Visa 2014 Annual Report Download - page 67

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Other litigation. Judgments in and settlements of litigation, other than the covered litigation, could
give rise to future liquidity needs.
Reduction in as-converted shares. During fiscal 2014, total as-converted class A common stock
was reduced by 22 million shares, at an average price of $209.15 per share, using $4.6 billion of
operating cash on hand. Of the $4.6 billion, $4.1 billion was used to repurchase class A common stock
in the open market. In addition, we deposited $450 million of operating cash into the litigation escrow
account previously established under the retrospective responsibility plan. The deposit has the same
economic effect on earnings per share as repurchasing our class A common stock, because it reduces
the class B conversion rate and consequently the as-converted class A common stock share count.
See Note 3—Retrospective Responsibility Plan and Note 14—Stockholders’ Equity to our consolidated
financial statements.
The stock repurchases and litigation escrow deposit discussed above reduced the funds from the
$5.0 billion share repurchase program authorized by our board of directors in October 2013. As of
September 30, 2014, the program had remaining authorized funds of $682 million. All share
repurchase programs authorized prior to October 2013 have been completed. In October 2014, our
board of directors authorized an additional $5.0 billion share repurchase program. See Note
14—Stockholders’ Equity to our consolidated financial statements.
Dividends. During fiscal 2014, we paid $1.0 billion in dividends. In October 2014, our board of
directors declared a quarterly dividend in the aggregate amount of $0.48 per share of class A common
stock (determined in the case of class B and class C common stock on an as-converted basis). We
expect to pay approximately $297 million in connection with this dividend on December 2, 2014. See
Note 14—Stockholders’ Equity to our consolidated financial statements. We expect to continue paying
quarterly dividends in cash, subject to approval by the board of directors. Classes of B and C common
stock will share ratably on an as-converted basis in such future dividends.
Visa Europe put option. We have granted Visa Europe a perpetual 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. The put option provides a formula for
determining the purchase price of the Visa Europe shares, which subject to certain adjustments,
applies Visa Inc.‘s forward price-to-earnings multiple, or the “P/E ratio” (as defined in the option
agreement) at the time the option is exercised to Visa Europe’s adjusted sustainable income for the
forward 12-month period, or the “adjusted sustainable income” (as defined in the option agreement).
The calculation of Visa Europe’s adjusted sustainable income under the terms of the put option
agreement includes potentially material adjustments for cost synergies and other negotiated items.
Upon exercise, the key inputs to this formula, including Visa Europe’s adjusted sustainable income, will
be the result of negotiation between us and Visa Europe. The put option provides an arbitration
mechanism in the event that the two parties are unable to agree on the ultimate purchase price.
The fair value of the put option represents the value of Visa Europe’s option, which, under certain
conditions, could obligate us to purchase its member equity interest for an amount above fair value. At
September 30, 2014, we determined the fair value of the put option liability to be approximately $145
million. While this amount represents the fair value of the put option at September 30, 2014, it does not
represent the actual purchase price that we may be required to pay if the option is exercised. The
purchase price we could be obligated to pay 285 days after exercise will represent a substantial
financial obligation. Given current economic conditions, the purchase price under the terms of the put
option would likely be in excess of $10 billion. We may need to obtain third-party financing, either by
borrowing funds or undertaking a subsequent equity offering in order to fund this payment. The amount
of that potential obligation could vary dramatically based on, among other things, Visa Europe’s
adjusted sustainable income and our P/E ratio, in each case, as negotiated at the time the put option is
exercised.
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