

 
$
9,874

Restricted cash and restricted cash equivalents:
 
 
 
 
 
 
 
U.S. litigation escrow
899

 
884

 
1,491

 
1,031

Customer collateral
1,735

 
1,250

 
1,324

 
1,106

Cash, cash equivalents, restricted cash and restricted cash equivalents
$
10,282

 
$
10,276

 
$
10,977

 
$
12,011


15
Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


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. The balance of the escrow account was $899 million at March 31, 2019 and $1.5 billion at September 30, 2018. The Company paid $600 million from the litigation escrow account during the three months ended March 31, 2019. See Note 13—Legal Matters.
The accrual related to the U.S. covered litigation could be either higher or lower than the litigation escrow account balance. The Company did not record an additional accrual for the U.S. covered litigation during the six months ended March 31, 2019. See Note 13—Legal Matters.
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.
During the six months ended March 31, 2019, the Company recovered $6 million of VE territory covered losses through adjustments to the class A common stock conversion rates applicable to the UK&I and Europe preferred stock. The conversion rates applicable to the UK&I and Europe preferred stock were reduced from 12.955 and 13.888, respectively, as of September 30, 2018 to 12.939 and 13.886, respectively, as of March 31, 2019.
The following table sets forth the activities related to VE territory covered losses in preferred stock and “right to recover for covered losses” within equity during the six months ended March 31, 2019. VE territory covered losses incurred reflect settlements with merchants and additional legal costs. See Note 13—Legal Matters.
 
Preferred Stock
 
Right to Recover for Covered Losses
 
UK&I
 
Europe
 
 
(in millions)
Balance as of September 30, 2018
$
2,291

 
$
3,179

 
$
(7
)
VE territory covered losses incurred
—

 
—

 
(162
)
Recovery through conversion rate adjustment
(5
)
 
(1
)
 
6

Balance as of March 31, 2019
$
2,286

 
$
3,178

 
$
(163
)

16
Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


The following table(1) 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 March 31, 2019 and September 30, 2018:
 
March 31, 2019
 
September 30, 2018
 
As-Converted Value of Preferred Stock(2)
 
Book Value of Preferred Stock
 
As-Converted Value of Preferred Stock(3)
 
Book Value of Preferred Stock
 
(in millions)
UK&I preferred stock
$
5,013

 
$
2,286

 
$
4,823

 
$
2,291

Europe preferred stock
6,847

 
3,178

 
6,580

 
3,179

Total
11,860

 
5,464

 
11,403

 
5,470

Less: right to recover for covered losses
(163
)
 
(163
)
 
(7
)
 
(7
)
Total recovery for covered losses available
$
11,697

 
$
5,301

 
$
11,396

 
$
5,463

(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 March 31, 2019; (b) 12.939 and 13.886, the class A common stock conversion rate applicable to the UK&I and Europe preferred stock as of March 31, 2019, respectively; and (c) $156.19, Visa’s class A common stock closing stock price as of March 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, 2018; (b) 12.955 and 13.888, the class A common stock conversion rate applicable to the UK&I and Europe preferred stock as of September 30, 2018, respectively; and (c) $150.09, Visa’s class A common stock closing stock price as of September 30, 2018.
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
 
March 31,
2019
 
September 30,
2018
 
March 31,
2019
 
September 30,
2018
 
(in millions)
Assets
 
 
 
 
 
 
 
Cash equivalents and restricted cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
6,089

 
$
6,252

 
 
 
 
U.S. government-sponsored debt securities
 
 
 
 
$
200

 
$
1,048

Investment securities:
 
 
 
 
 
 
 
Marketable equity securities
157

 
113

 
 
 
 
U.S. government-sponsored debt securities
 
 
 
 
5,482

 
5,008

U.S. Treasury securities
1,743

 
2,508

 
 
 
 
Other current and non-current assets:
 
 
 
 
 
 
 
Derivative instruments
 
 
 
 
166

 
78

Total
$
7,989

 
$
8,873

 
$
5,848

 
$
6,134

Liabilities
 
 
 
 
 
 
 
Accrued and other liabilities:
 
 
 
 
 
 
 
Derivative instruments
 
 
 
 
$
44

 
$
22

Total
$
—

 
$
—

 
$
44

 
$
22

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

17
Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


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 six months ended March 31, 2019.
Marketable equity securities. Marketable equity securities are publicly traded and measured at fair value within Level 1 of the fair value hierarchy, as fair value is based on quoted prices in active markets. On October 1, 2018, the Company adopted ASU 2016-01 which changed the Company’s accounting for marketable equity securities. Beginning on October 1, 2018, unrealized gains and losses from changes in fair value of marketable equity securities are recognized in non-operating income (expense).
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 $7.2 billion and $7.5 billion of these investment securities as of March 31, 2019 and September 30, 2018, respectively. All of the Company’s long-term available-for-sale investment securities are due within one to five years.
Derivative instruments. During the three months ended March 31, 2019, the Company entered into interest rate and cross-currency swap agreements on a portion of the Company’s outstanding 3.15% Senior Notes due December 2025. The Company designated the interest rate swap as a fair value hedge and the cross-currency swap as a net investment hedge. Gains and losses related to changes in fair value hedges are recognized in non-operating income (expense) along with a corresponding loss or gain related to the change in value of the underlying hedged item in the same line in the consolidated statement of operations. The effective portions of net investment hedges are recorded in other comprehensive income. Amounts excluded from the effectiveness testing of net investment hedges are recognized in non-operating income (expense). Cash flows associated with derivatives designated as a fair value hedge may be included in operating, investing or financing activities on the consolidated statement of cash flows, depending on the classification of the items being hedged. Cash flows associated with financial instruments designated as net investment hedges are classified as an investing activity. There were no swap agreements outstanding as of September 30, 2018.
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. On October 1, 2018, the Company adopted ASU 2016-01 which changed the Company’s accounting for non-marketable equity securities. Beginning on October 1, 2018, the Company’s policy is to adjust the carrying value of its non-marketable equity securities to fair value when transactions for identical or similar investments of the same issuer are observable in the market. All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in non-operating income (expense).
Non-marketable equity securities totaled $438 million and $137 million at March 31, 2019 and September 30, 2018, respectively, and are classified in other assets on the consolidated balance sheets. During the three and six months ended March 31, 2019, $66 million of upward adjustments and no downward adjustments were made to the carrying value of non-marketable equity securities. During the six months ended March 31, 2019 and 2018, there were no significant impairments of non-marketable equity securities.
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

18
Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


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 March 31, 2019.
Gains and Losses on Marketable and Non-marketable Equity Securities
The Company recognized net realized gains of $15 million for both the three and six months ended March 31, 2019 on its equity securities sold during the periods. The Company recognized net unrealized gains of $79 million and $59 million for the three and six months ended March 31, 2019, respectively, on equity securities held as of the end of the periods.
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 $16.6 billion and $17.3 billion, respectively, as of March 31, 2019. The carrying value and estimated fair value of long-term debt were both $16.6 billion as of September 30, 2018.
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 March 31, 2019, but disclosure of their fair values is required: time deposits recorded in prepaid expenses and other current assets, settlement receivable and payable and customer collateral. The estimated fair value of such instruments at March 31, 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—Debt
The Company had outstanding debt as follows:
 
March 31,
2019
 
September 30, 2018
 
Effective Interest Rate
 
(in millions, except percentages)