Visa 2008 Annual Report Download - page 56

Table of Contents
reorganization and is designed to address potential liabilities arising from certain litigation that we refer to as covered litigation. Future settlements of, or
judgments in, the covered litigation will be payable from the escrow account. 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 or affiliates of members of Visa U.S.A. See Note 5—Retrospective Responsibility Plan to our consolidated financial statements included
elsewhere in this report. The remaining net proceeds of $2.7 billion were retained and have been used, in October 2008, to fund the redemption of all of the
class C (series II) shares and a portion of the class C (series III) shares held by Visa Europe. See Note 16—Stockholders Equity and Redeemable Shares to our
consolidated financial statements elsewhere in this report.
The reorganization and IPO impacted our business, results of operations and financial condition currently and in future periods in a number of
significant ways:
• Charges. We incurred charges related to severance and other termination benefits totaling $93 million during 2008. We continue to evaluate
various alternatives for achieving synergies in the global organization and expect to incur additional charges, which may be significant, into fiscal
2009. In connection with the IPO, we granted equity compensation awards to employees and non-employee directors. We incurred $74 million in
share-based compensation cost during fiscal 2008.
• Visa Europe put option. We granted Visa Europe the option to cause the sale of Visa Europe to us. We will record any change in the fair market
value of this option in our consolidated statement 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. Visa Europe may exercise the put option
at any time after March 25, 2009.
• Income taxes. As a result of completing the IPO and consequent ownership by parties other than our financial institution customers, we are no
longer eligible to claim the California special deduction previously available to Visa U.S.A. and Visa International Service Association on the
basis that both operated on a cooperative or mutual basis. Our tax provision was updated to reflect the loss of the special deduction during the last
six months of fiscal 2008, resulting in an increase in taxes of $29 million in fiscal 2008. We are evaluating our global corporate tax structure as a
newly formed global company and are considering various tax alternatives and strategies to assist in managing our effective tax rate in the future.
We expect to see a gradual decline in our effective tax rate beginning in fiscal 2009.
• One time tax benefit. As anticipated, following our IPO, our earnings for the second quarter of fiscal 2008 increased by $107 million as a result of
a one-time estimated tax benefit due to a change in our state tax apportionment methodology.
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