Visa 2015 Annual Report Download - page 100

VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2015
The Company determined the fair value of the unamended put option to be approximately $255
million at September 30, 2015 and $145 million at September 30, 2014. The increase in value was
primarily driven by an increase in estimated Visa Europe adjusted sustainable income partially offset
by a decrease in the P/E differential. In determining the fair value of the unamended 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 1.5x and 1.9x, respectively.
Changes in the fair value of the put option are recorded as non-cash, non-operating expense in the
Company’s consolidated statements of operations.
At September 30, 2015, the unamended put option was exercisable at any time at the sole
discretion of Visa Europe. As such, the unamended put option liability is included in accrued liabilities
on the Company’s consolidated balance sheet at September 30, 2015. Classification in current
liabilities reflects the fact that the obligation resulting from the exercise of the instrument could become
payable within 12 months at September 30, 2015.
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. Subject to the binding documents entered into in connection with the
proposed transaction, 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 2015, 2014 and 2013. 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.
In addition to the licenses, Visa provides Visa Europe with authorization, clearing and settlement
services for cross-border transactions involving Visa Europe’s region and the rest of the world. Visa
Europe must comply with certain agreed-upon global rules governing the interoperability of Visa’s
systems with the systems of Visa Europe as well as the use and interoperability of the Visa
trademarks. The parties will also guarantee the obligations of their respective clients and members to
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