Table of Contents

As filed with the Securities and Exchange Commission on February 13, 2008

Registration No. 333-147296

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 3

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

VISA INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware		7389		26-0267673
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

P.O. Box 8999

San Francisco, California 94128-8999

(415) 932-2100

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Joseph W. Saunders

Chief Executive Officer and Chairman of the Board of Directors

Visa Inc.

P.O. Box 8999

San Francisco, California 94128-8999

Telephone: (415) 932-2100

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With copies to:

 

Mark L. Mandel S. Ward Atterbury Colin J. Diamond White & Case LLP 1155 Avenue of the Americas New York, New York 10036 Telephone: (212) 819-8200 Facsimile: (212) 354-8113		Richard J. Sandler Joseph A. Hall Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Telephone: (212) 450-4000 Facsimile: (212) 450-3800

 

 

Approximate date of commencement of proposed sale to the public:    As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

---

Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion

Preliminary Prospectus dated February 13, 2008

             Shares

VISA INC.

Class A Common Stock

 

 

This is Visa Inc.’s initial public offering. We are offering              shares of our class A common stock. We expect the initial public offering price to be between $             and $             per share.

Currently, no public market exists for our class A common stock. We have applied to list our class A common stock on the New York Stock Exchange under the symbol “V.” Our shares of class B and class C common stock are held by our financial institution customers, generally carry no voting rights, will not be listed and are subject to transfer restrictions. See “Description of Capital Stock.”

Investing in our class A common stock involves risks that are described in the “ Risk Factors” section beginning on page 18 of this prospectus.

 

 

 

		Per Share			Total
Public offering price		$			$
Underwriting discount		$			$
Proceeds, before expenses, to Visa		$			$

To the extent that the underwriters sell more than              shares of class A common stock, the underwriters have the option to purchase up to an additional              shares from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares will be ready for delivery on or about                     .

 

 

 

JPMorgan		Goldman, Sachs & Co.

Banc of America Securities LLC		Citi		HSBC		Merrill Lynch & Co.		UBS Investment Bank		Wachovia Securities

 

 

The date of this prospectus is                     

---

Table of Contents

TABLE OF CONTENTS

 

		Page
PROSPECTUS SUMMARY		1
THE OFFERING		7
SUMMARY FINANCIAL AND OTHER DATA OF VISA INC.		13
RISK FACTORS		18
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS		39
USE OF PROCEEDS		40
DIVIDEND POLICY		40
CAPITALIZATION		41
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS		43
MANAGEMENT’S DISCUSSION AND ANALYSIS OF HISTORICAL AND PRO FORMA FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF VISA INC.		58
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF VISA U.S.A.		98
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF VISA U.S.A.		100
THE GLOBAL PAYMENTS INDUSTRY		125
BUSINESS		129
MANAGEMENT		170
PRINCIPAL STOCKHOLDERS		207
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS		209
SHARES ELIGIBLE FOR FUTURE SALE		211
MATERIAL CONTRACTS		213
DESCRIPTION OF CAPITAL STOCK		217
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS OF OUR CLASS A COMMON STOCK		229
UNDERWRITING		233
SELLING RESTRICTIONS		238
LEGAL MATTERS		251
EXPERTS		251
WHERE YOU CAN FIND MORE INFORMATION		251
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS		F-1

 

 

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by us or on our behalf. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

Through and including                      (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This obligation is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

 

i

---

Table of Contents

Unless the context requires otherwise, reference to “Company,” “Visa,” “we,” “us” or “our” refers to Visa Inc. and its subsidiaries.

The registered trademarks of Visa Inc. and its subsidiaries include: “All It Takes;” “Bands Design—Blue, White & Gold;” “Dove” Design; “Interlink;” “Life Takes Visa;” “PLUS;” “Verified by Visa;” “Visa;” “Visa Classic;” “Visa Corporate;” “Porque La Vida es Ahora;” “The World’s Best Way to Pay;” “Visa Electron;” “Visa Europe;” “Visa Fleet;” “Visa Infinite;” “Visa Mobile;” “VisaNet;” “Visa Platinum;” “Visa Purchasing;” “Visa Resolve OnLine;” “Visa ReadyLink;” “Visa Signature;” “Visa Signature Business;” “Visa Vale;” and “Winged V” Design. Other trademarks used in this prospectus are the property of their respective owners.

 

ii

---

Table of Contents

 

1

---

Table of Contents

 

2

---

Table of Contents

 

3

---

Table of Contents

 

4

---

Table of Contents

 

5

---

Table of Contents

 

6

---

Table of Contents

 

7

---

Table of Contents

 

8

---

Table of Contents

 

9

---

Table of Contents

 

10

---

Table of Contents

 

11

---

Table of Contents

 

12

---

Table of Contents

 

13

---

Table of Contents

 

14

---

Table of Contents

 

15

---

Table of Contents

 

16

---

Table of Contents

 

17

---

Table of Contents

RISK FACTORS

An investment in our class A common stock involves a high degree of risk. You should carefully consider each of the following risk factors and all other information set forth in this prospectus before investing in our class A common stock. Any of the following risks, if realized, could materially and adversely affect our revenues, operating results, profitability, financial condition, prospects for future growth and overall business. In that case, the trading price of our class A common stock could decline and you could lose all or part of your investment.

Risks Related to Our Business

Legal and Regulatory Risks

Interchange fees are subject to significant legal and regulatory scrutiny worldwide, which may have a material adverse impact on our revenues, our prospects for future growth and our overall business.

Interchange represents a transfer of value between the financial institutions participating in an open-loop payments network such as ours. On purchase transactions, interchange fees are typically paid to issuers, which are the financial institutions that issue Visa cards to cardholders, by acquirers, which are the financial institutions that offer Visa network connectivity and payments acceptance services to merchants, in connection with transactions initiated with cards in our payments system. We set default interchange rates in the United States and other regions. In certain jurisdictions, interchange rates are subject to government regulation. Although we administer the collection and remittance of interchange fees through the settlement process, we generally do not receive any portion of the interchange fees. Interchange fees are often the largest component of the costs that acquirers charge merchants in connection with the acceptance of payment cards. We believe that interchange fees are an important driver of system volume.

As the volume of card-based payments has increased in recent years, interchange fees, including our default interchange rates, have become subject to increased regulatory scrutiny worldwide. We believe that regulators are increasingly adopting a similar approach to interchange fees, and, as a result, developments in any one jurisdiction may influence regulatory approaches in other jurisdictions.

Interchange fees have been the topic of recent committee hearings in the U.S. House of Representatives and the U.S. Senate, as well as conferences held by a number of U.S. Federal Reserve Banks. In addition, the U.S. House of Representatives has passed a bill that would commission a study by the Federal Trade Commission of the role of interchange fees in alleged price gouging at gas stations. Individual state legislatures in the United States are also reviewing interchange fees, and legislators in a number of states have proposed bills that purport to limit interchange fees or merchant discount rates or to prohibit their application to portions of a transaction. In addition, the Merchants Payments Coalition, a coalition of trade associations representing businesses that accept credit and debit cards, is mounting a challenge to interchange fees in the United States by seeking legislative and regulatory intervention.

Interchange fees and related practices also have been or are being reviewed by regulatory authorities and/or central banks in a number of other jurisdictions, including the European Union, Australia, Brazil, Colombia, Germany, Honduras, Hungary, Mexico, New Zealand, Norway, Poland, Portugal, Romania, Singapore, South Africa, Spain, Sweden, Switzerland and the United Kingdom. For example:

 

•

The Reserve Bank of Australia has made regulations under legislation enacted to give it powers over payments systems. A regulation controls the costs that can be considered in setting interchange fees for Visa credit and debit cards, but does not regulate the merchant discount charged by any payment system, including competing closed-loop payments systems.

 

•

New Zealand’s competition regulator, the Commerce Commission, filed a civil claim alleging that, among other things, the fixing of default interchange rates by Cards NZ Limited, Visa International, MasterCard and certain Visa International member financial institutions contravenes the New Zealand

 

18

---

Table of Contents

Commerce Act. A group of New Zealand retailers filed a nearly identical claim against the same parties before the same tribunal. Both the Commerce Commission and the retailers seek declaratory, injunctive and monetary relief.

 

•

In March 2006, Banco de México, the central bank of Mexico, reached an agreement with the Mexican Banks Association to implement a new, value-based interchange methodology. As part of Banco de México’s transparency policies, details of the new interchange rates have been publicly disclosed and are available on Banco de México’s web site.

 

•

In December 2007, the European Commission adopted a decision that MasterCard’s multilateral interchange fees for cross-border payment transactions within the European Economic Area violated European Community Treaty rules on restrictive business practices and must be withdrawn within six months.

Regulatory actions such as these, even if not directed at us or if affecting a geographic region in which we do not operate, may nonetheless increase regulatory scrutiny of interchange fees. If we cannot successfully defend our ability to set default interchange rates to maximize system volume, our payments system may become unattractive to issuers and/or acquirers. This result could reduce the number of financial institutions willing to participate in our open-loop multi-party payments system, lower overall transaction volumes and/or make closed-loop payments systems or other forms of payment more attractive. Issuers could also begin to charge higher fees to consumers, thereby making our card programs less desirable and reducing our transaction volumes and profitability. Acquirers could elect to charge higher merchant discount rates to merchants, regardless of the level of Visa interchange, leading merchants not to accept cards for payment or to steer Visa cardholders to alternate payment systems. In addition, issuers or acquirers could attempt to decrease the expense of their card programs by seeking incentives from us or a reduction in the fees that we charge. Any of the foregoing could have a material adverse impact on our revenues, operating results, prospects for future growth and overall business.

A finding of liability in the interchange litigation may result in substantial damages.

Since 2005, approximately 50 class action and individual complaints have been filed on behalf of merchants against Visa U.S.A., Visa International, MasterCard and other defendants, including certain Visa U.S.A. member financial institutions, which we refer to as the interchange litigation. Among other antitrust allegations, the plaintiffs allege that Visa U.S.A.’s and Visa International’s setting of default interchange rates violated federal and state antitrust laws. The lawsuits have been transferred to a multidistrict litigation in the U.S. District Court for the Eastern District of New York. The class action complaints have been consolidated into a single amended class action complaint and the individual complaints are also being consolidated in the same multidistrict litigation. A similar case, filed in 2004, is on appeal by plaintiffs after having been dismissed with prejudice, and has not been transferred to the multidistrict litigation.

The plaintiffs in the interchange litigation seek damages for alleged overcharges in merchant discount fees, as well as injunctive and other relief. The plaintiffs have not yet quantified the damages they seek, although several of the complaints allege that the plaintiffs expect that damages will range in the tens of billions of dollars. Because these lawsuits were brought under the U.S. federal antitrust laws, any actual damages will be trebled and Visa U.S.A. and/or Visa International may be subject to joint and several liability among the defendants if liability is established, which could significantly magnify the effect of any adverse judgment. The interchange litigation is part of the covered litigation, which our retrospective responsibility plan is intended to address; however, the retrospective responsibility plan may not adequately insulate us from the impact of settlements of, or judgments in, the interchange litigation. Failure to successfully defend or settle the interchange litigation would result in liability that to the extent not covered by our retrospective responsibility plan could have a material adverse effect on our results of operations, financial condition and cash flows, or, in certain circumstances, even cause us to become insolvent. In addition, even if our direct financial exposure were covered by our retrospective responsibility plan, settlements or judgments involving the multidistrict litigation could include restrictions on our ability to conduct business, which could increase our cost of doing business and limit our prospects for future growth. See “Business—Retrospective Responsibility Plan—Covered Litigation—The Interchange Litigation.”

 

19

---

Table of Contents

A finding of liability in the Discover litigation may result in substantial damages.

In 1998, the U.S. Department of Justice filed suit against Visa U.S.A., Visa International and MasterCard International in the U.S. District Court for the Southern District of New York. The suit alleged, among other things, that Visa U.S.A. restrained competition by prohibiting its member financial institutions from issuing certain payment cards that compete with Visa-branded cards (such as American Express or Discover), which we refer to as competing payment cards. The district court held that the prohibition constituted an unlawful restraint of trade under the U.S. federal antitrust laws, and this decision was affirmed by the Second Circuit Court of Appeals. In 2004, the U.S. Supreme Court denied our petition for certiorari, thereby exhausting all avenues for further appeal in this case. As a result of this judgment, the Visa U.S.A. bylaw that provided for the prohibition became unenforceable in October 2004 and was subsequently repealed.

Discover filed suit against Visa U.S.A., Visa International and MasterCard International, alleging that prohibiting member financial institutions from issuing competing payment cards caused it injury under the U.S. federal antitrust laws. Discover has requested that the district court give collateral estoppel effect to the court’s findings in the judgment of the 1998 Department of Justice litigation. Although the district court denied that request when made at the outset of the litigation, the district court indicated it would entertain a motion by Discover for collateral estoppel at a later time. If the court were to give collateral estoppel effect to one or more issues, significant elements of Discover’s claims would be established, making it more likely that Visa U.S.A. and Visa International could be found liable and that Discover would be awarded damages. Even if the court declines to give collateral estoppel effect to any of these issues, Discover may nevertheless be successful in establishing these issues in subsequent proceedings. On July 24, 2007, Discover served an expert report purporting to demonstrate that it had incurred substantial damages. Because this lawsuit was brought under the U.S. federal antitrust laws, any actual damages will be trebled and Visa U.S.A. and Visa International may be subject to joint and several liability among the defendants if liability is established, which could significantly magnify the effect of any adverse judgment.

American Express filed a suit similar to the Discover litigation against Visa U.S.A., Visa International and certain Visa U.S.A. member financial institutions. The American Express lawsuit is part of the covered litigation, which our retrospective responsibility plan is intended to address. We, Visa U.S.A. and Visa International entered into a settlement agreement with American Express that became effective on November 9, 2007. The settlement agreement in the American Express litigation will be funded through our retrospective responsibility plan.

The Discover lawsuit is also part of the covered litigation. The retrospective responsibility plan may not adequately insulate us from the impacts of settlements of, or judgments in, the Discover lawsuit. Failure to successfully defend against or settle these lawsuits would result in liability that to the extent not covered by our retrospective responsibility plan could have a material adverse effect on our results of operations, financial condition and cash flows, or, in certain circumstances, even cause us to become insolvent. See “Business—Retrospective Responsibility Plan—Covered Litigation.”

Our retrospective responsibility plan may not adequately insulate us from the impact of settlements and judgments in the covered litigation and will not insulate us from other pending or future litigation.

Our retrospective responsibility plan is intended to address monetary liabilities from settlements of, or final judgments in, the litigation described under the heading “Business—Retrospective Responsibility Plan—Covered Litigation.” The retrospective responsibility plan consists of several related mechanisms to fund settlements of, or judgments in, the covered litigation, including an escrow account funded with a portion of the net proceeds of our initial public offering and potential follow-on offerings of our common stock, a loss sharing agreement, a judgment sharing agreement and the indemnification obligation of Visa U.S.A. members pursuant to Visa U.S.A.’s certificate of incorporation and bylaws and in accordance with their membership agreements. These mechanisms are unique and complex. If we are prevented from using one or more of these mechanisms under our retrospective responsibility plan, we could have difficulty funding the payment of a settlement or final judgment

 

20

---

Table of Contents

against us in a covered litigation, which could have a material adverse effect on our results of operations, financial condition and cash flows, or, in certain circumstances, even cause us to become insolvent.

The retrospective responsibility plan does not address litigation other than the covered litigation that we currently face, including state court litigation relating to interchange, and will not cover litigation that we may face in the future, except for cases that include claims for damages relating to the period prior to our initial public offering that are transferred for pre-trial proceedings or otherwise included in the interchange litigation. In addition, our retrospective responsibility plan is designed to cover only the potential monetary liability from settlements of, or judgments in, the covered litigation. Settlements and judgments in covered litigation may require us to modify the way we do business in the future, which could adversely affect our revenues, increase our expenses and/or limit our prospects for growth. Therefore, even if our retrospective responsibility plan adequately safeguards us from the monetary impact of settlements of, or judgments in, the covered litigation, it may not be sufficient to insulate us from all potential adverse consequences of settlements of, or judgments in, the covered litigation.

If the settlements of Visa U.S.A.’s and Visa International’s currency conversion cases are not ultimately approved and we are unsuccessful in any of the various lawsuits relating to Visa U.S.A.’s and Visa International’s currency conversion practices, our business may be materially and adversely affected.

Visa U.S.A. and Visa International are defendants in several state and federal lawsuits alleging that their currency conversion practices are or were deceptive, anti-competitive or otherwise unlawful. In particular, a trial judge in California found that the former currency conversion practices of Visa U.S.A. and Visa International were deceptive under California state law, and ordered Visa U.S.A. and Visa International to require their members to disclose the currency conversion process to cardholders in cardholder agreements, applications, solicitations and monthly billing statements. The judge also ordered unspecified restitution to credit card holders. The decision was reversed on appeal on the ground that the plaintiff lacked standing to pursue his claims. After the trial court’s decision, several putative class actions were filed in California state courts challenging Visa U.S.A.’s and Visa International’s currency conversion practices for credit and debit cards. A number of putative class actions relating to Visa U.S.A.’s and Visa International’s former currency conversion practices were also filed in federal court. The federal actions have been coordinated or consolidated in the U.S. District Court for the Southern District of New York. The consolidated complaint alleges that the former currency conversion practices of Visa U.S.A. and Visa International violated federal antitrust laws.

On July 20, 2006 and September 14, 2006, Visa U.S.A. and Visa International entered into agreements settling or otherwise disposing of the federal and state actions and related matters. Pursuant to the settlement agreements, Visa U.S.A. paid approximately $100 million as part of the defendants’ settlement fund for the federal actions and will pay approximately $20 million to fund settlement of the California cases. The federal court has granted preliminary approval of the settlement agreements, but the settlement is subject to final approval by the court and resolution of all appeals. If final approval of the settlement agreements is not granted, all of the agreements resolving the federal and state actions will terminate. If that occurs, and we are unsuccessful in defending against some or all of these lawsuits, we may have to pay restitution and/or damages, and may be required to modify our currency conversion practices. The potential amount of damages and/or restitution could be substantial. In addition, although Visa U.S.A. and Visa International have substantially changed the practices that were at issue in these litigations, if the courts require further changes to our currency conversion and cross-border transaction practices, it could materially and adversely affect our business. See “Business—Other Legal and Regulatory Proceedings—Currency Conversion Litigation.”

If Visa U.S.A. or Visa International is found liable in certain other lawsuits that have been brought against them or if we are found liable in other litigation to which we may become subject in the future, we may be forced to pay substantial damages and/or change our business practices or pricing structure, any of which could have a material adverse effect on our financial condition, revenues and profitability.

In recent years, numerous civil actions and investigations have been filed or initiated against Visa U.S.A. and Visa International alleging or seeking information as to violations of various competition, antitrust, consumer

 

21

---

Table of Contents

protection and other laws. These actions and investigations have been filed or initiated by a variety of different parties, including the U.S. Department of Justice, state attorneys general, merchants, consumers, competing card-issuing companies and other plaintiffs. Examples of such claims, which are described more fully under “Business—Other Legal and Regulatory Proceedings,” include the following:

 

•

various state court actions based on a federal merchant class action lawsuit that Visa U.S.A. settled in 2003, alleging unlawful “tying” of credit and debit card services, attempted monopolization and other state law competition claims;

 

•

a patent infringement claim against Visa U.S.A. and Visa International involving the Verified by Visa product;

 

•

a claim of patent infringement, misrepresentation, breach of contract and antitrust violations against Visa International relating to a license agreement for smart card technology;

 

•

two state unfair competition law claims, one against Visa U.S.A. and Visa International based in part on Visa U.S.A.’s past practice of prohibiting member financial institutions from issuing certain competing payment cards, and another against Visa U.S.A. and Visa International alleging failure to inform cardholders of a security breach in a timely manner;

 

•

a promissory estoppel and misrepresentation claim against Visa U.S.A. and Visa International regarding deferment of a deadline for laboratory certification of ATM devices meeting heightened data encryption standards;

 

•

a trademark infringement claim against Visa International in Venezuela in connection with the Visa Vale product;

 

•

a civil investigative demand to Visa U.S.A. from the Office of the Attorney General for the District of Columbia, in coordination with the Attorneys General of New York and Ohio, seeking information regarding practices related to PIN debit cards;

 

•

a patent infringement claim against Visa U.S.A. and Visa International regarding certain Visa contactless payment technology;

 

•

a patent infringement claim against Visa U.S.A. regarding prepaid card products; and

 

•

two civil investigative demands issued by the Antitrust Division of the U.S. Department of Justice to Visa U.S.A., one concerning PIN debit and Visa U.S.A.’s No Signature Required Program, and the other regarding Visa U.S.A.’s agreements with financial institutions that issue Visa debit cards, respectively.

Private plaintiffs often seek class action certification in cases against us, particularly in cases involving merchants and consumers, due to the size and scope of our business and the large number of parties that are involved in our payment system. Although our retrospective responsibility plan is intended to address potential monetary liabilities arising from the specific litigation described under “Business—Retrospective Responsibility Plan—Covered Litigation,” the plan does not cover other litigation that we currently face, and will not cover litigation, including state court litigation, that we may face in the future, except for cases that include claims for damages relating to the period prior to our initial public offering that are transferred for pre-trial proceedings or otherwise included in the interchange litigation. We cannot predict whether or to what extent we will be subject to litigation liability that is not covered by our retrospective responsibility plan. If we are unsuccessful in our defense against any of the proceedings described above or in any future proceedings, we may be forced to pay substantial damages and/or change our business practices or our pricing structure, any of which could have a material adverse effect on our revenues, operating results, prospects for future growth and overall business.

We have received, and we may in the future receive, notices or inquiries from other companies suggesting that we may be infringing a pre-existing patent or that we need to license use of their patents to avoid infringement. Such notices may, among other things, threaten litigation against us. Holders of patents may pursue

 

22

---

Table of Contents

claims against us in the future if they believe their patents are being infringed by our product or service offerings. Based on our experience with such claims to date, we do not believe that any such claims would prevent us from continuing to operate our payments system or market any of our significant core products and services in substantially the same or equivalent manner as we have to date.

Limitations on our business and other penalties resulting from litigation or litigation settlements may materially and adversely affect our revenues and profitability.

Certain limitations have been placed on our business in recent years as a result of litigation and litigation settlements. For example, as a result of the June 2003 settlement of a U.S. merchant lawsuit against Visa U.S.A., merchants are able to reject Visa consumer debit cards in the United States while still accepting other Visa-branded cards, and vice versa. In addition, following the final judgment entered in the litigation the U.S. Department of Justice, or DOJ, brought against Visa U.S.A. and Visa International in 1998, as of October 2004, members of Visa U.S.A. may issue certain competing payment cards. Since this final judgment, several members of Visa U.S.A. have begun to issue, or have announced that they will issue, American Express or Discover-branded cards. See “Business—Other Legal and Regulatory Proceedings—Department of Justice Antitrust Case and Related Litigation.”

