Visa 2013 Annual Report Download - page 88

VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2013
in their need or desire to liquidate their investment holdings. Factors impacting the assumed P/E
differential used in the calculation include material changes in the P/E ratio of Visa and those of a
group of comparable companies used to estimate the forward price-to-earnings multiple applicable to
Visa Europe.
The Company determined the fair value of the put option to be approximately $145 million at
September 30, 2013 and 2012. In determining the fair value of the put option on these dates, the
Company assumed a 40% probability of exercise by Visa Europe at some point in the future and an
estimated long-term P/E differential at the time of exercise of 1.9x. Changes in the fair value of the put
option are recorded as non-cash, non-operating income in the Company’s consolidated statements of
operations. During fiscal 2011, the Company reduced the value of the put option by $122 million,
recording non-cash, non-operating income in the consolidated statement of operations. The decrease
in the value of the put option reflected the overall decrease in Visa’s P/E during fiscal 2011 as
compared to fiscal 2010, and does not reflect any change in the likelihood that Visa Europe will
exercise its option.
The put option is exercisable at any time at the sole discretion of Visa Europe. As such, the put
option liability is included in accrued liabilities on the Company’s consolidated balance sheet at
September 30, 2013. Classification in current liabilities is not an indication of management’s
expectation of exercise and simply reflects the fact that the obligation resulting from the exercise of the
instrument could become payable within 12 months.
Visa call option agreement. Visa Europe granted to Visa a perpetual call option under which the
Company may be entitled to purchase all of the share capital of Visa Europe. The Company may
exercise the call option in the event of certain triggering events. These triggering events involve the
performance of Visa Europe measured as an unremediated decline in the number of merchants or
ATM’s in the Visa Europe region that accepts Visa-branded products. The Company believes the
likelihood of these events occurring is remote.
The Framework Agreement. The relationship between Visa and Visa Europe is governed by a
Framework Agreement, which provides for trademark and technology licenses and bilateral services as
described below.
The Company granted to Visa Europe exclusive, irrevocable and perpetual licenses to use the
Visa trademarks and technology intellectual property owned by the Company and certain affiliates
within the Visa Europe region for use in the field of financial services, payments, related information
technology and information processing services and participation in the Visa system. Visa Europe may
sublicense the Visa trademarks and technology intellectual property to its members and other
sublicensees under agreed-upon circumstances.
The base fee for these irrevocable and perpetual licenses is recorded in other revenues and was
approximately $143 million per year for fiscal 2013, 2012 and 2011. This fee is eligible for adjustment
annually based on the annual growth of the gross domestic product of the European Union, although
the adjustment can never reduce the annual fee below $143 million. The Company determined through
an analysis of the fee rates implied by the economics of the agreement that the base fee, as adjusted
in future periods based on the growth of the gross domestic product of the European Union,
approximates fair value.
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