Visa 2008 Annual Report Download - page 126

Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2008
(in millions, except as noted)
California Special Deduction
The pro forma statements of operations presented above reflect the Company's 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 (referred to hereafter as "the special
deduction"). The state of California, where both 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 the special deduction. As
taxpayers eligible for the special deduction, Visa U.S.A. and Visa International were 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.
Upon the Company's completion of its IPO and the consequent ownership by parties other than the Company's financial institution customers, the
Company is no longer eligible to claim the special deduction and is subject to California taxation as a traditional, for-profit business enterprise. Had
ineligibility for the special deduction been reflected at October 1, 2006 in the pro forma condensed combined statements of operations, pro forma income tax
benefit would decrease and pro forma net loss would increase by approximately $31 million for fiscal 2007. The Company's tax provision for fiscal 2008
reflects the loss of the special deduction in March, 2008. See Note 22—Income Taxes.
Note 4—Visa Europe
As discussed in Note 1—Organization, Visa Europe remained a separate entity owned and governed by its European member banks after the
reorganization. Under the terms of the reorganization, Visa Europe exchanged its ownership interest in Visa International and Inovant for the following
consideration: (i) an 8.1% ownership interest in the form of class EU (series I) and class EU (series III) common stock; (ii) a 3.6% ownership interest in the
form of class EU (series II) common stock; (iii) a put-call option agreement, and (iv) a framework agreement. See Note 3—The Reorganization.
Class EU (Series I and III) Common Stock and Class C (Series III and IV) Common Stock
At the date of reorganization, Visa Europe received an 8.1% ownership interest in Visa Inc. in the form of class EU (series I) and class EU (series III)
common stock valued at $3.1 billion at the measurement date. Concurrent with the true-up of purchase consideration, on March 17, 2008, the EU (series I)
and EU (series III) common stock was converted into class C (series III) and class C (series IV) common stock, respectively, on a one-to-one basis.
Class EU (Series II) Common Stock and Class C (Series II) Common Stock
At the date of reorganization, Visa Europe also received a 3.6% ownership interest in Visa Inc. in the form of class EU (series II) common stock. On
March 17, 2008, the class EU (series II) common stock converted on a one-to-one basis into shares of class C (series II) common stock. On March 19, 2008,
the Company issued 51,844,393 additional shares of class C (series II) stock at a price of $44 per share in exchange for a subscription receivable from Visa
Europe. This issuance and subscription receivable were recorded as offsetting entries in temporary equity on the Company's consolidated balance sheet.
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