In addition, pursuant to a court order, certain Visa U.S.A. debit issuers may be able to terminate some parts of their agreements with us. Visa U.S.A.’s bylaws provided that a settlement service fee was to be paid by certain Visa U.S.A. members that shifted a substantial portion of their offline debit card volume to another debit brand unless that shift was to the American Express or Discover brands. In June 2007, a federal court ruled that the settlement service fee violated the final judgment entered in the case the DOJ brought against Visa U.S.A., Visa International and MasterCard in 1998. See “Business—Other Legal and Regulatory Proceedings—Department of Justice Antitrust Case and Related Litigation.” As a remedy, the court ordered Visa U.S.A. to repeal the settlement service fee bylaw. Further, any Visa U.S.A. debit issuer subject to the settlement service fee prior to its repeal that entered into an agreement with Visa U.S.A. that includes offline debit issuance on or after June 20, 2003 is now permitted to terminate that agreement, provided that the issuer has entered into an agreement to issue MasterCard-branded debit cards and has repaid to Visa U.S.A. any unearned benefits or financial incentives under its Visa U.S.A. agreement. The settlement service fee bylaw was rescinded as of the effective date of the order, but Visa U.S.A. has appealed other aspects of the court’s decision, including the contract termination portion of the court’s remedy. See “Business—Other Legal and Regulatory Proceedings—Department of Justice Antitrust Case and Related Litigation.”

The developments discussed above and any future limitations on our business resulting from settlements of, or judgments in, pending or potential litigation could limit the fees we charge and reduce our payments volume, which could materially and adversely affect our revenues, operating results, prospects for future growth and overall business.

If we are partially or wholly unable to realize the benefit of our deferred tax assets related to our litigation expenses incurred in connection with the covered litigation, our financial results and cash flows may be materially and adversely affected.

Our December 31, 2007 balance sheet reflects accrued litigation of $3.7 billion, including the settlement of the American Express litigation and management’s liability estimate under the guidelines of SFAS No. 5 related to the Discover litigation and other matters. For tax purposes, the deduction related to these matters is deferred until the payments are made and thus the company established a deferred tax asset of $787 million related to these payments, which is net of a reserve to reflect our best estimate of the amount of the benefit to be realized. Although we believe that the estimates and judgments we made in establishing our deferred tax asset and related reserves are reasonable, some or all of these judgments are subject to review by the taxing authorities. If one or more of the taxing authorities were to successfully challenge our right to realize some or all of the tax benefit we have recorded and we were unable to realize this benefit, it could have a material and adverse effect on our financial results and cash flows.

 

23

---

Table of Contents

The payments industry is the subject of increasing global regulatory focus, which may result in costly new compliance burdens being imposed on us and our customers and lead to increased costs and decreased payments volume and revenues.

We and our customers are subject to regulations that affect the payments industry in many countries in which our cards are used. Regulation of the payments industry has increased significantly in recent years. Examples of such regulation include:

 

•

Anti-money laundering regulation. Most jurisdictions in which we and our customers operate have implemented, amended or have pending anti-money laundering regulations, such as the U.S.A. PATRIOT Act, which requires the creation and implementation of comprehensive anti-money laundering programs.

 

•

U.S. Treasury Office of Foreign Assets Control regulation. Visa U.S.A. and Visa International are subject to regulations imposed by the U.S. Treasury Office of Foreign Assets Control, or OFAC. OFAC restricts financial dealings with Cuba, Iran, Myanmar and Sudan, as well as financial dealings with certain restricted parties, such as identified money laundering fronts for terrorists or narcotics traffickers. While we prohibit financial institutions that are domiciled in those countries or are restricted parties from being Visa members, many Visa International members are non-U.S. financial institutions, and thus are not subject to OFAC restrictions. Accordingly, our payments system may be used for transactions in or involving countries or parties subject to OFAC-administered sanctions.

 

•

Regulation of the Price of Credit. In recent years, legislation, regulations or other legal requirements affecting credit cards have been adopted in a number of the jurisdictions in which our cards are used. For example, in the United States, Congress and the federal banking agencies have increased their scrutiny of the disclosure and billing practices of credit card issuers. The Federal Reserve Board has proposed significant changes to Regulation Z, under the Federal Truth in Lending Act, which, if implemented, could have a significant affect on the advertising, disclosure and billing practices of card issuers. Proposed or other changes to the laws and or regulations affecting credit card operations and pricing could increase the costs of card issuance and/or decrease the flexibility of card issuers to charge interest rates and fees on credit card accounts. Any such unfavorable regulation of the practices of card issuers could result in a decrease in our payments volume and revenues.

 

•

Regulation of Internet transactions. Many jurisdictions in which our customers and we operate are considering, or are expected to consider, legislation concerning Internet transactions, and in particular with regard to choice of law, the legality of certain e-commerce transactions, the collection of applicable taxes and copyright and trademark infringement. Such legislation may make it less desirable or more costly to complete Internet transactions using our cards.

 

•

Safety and soundness regulation. In recent years, federal banking regulators in the United States have adopted a series of regulatory measures intended to require more conservative accounting, greater risk management and higher capital requirements for bank credit card activities, which may make becoming an issuer of our cards less attractive.

Increased regulatory focus in connection with the matters discussed above may increase our costs, which could materially and adversely affect our financial performance. Similarly, increased regulatory focus on our customers may cause a reduction in payments volume, which could materially adversely affect our revenues, operating results, prospects for future growth and overall business.

Existing and proposed regulation in the areas of consumer privacy and data use and security could decrease the number of payment cards issued, our payments volume and revenues.

We and our customers are subject to regulations related to privacy and data use and security in the jurisdictions in which we do business, and we could be adversely affected by these regulations. For example, in the United States, we and our customers are subject to the banking regulators’ information safeguard rules and the Federal Trade Commission’s rules under the Gramm-Leach-Bliley Act. The rules require that we and our

 

24

---

Table of Contents

customers develop, implement and maintain written, comprehensive information security programs containing safeguards that are appropriate to our size and complexity, the nature and scope of our activities, and the sensitivity of any customer information at issue.

In recent years, there has been heightened legislative and regulatory focus on data security, including requiring consumer notification in the event of a data breach. In the United States, a number of bills have been introduced in Congress and there have been several Congressional hearings to address these issues. Congress will likely consider data security/data breach legislation in 2008 that, if implemented, could affect our customers and us. In addition, a number of U.S. states have enacted security breach legislation requiring varying levels of consumer notification in the event of a security breach, and several other states are considering similar legislation.

Regulation of privacy, data use and security may materially increase our costs and our customers’ costs and may decrease the number of our cards that our customers issue, which could materially and adversely affect our profitability. Our failure, or the failure of our customers, to comply with the privacy and data use and security laws and regulations to which we are subject could result in fines, sanctions and damage to our global reputation and our brand.

Government actions may prevent us from competing effectively against providers of domestic payments services in certain countries, which could adversely affect our ability to maintain or increase our revenues.

Governments in certain countries have acted, or could act, to provide resources or protection to selected national payment card providers or national payment processing providers to support domestic competitors or to displace us from, prevent us from entering into, or substantially restrict us from participating in, particular geographies. For example, our members in China are not permitted to issue our cards for domestic use in China. Governments in certain other countries have considered similar restrictions from time to time. Our efforts to effect change in countries where our access to the domestic payments segment is limited may not be successful, which could adversely affect our ability to maintain or increase our revenues and extend our global brand.

If government regulators determine that we are a systemically important payments system, we may have to change our settlement procedures or other operations, which could make it more costly to operate our business and reduce our operational flexibility.

A number of international initiatives are underway to maintain financial stability by strengthening financial infrastructure. The Committee on Payment and Settlement Systems of the central banks of the Group of Ten countries has developed a set of core principles for “systemically important payment systems.” Government regulators in the United States or elsewhere may determine that we are a “systemically important payments system” and impose settlement risk management requirements on us, including new settlement procedures or other operational rules to address credit and operational risks or new criteria for member participation and merchant access to our payments system. Any of these developments could make it more costly to operate our business.

Our framework agreement with Visa Europe includes indemnity obligations that could expose us to significant liabilities.

Under our framework agreement with Visa Europe, we are required to indemnify Visa Europe for losses resulting from any claims in the United States or anywhere else outside of Visa Europe’s region arising from our or their activities that relate to our payments business or the payments business of Visa Europe. This obligation applies whether or not we or any of our related parties or agents participated in the actions that gave rise to such claims. Such an obligation could expose us to significant liabilities for activities over which we have little or no control. These liabilities would not be covered by our retrospective responsibility plan.

 

25

---

Table of Contents

Business Risks

We face intense competitive pressure on customer pricing, which may materially and adversely affect our revenues and profitability.

We generate revenues from fees we charge our customers that are based on payments volume, transaction messages processed and various other services we provide. In order to increase payments volume, enter new market segments and expand our card base, we offer incentives to customers, such as up-front cash payments, fee discounts, credits, performance-based growth incentives, marketing support payments and other support, such as marketing consulting and market research studies. Over the past several years, we have increased our use of incentives such as up-front cash payments and fee discounts in many countries, including the United States. In order to stay competitive, we may have to continue to increase our use of incentives. Such pricing pressure may make the provision of certain products and services less profitable or unprofitable and materially and adversely affect our operating revenues and profitability. To the extent that we continue to increase incentives to our customers, we will need to further increase payments volume or the amount of services we provide in order to benefit incrementally from such arrangements and to increase revenues and profit, and we may not be successful in doing so. In addition, we enter into long-term contracts with certain customers, and continued pressure on fees could prevent us from entering into such agreements in the future on terms that we consider favorable or may require us to modify existing agreements in order to maintain relationships. Increased pricing pressure also enhances the importance of cost containment and productivity initiatives in areas other than those relating to customer incentives, and we may not succeed in these efforts.

Our operating results may suffer because of intense competition in the global payments industry.

The global payments industry is intensely competitive. Our payment programs compete against all forms of payment, including cash, checks and electronic transactions such as wire transfers and automated clearing house payments. In addition, our payment programs compete against the card-based payments systems of our competitors, such as MasterCard, American Express, Discover and private-label cards issued by merchants.

Some of our competitors may develop substantially greater financial and other resources than we have, may offer a wider range of programs and services than we offer, may use more effective advertising and marketing strategies to achieve broader brand recognition or merchant acceptance than we have or may develop better security solutions or more favorable pricing arrangements. Our competitors may also introduce more innovative programs and services than ours.

Certain of our competitors, including American Express, Discover, private-label card networks and certain alternative payments systems, operate closed-loop payments systems with direct connections to both merchants and consumers, without involving intermediaries. These competitors seek to derive competitive advantages from their business models. For example, operators of closed-loop payments systems tend to have greater control over consumer and merchant customer service than operators of open-loop multi-party payments systems such as ours, in which we must rely on our issuing and acquiring financial institution customers. In addition, these competitors have not attracted the same level of legal or regulatory scrutiny of their pricing and business practices as have operators of open-loop multi-party payments systems such as ours.

We also expect that there may be changes in the competitive landscape in the future, including:

 

•

Competitors, customers and other industry participants may develop products that compete with or replace value-added services we currently provide to support our transaction processing. For example, in recent years some of our competitors and members have begun to compete with our currency conversion services by providing dynamic currency conversion services. Dynamic currency conversion is a service offered or facilitated by a merchant or processor that allows a cardholder to choose to have a transaction converted from the merchant’s currency into the cardholder’s billing currency at the point of sale in real-time, thereby bypassing our currency conversion processes. Dynamic currency

 

26

---

Table of Contents

conversion services could, if significant numbers of cardholders choose to use them, replace our own currency conversion processing services or could force us to change our pricing or practices for these services. If we process fewer transactions or are forced to change our pricing or practices for our currency conversion processing because of competing dynamic currency conversion services or otherwise, our revenues may be materially and adversely affected.

 

•

Parties that process our transactions in certain countries may try to eliminate our position in the payments value chain. For example, merchants could process transactions directly with issuers, or processors could process transactions directly between issuers and acquirers.

 

•

Participants in the payments industry may merge, create joint ventures or form other business combinations that may strengthen their existing business propositions or create new payment services that compete with our services.

 

•

Competition from alternative types of payment services, such as online payment services and services that permit direct debit of consumer checking accounts or automatic clearing house, or ACH, payments, may increase.

Our failure to compete effectively against any of the foregoing competitive threats, could materially and adversely affect our revenues, operating results, prospects for future growth and overall business.

Our operating revenues would decline significantly if we lost one or more of our largest customers, which could have a material adverse impact on our business.

A significant portion of our operating revenues are concentrated among our largest customers. Our five largest customers represented approximately $324 million, or 22%, of our operating revenues for the three months ended December 31, 2007. In addition, operating revenues from our largest customer, JPMorgan Chase, accounted for $106 million, or 7%, of our operating revenues for the three months ended December 31, 2007. Our pro forma operating revenues from our five largest customers represented approximately $1.2 billion, or 23%, and $938 million, or 24%, of our total pro forma operating revenues for fiscal 2007 and 2006, respectively. In addition, pro forma operating revenues from our largest customer, JPMorgan Chase, accounted for $454 million, or 9%, and $408 million, or 10%, of our pro forma operating revenues for fiscal 2007 and 2006, respectively. Most of our larger customer relationships are not exclusive and in certain circumstances (including, in some cases, on relatively short notice) may be terminated by our customers. Our customers can reassess their commitments to us at any time in the future and/or develop their own competitive services. Loss of business from any of our largest customers could have a material adverse effect on our business.

Consolidation of the banking industry could result in our losing business and may create pressure on the fees we charge our customers, which may materially and adversely affect our revenues and profitability.

Over the last several years, the banking industry has undergone substantial consolidation, and we expect this trend to continue in the future. Significant ongoing consolidation in the banking industry may result in one of our largest customers being acquired by an institution that has a strong relationship with a competitor, resulting in a substantial loss of business. In addition, one or more of our customers could seek to merge with or acquire one of our competitors, and any such transaction could have a material adverse effect on our business and prospects.

Continued consolidation in the banking industry would also reduce the overall number of our customers and potential customers and could increase the bargaining power of our remaining customers and potential customers. This consolidation could lead financial institutions to seek greater pricing discounts or other incentives with us. In addition, consolidation could prompt our existing customers to seek to renegotiate their pricing agreements with us to obtain more favorable terms. Pressure on the fees we charge our customers caused by such consolidation could materially and adversely affect our revenues, operating results, prospects for future growth and overall business.

 

27

---

Table of Contents

Merchants are pursuing litigation and supporting regulatory proceedings relating to the costs associated with payment card acceptance and are negotiating incentive arrangements, including pricing discounts, all of which may increase our costs and materially and adversely affect our profitability.

We rely in part on merchants and their relationships with our customers to maintain and expand the acceptance of our payment cards. We believe that consolidation in the retail industry is producing a set of larger merchants that are having a significant impact on all participants in the global payments industry. For instance, some large merchants are bringing lawsuits against us with regard to, or advocating regulation of, interchange fees, which may represent a significant cost that merchants pay to accept payment cards. The emphasis merchants are placing on the costs associated with payment card acceptance may lead to additional regulation and litigation, which would not be covered by our retrospective responsibility plan and which could impair our revenues, operating results, prospects for future growth and overall business.

We, along with our customers, negotiate pricing discounts and other incentive arrangements with certain large merchants to increase acceptance of our payment cards. If merchants continue to consolidate, we and our customers may have to increase the incentives provided to certain larger merchants, which could materially and adversely affect our revenues, operating results, prospects for future growth and overall business.

Certain financial institutions have exclusive, or near exclusive, relationships with our competitors to issue payment cards, and these relationships may adversely affect our ability to maintain or increase our revenues.

Certain financial institutions have long-standing exclusive, or near exclusive, relationships with our competitors to issue payment cards, and these relationships may make it difficult or cost-prohibitive for us to do material amounts of business with them in order to increase our revenues. In addition, these financial institutions may be more successful and may grow faster than the financial institutions that primarily issue our cards, which could put us at a competitive disadvantage.

We depend significantly on our relationships with our customers and other third parties to deliver services and manage our payments system. As a result, our success and reputation are significantly dependent on the success of our customers and the quality of the services they provide. If we are unable to maintain those relationships, or if third parties on which we depend fail to deliver services on our behalf, our business may be materially and adversely affected.

We are, and will continue to be, significantly dependent on relationships with our customers and their relationships with cardholders and merchants to support our programs and services. We do not issue cards, extend credit to cardholders or determine the interest rates (if applicable) or other fees charged to cardholders using cards that carry our brands. Each issuer determines these and most other competitive card features. In addition, we do not generally solicit merchants to accept our cards and we do not establish the discount rates that merchants are charged for card acceptance, which are responsibilities of acquirers. As a result, the success of our business significantly depends on the continued success and competitiveness of our customers and the strength of our relationships with them.

Outside of the United States and certain other countries, most domestic (as opposed to cross-border) transactions conducted using our payment cards are authorized, cleared and settled by our customers or other processors without involving our processing systems. Because we do not provide domestic transaction processing services in these countries, do not generally have direct relationships with merchants and never have direct relationships with cardholders, we depend on our close working relationships with our customers to effectively manage the processing of transactions involving our cards. Our inability to control the end-to-end processing on cards carrying our brands in many countries may put us at a competitive disadvantage by limiting our ability to ensure the quality of the services supporting our brand.

In addition, we depend on third parties to provide various services on our behalf and to the extent that any third party vendors fail to deliver services, our business and reputation could be impaired.

 

28

---

Table of Contents

Our brands and reputation are key assets of our business and may be affected by how we are perceived in the marketplace.

Our brands and their attributes are key assets of our business. The ability to attract and retain consumer cardholders and corporate clients to Visa-branded products is highly dependent upon the external perceptions of our company and our industry. Our business may be affected by actions taken by our customers that impact the perception of our brands. From time to time, our customers may take actions that we do not believe to be in the best interests of our brands, such as creditor practices that may be viewed as “predatory,” which may materially and adversely impact our business. Adverse developments with respect to our industry may also, by association, impair our reputation, or result in greater regulatory or legislative scrutiny.

Global economic, political and other conditions may adversely affect trends in consumer spending and cross-border travel, which may materially and adversely impact our revenues, operating results, prospects for future growth and overall business.

The global payments industry depends heavily upon the overall level of consumer, business and government spending. For example, a sustained deterioration in general economic conditions, particularly in the United States and the Asia-Pacific region, where approximately 66% and 14%, respectively, of our pro forma revenues were generated for fiscal 2007 and, 71% and 12%, respectively, of our pro forma revenues were generated for fiscal 2006, or increases in interest rates in key countries in which we operate, may adversely affect our financial performance by reducing the number or average purchase amount of transactions involving payment cards carrying our brands. A significant portion of the revenues we earn outside the United States results from cross-border business and leisure travel, which may be adversely affected by world geopolitical, economic and other conditions, including the threat of terrorism and outbreak of diseases, such as SARS and avian flu. In particular, revenues from processing foreign currency transactions for our customers fluctuate with cross-border travel and our customers’ need for transactions to be converted into their base currency. In addition, as we are principally domiciled in the United States, a negative perception of the United States could impact the perception of our company, which could materially and adversely affect our revenues, operating results, prospects for future growth and overall business.

As a guarantor of certain obligations of Visa members, we are exposed to risk of loss or insolvency if any member fails to fund its settlement obligations.

We indemnify Visa members for any settlement loss suffered due to the failure of a member to fund its daily settlement obligations. In certain instances, we indemnify members even in situations in which a transaction is not processed by our system. This indemnification creates settlement risk for us due to the difference in timing between the date of a payment transaction and the date of subsequent settlement. The term and amount of the indemnification are unlimited.

While we believe that we have sufficient liquidity to cover a settlement failure by any of the largest Visa members, concurrent settlement failures of more than one of our largest members or several of the smaller Visa members, or systemic operational failures that last for more than a single day, may exceed our available resources and could materially and adversely affect our business and financial condition. In addition, even if we have sufficient liquidity to cover a settlement failure, we may not be able to recover the amount of such payment and may therefore be exposed to significant losses, which could materially and adversely affect our results of operations, cash flow and financial condition. Settlement at risk (or exposure) is estimated using the average daily volumes during the quarter multiplied by the estimated number of days to settle, and the total balance for outstanding travelers cheques. Our estimated settlement exposure, after consideration of collateral that we require certain financial institutions to post, amounted to approximately $29.3 billion at December 31, 2007.

Some Visa members are composed of groups of financial institutions. Some of these members have elected to limit their responsibility for settlement losses arising from the failure of their constituent financial institutions in exchange for managing their constituent financial institutions in accordance with our credit risk policy. To the

 

29

---

Table of Contents

extent that any settlement failure resulting from a constituent financial institution exceeds the limits established by our credit risk policy, we would have to absorb the cost of such settlement failure, which could materially and adversely affect our cash flow.

If our transaction processing systems are disrupted or we are unable to process transactions efficiently, our revenues or operating results and the perception of our brands could be materially and adversely affected.

Our transaction processing systems may experience service interruptions or degradation as a result of processing or other technology malfunction, fire, natural disasters, power loss, disruptions in long distance or local telecommunications access, fraud, terrorism or accident. Our visibility in the global payments industry may attract terrorists and hackers to conduct physical or computer-based attacks, leading to an interruption in service, increased costs or the compromise of data security. Additionally, we rely on service providers for the timely transmission of information across our global data network. If a service provider fails to provide the communications capacity or services we require, as a result of natural disaster, operational disruption, terrorism or any other reason, the failure could interrupt our services, adversely affect the perception of our brands’ reliability and materially reduce our revenues or profitability.

If we are not able to keep pace with the rapid technological developments in the payments industry to provide customers, merchants and cardholders with new and innovative payment programs and services, the use of our cards could decline, which could reduce our revenues and income.

The payments industry is subject to rapid and significant technological changes, including continuing developments of technologies in the areas of smart cards, radio frequency and proximity payment devices (such as contactless cards), e-commerce and mobile commerce, among others. We cannot predict the effect of technological changes on our business. We rely in part on third parties, including some of our competitors and potential competitors, for the development of and access to new technologies. We expect that new services and technologies applicable to the payments industry will continue to emerge, and these new services and technologies may be superior to, or render obsolete, the technologies we currently use in our card products and services. In addition, our ability to adopt new services and technologies that we develop may be inhibited by a need for industry-wide standards, by resistance from customers or merchants to such changes or by intellectual property rights of third parties. Our future success will depend, in part, on our ability to develop new technologies and adapt to technological changes and evolving industry standards.

Account data breaches involving card data stored by us or third parties could adversely affect our reputation and revenues.

