Visa 2010 Annual Report Download - page 56

Table of Contents
At September 30, 2010, we determined the fair value of the put option liability to be approximately $267 million. While this amount represents the fair
value of the put option at September 30, 2010, it does not represent the actual purchase price that we may be required to pay if the option is exercised. The
purchase price we could be obligated to pay 285 days after exercise will represent a substantial financial obligation, which could be several billion dollars or
more. We may need to obtain third-party financing, either by borrowing funds or undertaking a subsequent equity offering in order to fund this payment. The
amount of that potential obligation could vary dramatically based on, among other things, Visa Europe's adjusted sustainable income and our P/E ratio, in
each case, as negotiated at the time the put option is exercised.
Given the perpetual nature of the put option and the various economic conditions which could be present at the time of exercise, our ultimate obligation
in the event of exercise cannot be reliably estimated. The following table calculates our total obligation assuming, for illustrative purposes only, a range of P/E
ratios for Visa Inc. and assuming that Visa Europe demonstrates $75 million of adjusted sustainable income at the date of exercise. The $75 million of
assumed adjusted sustainable income provided below, for illustrative purposes only, is based on Visa Europe's forecasted financial results for the year ended
September 30, 2010. However, this does not represent an estimate of the amount of adjusted sustainable income Visa Europe would have been able to
demonstrate at September 30, 2010 or will be able to demonstrate at any point in time in the future. Should Visa Europe elect to exercise its option, we believe
it is likely that it will implement changes in its business operations to move to a for-profit model in order to maximize adjusted sustainable income and, as a
result, to increase the purchase price. The table also provides the amount of increase or decrease in the payout, assuming the same range of estimated P/E
ratios, for each $25 million of adjusted sustainable income above or below the assumed $75 million demonstrated at the time of exercise. At September 30,
2010, our estimated long-term P/E ratio was 18.8 and the long-term P/E differential, the difference between this ratio and the estimated ratio applicable to
Visa Europe, was 3.5. At September 30, 2010, the spot P/E ratio was 15.7 and the spot P/E differential, the difference between this ratio and the estimated
spot ratio applicable to Visa Europe, was 1.6. These ratios are for reference purposes only and are not necessarily indicative of the ratio or differential that
could be applicable if the put option were exercised at any point in the future.
Visa Inc's Forward
Price-to-Earnings Ratio
Payout Assuming
Adjusted Sustainable
Income of $75 million(1)
Increase/Decrease in Payout
for Each $25 million of
Adjusted Sustainable Income
Above/Below $75 million
(in millions) (in millions)
25 $1,875 $625
20 $1,500 $500
15 $1,125 $375
(1) Given the large range of different economic environments and circumstances under which Visa Europe could decide to exercise its option, the ultimate
purchase price could be several billion dollars or more.
Pension and other postretirement benefits. We sponsor various qualified and nonqualified defined benefit pension plans which generally provide
benefits based on years of service, age and eligible compensation. Employees hired before January 1, 2008, earn benefits based on their pay during their last
five years of employment. Employees hired or rehired on or after January 1, 2008 earn benefits based on a cash balance formula. Effective January 1, 2011,
all employees will accrue benefits under the cash balance formula and will cease to accrue benefits under any other formula. We also sponsor a postretirement
benefit plan which provides postretirement medical benefits for retirees and dependents upon meeting minimum age and service requirements. Our policy
with respect to our qualified pension plan is to contribute annually not less than the minimum required under the Employee Retirement Income Security Act,
or ERISA. Our nonqualified pension and other postretirement benefit plans are
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