Visa 2008 Annual Report Download - page 128

Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2008
(in millions, except as noted)
price of $42.77 per share. Following the October 2008 redemption, the remaining 27,499,203 shares of class C (series III) and class C (series IV) common
stock outstanding automatically converted into shares of class C (series I) common stock on a one-to-one basis. See Note 16—Stockholders' Equity and
Redeemable Shares.
Visa Europe Put-Call Option Agreement
Visa Inc. and Visa Europe have entered into a put-call option agreement under which Visa Inc. granted Visa Europe a perpetual put option to require
Visa Inc. to purchase from Visa Europe members all of the issued shares of capital stock of Visa Europe. The put option may be exercised by Visa Europe at
any time after March 25, 2009. The Company is required to purchase the shares of Visa Europe no later than 285 days after exercise of the put option. In
addition, Visa Europe granted to Visa Inc. a call option under which the Company will be entitled to purchase all of the share capital of Visa Europe. The
Company may exercise the call option, subject to certain conditions, at any time following certain triggering events. At the date of reorganization on
October 1, 2007 and at September 30, 2008, the fair value of the put option was approximately $346 million and is recorded within other liabilities on the
Company's consolidated balance sheet.
Fair Value of the Put and Call Options
The Company determined the fair value of the put option, approximately $346 million at September 30, 2008 and October 1, 2007, using probability-
weighted models designed to estimate the Company's liability assuming various possible exercise decisions that Visa Europe could make under different
economic conditions in the future, including the possibility that Visa Europe will never exercise its option. This liability is carried at fair value in other
liabilities on the Company's consolidated balance sheet with changes in fair value included in the Company's statement of operations similar to the treatment
required by SFAS 133 and reclassified as a short-term liability when it becomes payable within a year. The key assumptions used in these models are dictated
by the various elements of the put option strike price calculation and the Company's estimation of the fair value of Visa Europe at the assumed date of
exercise.
Significant key inputs used in the determination of the fair value of the put option include the estimated probability of exercise and various assumptions
used in the estimation of the Company's obligation in the event of exercise. These include the estimated differential between the Company's 12-month forward
price-to-earnings multiple and that applicable to Visa Europe on a stand alone basis at the time of exercise and the estimated growth of Visa Europe's
sustainable net operating income. These key inputs are unobservable.
The Company determined that the call option contained in the put-call option agreement has nominal value at the reorganization date as the conditions
under which it is exercisable are deemed remote.
The Framework Agreement
The relationship between Visa Inc. and Visa Europe is governed by a framework agreement, which provides for trademark and technology licenses and
bilateral services.
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