We and our customers, merchants and other third parties store cardholder account information in connection with our payment cards. In addition, our customers may use third-party processors to process transactions generated by cards carrying our brands. Breach of the systems on which sensitive cardholder data and account information are stored could lead to fraudulent activity involving our cards, reputational damage and lead to claims against us. For example, in January 2007, TJX Companies, Inc., a large retailer with stores in the United States, Canada and the United Kingdom, disclosed a significant security breach in connection with card and account information, which exposed tens of millions of payment cards issued under our brands and our competitors’ brands to fraudulent use. If we are sued in connection with any data security breach, we could be involved in protracted litigation. If unsuccessful in defending such lawsuits, we may be forced to pay damages and/or change our business practices or pricing structure, any of which could have a material adverse effect on our revenues and profitability. In addition, any reputational damage resulting from an account data breach at one of our customers, merchants or other third parties could decrease the use and acceptance of our cards, which could have a material adverse impact on our payments volume, revenues and future growth prospects. Finally, any data security breach could result in additional regulation, which could materially increase our costs.

 

30

---

Table of Contents

An increase in fraudulent and other illegal activity involving our cards could lead to reputational damage to our brands and could reduce the use and acceptance of our cards.

Criminals are using increasingly sophisticated methods to capture cardholder account information to engage in illegal activities such as fraud and identity theft. As outsourcing and specialization become a more acceptable way of doing business in the payments industry, there are more third parties involved in processing transactions using our cards. If fraud levels involving our cards were to rise, it could lead to reputational damage to our brands, which could reduce the use and acceptance of our cards, or to greater regulation, which could increase our compliance costs.

Visa Europe’s payments system operations are becoming increasingly independent from ours, and if we are unable to maintain seamless interaction of our respective systems, our business and the global perception of the Visa brand could be impaired.

Visa Europe currently has a regionally controlled processing platform. In June 2006, Visa Europe began operating an authorization system that is separate from ours and Visa Europe plans to begin operating a transaction clearing and settlement system that is separate from ours. Because we and Visa Europe have independent processing platforms, interoperability must be maintained. Visa Europe’s authorization system has experienced interruptions in service, and it could experience further interruptions in the future. To the extent that system disruptions occur, it may affect our cardholders who are traveling in Visa Europe’s region and impair our reputation. The increasingly independent payments system operations of Visa Europe could present certain challenges to our business because differences between the two processing systems may make it more difficult to maintain the interoperability of our respective systems. In addition, under the framework agreement, we are restricted from requiring Visa Europe to implement certain changes that we may deem important unless we agree to pay for the implementation costs. Any of the foregoing could result in a loss of payments volume or of customers or could materially increase our costs.

Adverse currency fluctuations could decrease revenues and increase expenses.

We conduct business globally in many foreign currencies, but report our financial results in U.S. dollars. We are therefore exposed to adverse movements in foreign currency exchange rates because depreciation of non-U.S. currencies against the U.S. dollar reduces the U.S. dollar value of the non-U.S. dollar denominated revenues that we recognize and appreciation of non-U.S. currencies against the U.S. dollar increases the U.S. dollar value of expenses that we incur that are denominated in those foreign currencies. We enter into foreign currency hedging contracts to reduce the effect of adverse changes in the value of a limited number of foreign currencies and for a limited period of time (typically up to one year).

Some of our financial incentives to customers are recorded using estimates of our customers’ performance. Material changes in our customers’ performance compared to our estimates could have a material adverse impact on our results of operations.

In certain instances, we offer our customers financial incentives, which are typically tied to their payments volume or transaction messages processed, often under particular programs. These financial incentives are typically recorded as a reduction of revenues. We typically make estimates of our customers’ performance under these programs (sometimes over several years) in order to derive our estimates of the financial incentives that we will pay them. The reduction of revenues that we record each quarter under volume and support agreements is based on these estimates. Material changes in our customers’ performance compared to estimates could have a material adverse impact on our results of operations. For example, if a customer performs better than expected, we may be required to reduce future period revenues to account for the fact that we did not reduce revenues enough in prior periods. On the other hand, if a customer performs worse than expected, we may conclude that we reduced revenues by too much in previous periods.

 

31

---

Table of Contents

We have significant contingent liabilities for settlement payment of all issued and outstanding travelers cheques.

At December 31, 2007, we had over $1 billion in contingent liabilities for settlement payment of all issued and outstanding travelers cheques. Approximately 35% of these travelers cheques were issued outside of the United States by a single issuer. While these obligations are supported in part by a bank guarantee, if the issuer were to fail to pay, we would be obligated to fund partial settlement of presented travelers cheques.

Risks Related to our Structure and Organization

The recent change to our governance structure could have a material adverse effect on our business relationships with our customers.

Prior to our recent reorganization, a number of Visa’s key members had officers who also served on the boards of directors of Visa U.S.A., Visa International, Visa Canada or the regional boards of directors of the unincorporated regions of Visa AP, Visa LAC and Visa CEMEA. As a result of our reorganization, the regional boards of directors of the unincorporated regions have been eliminated, and the boards of directors of Visa U.S.A. and Visa Canada are now comprised of management and are largely administrative in nature. In addition, although our regions are represented on our board by six of our 17 directors, the holders of our class B and class C common stock are not otherwise entitled to vote in the election of directors. As a result, the role of member-nominated and member-elected directors in our corporate governance has been reduced as a result of the reorganization. These changes could have a detrimental effect on our business relationships with members associated with a particular region. In addition, if a member that had an officer who also served on one of the regional boards of directors does not have an officer who currently serves on our board of directors, our business relationship with that member could suffer. A significant loss of revenues or payments volume attributable to such members could have a material adverse effect on our business.

Our relationship with Visa Europe is governed by our framework agreement, which gives Visa Europe very broad rights to operate the Visa business in Visa Europe’s region. We have limited ability to control their operations and limited recourse in the event of a breach by Visa Europe.

Historically, Visa Europe had been subject to the same global operating rules as Visa U.S.A., Visa International and Visa Canada. These global operating rules regulate, among other things, interoperability of payment processing, brand maintenance and investment, standards for products and services, risk management, disputes between members and acceptance standards for merchants. After the reorganization, Visa Europe, unlike Visa U.S.A., Visa International and Visa Canada, did not become our subsidiary. As a result, Visa Europe is no longer subject to the same global operating rules as our subsidiaries and customers.

Our relationship with Visa Europe is now governed by a framework agreement and a subset of operating rules that we have agreed to with Visa Europe and that we have limited ability to change in the future. Although the agreement seeks to ensure that Visa Europe operates in a manner that is acceptable to us, the contractual arrangement is untested and may not be effective in achieving this result. Visa Europe is responsible for designing its own plans to ensure that it is in compliance with the global rules, interoperability, integrity of the system and trademark usage. While we have the right to request changes to these plans, we have no right to audit their compliance with these requirements or examine their books and records in connection with the framework agreement or the put option. The agreement provides Visa Europe with very broad latitude to operate the Visa business and use our brands and technology within Visa Europe’s region and provides us limited controls over the operation of the Visa business in their region. Visa Europe is not required to spend any minimum amount promoting and building the Visa brand in its region, and the strength of the Visa global brand is contingent, in part, on the efforts of Visa Europe to maintain product and service recognition and quality in Europe. Visa Europe may develop, among other things, new brands, payment processing characteristics, products, services, risk management standards, processes for resolving disputes among its members or merchant acceptance profiles that are inconsistent with the operating rules that we apply in the rest of the world.

If we want to change a global rule or require Visa Europe to implement certain changes that would not have a positive return for Visa Europe and its members, then Visa Europe is not required to implement such rule or

 

32

---

Table of Contents

change unless we agree to pay for the implementation costs and expenses that Visa Europe and its members will incur as a consequence of the implementation to the extent necessary to return Visa Europe and its members to a neutral financial condition. We cannot terminate the framework agreement even in the event of Visa Europe’s material uncured breach, and we can only exercise our call right to purchase Visa Europe under extremely limited circumstances. Our remedies under this agreement, if Visa Europe fails to meet its obligations, are limited. Our inability to terminate and other features of the licenses granted under the agreement may also raise issues concerning the characterization of the licenses for purposes of determining our tax treatment with respect to entering into the licenses and receiving payments thereunder. Any inconsistency in the payment processing services and products that we are able to provide could negatively affect cardholders from Visa Europe using cards in our regions or our cardholders using cards in Visa Europe’s region.

We have granted to Visa Europe the right to require us to purchase all of the outstanding shares of Visa Europe’s capital stock. If Visa Europe exercises this option, we will incur a substantial financial obligation. In addition, we are required to record any change in the fair value of the put option on a quarterly basis, which will impact our net income.

We have granted Visa Europe a put option, which, if exercised, will require us to purchase all of the outstanding shares of capital stock of Visa Europe from its members. Visa Europe may exercise the put option at any time after the first anniversary of this offering. The purchase price of the Visa Europe shares under the put option is based upon a formula that, subject to certain adjustments, applies the 12-month forward price-to- earnings multiple applicable to our common stock at the time the option is exercised to Visa Europe’s projected sustainable adjusted net operating income for the same 12-month period. Upon exercise of the put option, we will be obligated, subject only to regulatory approvals and other limited conditions, to pay the purchase price within 285 days in cash or, at our option, with a combination of cash and shares of our publicly tradable common stock. The portion of the purchase price we will be able to pay in stock will initially be limited to       % (assuming the redemption of              shares of class C (series I) common stock with the proceeds of this offering) and will be reduced to the extent of any further redemptions of, or exceptions made by the directors to the transfer restrictions applicable to, the class C (series I) common stock. We must pay the purchase price in cash, however, if the settlement of the put option occurs more than three years after the completion of this offering.

We will incur a substantial financial obligation if Visa Europe exercises the put option. The amount of that potential obligation could vary dramatically based on, among other things, the 12 month projected sustainable net operating income of Visa Europe, the allocation of cost synergies, the trading price of our class A common stock, and our 12-month forward price-to-earnings multiple, in each case, as determined at the time the put option is exercised. We are not currently able to estimate the amount of this obligation due to the nature and number of factors involved and the range of important assumptions that would be required. However, depending upon Visa Europe’s level of sustainable profitability and/or our 12-month forward price-to-earnings multiple at the time of any exercise of the option, the amount of this obligation could be several billion dollars or more. We may need to obtain third-party financing, either by borrowing funds or undertaking a subsequent equity offering, in order to meet our obligation. This financing may not be available to us in a sufficient amount within the required 285-day period or on terms that we deem to be reasonable. The payment of part of the exercise price in stock would dilute the ownership interests of our stockholders. Moreover, the acquisition of Visa Europe following an exercise of the put option would require us to integrate the operations of Visa Europe into our business, which could divert the time and attention of senior management.

We recorded the put option at its fair value in our consolidated balance sheet on October 1, 2007 as part of the reorganization. In the future, we will be required to record any change in the fair value of the put option on a quarterly basis. These adjustments will be recorded through our consolidated statement of operations, which will therefore impact our reported net income and earnings per share. Such quarterly adjustments and their resulting impact on our reported statement of operations could be significant. The existence of these charges could adversely affect our ability to raise capital and/or the price at which we can raise capital.

See “Material Contracts—The Put-Call Option Agreement.”

 

33

---

Table of Contents

The terms of our reorganization created financial incentives that reward net revenue growth in the four quarters ended December 31, 2007.

One of the terms of our reorganization plan was a “true up” mechanism designed to reallocate the shares initially distributed to the members of Visa U.S.A. and Visa International, and the former members of Visa Canada, among themselves, based on each participating region’s relative under- or over-achievement of its net revenue targets during a measurement period consisting of the four-quarter period ending with (and including) the latest quarter for which financial statements are included in this registration statement on the date it is declared effective by the SEC. We expect that the measurement period will consist of the four quarters ended December 31, 2007. This mechanism creates financial incentives that reward net revenue growth in the measurement period. Because comparable incentives did not exist in prior periods and will not exist in future periods, it is possible that the rate of revenue growth in the measurement period will not be representative of rates that may be expected in future periods.

Our management team is new and does not have a history of working together.

We designated Joseph W. Saunders as our Chief Executive Officer and Chairman of our board in May 2007 and have since assembled a new management team, including John C. (Hans) Morris, our President, and Byron H. Pollitt, our Chief Financial Officer. Our success will largely depend on the ability of the new management team to work together to integrate the operations and business of Visa U.S.A., Visa International and Visa Canada, and to continue to execute our business strategy. Because our management team does not have a significant history of working together and includes individuals recruited from outside our company, they may not be able to work together effectively, which could disrupt our operations and harm our business.

Our recent reorganization will require us to make significant changes to our culture and business operations. If we fail to make this transition successfully, our business could be materially and adversely affected.

Our recent reorganization will require broad and significant changes to our culture and operations. Historically, the primary goal of Visa U.S.A., Visa International and Visa Canada has not been to maximize profit for these entities, but rather to deliver benefits to their members and enhance member opportunity and revenue. As a result of the reorganization, we now must operate our business in a way that maximizes long-term stockholder value. Many of our employees have limited experience operating in a profit-maximizing business environment.

In addition, the Visa enterprise historically has been operated under a decentralized regional structure, and each region has had substantial autonomy in its own business strategies and decisions. Our recent reorganization has resulted in a more centralized corporate governance structure in which our board of directors exerts centralized management control. We face significant challenges integrating the operations of the different regions. We may also be unable to retain and attract key employees, and we may not realize the cost savings and operational efficiencies that we currently expect. This transition will be subject to risks, expenses and difficulties that we cannot predict and may not be capable of handling in an efficient and timely manner.

Any acquisitions that we make could disrupt our business and harm our financial condition.

We may make strategic acquisitions of complementary businesses, products or technologies. If so, we may not be able to successfully finance or integrate any such businesses, products or technologies. Furthermore, the integration of any acquisition may divert management’s time and resources from our core business and disrupt our operations. We may spend time and money on projects that do not increase our revenues. To the extent we pay the purchase price of any acquisition in cash, it would reduce our cash reserves, and to the extent the purchase price is paid with our stock, it could be dilutive to our stockholders. While we from time to time evaluate potential acquisitions of businesses, products and technologies, and anticipate continuing to make these evaluations, we have no present understandings, commitments or agreements with respect to any material acquisitions.

 

34

---

Table of Contents

Risks Related to Our Class A Common Stock and this Offering

An active trading market for our class A common stock may not develop, which may cause our class A common stock to trade at a discount from the initial offering price and make it difficult to sell the shares you purchase.

Prior to this offering, there has been no public trading market for our class A common stock. Although we have filed an application to have our class A common stock listed on the New York Stock Exchange, an active public market for our class A common stock may not develop or continue. The initial public offering price per share of our class A common stock has been determined by agreement among us and the underwriters and may not be indicative of the price at which our class A common stock will trade in the public market after this offering.

Future sales of our class A common stock could depress the market price of our class A common stock.

The market price of our class A common stock could decline as a result of sales of a large number of shares in the public market after this offering or the perception that such sales could occur. These sales, or the perception that such sales may occur, could depress the market price of our class A common stock and might make it more difficult for us or you to sell equity securities in the future.

Upon completion of this offering, we will have              outstanding shares of class A common stock (or              shares if the underwriters exercise their option to purchase additional shares in full). Except for any shares acquired by our “affiliates,” as that term is defined in Rule 144 under the Securities Act, any of these shares may be resold immediately in the public market.

After the completion of this offering and if the litigation committee so requests in order to increase the size of the escrow account, we will conduct follow-on offerings of our class A common stock, which we refer to as loss shares. All of the loss shares will be freely tradable without restriction or registration under the Securities Act by persons other than our affiliates.

In addition, following the completion of this offering and the redemption of certain shares of class B and class C common stock as described under “Use of Proceeds,” our existing stockholders will hold              shares of class B common stock and              shares of class C common stock (other than class C (series II) common stock). Subject to limited exceptions, the class B common stock is not transferable until the later of the third anniversary of this offering and the date on which all of the covered litigation has been finally resolved. Subject to limited exceptions, the class C common stock is not transferable until the third anniversary of this offering. After the termination of these transfer restrictions, the class B and class C common stock will only be convertible into class A common stock upon transfer to a person that was not, immediately after the reorganization, a Visa member. Upon such transfer, each share of class B or class C common stock will automatically convert into class A common stock based on the applicable conversion rate in effect at the time of such transfer. All of the class A common stock issuable upon such conversion will be freely tradable without restriction or registration under the Securities Act by persons other than our affiliates.

If funds are released from escrow after the resolution of the litigation covered by our retrospective responsibility plan, holders of our class A common stock will suffer dilution as a result of a favorable adjustment to the conversion rate of our class B common stock.

Our retrospective responsibility plan provides that any amounts remaining in the escrow account after the date on which all of the covered litigation is resolved will be released back to us and the conversion rate of the class B common stock then outstanding will be adjusted in favor of the holders of the class B common stock through a formula based on the released escrow amount and the market price of our class A common stock. If any funds remain in the escrow account and are released back to us, the resulting adjustment in the conversion rate of the class B common stock will result in each share of class B common stock then outstanding becoming

 

35

---

Table of Contents

convertible into an increased number of shares of class A common stock, which in turn will result in dilution of the interest in Visa Inc. held by the holders of class A common stock. The amount of such dilution will depend on the amount, if any, of the funds released from the escrow account and the market price of our class A common stock at the time such funds are released. See “Description of Capital Stock—Conversion.”

The market price of our common stock may be volatile, which could cause the value of your investment to decline.

Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as the factors listed below, could affect the market price of our class A common stock:

 

•

quarterly variations in our results of operations or the results of operations of our competitors or those of Visa Europe;

 

•

changes in earning estimates, investors’ perceptions, recommendations by securities analysts or our failure to achieve analysts’ earning estimates;

 

•

the announcement of new products or service enhancements by us or our competitors;

 

•

announcements related to litigation;

 

•

potential acquisitions by us of other companies, including the exercise of the put option requiring us to purchase all of the outstanding shares of capital stock of Visa Europe from its members;

 

•

developments in our industry; and

 

•

general economic, market and political conditions and other factors unrelated to our operating performance or the operating performance of our competitors.

Certain adjustments to the conversion rate of class B common stock in connection with the creation, or additional funding, of the escrow account from which settlements of, or judgments in, the covered litigation will be payable may give rise to taxable deemed dividends for holders of class A common stock.

In connection with this offering and the creation of the escrow account from which settlements of, or judgments in, the covered litigation will be payable, there will be an adjustment, which we refer to as the first adjustment, to the conversion rate of the class B common stock, which will result in a reduction in the total number of shares of class A common stock into which the class B common stock may be converted. At the request of the litigation committee, we will consummate one or more follow-on offerings of class A common stock, the net proceeds from which will be added to the escrow account. In that case, there will be one or more subsequent adjustments, which we refer to as the potential subsequent adjustments, to the conversion rate of the class B common stock, which will result in a further reduction in the total number of shares of class A common stock into which the class B common stock may be converted (when compared to the number of shares of class A common stock into which the class B common stock was convertible after the first adjustment or after any prior potential subsequent adjustment, as the case may be).

Neither the first adjustment nor the potential subsequent adjustments should give rise to deemed distributions under Section 305 of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, to holders of our class A common stock on the grounds that such adjustments are not within the purview of Section 305 of the Code, because, for example, they are adjustments of the price paid by us to acquire property in our reorganization and, thus, are not, and do not have the effect of, distributions with respect to our class A common stock. There can be no assurance, however, that the IRS will not assert that any of the first adjustment and the potential subsequent adjustments has the result of an increase in the proportionate interest in our earnings and profits or assets to holders of our class A common stock and, accordingly, should be treated as giving rise to deemed distributions under Section 305 of the Code with respect to such class A common stock. If such a position were successfully asserted, a holder of our class A common stock would, for U.S. federal income tax

 

36

---

Table of Contents

purposes, be deemed to receive a distribution from us in an amount equal to the value of the increase in such holder’s proportionate interest in our earnings and profits or assets reflected in such holder’s class A common stock that would result from the decrease in the total number of shares of class A common stock into which the class B common stock may be converted after the first adjustment or after any potential subsequent adjustments, as the case may be. Such a deemed distribution would be characterized as a dividend to such holder, for U.S. federal income tax purposes, to the extent the deemed distribution is treated as paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Any remaining, portion of such a deemed distribution will be treated first as a tax-free return of such holder’s adjusted tax basis in our class A common stock and thereafter as gain. We will take the position that none of the first adjustment and the potential subsequent adjustments gives rise to deemed distributions under Section 305 of the Code to holders of our class A common stock.

We urge you to consult with your own tax advisor regarding the tax consequences under Section 305 of the Code (as well as other Code sections) of any adjustment to the conversion rate of the class B common stock in connection with the creation, or additional funding, of the escrow account from which settlements of, or judgments in, the covered litigation will be payable.

The trading market for our class A common stock could be adversely affected because provisions of our amended and restated certificate of incorporation may limit the market-making ability of broker-dealers that are affiliated with Visa members.

Following this offering, our amended and restated certificate of incorporation will provide that no person that is a Visa member or affiliated with a Visa member will be permitted to beneficially own more than 5% of the aggregate outstanding class A common stock or certain other voting stock (or securities convertible or exchangeable into such stock) at any time, subject to a limited number of exceptions. This restriction may limit the ability of a broker-dealer that is affiliated with a Visa member to act as a market-maker in our class A common stock, although this restriction will not prevent such a broker-dealer from executing trades on an agency basis on behalf of third parties. This restriction could adversely affect the trading market for the class A common stock.

Until the third anniversary of the completion of this offering, six of our 17 directors will be individuals elected or nominated by our regions. In addition, holders of our class B common stock and class C common stock have voting rights concerning certain significant corporate transactions, and their interests in our business may be different than yours.

Our amended and restated certificate of incorporation provides that, until the third anniversary of the completion of this offering, six of our 17 directors will be individuals elected or nominated by our regions. Although holders of class B and class C common stock do not have any right to vote on those matters on which stockholders generally are entitled to vote, such holders have the right to cast a number of votes equal to the number of shares of class B common stock or class C common stock (other than the class C (series II) common stock), as applicable multiplied by the applicable conversion rate on certain significant transactions enumerated in the amended and restated certificate of incorporation, such as a proposed consolidation or merger, a decision to exit our core payments business or any other vote required by law. The holders of the class B common stock and class C common stock may not have the same incentive to approve a corporate action that may be favorable to the holders of class A common stock or their interests may otherwise conflict with those of the holders of class A common stock. See “Description of Capital Stock—Voting Rights.”

Anti-takeover provisions in our governing documents and Delaware law could delay or prevent entirely a takeover attempt or a change in control.

