Visa 2009 Annual Report Download - page 53

Table of Contents
approximately $346 million at September 30, 2009. While the put option is in fact non transferable, this
amount, recorded in our financial statements represents our estimate of the amount we would be required to pay a third party market participant to transfer the
put option in an orderly transaction. Our valuation methodology involves using probability weighted models designed to estimate the present value of our
liability assuming various possible exercise decisions that Visa Europe could make, including the possibility it will never exercise its option, under different
economic conditions in the future. While this amount represents the fair value of the put option at September 30, 2009, it does not represent the actual
purchase price that we may be required to pay if the option is exercised, which could be several billion dollars or more. See the Liquidity and Capital
Resources section of Management's Discussion and Analysis for further discussion.
Assumptions and Judgment. The most significant estimates used in the valuation of the fair value of the put option are the assumed probability that Visa
Europe will elect to exercise its option, and the estimated differential between the forward price-to-earnings multiple applicable to our common stock, as
defined in the put option agreement, and that applicable to Visa Europe on a stand alone basis at the time of exercise, which we refer to as the P/E differential.
Probability of Exercise—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). We estimate 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.
P/E Differential—The P/E differential is determined by estimating the relative difference in the forward price-to-earnings multiples applicable to our
common stock, as defined in the put option agreement, and that applicable to Visa Europe at the time of exercise. For valuation purposes, the forward price-
to-earnings multiple applicable to our common stock at the time of exercise is estimated by evaluating various quantitative measures and qualitative factors.
Quantitatively, we estimate our P/E ratio by dividing the average stock price over both the shorter of the preceding 24 months or since our IPO (the "long-
term P/E calculation") and the last 30 trading dates (the "30-day P/E calculation") prior to the measurement date by the median estimate of our net income per
share for the 12 months starting with the next calendar quarter immediately following the reporting date. This median earnings estimate is obtained from the
Institutional Brokers' Estimate System (I/B/E/S). We then determine the best estimate of our long term price-to-earnings multiple for valuation purposes by
qualitatively evaluating the 30-day P/E calculation as compared to the long-term P/E calculation. In this evaluation we examine both measures to determine
whether differences, if any, are the result of a fundamental change in long-term value of the Company or the result of short-term market volatility or other
non-Company specific market factors that may not be indicative of our long-term forward P/E. We believe, given the perpetual nature of the put option, that a
market participant would more heavily weight long-term value indicators, as opposed to short-term indicators.
Factors that might indicate a fundamental change in long-term value include, but are not limited to, changes in the regulatory environment, client
portfolio, long-term growth rates or new product innovation. A consistent methodology is applied to a group of comparable public companies used to estimate
the forward price-to-earnings multiple applicable to Visa Europe. These estimates therefore are impacted by changes in stock prices and the financial market's
expectations of the future earnings of Visa Inc. and the comparable companies.
Other estimates of lesser significance applied include growth rates and foreign currency exchange rates applied in the calculation of Visa Europe's
projected sustainable adjusted net operating income.
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