Visa 2015 Annual Report Download - page 72

Other estimates of lesser significance include growth rates and foreign currency exchange rates
applied in the calculation of Visa Europe’s adjusted sustainable income. Growth rates assumed in the
valuation reflect a for-profit model, as we believe it is likely that, should Visa Europe choose to exercise
the put option in its unamended form, it will seek to maximize the purchase price by adopting a for-
profit business model in advance of exercising the unamended put option. The foreign exchange rate
used to translate Visa Europe’s results from euros to U.S. dollars reflects a blend of forward exchange
rates observed in the marketplace. The assumed timing of exercise of the unamended put option used
in the various modeled scenarios is not an overly significant assumption in the valuation, as obligations
calculated in later years are more heavily discounted in the calculation of present value.
Impact if actual results differ from assumptions. In the determination of the fair value of the
unamended put option at September 30, 2015, we have 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 approximately 1.5x. The use of a probability of exercise that is 5% higher than our estimate
would have resulted in an increase of approximately $37 million in the value of the unamended put
option. An increase of 1.0x in the assumed P/E differential would have resulted in an increase of
approximately $249 million in the value of the unamended put option. The unamended put option is
exercisable at any time at the sole discretion of Visa Europe. As such, the unamended put option
liability is included in accrued liabilities in our consolidated balance sheet at September 30, 2015.
Classification in current liabilities reflects the fact that this obligation could become payable within 12
months at September 30, 2015.
Legal and Regulatory Matters
Critical estimates. We are currently involved in various legal proceedings, the outcomes of which
are not within our complete control or may not be known for prolonged periods of time. Management is
required to assess the probability of loss and amount of such loss, if any, in preparing our financial
statements.
Assumptions and judgment. We evaluate the likelihood of a potential loss from legal or regulatory
proceedings to which we are a party. We record a liability for such claims when a loss is deemed
probable and the amount can be reasonably estimated. Significant judgment may be required in the
determination of both probability and whether an exposure is reasonably estimable. Our judgments are
subjective based on the status of the legal or regulatory proceedings, the merits of our defenses and
consultation with in-house and outside legal counsel. As additional information becomes available, we
reassess the potential liability related to pending claims and may revise our estimates.
Our U.S. retrospective responsibility plan only addresses monetary liabilities from settlements of,
or final judgments in, the U.S. covered litigation. The plan’s mechanisms include the use of the
litigation escrow account. The accrual related to the U.S. covered litigation could be either higher or
lower than the litigation escrow account balance. We did not record an accrual for the U.S. covered
litigation during fiscal 2015. See Note 3—U.S. Retrospective Responsibility Plan and Potential Visa
Europe Liabilities and Note 20—Legal Matters to our consolidated financial statements.
Impact if actual results differ from assumptions. Due to the inherent uncertainties of the legal and
regulatory processes in the multiple jurisdictions in which we operate, our judgments may be materially
different than the actual outcomes, which could have material adverse effects on our business,
financial conditions and results of operations. See Note 20—Legal Matters to our consolidated financial
statements.
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