Provisions contained in our amended and restated certificate of incorporation, bylaws and Delaware law could delay or prevent a merger or acquisition that our stockholders consider favorable. Except for limited exceptions, no person may own more than 15% of our total outstanding shares on an as-converted basis or more

 

37

---

Table of Contents

than 15% of any class or series of our common stock, unless our board of directors approves the acquisition of such shares. In addition, except for common stock issued to a member in connection with the reorganization, or shares issuable on conversion of such common stock, shares held by a member, a competitor, an affiliate or member of a competitor may not exceed 5% of any class of common stock. In addition:

 

•

our board of directors will be divided into three classes, with approximately one-third of our directors elected each year;

 

•

following the closing of this offering until the third anniversary of this offering, six directors will be individuals elected or nominated by our regions;

 

•

our independent directors may be removed only upon the affirmative vote of at least 80% of the outstanding shares of class A common stock;

 

•

our stockholders are not entitled to the right to cumulate votes in the election of directors;

 

•

holders of our class A common stock are not entitled to act by written consent;

 

•

our stockholders must provide timely notice for any stockholder proposals and director nominations;

 

•

we have adopted provisions that eliminate the personal liability of directors for monetary damages for actions taken as a director, with certain exceptions;

 

•

in addition to certain class votes, a vote of 66 2/3% or more of all of the outstanding shares of our common stock then entitled to vote is required to amend certain sections of our amended and restated certificate of incorporation; and

 

•

we will be governed by Section 203 of the General Corporation Law of the State of Delaware, or DGCL, as amended from time to time, which provides that a corporation shall not engage in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder, except under certain circumstances including upon receipt of prior board approval.

See “Description of Capital Stock—Limitations on a Change of Control—Amendment of Certificate of Incorporation” and “—Delaware Anti-Takeover Statute.”

Our ability to pay regular dividends to holders of our class A, class B and class C common stock in the future is subject to the discretion of our board of directors and will be limited by our ability to generate sufficient earnings and cash flows.

We have not paid any cash dividends on our common stock. After the consummation of this offering, we intend to pay cash dividends on a quarterly basis on our class A, class B and class C common stock. Any future payment of dividends will be dependent upon our ability to generate earnings and cash flows. However, sufficient cash may not be available to pay such dividends. Payment of future dividends, if any, would be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, capital requirements, covenants in our debt instruments and other factors that our board of directors deems relevant. Furthermore, no dividend may be declared or paid on any class or series of common stock unless an equivalent dividend is contemporaneously declared and paid on each other class and series of common stock. If, as a consequence of these various factors, we are unable to generate sufficient earnings and cash flows from our business, we may not be able to make payments of dividends on our common stock, including our class A common stock.

 

38

---

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may include statements regarding the period following the completion of this offering. These statements include, but are not limited to:

 

•

statements regarding the expected growth of the electronic payments industry;

 

•

expectations as to the benefits of the recent reorganization;

 

•

projections as to the future trends in the electronic payments industry, as well as our corresponding business strategies and the expected benefits derived from such strategies;

 

•

statements regarding our relationships with customers and expectations as to the future development of these relationships;

 

•

statements regarding the capabilities and advantages of our processing platform, VisaNet;

 

•

statements as to the market opportunities for certain product segments and in certain geographies, as well as our ability to take advantage of these opportunities;

 

•

statements as to future foreign and domestic regulatory changes and their impact on our business;

 

•

statements as to the impact of litigation and the operation of our retrospective responsibility plan;

 

•

expectations as to the payment of dividends; and

 

•

statements regarding the capacity of our facilities.

In addition, statements that contain the terms “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will” and similar expressions are intended to identify forward-looking statements. In addition, any underlying assumptions are forward-looking statements. By their nature, forward-looking statements are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Assumptions were made by us in light of our experience and our perceptions of historical trends, current conditions and expected future developments and other factors that we believe are appropriate under the circumstance. In addition to the assumptions specifically identified in the prospectus, assumptions have been made regarding other things, including:

 

•

the continued migration of paper-based payments to card-based and other electronic payments;

 

•

the impact of globalization on the electronic payments industry in developing countries;

 

•

the impact of potential foreign and domestic regulatory changes; and

 

•

the impact of potential capital market and currency market fluctuations.

Actual results could differ materially and adversely from these forward-looking statements as a result of a variety of factors, including all the risks discussed in “Risk Factors” and elsewhere in this prospectus. You are cautioned not to place undue reliance on such statements, which speak only as of the date of this prospectus. Unless we are required to do so under U.S. federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.

 

39

---

Table of Contents

USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of class A common stock in this offering will be approximately $            , or $             if the underwriters exercise their option to purchase additional shares in full, assuming an initial public offering price of $             per share (the midpoint of the range set forth on the cover of this prospectus), after deducting the underwriting discounts and commissions and estimated offering expenses.

We intend to deposit $             into an escrow account from which settlements of, or judgments in, the covered litigation described under “Business—Retrospective Responsibility Plan” will be payable.

Following the completion of this offering and the expiration (or, if earlier, the exercise in full) of the underwriters’ option to purchase additional shares, we intend to use $             of the net proceeds to redeem              shares of class B common stock and              shares of class C common stock.

We will use the balance of net proceeds for general corporate purposes. These purposes may include funding the $1.146 billion aggregate redemption price for all of the class C (series II) common stock, which we intend to redeem in October 2008, and the $             redemption price for              shares of class C (series III) common stock, which we will be required to redeem in October 2008 pursuant to our amended and restated certificate of incorporation. See “Unaudited Pro Forma Condensed Combined Statement of Operations.”

DIVIDEND POLICY

Following this offering and subject to legally available funds, we currently intend to pay a quarterly dividend, in cash, at an annual rate initially equal to $             per share of class A common stock (representing a quarterly rate initially equal to $             per share) commencing with the quarter ended                     , 2008. Our class B and class C common stock will share ratably on an as-converted basis in such dividends. The declaration and payment of any dividends will be at the sole discretion of our board of directors after taking into account various factors, including our financial condition, operating results, capital requirements, covenants in our debt instruments and other factors that our board of directors deems relevant.

 

40

---

Table of Contents

CAPITALIZATION

Prior to the closing of this offering, each of the regional classes of common stock will convert into class C common stock except in the case of common stock held by Visa U.S.A. and its members, which will convert into class B common stock. The following table sets forth our capitalization at December 31, 2007:

 

•

on an actual basis as adjusted to reflect the conversion of regional shares into class B and class C common stock; and

 

•

on a pro forma basis to give effect to:

 

•

the receipt by us of estimated net proceeds of $             from the sale of              shares of class A common stock in this offering at an assumed initial public offering price of $             per share (the midpoint of the range on the cover of this prospectus);

 

•

the application of the net proceeds of this offering as described under “Use of Proceeds,” including the retention of $             for general corporate purposes, the redemption of              shares of class B common stock and              shares of class C (series I) common stock for an assumed price of $             per share (the midpoint of the range set forth on the cover of this prospectus less underwriting discounts and commissions), as well as the deposit of $             into an escrow account from which settlements of, or judgments in, the covered litigation will be payable;

 

•

the reclassification of all of the shares of class C (series II) common stock to temporary equity reflecting the ability of Visa Europe, upon completion of this offering, to force redemption of the class C (series II) common stock at any time after December 4, 2008, and our intention to redeem the class C (series II) common stock in October 2008 at an aggregate price of $1.146 billion, subject to reduction to the extent of dividends paid by us prior to that time and other adjustments; and

 

•

the reclassification of              shares of class C (series III) common stock as a liability on our balance sheet reflecting the fact that these shares, held by Visa Europe, will be called for redemption promptly following this offering at a price equal to the price per share of our class A common stock in this offering, net of underwriting discounts and commissions, but that payment for such shares will not be made until October 2008.

 

41

---

Table of Contents

		December 31, 2007
		Actual, As Adjusted				Pro Forma
		(unaudited) (in millions)
Cash and cash equivalents		$	1,698			$
Restricted cash			—
Total cash, cash equivalents and restricted cash		$	1,698			$
Liabilities:
Redeemable class C (series III) common stock(1)		$	—			$
Total debt			115
Temporary Equity:
Class C (series II) common stock,              shares authorized and issued pro forma(1)(2)
Stockholders’ Equity:
Preferred stock, $0.0001 par value, 25,000,000 shares authorized, actual and pro forma; zero shares issued and outstanding, actual and pro forma
Class A common stock, $0.0001 par value, 2,001,622,245,209 shares authorized, actual, as adjusted, and pro forma; zero shares issued and outstanding, actual, as adjusted, and              shares issued and outstanding, pro forma(3)
Class B common stock, $0.0001 par value, 622,245,209 shares authorized, actual, as adjusted, and pro forma; and              issued and outstanding, actual, as adjusted, and              shares issued and outstanding, pro forma
Class C (series I, III and IV) common stock, $0.0001 par value, 878,582,801 shares authorized, actual, as adjusted and pro forma;              shares issued and outstanding, actual, as adjusted, and              shares issued and outstanding, pro forma(1)
Class C (series II) common stock, $0.0001 par value,            shares authorized, actual, as adjusted;            shares issued and outstanding, actual, as adjusted; and zero shares issued and outstanding, pro forma(1)(2)
Additional paid-in capital			16,785
Accumulated deficit			(69	)
Accumulated other comprehensive loss, net			—
Total stockholders’ equity			16,716
Total capitalization		$	27,742

 

(1)

We intend to redeem all class C (series II) common stock, which is classified as temporary equity in our pro forma presentation, and we are required to redeem              shares of class C (series III) common stock, which is classified as a liability in our pro forma presentation, in October 2008 for an aggregate redemption price of $            , after which all remaining class C (series III) and class C (series IV) common stock will automatically convert into class C (series I) common stock on a one-to-one basis.

(2)

Immediately prior to the offering, we will issue             additional shares of class C (series II) common stock pursuant to provisions of our amended and restated certificate of incorporation that require that Visa Europe’s ownership of our common stock on an as-converted basis represent no less than 10% of our total outstanding share capital at all times prior to October 5, 2008. The issuance of these shares will have no cash impact and will not affect our financial results, including earnings per share, as the shares will be classified as temporary equity and all class C (series II) common stock is intended to be redeemed in October 2008 for an aggregate price of $1.146 billion (subject to reduction to the extent of dividends paid by us prior to that time and other adjustments).

(3)	Amount excludes                  shares of restricted stock and                  restricted stock units that we intend to grant upon the pricing of this offering to certain of our directors and employees.

The foregoing table should be read in conjunction with “Management’s Discussion and Analysis of Historical and Pro Forma Financial Condition and Results of Operations of Visa Inc.,” “Unaudited Pro Forma Condensed Combined Statement of Operations” and the consolidated balance sheet of Visa Inc. at December 31, 2007, and related notes included elsewhere in this prospectus.

 

42

---

Table of Contents

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

The following unaudited pro forma condensed combined statement of operations has been prepared by applying pro forma adjustments to the historical audited consolidated statement of operations for fiscal 2007 of Visa U.S.A., Visa International and Visa Canada to give pro forma effect to the reorganization and this offering under U.S. GAAP.

The unaudited pro forma condensed combined statement of operations gives effect to the reorganization and this offering, including the use of proceeds, as if they had occurred on October 1, 2006, except for the purposes of calculating our liability under the framework agreement with Visa Europe. See Note 3—Visa Europe Transaction to this unaudited pro forma condensed combined statement of operations.

We have applied pro forma adjustments to reflect the reorganization as follows:

 

•

The reorganization was accounted for as a purchase under the guidelines of Statement of Financial Accounting Standards, or SFAS, No. 141 “Business Combinations” with Visa U.S.A. deemed to be the accounting acquirer of Visa International and Visa Canada, including their respective minority interest in Inovant.

 

•

Visa Europe remains owned and governed by its European member financial institutions. Visa Europe holds an 11.7% equity ownership interest in our common stock, of which 8.1% is represented by class EU (series I) and class EU (series III) common stock and 3.6% is represented by class EU (series II) common stock. Visa Europe received these shares in the reorganization in exchange for both its membership interest in Visa International and its ownership interest in Inovant. The class EU (series I) and (series III) common stock will be converted on a one-to-one basis into class C (series III) and class C (series IV) common stock, respectively, and the class EU (series II) common stock will be converted on a one-to-one basis into class C (series II) common stock, prior to the completion of this offering. Further, we entered into a framework agreement with Visa Europe, which provides for trademark and technology licenses and bilateral services. See Note 3—Visa Europe Transaction to this unaudited pro forma condensed combined statement of operations.

We have applied pro forma adjustments to reflect the offering as follows:

 

•

Historically, Visa U.S.A. and Visa International were both eligible for a special state tax deduction pursuant to which they were not taxed on a substantial portion of their reported income on the basis that they both operated on a cooperative or mutual basis. As a result of this offering and consequent ownership by parties other than our financial institution customers, we will no longer be eligible to claim a special deduction pursuant to California Revenue and Taxation Code §24405.

 

•

The application of the estimated net proceeds of this offering, as described under “Use of Proceeds,” which includes the redemption of            shares of class B common stock and            shares of class C common stock at an assumed price of $            per share (the midpoint of the range set forth on the cover of this prospectus) less underwriting discounts and commissions, and the deposit of $             into an escrow account from which settlements of, or judgments in, the covered litigation will be payable.

 

•

Reclassification of the class C (series II) common stock to temporary or mezzanine level equity, the issuance of additional class C (series II) common stock pursuant to the terms of these securities and accretion of approximately $42 million on the class C (series II) common stock from its initial fair value of $1.104 billion to its redemption value of $1.146 billion.

 

•

Reclassification of            shares of class C (series III) common stock as a liability reflecting the fact that these shares, held by Visa Europe, have been called for redemption at a price of $            per share (the midpoint of the range set forth on the cover of the prospectus less underwriting discounts and commissions), but that payment for such shares will not be made until October 2008.

 

43

---

Table of Contents

Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined statement of operations. The unaudited pro forma condensed combined statement of operations is provided for illustrative purposes only and is not necessarily indicative of the results of operations that would have actually been reported had the reorganization and this offering occurred on the assumed date indicated, nor is it necessarily indicative of our results of operations for any future periods. The pro forma information presented is based on available information and assumptions that we believe are reasonable under the circumstances.

The unaudited pro forma condensed combined statement of operations should be read in conjunction with the following:

 

•

the Visa Inc. consolidated balance sheet at October 1, 2007;

 

•

the Visa Inc. consolidated financial statements at and for the three months ended December 31, 2007;

 

•

the Visa U.S.A. consolidated financial statements at September 30, 2007 and 2006 and for the years ended September 30, 2007, 2006 and 2005; and

 

•

the Visa International consolidated financial statements at September 30, 2007 and 2006 and for the years ended September 30, 2007, 2006 and 2005.

The above referenced financial statements are included elsewhere in the prospectus. The unaudited pro forma condensed combined statement of operations should also be read in conjunction with the information contained in “Risk Factors,” “Capitalization,” “Summary Financial and Other Data of Visa Inc.,” “Selected Consolidated Financial and Other Data of Visa U.S.A.,” “Management’s Discussion and Analysis of Historical and Pro Forma Financial Condition and Results of Operations of Visa Inc.” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Visa U.S.A.”

 

44

---

Table of Contents

VISA INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED SEPTEMBER 30, 2007

(in thousands, except share and per share data)

 

		Historical
										Note 2																			Note 5
		Visa U.S.A.				Visa International				Visa Canada			Combination Adjustments				Combined Subtotal				Pro Forma Reorganization Adjustments				Subtotal				Pro Forma Offering Adjustments			Unaudited Pro Forma Visa Inc.
Operating revenues
Service fees		$	1,944,537			$	963,008			$	92,170		$	(188,985	) B		$	2,669,190			$	(87,166	) E		$	2,582,024			$	—		$	2,582,024
														(141,540	) A
Data processing fees			1,416,075				325,761				32,792			(86,235	) B			1,688,393				(29,034	) F			1,659,359				—			1,659,359
Volume and support incentives			(504,780	)			(209,822	)			—			—				(714,602	)			—				(714,602	)			—			(714,602	)
International transaction fees			454,168				—				12,570			777,552	A			1,244,290				(50,984	) G			1,193,306				—			1,193,306
International service revenues			—				636,012				—			(636,012	) A			—				—				—				—			—
Other revenues			279,796				187,537				11,694			(194,710	) B			330,543				142,500	H			473,043				—			473,043
														46,226	C
Total operating revenues		$	3,589,796			$	1,902,496			$	149,226		$	(423,704	)		$	5,217,814			$	(24,684	)		$	5,193,130				—		$	5,193,130
Operating expenses
Personnel		$	721,381			$	410,019			$	16,980		$	10,646	C		$	1,159,026				—			$	1,159,026				—		$	1,159,026
Affiliates services			—				211,808				21,505			(211,808	) A			—				—				—				—			—
														(21,505	) B
Premises, equipment and software			—				108,147				—			(108,147	) A			—				—				—				—			—
Communications			—				36,533				—			(36,533	) A			—				—				—				—			—
Network, EDP and communications			366,231				—				1,722			95,323	A			462,457				59,355	D			516,748				—			516,748
														(2,839	) B							(5,064	) D
														2,020	C
Advertising, marketing and promotion			580,883				457,261				36,376			24	C			1,074,544								1,074,544				—			1,074,544
Travel and meetings			—				57,412				—			(57,412	) A			—				—				—				—			—
Visa International fees			172,728				—				18,256			(190,984	) B			—				—				—				—			—
Professional and consulting fees			334,290				204,266				10,473			(2,895	) B			552,373				—				552,373				—			552,373
														6,239	C
Administrative and other			210,948				56,201				9,076			318,541	A			351,726				1,227	D			352,953				—			352,953
														(266,811	) B
														23,771	C
Settlement risk guarantee			—				(57	)			—			57	A			—				—				—				—			—
Litigation provision			2,652,830				—				—			272	A			2,653,102				—				2,653,102				—			2,653,102
Total operating expenses		$	5,039,291			$	1,541,590			$	114,388		$	(442,041	)		$	6,253,228			$	55,518			$	6,308,746				—		$	6,308,746

See notes to unaudited pro forma condensed combined statement of operations.

 

45

---

Table of Contents

VISA INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED SEPTEMBER 30, 2007—(Continued)

(in thousands, except share and per share data)

 

		Historical
									Note 2																			Note 5
		Visa U.S.A.				Visa International			Visa Canada			Combination Adjustments				Combined Subtotal				Pro Forma Reorganization Adjustments				Subtotal				Pro Forma Offering Adjustments			Unaudited Pro Forma Visa Inc.
Operating (loss) income		$	(1,449,495	)		$	360,906		$	34,838		$	18,337			$	(1,035,414	)		$	(80,202	)		$	(1,115,616	)		—			$	(1,115,616	)
Non-operating income, net			—				105,663			—			(90,724	) A			—				—				—			—				—
													(14,939	) B
Other income (expense)
Equity in earnings of unconsolidated affiliates			40,276				—			753			2,521	A			—				—				—			—				—
													(43,550	) B
Interest income (expense)			(80,658	)			—			1,214			(13,689	) A			(96,886	)			—				(96,886	)		—				(96,886	)
													(3,753	) C
Investment income, net			102,459				—			—			93,686	A			196,604				—				196,604			—				196,604
													459	C
Other income			—				—			—			8,499	A			8,499				—				8,499			—				8,499
Total other income		$	62,077				—		$	1,967		$	44,173			$	108,217				—			$	108,217			—			$	108,217
(Loss) income before income taxes and minority interest			(1,387,418	)			466,569			36,805			(43,153	)			(927,197	)			(80,202	)			(1,007,399	)		—				(1,007,399	)
Income tax expense (benefit) See Note 5—Pro Forma Offering Adjustment.			(315,993	)			196,332			298			16	C			(119,347	)			(23,443	) K			(146,564	)		30,701				(115,863	)
																					(3,774	) J
(Loss) income before minority interest			(1,071,425	)			270,237			36,507			(43,169	)			(807,850	)			(52,985	)			(860,835	)		(30,701	)			(891,536	)
Minority interest (expense)			(4,670	)			—			—			3,163	B			(1,507	)			1,507	I			—			—				—
Net (loss) income		$	(1,076,095	)		$	270,237		$	36,507		$	(40,006	)		$	(809,357	)		$	(51,478	)		$	(860,835	)		(30,701	)		$	(891,536	)
Pro forma basic and diluted earnings per share:
Class A and C (series I, III and IV) common stock																															$
Class B common stock																															$
Class C (series II) common stock																															$
Pro forma number of shares outstanding, basic and diluted:
Class A and C (series I, III and IV) common stock
Class B common stock
Class C (series II) common stock
See Note 6—Pro Forma Earnings per Share

See notes to unaudited pro forma condensed combined statement of operations.

 

46

---

Table of Contents

Notes to Visa Inc. Unaudited Pro Forma

Condensed Combined Statement of Operations

(in thousands, except as noted)

 

1.	Basis of Presentation

The reorganization was accounted for as a purchase under the guidelines of SFAS No. 141 “Business Combinations” with Visa U.S.A. deemed to be the accounting acquirer of Visa International (comprising the operating regions of Visa AP, Visa LAC and Visa CEMEA), and Visa Canada (collectively the “acquired regions”). As a result of the exchange of ownership interests, Visa U.S.A. acquired the remaining ownership interest in Visa International and Inovant not previously held. This transaction was accounted for as a step acquisition with the net assets underlying the interests acquired recorded at fair value. Visa U.S.A. further acquired 100% of Visa Canada and recorded the acquisition of the underlying net assets at fair value. See Note 3—The Reorganization to the consolidated balance sheet of Visa Inc. at October 1, 2007.

 

2.	Visa Canada Statement of Operations

The Visa Canada statement of operations has been adjusted for reclassifications to conform to the historical statement of operations presentation of Visa U.S.A. In addition, adjustments were applied to reflect the elimination of transactions and cross-ownership among and between Visa U.S.A., Visa International and Visa Canada. The historical statement of operations for Visa Canada was prepared in accordance with accounting principles generally accepted in Canada and reconciled to U.S. GAAP. The currency exchange rate between Canadian dollars and U.S. dollars at September 30, 2007 was used to translate all Visa Canada financial information in this pro forma presentation.

 

3.	Visa Europe Transaction

As part of the reorganization, we entered into a set of contractual arrangements with Visa Europe, which we account for as a multi-element arrangement. Under these arrangements, for financial accounting reporting purposes, in exchange for its ownership interest in Visa International and Inovant, Visa Europe received the consideration described below. See Note 3—The Reorganization to the consolidated balance sheet of Visa Inc. at October 1, 2007 for further details regarding total consideration received by Visa Europe.

Class EU (Series I) and (Series III) Common Stock (Convertible into Class C (Series I), (Series III) and (Series IV) Common Stock)

At the date of reorganization, Visa Europe received an 8.1% ownership interest in our common stock in the form of class EU (series I) and class EU (series III) common stock. We classified the class EU (series I) and (series III) common stock as permanent equity after the date of the reorganization. The class EU (series I) and (series III) common stock will be converted on a one-to-one basis into class C (series III) and class C (series IV) common stock, respectively, prior to the completion of this offering. Following the redemption described in the following paragraph, the remaining class C (series III) and class C (series IV) common stock will convert on a one-to-one basis into class C (series I) common stock.

The class C (series III) common stock is subject to mandatory redemption in the manner provided by our amended and restated certificate of incorporation. We intend to redeem            shares of class C (series III) common stock, or the class C (series III) redemption shares, on or about October 6, 2008 for a price per share equal to the price per share of our class A common stock in this offering, less underwriting discounts and commissions. Upon the closing of this offering, for financial accounting purposes, we intend to classify this stock at its redemption value as a liability in our consolidated balance sheet.

