Visa 2012 Annual Report Download - page 48

Table of Contents
Payments settlement. Payments settlement due from and due to issuing and acquiring clients represents a substantial daily
liquidity requirement. U.S. dollar settlements are typically settled within the same day and do not result in a net receivable or
payable balance, while settlement currencies other than the U.S. dollar generally remain outstanding for one to two business days,
consistent with industry practice for such transactions. During fiscal 2012, we often did not need to fund settlement working capital
as indicated by the fact that our average daily net settlement position was a payable of $43 million, although our greatest working
capital requirement was a peak net settlement receivable balance of $587 million.
Covered litigation. We are parties to legal and regulatory proceedings with respect to a variety of matters, including certain
litigation that we refer to as the covered litigation. As noted above, monetary liabilities from settlements of, or judgments in, the
covered litigation are payable from the litigation escrow account. During fiscal 2012 , we made $140 million in covered litigation
payments that were funded from the litigation escrow account. At September 30, 2012 the litigation escrow account had an
available balance of $4.4 billion . In October 2012, we made an additional payment of $350 million from the litigation escrow
account to the Individual Plaintiffs' Settlement Fund. See Note 3—Retrospective Responsibility Plan and Note 21—Legal Matters
to
our consolidated financial statements.
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 2012 , total as-converted class A common stock was reduced by 22.8 million
shares, using $2.4 billion of operating cash on hand. Of the $2.4 billion , $710 million was used to repurchase class A common
stock in the open market. In addition, we made deposits totaling $1.7 billion of operating cash into the litigation escrow account
previously established under the retrospective responsibility plan. These deposits have the same economic effect on earnings per
share as repurchasing the Company's class A common stock, because they reduce the class B conversion rate and consequently
the as-converted class A common stock share count.
In July 2012, our board of directors authorized a $1 billion share repurchase program to be in effect through July 2013 . At
September 30, 2012 , this share repurchase program had remaining authorized funds of $865 million . In October 2012 , our board
of directors authorized an additional $1.5 billion share repurchase program to be in effect through October 2013 . All share
repurchase programs authorized prior to July 2012 have been completed. See Note 15—Stockholders' Equity to our consolidated
financial statements.
Dividends . During fiscal 2012 , we paid $595 million in dividends. On October 24, 2012 , our board of directors declared a
quarterly dividend in the aggregate amount of $0.33 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 $221 million in connection with this dividend in
December 2012. See Note 15—Stockholders' Equity to our consolidated financial statements. We expect to continue paying
quarterly dividends in cash, subject to approval by our board of directors. Class B and class 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.
At September 30, 2012 , 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, 2012 , 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, which could be several billion dollars or more. 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
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