Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. VISA INC. (1403161) 10-Q published on Apr 26, 2019 at 4:06 pm
Reporting Period: Mar 30, 2019
Derivative instruments. During the three months ended March 31, 2019, the Company entered into interest rate and cross-currency swap agreements on a portion of the Company’s outstanding 3.15% Senior Notes due December 2025. The Company designated the interest rate swap as a fair value hedge and the cross-currency swap as a net investment hedge. Gains and losses related to changes in fair value hedges are recognized in non-operating income (expense) along with a corresponding loss or gain related to the change in value of the underlying hedged item in the same line in the consolidated statement of operations. The effective portions of net investment hedges are recorded in other comprehensive income. Amounts excluded from the effectiveness testing of net investment hedges are recognized in non-operating income (expense). Cash flows associated with derivatives designated as a fair value hedge may be included in operating, investing or financing activities on the consolidated statement of cash flows, depending on the classification of the items being hedged. Cash flows associated with financial instruments designated as net investment hedges are classified as an investing activity. There were no swap agreements outstanding as of September 30, 2018.
The Company recognized net realized gains of $15 million for both the three and six months ended March 31, 2019 on its equity securities sold during the periods. The Company recognized net unrealized gains of $79 million and $59 million for the three and six months ended March 31, 2019, respectively, on equity securities held as of the end of the periods.
The Company recognized interest expense for its senior notes of $119 million and $137 million for the three months ended March 31, 2019 and 2018, respectively, and $245 million and $275 million for the six months ended March 31, 2019 and 2018, respectively. Interest expense for the three and six months ended March 31, 2019 includes adjustments related to the Company’s hedging program. Effective interest rates disclosed in the table above do not reflect hedge accounting adjustments.
Operating activities. Cash provided by operating activities for the six months ended March 31, 2019 was lower than the prior-year comparable period primarily due to higher payments from the litigation escrow account in the current year and the first installment payment of the transition tax in connection with the Tax Act, partially offset by continued growth in our underlying business.
In March 2019, we entered into interest rate and cross-currency swap agreements on a portion of our outstanding senior notes that allows us to manage our interest rate exposure through a combination of fixed and floating rates and reduce our overall cost of borrowing. Together these swap agreements effectively convert a portion of our U.S. dollar denominated fixed-rate payments into euro denominated floating-rate payments. By entering into interest rate swaps, we have assumed risks associated with market interest rate fluctuations. See Note 5—Fair Value Measurements and Investments to our unaudited consolidated financial statements.