 

47

---

Table of Contents

The class EU (series I) and (series III) common stock participates equally and has the same rights as the class AP, class LAC, class CEMEA and class Canada common stock, except that it does not participate in the true-up. Therefore, we determined the fair value of Visa Europe’s 8.1% ownership interest in the form class EU (series I) and (series III) common stock to be approximately $3.1 billion at the date of the reorganization based on the value of the common stock issued to the acquired regions in exchange for their historical membership interests in Visa International and Visa Canada. See Note 3—The Reorganization to the consolidated balance sheet of Visa Inc. at October 1, 2007.

Class EU (Series II) Common Stock (Convertible into Class C (Series II) Common Stock)

At the date of reorganization, Visa Europe received a 3.6% ownership interest in our common stock in the form of class EU (series II) common stock. We classified the class EU (series II) common stock in permanent equity, as it provides equity rights similar to that of the other regional classes of shares. The class EU (series II) common stock will be converted on a one-to-one basis into class C (series II) common stock prior to the completion of this offering.

The class C (series II) common stock is subject to redemption by us. We are entitled to redeem all, but not less than all, of these shares held by Visa Europe any time after October 10, 2008. In addition, Visa Europe is entitled, through delivery of written notice, to require us to redeem all, but not less than all, of these shares at any time after December 4, 2008; however, we intend to redeem all of these shares held by Visa Europe on or about October 10, 2008. Upon the closing of this offering, for financial accounting purposes, we intend to classify this stock at its then fair value as temporary or mezzanine level equity in our consolidated balance sheet. Additionally, over the period from the initial public offering date to October 10, 2008, which we refer to as the accretion period, this stock will be accreted to its redemption price through our retained earnings.

To reflect the impact of this accretion on the net income available to common stockholders, we report pro forma earnings per share using the two-class method. See Note 6—Pro Forma Earnings per Share to this unaudited pro forma condensed combined statement of operations. The redemption price of the class C (series II) common stock is $1.146 billion adjusted for dividends and certain other adjustments. See “Description of Capital Stock—Redemption.”

We determined the initial fair value of the class C (series II) common stock to be approximately $1.104 billion at the date of reorganization. We determined fair value by discounting the redemption price using a risk-free rate of 4.90% and a 95% probability of the successful completion of this offering on or prior to October 10, 2008. Completion of this offering would cause the class C (series II) common stock to become redeemable at the estimated redemption price on or after October 10, 2008. We estimate that the total amount of accretion will be approximately $42 million, which represents the difference between its initial fair value and its redemption price assuming no payment of dividends or other applicable adjustments.

The terms of the class C (series II) common stock require Visa Europe’s ownership of our common stock, on an as-converted basis, to represent no less than 10% of our total outstanding share capital at all times prior to October 10, 2008. As the shares sold in this offering will be issued shortly prior to the redemption of certain shares of class B and class C common stock, as described under “Use of Proceeds,” additional class C (series II) common stock will be issued to maintain Visa Europe’s required ownership interest in Visa Inc. during such time. This issuance will not have a cash impact or affect our financial results, including earnings per share, as the shares will be classified as temporary equity and will be redeemed together with all other outstanding class C (series II) common stock for a net aggregate price of $1.146 billion (subject to adjustment as described above) on or about October 10, 2008.

The Framework Agreement

After the reorganization, the relationship between Visa Inc. and Visa Europe is governed by a framework agreement, which provides for bilateral services and trademark and technology licenses.

 

48

---

Table of Contents

Trademark and Technology Licenses. We granted Visa Europe exclusive, irrevocable and perpetual licenses to use the Visa trademarks and technology-related intellectual property owned by us within the Visa Europe region for use in the field of financial services, payments, related information technology and information processing services and participation in the Visa system. Visa Europe’s region consists of the European Union, Iceland, Israel, Liechtenstein, Monaco, Norway, San Marino, Switzerland, Turkey and Vatican City, along with other countries specified in our agreement with Visa Europe, and any other jurisdiction that becomes a full member state of the European Union in the future. Visa Europe may sublicense the Visa trademarks and technology intellectual property to its members and other sublicensees, such as processors, for use within Visa Europe’s region and, in certain limited circumstances, outside the Visa Europe region.

Pricing under the licenses is governed by a formula that depends in part on the dates when certain events occur, including the closing of the Inovant U.S. holdco merger (which occurred on October 2, 2007), the final closing of the reorganization (which occurred on October 3, 2007), our initial filing of the registration statement for this offering (which occurred on November 9, 2007) and the closing of this offering. For purposes of the unaudited pro forma condensed combined statement of operations, we assumed that the closing of this offering will occur on March 31, 2008.

On this basis, from October 1, 2007 through November 8, 2007, the fee for the licenses was payable at a rate of $6 million per quarter. Thereafter, from November 9, 2007, the base license fee will be payable quarterly at an annual rate of $143 million (approximately $36 million per quarter), and beginning November 9, 2010, this base license fee will increase annually based on the growth of the gross domestic product of the European Union.

The base license fee will be reduced by two components during the period ending October 5, 2008. First, during the period from November 9, 2007 until October 5, 2008, the annual rate of the base license fee will be reduced by an amount equal to $1.146 billion multiplied by the three-month LIBOR rate plus 100 to 200 basis points (the “LIBOR rate”). Second, during the period from the closing date of this offering until October 5, 2008, the annual rate of the base license fee will be further reduced by an amount equal to the product of the following variables: (i) the net price per share of our class A common stock in this offering; (ii) the number of shares of our class C (series III) common stock that would have been redeemed promptly out of the net proceeds of this offering, but for provisions in our amended and restated certificate of incorporation that permit Visa Europe to delay the redemption until October 6, 2008; and (iii) the LIBOR rate.

We determined that the base license fee, as adjusted in future periods based on the growth of the European Union gross domestic product, approximated fair value. We made this determination through an analysis of the fee rates implied by the economics of the licenses. However, due to the first and second fee reduction components, for financial accounting purposes, the trademark and technology licenses represented a contract that was below fair value.

We calculated our liability to provide these licenses at below fair value to be approximately $132 million, based on the November 9, 2007 registration statement filing date, the assumed March 31, 2008 offering closing date and the applicable three-month LIBOR rate at September 30, 2007 of 5.23%. The first fee reduction component will reduce the fee payable by $81 million, which is comprised of approximately $12 million for the period from October 1, 2007 through November 8, 2007 and approximately $69 million for the period from November 9, 2007 through October 5, 2008. The second fee reduction component will further reduce the fee payable in the period March 31, 2008 through October 5, 2008 by approximately $51 million. The assumptions used represent our best estimate of the future impact of these terms of the framework agreement.

The application of the LIBOR rate in determining the first and second fee reduction components represent a variable interest element embedded within the framework agreement, which we will treat as an embedded derivative with changes in fair value reflected in our statement of operations under the guidelines of SFAS No. 133. This embedded derivative does not impact the unaudited pro forma condensed combined statement of operations.

 

49

---

Table of Contents

4.	Combination and Pro Forma Reorganization Adjustments

The following describes the combination and pro forma adjustments we applied to the unaudited pro forma condensed combined statement of operations for fiscal 2007 of Visa U.S.A. and Visa International, derived from their historical financial statements included elsewhere in this prospectus, and Visa Canada, to reflect the reorganization and this offering as if they had occurred on October 1, 2006.

Combination Adjustments

A – Represents reclassification adjustments made to the historical statements of operations presentation of Visa U.S.A., Visa International and Visa Canada to consistently conform the presentation of like revenues and expenses. Historically, Visa U.S.A., Visa International and Visa Canada as separate entities have applied different captions to describe similar revenues and expenses. These adjustments were applied to group similar accounts using the captions of Visa U.S.A., the accounting acquirer. These adjustments have no impact on net (loss) income of these entities as reported in their historical consolidated financial statements.

 

50

---

Table of Contents

The following table reconciles the individual combination adjustments applied for reclassification purposes to the unaudited pro forma condensed combined statement of operations for fiscal 2007:

 

		Visa International Adjustments				Total Adjustments - Tickmark A
		(in thousands)
Operating revenues
Service fees		$	(141,540	) AA		$	(141,540	)
International transaction fees			777,552	AA			777,552
International service revenues			(636,012	) AA			(636,012	)
Operating expenses
Affiliates services		$	(211,808	) AB		$	(211,808	)
Premises, equipment and software			(49,357	) AF			(108,147	)
			(58,790	) AC
Communication			(36,533	) AD			(36,533	)
Network, EDP and communications			58,790	AC			95,323
			36,533	AD
Travel and meetings			(57,412	) AE			(57,412	)
Administrative and other			211,808	AB			318,541
			57,412	AE
			(272	)
			49,357	AF
			(57	)
			293
Settlement risk guarantee			57				57
Litigation provision			272				272
Non-operating income, net		$	293			$	(90,724	)
			(98,168	) AH
			13,689	AG
			1,961
			(8,499	) AI
Other income (expense)
Equity in earnings of unconsolidated affiliates		$	(1,961	)		$	2,521
			4,482
Interest income (expense)			(13,689	) AG			(13,689	)
Investment income, net			98,168	AH			93,686
			(4,482	)
Other income			8,499	AI			8,499

AA—Represents reclassifications of Visa International’s service fees and international service revenues to international transaction fees to conform them to the presentation of Visa U.S.A.

AB—Represents reclassifications of Visa International’s affiliate services expenses to administrative and other expenses to conform them to the presentation of Visa U.S.A.

AC—Represents reclassifications of Visa International’s equipment expenses to network, EDP and communications expenses to conform them to the presentation of Visa U.S.A.

AD—Represents reclassifications of Visa International’s communications expenses to network, EDP and communications expenses to conform them to the presentation of Visa U.S.A.

AE—Represents reclassifications of Visa International’s travel and meetings expenses to administrative and other expense to conform them to the presentation of Visa U.S.A.

 

51

---

Table of Contents

AF—Represents reclassifications of Visa International’s premises expenses to administration and other expenses to conform them to the presentation of Visa U.S.A.

AG— Represents reclassifications of Visa International’s interest expense to its own line item to conform it to the presentation of Visa U.S.A.

AH— Represents reclassifications of Visa International’s interest and dividend income and expense to investment income, net, to conform them to the presentation of Visa U.S.A.

AI—Represents reclassifications of Visa International’s miscellaneous non-operating income to other income to conform them to the presentation of Visa U.S.A.

 

52

---

Table of Contents

B – Represents the adjustments required to eliminate the effects of transactions and cross-ownership among and between Visa U.S.A., Visa International and Visa Canada.

The following table reconciles the individual combination adjustments applied for elimination purposes to the unaudited pro forma condensed combined statement of operations for fiscal 2007:

 

		Visa U.S.A. Adjustments				Visa International Adjustments				Visa Canada Adjustments				Real Estate Joint Ventures Adjustments				Total Adjustments - Tickmark B
		(in thousands)
Operating Revenues
Service fees		$	—			$	(188,985	) BB		$	—			$	—			$	(188,985	)
Data processing fees			(83,175	) BA			(3,060	) BB			—				—				(86,235	)
Other revenues			(148,576	) BA			—				—				(62,574	) BC			(194,710	)
															1,501	BD
															14,939	BD
Total adjustments—operating revenues																		$	(469,930	)
Operating expenses
Affiliates services		$	—			$	—			$	(21,505	) BA		$	—			$	(21,505	)
Network, EDP and communications			(2,839	) BB			—				—				—				(2,839	)
Visa International fees			(172,728	) BB			—				(18,256	) BB			—				(190,984	)
Professional and consulting fees			—				(2,895	) BA			—				—				(2,895	)
Administrative and other			—				(209,148	) BA			1,980	BB			—				(266,811	)
							1,501	BD			1,797	BA
							(202	) BB
			(52,242	) BC			(10,332	) BC
							(165	) BH
Total adjustments—operating expenses																		$	(485,034	)
Non-operating income, net		$	—			$	(14,939	) BD		$	—			$	—			$	(14,939	)
Other income (expense)
Equity in earnings of unconsolidated affiliates		$	(40,171	) BE		$	(2,410	) BG		$	(753	) BG		$	—			$	(43,550	)
			(108	) BF			(108	) BF
Minority interest (expense)			3,163	BG			—				—				—				3,163
Total adjustments—other income (expense)																		$	(40,387	)

BA—Represents eliminations of Visa U.S.A.’s revenues from Visa International and Visa Canada for data processing and development services and various license and usage rights primarily related to the VisaNet proprietary network.

BB—Represents eliminations of Visa International’s revenues from Visa U.S.A. and Visa Canada for services primarily related to global brand management, global product enhancements and global electronic payment systems.

BC—Represents eliminations of the real estate joint ventures’ rental income from Visa U.S.A. and Visa International.

BD—Represents eliminations of the real estate joint ventures’ rental expense to Visa International.

 

53

---

Table of Contents

BE—Represents eliminations of Visa U.S.A.’s investment in Visa International and related equity in earnings of unconsolidated affiliates.

BF—Represents eliminations of Visa International’s and Visa U.S.A.’s equity in earnings of unconsolidated affiliates related to the real estate joint ventures.

BG—Represents eliminations of minority interest expense and equity in earnings of affiliates for Visa International’s and Visa Canada’s investment in Inovant.

BH—Represents elimination of administration and other related to foreign exchange for Visa Canada’s investment in Inovant.

C – Represents the adjustments necessary to record the gross revenues and expense balances related to the real estate joint ventures for fiscal 2007. Visa U.S.A. and Visa International previously each owned 50% of these real estate joint ventures and accounted for their investments under the equity method. See Note 8—Investments in Joint Ventures to the Visa U.S.A. fiscal 2007 consolidated financial statements.

Pro Forma Reorganization Adjustments

D – The adjustment to the statement of operations represents the following pro forma adjustments to record additional non-cash amortization and depreciation expense related to the new basis of intangible and tangible definite lived assets, which were recorded on a pro forma basis at their estimated fair value.

 

		Visa U.S.A. Historical Expense for Fiscal 2007			Visa Int’l, Visa Canada, Real Estate Joint Ventures Historical Expense for Fiscal 2007			Pro Forma Reorganization Adjustment				Total Expense for Fiscal 2007
		(in thousands)
Depreciation		$	74,456		$	30,541		$	(3,837	)		$	101,160
Amortization			51,049			16,337			59,355				126,741
Total		$	125,505		$	46,878		$	55,518			$	227,901

The following table represents the estimated remaining useful lives we assumed for each asset class to record the adjustment to historical depreciation and amortization:

 

		Estimated Remaining Useful Lives
Tradename		Not depreciated
Customer relationships		Not depreciated
Visa Europe franchise right		Not depreciated
Facilities
Land		Not depreciated
Buildings and building improvements		26 to 32 years
Leasehold improvements		2 to 6 years
Furniture and fixtures		4 to 6 years
Equipment		1 to 7 years
Technology		2 to 4 years

Visa Europe and Other Pro Forma Reorganization Adjustments

E – Represents the adjustment to historical service fees to reflect the newly negotiated fee structure for on-going service fee commitments pursuant to the bilateral services agreement. For the purposes of our unaudited pro forma condensed combined statement of operations, the adjustment reduces historical service fees to the

 

54

---

Table of Contents

amount of services Visa Europe is obligated to purchase from us at fixed prices in the 12 months following the reorganization. This adjustment does not reflect additional optional card services for which Visa Europe is entitled at its discretion at fixed prices under the bilateral services agreement.

F – Represents the adjustment to historical data processing fees to reflect the newly negotiated fee structure for on-going data processing services pursuant to the bilateral services agreement. For the purposes of our unaudited pro forma condensed combined statement of operations presentation, the adjustment reduces historical data processing fees to the amount we would have earned under the newly negotiated fee structure based on actual transaction volume experienced in fiscal 2007. This adjustment does not reflect optional fixed fee services for which Visa Europe is entitled at its discretion under the bilateral services agreement.

G – Represents the adjustment to historical international transaction fees to reflect the impact of the new foreign exchange revenue sharing agreement with Visa Europe, pursuant to the bilateral services agreement.

H – Represents the adjustment to historical other revenues to record the fee that Visa Europe will pay us pursuant to the framework agreement. The adjustment reflect the first and second fee reduction components and accretion to revenue of the obligation under the framework agreement recorded in purchase accounting which we have calculated based on our assumptions as detailed in Note 3 “Visa Europe Transaction—Trademark and Technology Licenses” to this unaudited pro forma condensed combined statement of operations.

I – Represents the adjustment to eliminate the minority interest and minority interest expense attributable to the 10% ownership interest in Inovant held by Visa Europe.

Income Tax Pro Forma Adjustments

J – Represents the adjustment to the historical income tax expense for fiscal 2007, result of consolidating Visa U.S.A., Visa International and Visa Canada, including:

 

•

Adjustments to the tax provision of Visa U.S.A. related to Visa U.S.A.’s interest in Visa International;

 

•

Adjustments to the current state tax provision of Visa U.S.A., Visa International and Inovant to account for consolidated apportioned statutory state rates; and

 

•

Adjustments to Visa Canada related to the entity’s change in status from a not-for-profit corporation to a for-profit corporation.

K – Represents the adjustment to reflect the tax provision impact related to purchase accounting adjustments applied to the historical consolidated statements of operations for fiscal 2007.

 

5.	Pro Forma Offering Adjustments

Loss of California Special Deduction

The State of California, where Visa U.S.A. and Visa International are headquartered, historically has not taxed a substantial portion of the reported income of these companies on the basis that both operate on a cooperative or mutual basis and are therefore eligible for a special deduction. As taxpayers eligible for the special deduction, Visa U.S.A. and Visa International are generally only subject to California taxation on interest and investment income. Therefore, the majority of each company’s income has not historically been taxed in California.

As a result of this offering and consequent ownership by parties other than our financial institution customers, we will no longer be eligible to claim the special deduction. We will be subject to California taxation as a traditional, for-profit business enterprise. Accordingly, pro forma adjustments were applied to reflect the loss of the benefit of the special deduction and the resulting estimated increase in our state tax expense. Had ineligibility for the special deduction been reflected at the beginning of the fiscal year presented in the unaudited pro forma condensed combined statement of operations, our income tax benefit would decrease and net loss would increase by approximately $31 million in fiscal 2007.

 

55

---

Table of Contents

 

6.	Pro Forma Earnings per Share

Pro Forma Shares Outstanding

Based on the assumptions detailed below, the following table sets forth, on a pro forma basis, (i) the number of shares of common stock outstanding following the reorganization and this offering, reflecting the application of $            of the proceeds of this offering to redeem            shares of class B common stock and            shares of class C common stock, assuming an initial public offering price of $             per share (the midpoint of the range set forth on the cover of this prospectus less underwriting discounts and commissions), and (ii) the number of shares of class A common stock issuable upon conversion of the class B common stock and class C common stock:

 

Class of Common Stock		Shares Outstanding Upon Reorganization and Offering(3)		Class A Common Stock Outstanding or Issuable Upon Conversion of the Class B and Class C Common Stock(3)
Class A(1)
Class B
Class C (series I, III and IV)(2)
Class C (series II)(3)				—
Total

 

(1)	Amount excludes                  shares of restricted stock and                  restricted stock units that we intend to grant upon the pricing of this offering to certain of our directors and employees.

(2)	This amount does not include              shares of class C (series III) common stock reclassified as a liability upon closing of this offering. See Note 3—Visa Europe Transaction.

(3)	Class C (series II) common stock is not convertible into class A common stock upon completion of this offering.

Prior to this offering, each of the regional classes of common stock will be converted into class C common stock or, in the case of regional common stock held by members of Visa U.S.A., class B common stock.

The conversion rate applicable to any conversion of our class C common stock into class A common stock will be one-to-one, subject to adjustment for stock splits, recapitalizations and similar transactions. Assuming the deposit of $             into the escrow account, the conversion rate applicable to the class B common stock into class A common stock immediately following this offering will be              shares of class A common stock per share of class B common stock. See “Business—Retrospective Responsibility Plan.”

Immediately prior to this offering, we will issue additional shares of class C (series II) common stock pursuant to the provisions of our amended and restated certificate of incorporation that require Visa Europe’s ownership of our common stock on an as-converted basis to represent no less than 10% of our total outstanding share capital at all times prior to October 5, 2008. The issuance of these shares will have no cash impact and will not affect our financial results, including earnings per share, as the shares will be classified as temporary equity and all class C (series II) common stock is intended to be redeemed in October 2008 for an aggregate price of $1.146 billion (subject to reduction to the extent of dividends paid by us prior to that time and other adjustments).

Calculation of Earnings per Share

Upon the closing of this offering, for financial accounting purposes, we intend to classify all class C (series II) common stock at its then fair value as temporary or mezzanine level equity in our consolidated balance sheet. Additionally, over the period from the closing of this offering to on or about October 10, 2008 (the date on which we intend to redeem all of these shares held by Visa Europe) we will accrete this stock to its redemption price through our retained earnings. We estimate that the total amount of accretion will be approximately $42 million, which represents the difference between its initial fair value and its redemption price assuming no dividends or other applicable adjustments.

 

56

---

Table of Contents

Upon the closing of this offering, for financial accounting purposes, we intend to classify the class C (series III) redemption shares as a liability, at their redemption value, in our consolidated balance sheet. From the date of reclassification, these shares shall be excluded from the weighted average number of shares outstanding in the calculation of basic and diluted earnings per share. However, until redeemed, the class C (series III) redemption shares will continue to share ratably (on an as-converted basis) in any dividends or distributions paid on our common stock. Such participation has no impact on the redemption value of this common stock. Therefore, in the calculation of basic and diluted earnings per share, the class C (series III) redemption shares shall be treated as participating in the allocation of net income and will proportionately reduce net income available to all remaining common stockholders.

The total amount of accretion of the class C (series II) common stock and the allocation of net income to the class C (series III) redemption shares reduces the amount of net income available to common stockholders for the purposes of calculating pro forma basic and diluted earnings per share during the period from the closing of this offering until the redemption of the class C (series II) and class C (series III) common stock. We expect to redeem the class C (series II) and the class C (series III) common stock on or about October 10, 2008. For the purposes of presenting pro forma earnings per share, we have assumed a reorganization and an initial public offering date of October 1, 2006. Under these assumptions, the class C (series II) common stock and class C (series III) redemption shares would be redeemed approximately one year after the reorganization, on or about October 10, 2007. We have therefore reported pro forma earnings per share under the two-class method for fiscal 2007 to reflect the accretion of the class C (series II) common stock to its redemption value and the allocation of net income to the class C (series III) redemption shares.

