Visa 2015 Annual Report Download - page 69

(7) On November 2, 2015, we entered into an agreement to acquire Visa Europe for a total purchase
price of up to €21.2 billion to be paid in a combination of up-front cash, preferred stock, and
contingent cash consideration due four years after closing. As the agreement was signed after the
balance sheet date, and closing of the acquisition is subject to regulatory approvals and other
customary conditions, the maximum potential purchase price is not included in the table above.
Additionally, in conjunction with the agreement to acquire Visa Europe, we also entered into an
option amendment, which amended the terms of the Visa Europe put option to align with the terms
of the transaction agreement to acquire Visa Europe. If the acquisition does not close, the Visa
Europe put option will revert to its original, unamended terms. Due to the perpetual nature of the
unamended instrument and the various economic conditions, which could exist if the unamended
put were exercised, the ultimate amount and timing of Visa’s obligation, if any, cannot be reliably
estimated. Therefore, no amounts related to this obligation have been included in the table.
However, given the current economic conditions and circumstances under which Visa Europe could
exercise its unamended option, the purchase price under the unamended terms of the put option
would likely be in excess of $15 billion. The fair value of the unamended Visa Europe put option
itself totaling $255 million at September 30, 2015 has also been excluded from this table as it does
not represent the amount, or an estimate of the amount, of Visa’s obligation in the event of
exercise. See the Liquidity and Capital Resources and Critical Accounting Estimates sections of
this Management’s Discussion and Analysis of Financial Condition and Results of Operations and
Note 2—Visa Europe to our consolidated financial statements.
(8) We evaluate the need to make contributions to our pension plan after considering the funded status
of the pension plan, movements in the discount rate, performance of the plan assets and related tax
consequences. Expected contributions to our pension plan have not been included in the table as
such amounts are dependent upon the considerations discussed above, and may result in a wide
range of amounts. See Note 10—Pension, Postretirement and Other Benefits to our consolidated
financial statements and the Liquidity and Capital Resources section of this Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America which require us to make judgments, assumptions
and estimates that affect the amounts reported. See Note 1—Summary of Significant Accounting
Policies to our consolidated financial statements. We have established policies and control procedures
which seek to ensure that estimates and assumptions are appropriately governed and applied
consistently from period to period. However, actual results could differ from our assumptions and
estimates, and such differences could be material.
We believe that the following accounting estimates are the most critical to fully understand and
evaluate our reported financial results, as they require our most subjective or complex management
judgments, resulting from the need to make estimates about the effect of matters that are inherently
uncertain and unpredictable.
Revenue Recognition—Client Incentives
Critical estimates. We enter into incentive agreements with financial institution clients and other
business partners for various programs designed to build payments volume, increase Visa-branded
card and product acceptance and win merchant routing transactions over our network. These
incentives are primarily accounted for as reductions to operating revenues; however, if a separate
identifiable benefit at fair value can be established, they are accounted for as operating expenses. We
generally capitalize advance incentive payments under these agreements if select criteria are met. The
capitalization criteria include the existence of future economic benefits to Visa, the existence of legally
enforceable recoverability language (e.g., early termination clauses), management’s ability and intent
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