Visa 2012 Annual Report Download - page 37

Download and view the complete annual report

Please find page 37 of the 2012 Visa annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 136

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136

Table of Contents
deduction of settlement payments associated with the American Express litigation made during that fiscal year. However, on August
15, 2012, the IRS issued a Chief Counsel Advice (CCA), supporting our position that Visa is entitled to the deduction, and
subsequently the IRS issued a revised Revenue Agent Report (RAR) effectively withdrawing the NOPA. The IRS may still
challenge any income tax return position taken, including the deductibility of covered litigation payments made in fiscal 2008 or any
future year, until the statute of limitations has closed for each applicable year. The statute of limitations for fiscal 2008 is expected
to expire in June of 2013. However, given the CCA and revised RAR, during the fourth quarter of fiscal 2012, we reevaluated and
reversed all previously recorded tax reserves and accrued interest associated with uncertainties related to the deductibility of
covered litigation expense recorded in fiscal 2007 through the third quarter of fiscal 2012. This increased our net income for the
fourth quarter of fiscal 2012 by $627 million. The reversal of tax reserves and related interest included $301 million related to
reserves taken in the current year, and $326 million related to reserves taken in previous years.
Multidistrict Litigation Proceedings (MDL) . On October 19, 2012, Visa, MasterCard, various U.S. financial institution
defendants and the class plaintiffs signed a settlement agreement to resolve the class plaintiffs' claims in the interchange MDL. We
also signed a settlement agreement to resolve the claims brought by a group of individual merchants which were consolidated with
the MDL for coordination of pre-trial proceedings. The settlement with the class plaintiffs is subject to final court approval, which we
cannot assure will be received, and to the adjudication of any appeals. See Note 3—Retrospective Responsibility Plan and Note
21—Legal Matters to our consolidated financial statements.
Adjusted financial results. Our financial results for fiscal 2012 and 2011 reflect the impact of several significant items that we
believe are not indicative of our financial performance in the current or future years, as they either are non-recurring, have no cash
impact or are related to amounts covered by the retrospective responsibility plan. As such, we believe the presentation of adjusted
financial results excluding the following amounts provides a clearer understanding of our operating performance for the periods
presented.
The following table presents our adjusted financial results for the years ended September 30, 2012 and 2011.
35
• Reversal of tax reserves. During the fourth quarter of fiscal 2012, we reevaluated and reversed all previously recorded
tax reserves and accrued interest associated with uncertainties related to the deductibility of covered litigation expense
recorded in fiscal 2007 through the third quarter of fiscal 2012. This increased our net income for the fourth quarter of
fiscal 2012 by $627 million. The reversal of tax reserves and related interest included $301 million related to reserves
taken in the current year, and $326 million related to reserves taken in previous years.
• Litigation provision. During the third quarter of fiscal 2012, we recorded a litigation provision of $4.1 billion
and related tax
benefits associated with the interchange MDL, which is covered by the retrospective responsibility plan. Monetary
liabilities from settlements of, or judgments in, the covered litigation will be paid from the litigation escrow account. See
Note 3—Retrospective Responsibility Plan and Note 21—Legal Matters to our consolidated financial statements.
• Deferred tax adjustment. During the second quarter of fiscal 2012, our reported financial results benefited from a one-
time, non-cash adjustment of $208 million related to the remeasurement of our net deferred tax liabilities attributable to
changes in the California state apportionment rules.
• Revaluation of Visa Europe put option. During fiscal 2011, we recorded a decrease of $122 million in the fair value of the
Visa Europe put option, which resulted in the recognition of non
-cash, non-
operating other income in our financial results.
This amount is not subject to income tax and therefore had no impact on our reported income tax provision. The
reduction in the fair value of the put option was the result of declines in our estimated long-term price-to-earnings ratio as
compared to the estimated ratio applicable to Visa Europe and did not reflect any change in the likelihood that Visa
Europe will exercise its option.