The holders of class A, class B and class C common stock are entitled to share ratably (on an as-converted basis) in dividends or distributions paid on the common stock, regardless of class or series. Therefore under the guidelines of SFAS No. 128 “Earnings Per Share,” on a pro forma basis we have presented earnings per share using the two-class method with separate disclosure of pro forma earnings per share attributable to: (i) class A common stock and class C (series I, III and IV) common stock; (ii), class B common stock; and (iii) class C (series II) common stock. Pro forma net income available to common stockholders for fiscal 2007 is calculated as follows:

 

		(in thousands except per share data)
Pro forma net loss		$	(891,536	)
Less: Accretion of class C (series II) common stock			(42,000	)
Less: Amount allocated to participating class C (series III) redemption shares held by Visa Europe
Total pro forma net income available to common stockholders
Pro forma net income available to common stockholders:
Class A and class C (series I, III and IV) common stock
Class B common stock
Class C (series II) common stock(1)
Pro forma earnings per share—two-class method:
Class A and class C (series I, III and IV) common stock
Class B common stock
Class C (series II) common stock(1)

 

(1)

The aggregate redemption price of the class C (series II) common stock is reduced by the aggregate amount of any dividends and other distributions declared and paid. Therefore, for the purposes of calculating pro forma earnings per share, under SFAS No. 128, class C (series II) common stockholders are deemed not to participate in any distribution of pro forma net income available to other common stockholders.

Had the class C (series II) common stock and class C (series III) redemption shares been redeemed on October 1, 2006, the beginning of the period, pro forma earnings per share would have been $             per share of class A and class C (series I, III and IV) common stock and $             per share of class B common stock for fiscal 2007.

 

57

---

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF HISTORICAL AND

PRO FORMA FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF VISA INC.

This management’s discussion and analysis provides a review of the results of operations, financial condition and the liquidity and capital resources of Visa Inc. and its subsidiaries on a historical and pro forma basis and outlines the factors that have affected recent earnings, as well as those factors that may affect future earnings. The following discussion and analysis should be read in conjunction with Visa Inc.’s unaudited consolidated financial statements and related notes at and for the three months ended December 31, 2007, the consolidated balance sheet and related notes at October 1, 2007, and with the information under “Unaudited Pro Forma Condensed Combined Statement of Operations” included elsewhere in this prospectus.

Overview

Visa operates the world’s largest retail electronic payments network and manages the world’s most recognized global financial services brand. We provide financial institutions with platforms that encompass consumer credit, debit, prepaid and commercial payments. We facilitate global commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses and government entities. Each of these constituencies has played a key role in the ongoing worldwide migration from paper-based to electronic forms of payment, and we believe that this transformation will continue to yield significant growth opportunities in the electronic payments industry. We will continue to explore additional opportunities to enhance our competitive position by expanding the scope of payment solutions to benefit our existing customers and to position Visa to serve more and different constituencies.

In order to respond to industry dynamics and enhance Visa’s ability to compete, Visa consummated a reorganization in October 2007 in which Visa U.S.A., Visa International, Visa Canada and Inovant became direct or indirect subsidiaries of Visa Inc., a Delaware stock corporation. Visa Europe did not become a subsidiary of Visa Inc., but rather remained owned by its member financial institutions and entered into a set of contractual arrangements with Visa Inc. in connection with the reorganization. In the reorganization, we issued different classes and series of shares reflecting the different rights and obligations of Visa financial institution members and Visa Europe based on the geographic region in which they are located.

There is no historical combined statement of operations of Visa Inc. prior to October 1, 2007 because Visa Inc. did not have any operations prior to the reorganization. In order to provide insight into our operating results and trends affecting our business, this management’s discussion and analysis of our operating results includes a comparison of the results of operations for three months ended December 31, 2007 to the pro forma results of operations for the three months ended December 31, 2006 and a comparison of the pro forma results of operations for fiscal 2007 to the pro forma results of operations for fiscal 2006, as if the reorganization had occurred on October 1 of each of fiscal 2007 and 2006. This pro forma information is derived from our unaudited consolidated financial statements for the three months ended December 31, 2007 and our audited balance sheet at October 1, 2007 and presented in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations.” See Note 3—The Reorganization to the unaudited financial statements for the three months ended December 31, 2007 and Note 3—The Reorganization to the audited consolidated balance sheet of Visa Inc. at October 1, 2007. In addition, this management’s discussion and analysis includes a comparison of our operating results for the three months ended December 31, 2007 to the operating results of Visa Inc.’s accounting acquirer, Visa U.S.A., for the three months ended December 31, 2006.

 

58

---

Table of Contents

The following table sets forth our actual and pro forma operating revenues for the periods indicated:

 

		Three Months Ended December 31, 2007			Pro Forma			$ /% Change from 2007 to 2006										$ /% Change from 2007 to 2006
					Three Months Ended December 31, 2006							Pro Forma Fiscal Year
												2007			2006
		(in millions, except percentages)
U.S. operating revenues		$	920		$	800		$	120/15	%		$	3,404		$	2,761		$	643/23	%
Non-U.S. operating revenues			568			373			195/52	%			1,789			1,141			648/57	%
Total operating revenues		$	1,488		$	1,173		$	315/27	%		$	5,193		$	3,902		$	1,291/33	%

Our non-U.S. operating revenues for the three months ended December 31, 2007 represented 38% of total operating revenues. In fiscal 2007 and 2006, our pro forma non-U.S. operating revenues represented 34% and 29%, respectively, of our total pro forma operating revenues for those periods. Growth in operating revenues outside of the United States accounted for 62% of the increase in total operating revenues for the three months ended December 31, 2007 compared to the same period in 2006 and 56% of the increase in total operating revenues in fiscal 2007 compared to fiscal 2006. In fiscal 2007, the increase in revenues outside the United States was due primarily to a $0.3 billion increase in revenues in our Asia Pacific region and a $0.3 billion increase in revenues in our Latin America and Caribbean region. In addition a significant portion of the revenues we earn outside the United States results from cross-border business and leisure travel. Revenues from processing foreign currency transactions for our customers fluctuate with cross-border travel and our customers’ need for transactions to be converted into their base currency.

The following tables set forth product payments volumes and transactions for the periods presented:

 

		U.S.A.									Rest of World (3)									Visa Inc.
		3 months ended September 30, 2007			3 months ended September 30, 2006			% Change			3 months ended September 30, 2007			3 months ended September 30, 2006			% Change			3 months ended September 30, 2007			3 months ended September 30, 2006			% Change
		(in billions, except percentages)
Payments Volume
Consumer credit		$	165		$	154		7	%		$	182		$	147		24	%		$	347		$	301		15	%
Consumer debit (1)			171			151		13	%			28			20		40	%			199			171		16	%
Commercial and other			52			45		16	%			25			21		19	%			77			66		17	%
Total Payments Volume		$	388		$	350		11	%		$	235		$	188		25	%		$	623		$	538		16	%
Cash volume			101			96		5	%			248			187		33	%			349			283		23	%
Total Volume (2)		$	489		$	446		10	%		$	483		$	375		29	%		$	972		$	821		18	%
		U.S.A.									Rest of World (3)									Visa Inc.
		12 months ended June 30, 2007			12 months ended June 30, 2006			% Change			12 months ended June 30, 2007			12 months ended June 30, 2006			% Change			12 months ended June 30, 2007			12 months ended June 30, 2006			% Change
		(in billions, except percentages)
Payments Volume
Consumer credit		$	624		$	589		6	%		$	634		$	534		19	%		$	1,258		$	1,123		12	%
Consumer debit (1)			637			575		11	%			93			69		35	%			730			644		13	%
Commercial and other			188			159		18	%			90			72		25	%			278			231		20	%
Total Payments Volume		$	1,449		$	1,323		10	%		$	817		$	675		21	%		$	2,266		$	1,998		13	%
Cash volume			382			348		10	%			834			652		28	%			1,216			1,000		22	%
Total Volume (2)		$	1,831		$	1,671		10	%		$	1,651		$	1,327		24	%		$	3,482		$	2,998		16	%

 

59

---

Table of Contents

		U.S.A.							Rest of World							Visa Inc.
		3 months ended December 31, 2007		3 months ended December 31, 2006		% Change			3 months ended December 31, 2007		3 months ended December 31, 2006		% Change			3 months ended December 31, 2007		3 months ended December 31, 2006		% Change
		(in millions, except percentages)
Total Transactions (4)		7,611		6,745		13	%		1,483		1,274		16	%		9,094		8,019		13	%
		U.S.A.							Rest of World							Visa Inc.
		12 months ended September 30, 2007		12 months ended September 30, 2006		% Change			12 months ended September 30, 2007		12 months ended September 30, 2006		% Change			12 months ended September 30, 2007		12 months ended September 30, 2006		% Change
		(in millions, except percentages)
Total Transactions (4)		27,546		24,808		11	%		5,174		4,394		18	%		32,720		29,202		12	%

 

(1)	Includes prepaid volume

(2)

Total volume is the sum of total payments volume and cash volume. Total payments volume is the total monetary value of transactions for goods and services that are purchased. Cash volume generally consists of cash access transactions, balance access transactions, balance transfers and convenience checks. Payments volume on Visa branded goods and services for the preceding quarter is the basis for service fees.

(3)	Includes Bulgaria and Romania through March 31, 2007, after which time they became part of Visa Europe

(4)	Represents transactions processed by our Visanet system during the periods presented. Transactions processed are the basis for data processing fees.

We believe that payments volume, which is the basis for card service fees revenue, and transactions, which drive data processing revenue, are key drivers of our business. We estimate that approximately 80% of Visa Inc. pro forma fiscal 2007 global payments volume was generated under multi-year arrangements with our customers. Payments volume and revenues are impacted by changes in currency rates. Payments volumes and revenues increased, reflecting in part the impact of the weaker U.S. dollar during the three months ended December 31, 2007 and fiscal 2007. Payments volume, increased 16% to $623 billion during the three months ended September 30, 2007, with double-digit growth across all product categories. Growth outside the United States was 25%, driven primarily by increased volumes in the Asia Pacific and Latin America and Caribbean geographies, accounting for 57% of our overall payments volume growth, versus the prior year comparable period. Payments volume increased 13% to $2.3 trillion during the twelve months ended June 30, 2007, with double-digit growth across all product categories. Payments growth outside the United States was 21%, again driven primarily by increased volumes in the Asia Pacific and Latin America and Caribbean geographies, accounting for 53% of our overall payments volume growth for this period. Transactions processed increased by 1.1 billion, or 13%, to 9.1 billion during the three months ended December 31, 2007 from 8.0 billion in the prior year comparable period. Growth in transactions processed in the United States accounted for 0.9 billion, or 81%, of the growth in transactions processed. Transactions processed increased by 3.5 billion, or 12%, in fiscal 2007 to 32.7 billion from 29.2 billion in fiscal 2006. Growth in transactions processed in the United States accounted for 2.7 billion, or 78%, of the growth in transactions processed.

Growth in operating revenues exceeded growth in payments and transactions volumes reflecting the continued impact of new service fees and changes in pricing for various services in regions outside the United States as those regions transition to a business model seeking to increase profitability. While we believe that these pricing changes will generate ongoing benefits, we do not believe that the rate of growth in operating revenues during the three months ended December 31, 2007 and during fiscal 2007 is representative of sustainable future revenue growth because it includes the impacts of the new service fees introduced in the second half of fiscal 2007. We expect future price increases to correlate more closely with innovations in our product line and improvements in our service model. In addition, new and renewed volume and support incentive agreements executed late in the first quarter of fiscal 2008 are expected to increase volume and support incentives significantly during the second fiscal quarter.

Our business is affected by overall economic conditions and consumer spending patterns. We expect that the impacts of the softening housing market, declining mortgage credit quality, and recent economic trends in the United States will moderate our rate of growth during the remainder of fiscal 2008.

 

60

---

Table of Contents

Operating income as a percentage of operating revenue, or operating margin, was 46% for the three months ended December 31, 2007 compared with pro forma operating margin of 34% for the prior year comparable period, reflecting the combined impacts of strong revenue growth discussed above and modest 3% growth in operating expenses. We do not believe that this operating margin is representative of sustainable future performance due to the factors discussed above.

Our pro forma operating loss of $1.1 billion in fiscal 2007 included a litigation provision of $2.7 billion under SFAS No. 5 associated with amounts required to settle the American Express litigation and management’s liability estimate related to the Discover litigation and other matters. See Note 21—Legal Matters to the consolidated balance sheet of Visa Inc. at October 1, 2007. In the absence of these litigation charges, our pro forma operating margin would have increased substantially over the prior fiscal year as our growth in revenue exceeded our growth in expenses other than litigation.

On November 1, 2007, we, Visa U.S.A. and Visa International entered into an agreement with American Express to resolve all current litigation between American Express and Visa U.S.A. and Visa International, and the related litigation between American Express and five other co-defendant banks. Under the settlement agreement, an initial payment of $1.13 billion will be made on or before March 31, 2008, including $945 million from us and $185 million from the five co-defendant banks. Beginning March 31, 2008, we will pay American Express an additional amount of up to $70 million per quarter for 16 quarters, for a maximum total of $1.12 billion. Total future payments discounted at 4.72% over the payment term, or $1.9 billion, are reflected in the litigation provision on Visa U.S.A.’s consolidated statement of operations for fiscal 2007 and in current and long-term accrued litigation on its consolidated balance sheet at September 30, 2007 and on our consolidated balance sheet at October 1, 2007.

In addition, in accordance with SFAS No. 5, Visa U.S.A. recorded a litigation provision of $650 million at September 30, 2007 related to its ongoing litigation with Discover. This provision is reflected in the litigation provision on Visa U.S.A.’s consolidated statement of operations for fiscal 2007 and in current accrued litigation on its balance sheet at September 30, 2007 and on our consolidated balance sheet at October 1, 2007.

The American Express and Discover litigations are covered by our retrospective responsibility plan and we intend to fund any payment obligations with respect to these matters under that plan. Our retrospective responsibility plan is a central component of the reorganization and is designed to address potential liabilities arising from certain litigation that we refer to as the covered litigation. Our capital structure was designed to implement a key principle of the retrospective responsibility plan, which is that liability for the covered litigation would remain with the holders of our class B common stock, all of which are members of Visa U.S.A. As part of the plan, we intend to deposit $         in an escrow account from which settlements of, or judgments in, the covered litigation will be payable. After giving effect to the application of the proceeds of this offering, the conversion rate applicable to each share of class B common stock will be          shares of class A common stock per share of class B common stock (based on the midpoint of the range set forth on the cover of this prospectus). After the closing of this offering, we may be directed by the litigation committee (a committee established pursuant to a litigation management agreement among Visa Inc., Visa International, Visa U.S.A. and the members of the committee, all of whom are affiliated with, or acting for, certain Visa U.S.A. members) to sell class A common stock to raise additional funds to be used for such purpose, in which case the conversion rate will further adjust so that each share of class B common stock converts into fewer shares of class A common stock. See “Business—Retrospective Responsibility Plan.”

 

61

---

Table of Contents

The Reorganization

The reorganization will impact our business, results of operations and financial condition in future periods in a number of significant ways:

 

•

Charges. Certain charges directly connected to the reorganization will affect our results of operations in future periods. These charges will include charges during fiscal 2008 related to workforce consolidation due to elimination of overlapping functions and to certain professional fees related to enhancing our systems and infrastructure to support the global organization. We incurred charges related to severance and other termination benefits of $27 million during the three months ended December 31, 2007. We are evaluating various alternatives for achieving synergies in the global organization and expect to incur additional charges, which may be significant, during the remainder of fiscal 2008 and in early fiscal 2009. During the remainder of fiscal 2008 we also expect to incur charges related to equity compensation to be granted in connection with this offering.

 

•

Commercial relationship with Visa Europe. We will not directly operate in the Visa Europe region, which covers the European Union, Iceland, Israel, Liechtenstein, Monaco, Norway, San Marino, Switzerland, Turkey and Vatican City, along with other countries specified in our agreement with Visa Europe, and any other jurisdiction that becomes a full member state of the European Union in the future. Our relationship with Visa Europe is governed by a framework agreement providing for exclusive, perpetual, non-transferable trademark and technology licenses within Visa Europe’s field of use and the provision of certain bilateral services. This agreement is designed to ensure that Visa’s business and processing infrastructures will be both efficient and interoperable on a global basis. This agreement also gives Visa Europe broad rights to operate the Visa business in its region. We will have limited ability to control Visa Europe’s operations and will have limited recourse in the event of a breach of the framework agreement by Visa Europe.

 

•

Visa Europe put option. We have granted Visa Europe the option to cause the sale of Visa Europe to us. See “Material Contracts—The Put-Call Option Agreement.” We will record any changes in the fair value of this option in our statements of operations. Changes in the value of the put option will result in fluctuations in our reported net income. The exercise of the Visa Europe put option would also result in a significant liquidity event.

 

•

Income taxes. The State of California, where Visa U.S.A. and Visa International are headquartered, historically has not taxed a substantial portion of the reported income of these companies on the basis that both operate on a cooperative or mutual basis and are therefore eligible for a special deduction. As taxpayers eligible for the special deduction, Visa U.S.A. and Visa International are generally only subject to California taxation on interest and investment income. Therefore, the majority of each company’s income has not historically been taxed in California. As a result of this offering and consequent ownership by parties other than our financial institution customers, we will no longer be eligible to claim the special deduction. Had ineligibility for the special deduction been reflected at the beginning of the three months ended December 31, 2007, our income tax expense reflected on our consolidated statements of operations would have increased and net income would have decreased by approximately $10 million, increasing our effective tax rate to 39% from 38% . Had ineligibility been reflected at the beginning of each fiscal 2007 and 2006, our income tax benefit would have decreased and net loss would have increased by approximately $31 million in fiscal 2007, and our income tax expense would have increased and net income would have decreased by approximately $16 million in fiscal 2006, increasing our effective tax rate to 39% from 38%. We are evaluating our overall global corporate tax structure as a newly formed global company and are considering various tax alternatives and strategies to assist in managing our overall effective tax rates in the future.

 

•

One time tax benefit. Following the completion of this offering, our earnings for the second fiscal quarter of 2008 are expected to increase by approximately $100 million as a result of a one-time tax benefit due to a change in our state tax apportionment methodology.

 

62

---

Table of Contents

Results of Operations

Operating Revenues and Expenses

Operating Revenues

Our operating revenues consist of gross operating revenues reduced by payments made to customers and merchants under volume and support incentive arrangements. Gross operating revenues consist of service fees, data processing fees, international transaction fees and other revenues. Our operating revenues are based upon aggregate payments volume reported by our customers or transactional information accumulated by our transaction processing systems. Our operating revenues are primarily generated from fees calculated on the payments volume of activity on Visa-branded cards, which we refer to as service fees, and from the fees charged for providing transaction processing, which we refer to as data processing fees. Historically, pricing has varied among our different geographies because geographies outside the United States had operated under an association business model and managed operations to a predetermined level of operating margin. In 2007, geographies outside the United States began the transition to a business model seeking to increase profitability and made competitive increases in their pricing structure. Competitive pricing changes were made in this regard during fiscal 2007 and we will continue to assess opportunities for competitive adjustments in pricing outside the United States as transition of the business model continues in fiscal 2008 and 2009. Pricing may be modified on a customer-by-customer basis through volume and support incentive arrangements. Service fees and data processing fees together represented 70% of our gross operating revenues for the three months ended December 31, 2007 and 73% of our pro forma gross operating revenues for the three months ended December 31, 2006. Service fees and data processing fees together represented 72% of our pro forma gross operating revenues in each of fiscal 2007 and 2006. We do not earn revenues from, or bear credit risk with respect to, interest and fees paid by cardholders on Visa-branded cards. Our issuing customers have the responsibility for issuing cards and determining interest rates and fees paid by cardholders, and most other competitive card features. Nor do we earn revenues from the fees that merchants are charged for card acceptance, including the merchant discount rate. Our acquiring customers, which are generally responsible for soliciting merchants, establish and earn these fees.

A significant portion of our operating revenues is concentrated among our largest customers. Our five largest customers represented approximately $324 million, or 22%, of our operating revenues for the three months ended December 31, 2007. In addition, our operating revenues from our largest customer, JPMorgan Chase, accounted for $106 million, or 7%, of our operating revenues for the three months ended December 31, 2007. In fiscal 2007, our pro forma operating revenues from our five largest customers represented approximately $1.2 billion, or 23%. In fiscal 2006, our pro forma operating revenues from our five largest customers represented $938 million, or 24%. In addition, our pro forma operating revenues from our largest customer, JPMorgan Chase, accounted for $454 million, or 9%, and $408 million, or 10%, of our pro forma operating revenue for fiscal 2007 and 2006, respectively.

The following sets forth the components of our operating revenues:

Service fees

Service fees reflect payments by customers for their participation in card programs carrying our brands. Service fees are primarily calculated on the payments volume of products carrying the Visa brand. We rely on our customers to report payments volume to us. Service fees in a given quarter are assessed based on payments volume in the prior quarter, excluding PIN-based debit volume. Therefore, service fees reported with respect to the three months ended December 31, 2007 were based on payments volume reported by our customers for the three months ended September 30, 2007, and pro forma service fees for the three months ended December 31, 2006 were based on payments volume reported by our customers for the 3 months ended September 30, 2006. Furthermore, pro forma service fees reported with respect to fiscal 2007 and 2006 were based on pro forma payments volume reported by our customers for the 12 months ended June 30, 2007 and June 30, 2006, respectively. These actual and pro forma payments volumes also do not include cash disbursements obtained with Visa-branded cards, balance transfers or convenience checks, which we refer to as cash volume.

 

63

---

Table of Contents

Also included in service fees are acceptance fees, which are used to support merchant acceptance and ongoing volume growth initiatives. Two new acceptance fees were introduced in April 2007, which apply to U.S. consumer debit payments volume and U.S. consumer credit and commercial payments volume. These fees supersede previously existing issuer programs. In addition, we introduced a new brand development fee during fiscal 2007.

Data processing fees

Data processing fees consist of fees charged to customers for providing transaction processing and other payment services, including processing services provided under our bilateral services agreement with Visa Europe. Data processing fees are based on information we accumulate from VisaNet, our proprietary, secure, centralized, global processing platform, which provides transaction processing services linking issuers and acquirers. Data processing fees are recognized as revenues in the same period the related transaction occurs or services are rendered.

Data processing fees are primarily driven by the number, size and type of transactions processed and represent fees for processing transactions that facilitate the following services:

 

•

Authorization. Fees to route authorization requests to the issuer when a merchant, through its acquirer, requests approval of a cardholder’s transaction.

 

•

Clearing and settlement. Fees for determining and transferring transaction amounts due between acquirers and issuers.

 

•

Single Message System, or SMS, switching. Fees for use of the SMS for determining and transferring debit transaction amounts due between acquirers and issuers.

 

•

Member processing. Fees for use of the debit processing service, which provides processing and support for Visa debit products and services.

 

•

Processing guarantee. Fees charged for network operations and maintenance necessary for ongoing system availability.

 

•

Other products and services. Fees for miscellaneous services that facilitate transaction and information management among Visa members.

