Visa 2011 Annual Report Download - page 89

Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2011
(in millions, except as noted)
defined as the estimated amount a third-party market participant might pay in an arm's length transaction under normal business conditions. A probability of
exercise assumption is applied to reflect the possibility that Visa Europe will never exercise its option.
The estimated fair value of the put option represents a Level 3 accounting estimate due to a lack of trading in active markets and a lack of observable
inputs in measuring fair value. See Note 4—Fair Value Measurements and Investments. The valuation of the put option therefore requires substantial
judgment. The most subjective of estimates applied in valuing the put option are the assumed probability that Visa Europe will elect to exercise its option and
the estimated differential between the P/E ratio and the P/E ratio applicable to Visa Europe on a standalone basis at the time of exercise, which the Company
refers to as the "P/E differential".
Exercise of the put option is at the sole discretion of Visa Europe (on behalf of the Visa Europe shareholders pursuant to authority granted to Visa
Europe, under its Articles of Association). The Company estimates the assumed probability of exercise based on reasonably available information including,
but not limited to: (i) Visa Europe's stated intentions; (ii) indications that Visa Europe is preparing to exercise as reflected in its reported financial results;
(iii) evaluation of market conditions, including the regulatory environment, that could impact the potential future profitability of Visa Europe; and
(iv) qualitative factors applicable to Visa Europe's largest members, which could indicate a change 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 Inc. 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, 2011, compared to $267 million at
September 30, 2010 and $346 million at September 30, 2009. 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, 3.5x and 5.3x,
respectively. Decreases in the P/E differential reflect the overall decrease in Visa Inc.'s P/E during fiscal 2011 and 2010, and do not reflect any change in the
likelihood that Visa Europe will exercise its option. Reductions in the fair value of the put option are recorded as non-cash other non-operating income in the
Company's consolidated statements of operations.
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 our
consolidated balance sheet at September 30, 2011. 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 Inc. 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 triggers occurring to be remote.
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