Visa 2008 Annual Report Download - page 166

Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2008
(in millions, except as noted)
The compensation committee of the board of directors administers the EIP and determines the non-employee directors, employees and consultants who
may be granted awards under the EIP, the size and types of awards, the terms and conditions of awards, the timing of awards and the form and content of the
award agreements.
In March 2008, in connection with the IPO, the Company granted non-qualified stock options ("options"), restricted stock awards ("RSAs") and
restricted stock units ("RSUs") to its employees and non-employee directors. The Company granted additional options, RSAs and RSUs in May 2008 and
August 2008. The Company accounted for these awards under the guidance of SFAS No. 123R, "Share-Based Payment" ("SFAS 123R"). The Company uses
the straight-line method of attribution for expensing equity awards. Compensation expense is recorded net of estimated forfeitures. Estimates are adjusted as
appropriate.
Options
The options issued during the year ended September 30, 2008, expire 10 years from the date of grant. The options vest in three equal installments on
each of the first three anniversaries of the date of grant, subject to earlier vesting in full under certain conditions including death, disability or retirement.
The fair value of each stock option was estimated on the date of grant using a Black-Scholes option pricing model. The following table presents the
assumptions used in the valuation and resulting fair value per option granted during the year ended September 30, 2008:
For the year ended
September 30,
2008
Expected term (in years) 5.79
Risk-free rate of return 2.6%
Expected volatility 36.1%
Expected dividend yield 1.0%
Weighted-average fair value per option granted $ 15.34
The expected term of options represents the weighted-average period the options are expected to remain outstanding and was based on a set of peer
companies who had share based payment awards with terms similar to that of Visa. The expected term of options impacts all underlying assumptions used in
the Company's Black-Scholes option-pricing model, including the period applicable for the risk-free rate of return and expected volatility. The risk-free rate of
return assumption is based upon the zero coupon U.S. treasury bond rate over the expected term of the Company's options. As the Company did not have
publicly traded stock historically, the expected volatility was based on the average of the historical and implied volatility of a group of peer companies that
management believes is generally comparable to Visa. The ratio of historical and implied volatility is 55% to 45%, respectively, for fiscal 2008. The expected
dividends were based on the Company's expected annual dividend rate on the date of grant.
In addition, SFAS 123R requires the Company to estimate pre-vesting forfeitures on stock-based awards at the time of grant and periodically revise
those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company records stock-based compensation expense only
165