Volume and support incentives

Volume and support incentives are contracts with financial institution customers, merchants and other business partners for various programs designed to build payments volume, increase card issuance and product acceptance and increase Visa-branded transactions. These contracts, which range in term from one to 13 years, provide incentives based on payments volume growth or card issuance, or provide marketing and program support based on specific performance requirements. We provide cash and other incentives to certain customers in exchange for their commitment to generate certain payments volume using Visa-branded products for an agreed period of time.

Pricing varies among our different geographies and may be modified on a customer-by-customer basis through volume and support incentive arrangements. In this regard, volume and support incentives represent a form of price reduction to these customers. Accordingly, we record these arrangements as a reduction to operating revenues. Certain incentives are estimated based on projected performance criteria and may change when actual performance varies from projections, resulting in adjustments to volume and support incentives. Management regularly reviews volume and support incentives and estimates of performance. Estimated costs associated with these contracts are adjusted as appropriate to reflect payments volume performance and projections that are higher or lower than management’s original expectation or to reflect contract amendments.

International transaction fees

International transaction fees are assessed to customers on transactions where an issuer is domiciled in one country and a merchant is located in another country. International transaction fees are generally driven by cross-

 

64

---

Table of Contents

border payments volume, which include the settlement of single currency transactions and currency exchange activities in connection with the settlement of multi-currency transactions. International transaction fees are influenced in large part by levels of travel and the extent to which Visa-branded products are utilized for travel purposes. These fees are recognized as revenues in the same period the related transactions occur or services are performed.

Other revenues

Other revenues consist primarily of optional service or product enhancements, such as extended cardholder protection and concierge services, cardholder services and fees for licensing and certification. Other revenues also include licensing and other service related fees from Visa Europe under the framework agreement entered into as part of the reorganization. Other revenues are recognized in the same period the related transactions occur or services are rendered.

Operating Expenses

Our operating expenses consist of: personnel; network, electronic data processing (EDP) and communications; advertising, marketing and promotion; professional and consulting fees; administrative and other; and litigation provision.

Personnel

Personnel expense consists of salaries, incentives and various fringe benefits.

Network, EDP and communications

Network, EDP and communications represent expenses for the operation of our electronic payments network, including maintenance, depreciation and fees for other data processing services.

Advertising, marketing and promotion

Advertising, marketing and promotion include expenses associated with advertising and marketing programs, sponsorships, promotions and other related incentives to promote the Visa brand. In connection with certain sponsorship agreements, we have an obligation to spend certain minimum amounts for advertising and marketing promotion over the terms of the agreements.

Professional and consulting fees

Professional and consulting fees consist of fees for consulting, contractors, legal and other professional services. Legal costs for third party services provided in connection with ongoing legal matters are expensed as incurred.

Administrative and other

Administrative and other primarily consist of facilities’ costs and other corporate and overhead expenses in support of our business, such as travel expenses.

Litigation provision

Litigation provision is an estimate of litigation expense and is based on management’s understanding of our litigation profile, the specifics of the case, advice of counsel to the extent appropriate, and management’s best estimate of incurred loss at the balance sheet dates. In accordance with SFAS No. 5, “Accounting for Contingencies,” management records a charge to income for an estimated loss if such loss is probable and reasonably estimable. We will continue to review the litigation accrual and, if necessary, future adjustments to the accrual will be made.

 

65

---

Table of Contents

Other Income (Expense)

Other income (expense) primarily consists of interest expense, investment income, net and other non-operating income.

Interest expense

Interest expense primarily includes accretion associated with litigation settlements to be paid over periods longer than one year and interest incurred on outstanding debt.

Investment income, net

Investment income, net represents returns on our fixed-income securities and other investments.

Visa Inc. Three Months Ended December 31, 2007 compared to Visa Inc. Pro Forma Results for the Three Months Ended December 31, 2006

Operating Revenues

Operating revenues were $1,488 million for the three months ended December 31, 2007 and pro forma operating revenues were $1,173 million for the three months ended December 31, 2006, reflecting an increase of $315 million, or 27%. The increase in operating revenues reflects increases in global payments volume, which increased 16% in the three months ended September 30, 2007, compared to the prior year comparable period. Transactions processed increased by 13% during the first quarter of fiscal 2008 compared to the prior year comparable period. Revenue growth was also impacted by increases in the monetary value and the number of cross-border transactions in the three months ended December 31, 2007 compared to the prior year comparable period. Growth in our operating revenues exceeded growth in payments and transactions volumes due to newly introduced service fees in April 2007 and changes in pricing for various services outside the United States since December 31, 2006 as the regions outside the United States transitioned to a business model seeking to increase profitability. The new service fees and pricing modifications collectively increased our operating revenues by 15% during the three months ended December 31, 2007 and are discussed further under relevant revenue categories below. Of the overall increase in operating revenue outside the United States, our Asia Pacific and Latin American and Caribbean geographies accounted for 39% and 30% of the total, respectively. While we believe that these pricing changes will generate ongoing benefits, we do not believe that this rate of growth is representative of sustainable future revenue growth because it includes the new service fees introduced in the second half of fiscal 2007. We expect future price increases to correlate more closely with innovations in our product line and improvements in our service model.

The following table presents our operating revenues for the three months ended December 31, 2007 compared to the pro forma three months ended December 31, 2006.

 

		Three Months Ended December 31,								2007 vs. 2006
		2007				Pro forma 2006				$ Change				% Change
		(in millions, except percentages)
Service fees		$	732			$	577			$	155			27	%
Data processing fees			492				377				115			31
Volume and support incentives			(250	)			(136	)			(114	)		84
International transaction fees			381				247				134			54
Other revenues			133				108				25			23
Total Operating Revenues		$	1,488			$	1,173			$	315			27	%

 

66

---

Table of Contents

Service fees

Payments volume on Visa-branded cards for goods and services in the preceding quarter, exclusive of PIN-based debit volume, is the basis for service fees. Payments volume increased $85 billion, or 16%, to $623 billion for the three months ended September 30, 2007 compared to the prior year comparable period. The growth in service fees outpaced the growth in underlying payments volume during the three months ended December 31, 2007 due primarily to two new acceptance fees introduced in April 2007 to support merchant acceptance and volume growth initiatives, which superseded previously existing arrangements with issuers. The new acceptance fees increased service fee revenue by $50 million or 9% compared to the prior year comparable period. In addition, competitive pricing increases outside the United States, accounted for $20 million or 3% of the growth in service fees compared to the prior year comparable period as our businesses outside the United States transitioned to a business model seeking to increase profitability. Of the overall increase in service fees outside the United States, our Asia Pacific and Latin America and Caribbean geographies accounted for 47% and 48% of the total, respectively. While we believe these changes will generate ongoing benefits, we do not believe that the rate of growth in service fees during the three months ended December 31, 2007 is representative of sustainable future revenue growth because it includes the impacts of these new fees and changes in pricing.

Data processing fees

The increase in data processing fees reflects 13% growth in the number of transactions processed during the three months ended December 31, 2007 compared to the aggregate number of transactions for the three months ended December 31, 2006. Transactions processed were 9.1 billion during the three months ended December 31, 2007 compared to 8.0 billion in prior year comparable period. Data processing fees outpaced the growth in underlying transaction volumes due to various pricing modifications both inside and outside the United States which collectively increased data processing revenues by $55 million, or 15%. In the United States, data processing fees increased $23 million or 6% due to competitive price increases related to the Interlink network. The pricing increases outside the United States took place after the first quarter of fiscal 2006 as our businesses outside the United States transitioned to a business model seeking to increase profitability. Pricing increases outside the United States accounted for $20 million or 5% of the growth in data processing fees. Of the overall increase in data processing fees outside the United States, our Asia Pacific and Latin America and Caribbean geographies accounted for 73% and 15% of the total, respectively. While we believe these pricing changes will generate ongoing benefits, we do not believe that the rate of growth in data processing fees during the three months ended December 31, 2007 is representative of sustainable future revenue growth because it includes the impacts of these changes in pricing. The remainder of the increase primarily reflects increases in revenues from a new fraud product offering in the United States.

Volume and support incentives

Volume and support incentives increased significantly in the first quarter of fiscal 2008 compared to the prior year comparable period due to incremental new agreements assumed since the prior year comparable quarter, the absence of significant performance adjustments which reduced volume and support agreements in the prior year, and increases in volume and support incentives due to higher payments and transaction volumes:

 

•

Incremental new contracts entered into primarily in the United States since December 31, 2006 increased volume and support incentives by $29 million or 21%. We expect this trend to continue in the second fiscal quarter. Volume and support incentives are expected to increase significantly in the second quarter due to new and renewed agreements entered into late in the quarter ended December 31, 2007 and due to a charge related to a specific provision of a customer agreement which was triggered in January 2008.

 

•

As anticipated, volume and support incentives increased due to obligations assumed upon retirement of certain issuer programs in 2007. This increase represented $46 million or 34% of the growth in volume and support incentives.

 

67

---

Table of Contents

•

We recorded significant downward adjustments in the United States of $38 million to volume and support incentives in the first quarter of the prior fiscal year, reflecting the impact of lower revised estimates of performance under these agreements as the rate of payments volume growth softened and due to a customer’s lack of performance on a bonus target. As reflected below, performance adjustments recorded in the quarter ended December 31, 2007 were $10 million. The year-to-year difference in performance adjustments recorded during the three months ended December 31, 2007 compared to the prior year comparable period resulted in an increase in volume and support incentives of $28 million or 21%.

 

•

The remainder of the increase primarily reflects growth in volume and support incentives due to higher payments and transaction volume.

The actual amount of volume and support incentives will vary based on modifications to performance expectations for these contracts, amendments to contracts, or new contracts.

The net liability of volume and support incentives changed as follows:

 

		Fiscal 2008
		(in millions)
Beginning balance at October 1, 2007, net liability(1)		$	(87	)
Provision
Current year provision			(261	)
Performance adjustments(2)			10
Contractual amendments(3)			1
Subtotal volume and support incentives			(250	)
Payments			269
Ending balance at December 31, 2007, net liability(4)		$	(68	)

 

(1)	Balance represents the net of the current and long term asset and current liability portions of volume and support incentives of Visa Inc. at October 1, 2007.

(2)	Amount represents adjustments resulting from management’s refinement of its estimate of projected sales performance as new information becomes available.

(3)	Amount represents adjustments resulting from amendments to existing contractual terms.

(4)	Balance represents the net of the current and long term asset and current liability portions of volume and support incentives as presented in the consolidated balance sheet of Visa Inc. at December 31, 2007.

International transaction fees

The increase in international transaction fees was primarily driven by single currency and multi-currency payments volume, which increased $14 billion, or 27%, during the three months ended December 31, 2007 compared to the pro forma amounts for the three months ended December 31, 2006 reflecting more cross-border transactions and the continued expansion in the use of electronic payments for travel purposes as overall global travel has increased. The increase in international transaction fees outpaced the increase in single currency and multi-currency payments volume primarily due to modifications to pricing structures for these transactions outside the United States, which increased international transaction fees by $40 million, or 16%, during the three months ended December 31, 2007 compared to the pro forma amounts for the three months ended December 31, 2006. The pricing increases outside the United States took place in all geographies after the first quarter of fiscal 2006 as our businesses outside the United States transitioned to a business model seeking to increase profitability. While we believe these pricing changes will generate ongoing benefits, we do not believe that the rate of growth in international transaction fees during the three months ended December 31, 2007 is representative of sustainable future revenue growth because it includes the impacts of these changes in pricing. The remainder of the increase is attributable to the growth in foreign exchange trading revenues as multi-currency volumes increased and to increases in the amount of differential between foreign and domestic interchange rates.

 

68

---

Table of Contents

Other revenues

The increase in other revenues was primarily driven by an increase of $13 million, or 12%, in fees related to the Visa Extras loyalty platform in which enrolled Visa cardholders earn reward points toward qualifying purchases. Revenues associated with Visa Extras would be expected to increase over time as payment volumes associated with enrolled payments products increase. Visa earns revenues from its financial service institution customers for administrative and rewards fulfillment services performed in support of the Visa Extras platform. The remainder of the increase in other revenues primarily reflects additional revenues related to fees for bulletins issued to financial institution customers identifying unusual card usage and various other services.

Operating Expenses

Operating expenses increased by $22 million, or 3%, during the three months ended December 31, 2007 compared to pro forma operating expenses for the three months ended December 31, 2006. The change primarily reflects increases in personnel and network, EDP and communications expense during the period.

The following table sets forth the components of our operating expenses for the three months ended December 31, 2007 compared to our operating expenses on a pro forma basis for the three months ended December 31, 2006.

 

		Three Months Ended December 31,						2007 vs. 2006
		2007			Pro Forma 2006			$ Change				% Change
		(in millions, except percentages)
Personnel		$	283		$	273			10			4	%
Network, EDP and communications			133			118			15			13	%
Advertising, marketing and promotion			210			205			5			2	%
Professional and consulting fees			98			101			(3	)		(3	)%
Administrative and other			78			81			(3	)		(4	)%
Litigation provision			—			2			(2	)		NM
Total Operating Expenses		$	802		$	780		$	22			3	%

Personnel

The modest growth in personnel expense of 4% or $10 million reflects the offsetting impacts of severance and other charges incurred during the quarter related to workforce consolidation and elimination of overlapping functions and reductions of expense due to changes to our defined pension benefit plan effective in fiscal 2008 and reduced headcount compared to the prior year comparable period. During the first quarter of fiscal 2008 we incurred $27 million in severance and other charges related to workforce consolidation. We are evaluating various alternatives for achieving synergies in the global organization and expect to incur additional charges, which may be significant, during the remainder of fiscal 2008 and in early fiscal 2009. Charges incurred related to workforce consolidation were offset by a reduction of $10 million in pension expense due to conversion of our defined benefit pension plan to a cash-balance plan in fiscal 2008. Personnel costs were further reduced by a 3% reduction in headcount since December 31, 2006 primarily due to the out-sourcing of certain data processing and development support functions during fiscal 2007. During the remainder of fiscal 2008 we expect to incur charges related to equity compensation to be granted in connection with this offering.

Network, EDP and communications

The increase in network, EDP and communications expense during the three months ended December 31, 2007 compared to pro forma network, EDP and communications expense during the three months ended December 31, 2006 was primarily due to the following:

 

•

a $7 million increase in fees paid for debit processing services for charges related to processing transactions through non-Visa networks; and

 

•

a $6 million increase in maintenance, equipment rental and other costs.

 

69

---

Table of Contents

Fees for data processing services related to processing transactions through non-Visa networks would be expected to grow over time as the worldwide migration from paper-based to electronic payments continues. Maintenance and equipment rental costs may continue to increase over time as we continue to evaluate out-sourcing alternatives for certain support functions.

Other Income (Expense)

The following table sets forth the components of our other income (expense) for the three months ended December 31, 2007 compared to our other income (expense) on a pro forma basis for the three months ended December 31, 2006.

 

		Three Months Ended December 31,								2007 vs. 2006
		2007				Pro Forma 2006				$ Change				% Change
		(in millions, except percentages)
Interest expense		$	(45	)		$	(23	)		$	(22	)		96	%
Investment income, net			41				40				1			3	%
Other			1				—				1			NM
Total Other Income(Expense)		$	(3	)		$	17			$	(20	)		(118	)%

Interest expense

The increase in interest expense during the three months ended December 31, 2007 compared to pro forma interest expense during the three months ended December 31, 2006 was primarily due to interest accretion attributed to the American Express Settlement. See Note 23—Legal Matters to the Visa Inc. consolidated financial statements for the three months ended December 31, 2007.

Income Taxes

Visa Inc.’s effective tax rate is a combination of federal and state statutory rates and certain required adjustments to taxable income. The effective tax rate decreased to 38% during the three months ended December 31, 2007 from the pro forma 39% in the comparable period ended December 31, 2006. The decrease in the effective tax rate in the first quarter of fiscal 2008 is due to a decrease in non-deductible expenditures incurred in connection with various strategic organizational matters.

The components impacting the effective tax rate are:

 

		For the Three Months Ended December 31,
		2007						Pro Forma 2006
		Dollars			Percent			Dollars			Percent
		(in millions, except percentages)
Income before income taxes		$	683					$	410
U.S. federal statutory tax			239		35	%			142		35	%
State tax effect, net of federal benefit			11		2	%			7		1	%
Non-U.S.			3		—	%			3		1	%
Other			6		1	%			9		2	%
Income Tax Expense		$	259		38	%		$	161		39	%

California Special Deduction

The statement of operations for the three months ended December 31, 2007 and the pro forma statement of operations for the three months ended December 31, 2006 reflect our continuing eligibility to claim the special deduction afforded to companies that operate on a cooperative or mutual basis under California Revenue and

 

70

---

Table of Contents

Taxation Code §24405, or the special deduction. The State of California, where Visa U.S.A. and Visa International are headquartered, historically has not taxed a substantial portion of the reported income of these companies on the basis that both operate on a cooperative or mutual basis and are therefore eligible for a special deduction. As taxpayers eligible for the special deduction, Visa U.S.A. and Visa International are generally only subject to California taxation on interest and investment income. Therefore, the majority of each company’s income has not historically been taxed in California. As a result of this offering and the consequent ownership by parties other than our financial institution customers, we will no longer be eligible to claim the special deduction. Had ineligibility for the special deduction been reflected at the beginning of the three months ended December 31, 2007 our income tax expense would increase and net income would decrease by $10 million for the three months ended December 31, 2007. Had ineligibility for the special deduction been reflected at the beginning of the three months ended December 31, 2006, our pro forma income tax expense would increase and pro forma net income would decrease by approximately $9 million for the three months ended December 31, 2006.

Franchise Tax Board (“FTB”) Examination

We are currently negotiating a resolution of certain state audit issues raised by the FTB with their settlement division. These audit issues are in an advanced stage in the settlement process, the most significant of which include the eligibility to claim certain items as special deductions, apportionment computation and research and development credits taken. We believe that it is reasonably possible that the unrecognized tax benefits related to these significant state audit issues could decrease (whether by settlement, release or a combination of both) in the next 12 months by as much as $62 million.

Visa Inc. Pro Forma Fiscal 2007 compared to Visa Inc. Pro Forma Fiscal 2006

Operating Revenues

Pro forma operating revenues were $5.2 billion and $3.9 billion in fiscal 2007 and 2006, respectively, reflecting an increase of $1.3 billion, or 33%. The increase in pro forma operating revenues reflects increases in global payments volume, exclusive of PIN-based debit volume, which increased 13% in the 12 months ended June 30, 2007, and growth in transactions, the monetary value of cross-border transactions and the number of cross border transactions in fiscal 2007. Growth in our pro forma operating revenues exceeded growth in payments and transactions volumes due to newly introduced service fees and changes in pricing for various services outside the United States as the regions outside the United States transitioned to a business model seeking to increase profitability. The new service fees and pricing modifications collectively increased our pro forma operating revenues by 11% during fiscal 2007 and are discussed further in relevant revenue categories below. Of the overall increase in operating revenues outside the United States, our Asia Pacific and Latin America and Caribbean geographies accounted for 42% and 39% of the total, respectively. While we believe that these pricing changes will generate ongoing benefits, we do not believe that this rate of growth is representative of sustainable future revenue growth because it includes the new service fees introduced in the second half of fiscal 2007. We expect future price increases to correlate more closely with innovations in our product line and improvements in our service model.

 

		Pro Forma Visa Inc.
		Fiscal								2007 vs. 2006
		2007				2006				$ Change			% Change
		(in millions, except percentages)
Service fees		$	2,582			$	2,060			$	522		25	%
Data processing fees			1,659				1,411				248		18
Volume and support incentives			(714	)			(890	)			176		(20	)
International transaction fees			1,193				911				282		31
Other revenues			473				410				63		15
Total Pro Forma Operating Revenues		$	5,193			$	3,902			$	1,291		33	%

 

71

---

Table of Contents

Service fees

Pro forma payments volume on Visa-branded cards for goods and services in the preceding quarter, exclusive of PIN-based debit volume, is the basis for pro forma service fees. Pro forma payments volume, exclusive of PIN-based debit volume, increased $247 billion, or 13%, to $2.1 trillion for the twelve months ended June 30, 2007 compared to the twelve months ended June 30, 2006. Pro forma service fees outpaced the growth in underlying payments volume during fiscal 2007 due primarily to two new acceptance fees introduced in April 2007 to support merchant acceptance and volume growth initiatives, which superseded three previously existing arrangements with issuers, and the introduction of a new brand development fee in January 2007. The new acceptance fees in the United States increased pro forma service fees by $190 million, or 9%, and the new brand development fees increased pro forma service fees by $49 million, or 2%, compared with the prior fiscal year.

Data processing fees

The increase in pro forma data processing fees is primarily due to the number of pro forma transactions processed, which increased 12% in fiscal 2007 compared to fiscal 2006. Pro forma data processing fees outpaced the growth in underlying pro forma transaction volume due to various competitive pricing modifications outside the United States for authorization, clearing and settlement and SMS debit processing which increased pro forma data processing revenues by $44 million, or 3%. Of the overall increase in data processing fees outside the United States, our Asia Pacific and Latin America and Caribbean geographies accounted for 58% and 15% of the total, respectively. The pricing increases outside the United States took place in substantially all geographies during fiscal 2007 as our businesses outside the United States transitioned to a business model seeking to increase profitability. While we believe these pricing changes will generate ongoing benefits, we do not believe that the rate of growth in data processing fees during fiscal 2007 is representative of sustainable future revenue growth because it includes the impacts of these changes in pricing.

Volume and support incentives

The decrease in pro forma volume and support incentives was primarily due to the impact of lower revised estimates of performance under these agreements during management’s regular quarterly review and various terminations of volume and support incentive programs outside the United States that did not continue into fiscal 2007, particularly in the Asia Pacific and Latin America and Caribbean geographies. Performance adjustments reduced pro forma volume and support incentives costs by a total of $81 million in fiscal 2007, decreasing pro forma volume and support incentives by 9%. As the rate of payments volume growth has softened compared to the prior year, estimates of performance under volume and support incentives have been adjusted accordingly. The termination of various volume and support incentive programs outside the United States during fiscal 2007 further reduced pro forma volume and support incentives by $93 million, or 10%. These programs were comprised of annual incentives during fiscal 2006 for all eligible financial institution customers who met certain performance requirements. We currently expect volume and support incentives to increase substantially during fiscal 2008 due to obligations assumed upon retirement of certain issuer programs during 2007. See Note 13—Restricted Assets and Liabilities and Note 19—Commitments and Contingencies to the Visa U.S.A. fiscal 2007 consolidated financial statements. The actual amount of volume and support incentives will vary based on modifications to performance expectations for these contracts, amendments to contracts, or new contracts entered into during 2008.

 

72

---

Table of Contents

The net liability of volume and support incentives changed as follows:

 

		2007
		(in millions)
Beginning balance at October 1, 2006, net liability(1)		$	(274	)
Provision
Current year provision			(805	)
Performance adjustments(2)			81
Contractual amendments(3)			10
Subtotal volume and support incentives			(714	)
Payments			901
Ending balance at October 1, 2007, net liability(4)		$	(87	)

 

(1)	Balance represents the net of the current and long term asset and current liability portions of volume and support incentives of Visa Inc. at October 1, 2006.

