Visa 2010 Annual Report Download - page 116

Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2010
(in millions, except as noted)
Share-based compensation expense is recorded net of estimated forfeitures on a straight-line basis for awards with service conditions only, and on a
graded-vesting basis for awards with service, performance and market conditions. The Company's estimated forfeiture rate is based on an evaluation of actual
and trended forfeiture data and employee attrition rates. For fiscal 2010, 2009 and 2008, the Company recorded share-based compensation expense of $135
million, $115 million and $74 million, respectively, in personnel on its consolidated statement of operations. Of the $135 million share-based compensation
expense in fiscal 2010, $4 million relates to expense recognized upon the CyberSource acquisition that was paid in cash. The amount of capitalized share-
based compensation expense is immaterial during fiscal 2010, 2009 and 2008.
Options
Options issued under the EIP expire 10 years from the date of grant and vest ratably over three years from the date of grant, subject to earlier vesting in
full under certain conditions.
On July 21, 2010, the Company completed the acquisition of CyberSource Corporation at a price of $26.00 per share. In connection with the
acquisition, the Company terminated the non-vested in-the-money options held by CyberSource employees on the acquisition date and replaced them with
approximately 1.6 million of the Company's options. These replacement awards have a weighted average exercise price of $47.34 per share, which is
calculated by multiplying the original weighted average grant price to the ratio of the Company's closing stock price on the trading day immediately preceding
the acquisition date to the per share acquisition price of $26.00. The replacement awards will vest over a period of three years from the original grant date of
the CyberSource options, or in general, less than three years. These replacement awards are subject to the terms of the EIP and will not be counted against the
original 59,000,000 authorized share pool.
During fiscal 2010, 2009, and 2008, the fair value of each stock option was estimated on the date of grant using a Black-Scholes option pricing model
with the following assumptions:
2010(5) 2009 2008
Expected term (in years)(1) 3.46 5.69 5.79
Risk-free rate of return(2) 1.4% 2.7% 2.6%
Expected volatility(3) 36.4% 44.2% 36.1%
Expected dividend yield(4) 0.7% 0.7% 1.0%
Weighted-average fair value per option granted $ 29.46 $ 23.54 $ 15.34
(1) Based on a set of peer companies who issued awards with similar terms.
(2) Based upon the zero coupon U.S. treasury bond rate over the expected term of the awards.
(3) Based on the average of the Company's implied and historical volatility. As the Company's publicly traded stock history is relatively short, historical
volatility relies in part on the historical volatility of a group of peer companies that management believes is generally comparable to Visa. The expected
volatilities ranged from 33% to 38% in fiscal 2010.
(4) Based on the Company's expected annual dividend rate on the date of grant.
(5) Includes the impact of replacement awards issued as part of the CyberSource acquisition.
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