(2)	Amount represents adjustments resulting from management’s refinement of its estimate of projected sales performance as new information becomes available.

(3)	Amount represents adjustments resulting from amendments to existing contractual terms.

(4)	Balance represents the net of the current and long term asset and current liability portions of volume and support incentives as presented in the consolidated balance sheet of Visa Inc. at October 1, 2007.

International transaction fees

The increase in pro forma international transaction fees was primarily driven by pro forma single currency and multi-currency payments volume, which increased $31 billion, or 18%, during fiscal 2007 compared to 2006 reflecting more cross-border transactions and the continued expansion in the use of electronic payments for travel purposes as overall global travel has increased. The increase in pro forma international transaction fees outpaced the increase in pro forma single currency and multi-currency payments volume primarily due to modifications to pricing structures for these transactions outside the United States, which increased pro forma international transaction fees by $122 million or 13% during fiscal 2007. The pricing increases outside the United States took place in all geographies during fiscal 2007 as our businesses outside the United States transitioned to a business model seeking to increase profitability. While we believe these pricing changes will generate ongoing benefits, we do not believe that the rate of growth in international transaction fees during fiscal 2007 is representative of sustainable future revenue growth because it includes the impacts of these changes in pricing.

Other revenues

The increase in pro forma other revenues was primarily driven by an increase of $25 million, or 6%, in fees related to various targeted development and advertising programs outside the United States, including development and advertising programs for the upcoming 2008 summer Olympic games in Beijing, China. Fees for targeted development and advertising programs may be discontinued when objectives of the program have been achieved. The increase in pro forma other revenues is also attributable to higher fees earned in connection with product enhancements and premium cardholder services, which increased $13 million or 3% during fiscal 2007. The remainder of the increase in other revenues is primarily due to higher revenues outside the United States related to licensing and card manufacturer certifications and for bulletins identifying unusual card usage.

Operating Expenses

Pro forma operating expenses increased $3.1 billion, or 97%, in fiscal 2007 compared to fiscal 2006. The increase primarily reflects a $2.7 billion litigation provision, which represented 85% of the total increase in operating expenses. Excluding the litigation provision, operating expenses increased $480 million, or 15%.

 

73

---

Table of Contents

The following table sets forth the components of our operating expenses on a pro forma basis for fiscal 2007 and 2006.

 

		Pro Forma Visa Inc.
		Fiscal						2007 vs. 2006
		2007			2006			$ Change				% Change
		(in millions)
Personnel		$	1,159		$	1,009			150			15	%
Network, EDP and communications			517			475			42			9	%
Advertising, marketing and promotion			1,075			864			211			24	%
Professional and consulting fees			552			418			134			32	%
Administrative and other			353			410			(57	)		(14	)%
Litigation provision			2,653			23			2,630			NM
Total Pro Forma Operating Expenses		$	6,309		$	3,199		$	3,110			97	%

Personnel

The increase in pro forma personnel expense in fiscal 2007 includes a $53 million, or 5%, increase representing the first installment of a one-time special bonus program of $107 million associated with the establishment of Visa Inc. Half of the $107 million special bonus program vested during fiscal 2007 and the other half is payable in stock or cash one year after the completion of this offering if certain vesting requirements are met. The remaining increase of 10% primarily reflects the following which occurred during fiscal 2007:

 

•

an increase in severance and related expenses of $41 million due to the attrition of several senior executives from Visa U.S.A. and Visa International during fiscal 2007 prior to the reorganization and due to a workforce reduction initiative in conjunction with outsourcing certain data processing functions; and

 

•

annual salary adjustments which were broadly in line with economic price increases.

Network, EDP and communications

The increase in pro forma network, EDP and communications expense during fiscal 2007 was primarily due to the following:

 

•

a $29 million increase in fees paid for debit processing services for charges related to processing transactions through non-Visa networks; and

 

•

a $12 million increase in maintenance and equipment rental costs.

Fees for data processing services related to processing transactions through non-Visa networks are expected to grow over time as the worldwide migration from paper-based to electronic payments continues. Maintenance and equipment rental costs may continue to increase over time as we continue to evaluate out-sourcing alternatives for certain support functions

Advertising, marketing and promotion

Pro forma advertising, marketing and promotion expense increased in fiscal 2007 primarily due to the following:

 

•

a $104 million increase in expenditures for certain joint promotional campaigns with financial institution customers;

 

•

a $38 million increase in expenditures associated with the upcoming 2008 summer Olympic games in Beijing, China; and

 

•

a $23 million increase in expenditures associated with Visa Extras, Visa U.S.A.’s point-based rewards program that enables enrolled cardholders to earn reward points on qualifying purchases.

 

74

---

Table of Contents

We assess the effectiveness of all promotional activity and may continue joint promotional campaigns with our financial institution customers in the future. Expenses associated with Visa Extras would be expected to increase over time as payments volumes associated with enrolled payments products increase.

The increase is also attributable to additional promotions related to Visa Signature, Visa Small Business, and Consumer Debit products, and to sporting and entertainment sponsorships and events. These increases were offset by the absence of initial launch expenditures for Visa’s new brand mark and card design that were incurred during fiscal 2006.

Management will continue to evaluate the impact of joint promotional campaigns with financial institutions and may continue them in the future. We expect that significant expenditures related to the 2008 Beijing Olympics will continue in fiscal 2008.

Professional and consulting fees

Pro forma professional and consulting fees increased in fiscal 2007 primarily due to the following:

 

•

a $77 million increase in consulting and legal fees incurred to support the corporate reorganization;

 

 

•

a $23 million increase in legal fees incurred to support ongoing litigation matters. See Note 21—Legal Matters to the consolidated balance sheet of Visa Inc. at October 1, 2007; and

 

•

a $23 million increase in contractors and outsourcing expense in connection with the outsourcing of certain data processing and development functions and additional contractors in connection with the support of other development and maintenance projects.

Higher professional fees are expected to continue in fiscal 2008 in connection with this offering. We continue to evaluate out-sourcing alternatives for certain technology and support functions. Contractor and outsourcing expense could increase in the future should additional support functions be transitioned to an external provider.

Administrative and other

Pro forma administrative and other expense decreased in fiscal 2007, primarily reflecting the absence of the following expenses incurred in fiscal 2006:

 

•

a $24 million charge to reimburse members for production and issuance costs related to discontinued use of Visa-branded cards with the holographic magnetic stripe design;

 

•

a $13 million impairment charge for the net carrying value of an intangible asset associated with the patent and rights to market and distribute Mini Cards in the United States; and

 

•

a $11 million charge to reflect expenses for business objectives related to a litigation settlement in fiscal 2006. The settlement required Visa U.S.A. to either meet certain joint business objectives or make cash payments in lieu of the business objectives over five years. Because Visa U.S.A. expects to make these related cash payments without receiving future benefits, Visa U.S.A. charged the present value of the total payments to its consolidated statements of operations in fiscal 2006.

In addition, after a review of claims submitted, we reduced the accrual for reimbursement to members for production costs related to the discontinued use of Visa-branded cards with the holographic magnetic stripe design by $11 million in fiscal 2007.

Litigation provision

Pro forma litigation provision increased by $2.6 billion in fiscal 2007 reflecting a $1.9 billion provision related to settlement of outstanding litigation with American Express. Future payments under the settlement agreement were discounted at 4.72% over the payment term to determine the amount of the provision. The

 

75

---

Table of Contents

litigation provision also reflects a $650 million liability estimate under the guidelines of SFAS No. 5, “Accounting for Contingencies,” related to the Discover litigation. The American Express and Discover litigations are covered by our retrospective responsibility plan and we intend to fund any payment obligations with amounts in the escrow account, in accordance with our retrospective responsibility plan. The remainder of the increase in litigation provision includes various litigation provisions for both settled and unsettled matters. See “—Liquidity and Capital Resources” and Note 21—Legal Matters to the consolidated balance sheet of Visa Inc. at October 1, 2007.

Other Income (Expense)

The following table sets forth the components of our other income (expense) on a pro forma basis for fiscal 2007 and 2006.

 

		Pro Forma Visa Inc.
		Fiscal								2007 vs. 2006
		2007				2006				$ Change			% Change
		(in millions)
Interest expense		$	(97	)		$	(104	)		$	7		(7	)%
Investment income, net			197				136				61		45	%
Other			8				—				8		NM
Total Pro Forma Other Income		$	108			$	32			$	76		238	%

Interest expense

The decrease in pro forma interest expense in fiscal 2007 primarily reflects lower accretion expense on the declining balance of litigation settlements during fiscal 2007. Interest expense will increase in fiscal 2008 as a result of the American Express settlement.

Investment income, net

The increase in pro forma investment income, net primarily reflects an increase in dividend and interest income of $41 million due to a shift in our investment strategy from tax-exempt municipal bonds to higher yield fixed-income investment securities and to higher average investment balances during the year.

Other Non-Operating Income

The increase in pro forma other non-operating income was primarily due to a gain from the sale of Visa International assets to Visa Europe in connection with the transfer of member banks in Romania and Bulgaria to Visa Europe in April 2007. The member banks in these two countries migrated from Visa International’s CEMEA region to Visa Europe following the admittance of the two countries into the European Union. In connection with the transfer of these members to Visa Europe, Visa International entered into an asset transfer agreement with Visa Europe, and assets related to Visa International’s operations in the two countries were sold to Visa Europe for a purchase price of $8 million.

Income Taxes

California Special Deduction

The pro forma statements of operations reflect our continuing eligibility to claim the special deduction afforded to companies that operate on a cooperative or mutual basis under California Revenue and Taxation Code §24405, or the special deduction. The State of California, where Visa U.S.A. and Visa International are headquartered, historically has not taxed a substantial portion of the reported income of these companies on the basis that both operate on a cooperative or mutual basis and are therefore eligible for a special deduction. As

 

76

---

Table of Contents

taxpayers eligible for the special deduction, Visa U.S.A. and Visa International are generally only subject to California taxation on interest and investment income. Therefore, the majority of each company’s income has not historically been taxed in California. As a result of this offering and the consequent ownership by parties other than our financial institution customers, we will no longer be eligible to claim the special deduction. Had ineligibility for the special deduction been reflected at the beginning of each fiscal year presented in the pro forma condensed combined statements of operations, our income tax benefit would decrease and net loss would increase by approximately $31 million in fiscal 2007, and our income tax expense would increase and net income would decrease by approximately $16 million in fiscal 2006.

Franchise Tax Board (“FTB”) Examination

We are currently negotiating a resolution of the state audit issues raised by the FTB with their settlement division. These audit issues are in an advanced stage in the settlement process, the most significant of which include the eligibility to claim certain items as special deductions, apportionment computation and research and development credits taken. We believe that it is reasonably possible that the unrecognized tax benefits related to these significant state audit issues could decrease (whether by settlement, release or a combination of both) in the next 12 months by as much as $62 million.

Deferred Tax Assets

Our fiscal 2007 pro forma statement of operations reflects a litigation provision of $2.7 billion associated with our outstanding and settled litigation. This provision primarily reflects the amount required to settle the American Express litigation and management’s liability estimate under the guidelines of SFAS No. 5 related to the Discover litigation and other matters. For tax purposes, the deduction related to these matters is deferred until the payments are made and thus we established a deferred tax asset of $787 million related to these payments, which is net of a reserve to reflect our best estimate of the amount of the benefit to be realized.

Visa Inc. Three Months Ended December 31, 2007 compared to Visa U.S.A. Three Months Ended December 31, 2006

The following discussion of results of operations compares Visa Inc. consolidated results for the three months ended December 31, 2007 to Visa U.S.A. results for the three months ended December 31, 2006. Visa U.S.A. was deemed the accounting acquirer in the reorganization that took place on October 1, 2007 and therefore Visa U.S.A. results are the historical predecessor for Visa Inc. In order to understand factors that may affect the comparability of the financial data presented below, the following section should be read in conjunction with “—Results of Operations—Operating Revenues and Expenses—Visa Inc. Three Months Ended December 31, 2007 compared to Visa Inc. Pro Forma Results for the Three Months Ended December 31, 2006,” as well as Visa Inc.’s unaudited consolidated financial statements and related notes at and for the three months ended December 31, 2007, and the information under “Unaudited Pro Forma Condensed Combined Statement of Operations.”

Operating Revenues

Operating revenues were $1,488 million for the three months ended December 31, 2007 compared to $845 million for the three months ended December 31, 2006, reflecting an increase of $643 million, or 76%. The increase in operating revenues primarily reflects the inclusion of $565 million of operating revenues from other regions upon the reorganization on October 1, 2007 offset by the absence of data processing and other revenues previously earned from Visa International and Visa Canada.

 

77

---

Table of Contents

The following table compares our operating revenues for the three months ended December 31, 2007 with those of Visa U.S.A. for the three months ended December 31, 2006.

 

		Three Months Ended December 31,								2007 vs. 2006
		2007				2006				$ Change				% Change
		(in millions, except percentages)
Service fees		$	732			$	451			$	281			62	%
Data processing fees			492				331				161			49
Volume and support incentives			(250	)			(97	)			(153	)		158
International transaction fees			381				106				275			259
Other revenues			133				54				79			146
Total Operating Revenues		$	1,488			$	845			$	643			76	%

Service fees

The increase in service fees is primarily driven by the inclusion of service fees from acquired regions upon the reorganization on October 1, 2007, which represent $195 million, or 43% of the increase. An additional increase of $50 million, or 11%, is attributable to new acceptance fees introduced in April 2007. The remainder of the increase primarily reflects U.S. payments volume growth of 11%.

Data processing fees

The increase in data processing fees is primarily due to the inclusion of data processing fees from acquired regions upon the reorganization on October 1, 2007, which represent $108 million of the increase, or 33%. Growth in data processing fees in the United States increased $73 million, or 22% primarily reflecting the combined impacts of 13% growth in transaction counts, competitive pricing increases related to the Interlink Network of $23 million, or 7%, and new data processing fees related to new fraud product offerings, of $8 million or 2%. These increases are offset by the absence of $21 million data processing revenues previously earned from Visa International regions and Visa Canada. Upon the reorganization, Visa U.S.A., Visa International, and Visa Canada became direct or indirect subsidiaries of Visa Inc.

Volume and support incentives

Volume and support incentives increased $56 million or 58% due to inclusion of volume and support incentives from the acquired regions upon the reorganization on October 1, 2007. As anticipated, volume and support incentives increased due to obligations assumed upon retirement of certain issuer programs in 2007. This increase represented $46 million or 47% of the growth in volume and support incentives. New contracts entered into after December 31, 2006 increased volume and support incentives by $29 million or 30%. Finally, during the first quarter of fiscal 2007, volume and support incentives were reduced by $38 million in performance adjustments due to the impact of lower revised estimates of performance under these agreements as the rate of payments volume growth softened in the United States and due to a customer’s lack of performance on a bonus target. The year-to-year difference in performance adjustments recorded during the three months ended December 31, 2007 compared with the three months ended December 31, 2006 resulted in an increase in volume and support incentives of $28 million or 29%. The remainder of the increase primarily reflects growth in volume and support incentives due to higher payments and transaction volume.

The actual amount of volume and support incentives will vary based on modifications to performance expectations for these contracts, amendments to contracts, or new contracts. The second quarter of fiscal 2008 will also include a charge in volume and support incentives related to a specific provision of a customer agreement which was triggered in January 2008.

 

78

---

Table of Contents

International transaction fees

International transaction fees increased $248 million or 234% due to inclusion of international transaction fees of acquired regions upon the reorganization on October 1, 2007. The remainder of the increase is attributable to growth in multi-currency payments volume in the United States which increased by 23% reflecting more cross-border transactions and continued expansion in the use of electronic payments for travel purposes as overall global travel has increased.

Other revenues

The increase in other revenues reflects inclusion of other revenues from acquired regions upon the reorganization on October 1, 2007, representing $52 million of the increase, or 96%. License fees earned under the framework agreement with Visa Europe, which became effective at the time of the reorganization, represented $44 million, or 81% of the increase. These increases were offset by the absence of $30 million in project revenues previously earned for services provided to Visa International regions and Visa Canada. The remainder of the increase in other revenues is primarily due to an increase of $13 million in fees related to the Visa Extras loyalty platform in which enrolled Visa cardholders earn reward points toward qualifying purchases. Revenues associated with Visa Extras would be expected to increase over time as payment volumes associated with enrolled payments products increase. Visa earns revenues from its financial service institution customers for administrative and rewards fulfillment services performed in support of the Visa Extras platform.

Operating Expenses

Operating expenses increased $266 million, or 50%, during the three months ended December 31, 2007 compared to the three months ended December 31, 2006. The change in operating expense is primarily due to operating expenses from the acquired regions.

The following table sets forth the components of our operating expenses for the three months ended December 31, 2007 compared to the three months ended December 31, 2006.

 

		Three Months Ended December 31,						2007 vs. 2006
		2007			2006			$ Change				% Change
		(in millions, except percentages)
Personnel		$	283		$	171			112			65	%
Network, EDP and communications			133			81			52			64	%
Advertising, marketing and promotion			210			114			96			84	%
Visa International fees			—			43			(43	)		NM
Professional and consulting fees			98			71			27			38	%
Administrative and other			78			54			24			44	%
Litigation provision			—			2			(2	)		NM
Total Operating Expenses		$	802		$	536		$	266			50	%

Personnel

The increase in personnel expense was primarily due to:

 

•

$105 million in personnel expense attributed to the acquired regions; and

 

•

$27 million in severance charges related to workforce consolidation due to the elimination of overlapping functions directly connected to the reorganization.

These increases were offset by reductions in personnel expense due to changes in our defined benefit pension plan and reductions in employee base since the prior year comparable period.

 

79

---

Table of Contents

Network, EDP and communications

The increase in network, EDP and communications expense was primarily due to $39 million in network, EDP and communications expense attributed to the acquired regions. The remainder of the increase reflects higher fees paid for debit processing services for charges related to processing transactions through non-Visa networks and higher software maintenance and hardware rental expense. Fees for data processing services related to processing transactions through non-Visa networks would be expected to grow over time as the worldwide migration from paper-based to electronic payments continues. Maintenance and equipment rental costs may continue to increase over time as we continue to evaluate out-sourcing alternatives for certain support functions.

Advertising, marketing and promotion

The increase in advertising, marketing and promotion primarily reflects $87 million in advertising, marketing and promotion expense attributed to the acquired regions and $9 million of additional promotional expenses related to the Visa-Extras rewards program.

Visa International Fees

Visa International fees ceased as a result of the reorganization, as Visa U.S.A. and Visa International are both direct subsidiaries of Visa Inc.

Professional and Consulting Fees

The increase in professional and consulting fees primarily reflects $22 million in professional and consulting expense attributed to the acquired regions.

Administrative and Other

The increase in administrative and other expense primarily reflects $53 million of expense attributed to the acquired entities, offset by the absence of $15 million in facilities expense paid to the real estate joint ventures owned by Visa U.S.A. and Visa International which were consolidated following the reorganization.

Other Income (Expense)

The following table sets forth the components of our other income (expense) for the three months ended December 31, 2007 compared to Visa U.S.A.’s other income (expense) for the three months ended December 31, 2006.

 

		Three Months Ended December 31,								2007 vs. 2006
		2007				2006				$ Change				% Change
		(in millions, except percentages)
Interest expense		$	(45	)		$	(20	)		$	(25	)		125	%
Investment income, net			41				22				19			86	%
Other			1				12				(11	)		(92	%)
Total Other Income(Expense)		$	(3	)		$	14			$	(17	)		(121	)%

Interest expense

The increase in interest expense was primarily due to interest accretion attributed to the American Express Settlement. See Note 23 – Legal Matters to the Visa Inc. consolidated financial statements for the three months ended December 31, 2007.

 

80

---

Table of Contents

Investment income, net

The increase in investment income, net was primarily driven by investment income of $16 million from the acquired regions. The remaining increase is due to a shift in strategy in our investment portfolio from tax exempt municipal securities to money market investments that currently yield a higher rate of return.

Other Non-Operating Income

The decrease in other non-operating income is primarily due to the absence of equity in earnings of Visa International which was acquired in the reorganization.

Income Taxes

Visa Inc.’s effective tax rate is a combination of federal and state statutory rates and certain required adjustments to taxable income.

The components impacting the effective tax rate are:

 

		For the Three Months Ended December 31,
		2007						2006
		Dollars			Percent			Dollars			Percent
		(in millions, except percentages)
Income before income taxes		$	683					$	323
U.S. federal statutory tax			239		35	%			113		35	%
State tax effect, net of federal benefit			11		2	%			5		2	%
Non – U.S.			3		0	%			—		—	%
Other			6		1	%			1		—	%
Income Tax Expense		$	259		38	%		$	119		37	%

Liquidity and Capital Resources

Our Management of Our Liquidity

Prior to our reorganization, Visa U.S.A., Visa International and Visa Canada each managed their own short-term and long-term liquidity needs. With the completion of the reorganization we are now able to manage our corporate finance and treasury functions on an integrated basis.

Our treasury policies provide management with the guidelines and authority to manage liquidity risk in a manner consistent with corporate objectives. The objectives of these treasury policies are to service the payments of principal and interest on outstanding debt, to provide adequate liquidity to cover operating expenditures and liquidity contingency scenarios, to ensure timely completion of payments settlement activities, to ensure payment of required litigation settlement payments and to optimize income earned within acceptable risk parameters.

Based on our cash flow budgets and forecasts of our short-term and long-term liquidity needs, management believes that our projected sources of liquidity will be sufficient to meet our projected liquidity needs for the next 12 months. However, our ability to maintain liquidity could be adversely affected by several factors described under “Risk Factors.” Management will continue to assess our liquidity position and potential sources of supplemental liquidity in view of our operating performance and other relevant circumstances.

 

81

---

Table of Contents

The following table sets forth summarized data for the consolidated balance sheet of Visa Inc. at December 31, 2007 reflecting its financial condition:

 

		December 31, 2007
		(in millions, unaudited)
Consolidated Balance Sheet Data
Cash and cash equivalents		$	1,698
Short-term investments securities, available-for-sale			729
Total current assets			5,813
Long-term investments securities, available-for-sale			380
Total current liabilities			5,179
Current portion of long-term debt			75
Long-term debt			40
Current portion of accrued litigation obligation			2,325
Long-term portion of accrued litigation obligation			1,395
Total stockholders’ equity			16,716
Working capital			634

Cash Flow Data

The following table summarizes our cash flows from operating, investing and financing activities for the three months ended December 31, 2007:

 

		For the three months ended December 31, 2007
		(in millions)
Total cash provided by (used in):
Operating activities		$	182
Investing activities			1,251
Financing activities			(10	)
Increase in cash and cash equivalents		$	1,423

Operating Activities

Cash provided by operating activities for the three months ended December 31, 2007 was $182 million. This amount was lower than income provided by operations primarily due to:

 

•