Visa 2010 Annual Report Download - page 62

Table of Contents
scenarios is not an overly significant assumption in the valuation, as obligations calculated in later years are more heavily discounted in the calculation of
present value.
Impact if Actual Results Differ from Assumptions. In the determination of the fair value of the put option at September 30, 2010, we have assumed a
40% probability of exercise by Visa Europe at some point in the future and a P/E differential, at the time of exercise, of approximately 3.5x. The use of a
probability of exercise that is 5% higher than our estimate would have resulted in an increase of approximately $33 million in the value of the put option. An
increase of 1.0x in the assumed P/E differential would have resulted in an increase of approximately $81 million in the value of the put option. The put option
is exercisable at any time at the sole discretion of Visa Europe. As such, the put option liability is included in accrued liabilities on our consolidated balance
sheet at September 30, 2010. Classification in current liabilities is not an indication of management's expectation of exercise and simply reflects the fact that
this obligation could become payable within 12 months.
Fair Value—Goodwill and Intangible Assets
Critical Estimates. We are required to estimate the fair value and useful lives of assets acquired and liabilities assumed, including intangible assets, in a
business combination. The difference between the purchase price and the fair value of the assets acquired and liabilities assumed is goodwill. We are
subsequently required to assess assets acquired and goodwill for impairment.
Assumptions and Judgment. Judgment used in the valuation of assets and liabilities assumed in business combinations, including goodwill and
intangible assets, can include the cash flows that an asset is expected to generate, the weighted average cost of capital and a discount rate determined by
management. We believe that the assumptions made are comparable to those that market participants would use in making estimates of fair value.
Determining the expected life of an intangible asset requires management's judgment and is based on the evaluation of various factors, including the
competitive environment, market share, customer history and macroeconomic situation. We determined that our Visa brand, customer relationships and Visa
Europe franchise right are intangible assets with indefinite lives, based on our significant market share, history of strong revenue and cash flow performance,
and historical retention rates. As a result of acquiring CyberSource in July 2010, we acquired intangible assets comprising customer relationships, tradenames
and reseller relationships, which we determined have finite useful lives ranging from 5 to 15 years. See Note 6—CyberSource Acquisition and Note 9 –
Intangible Assets, Net to our consolidated financial statements. Our assets acquired, liabilities assumed and related goodwill are assigned to respective
reporting units, and goodwill impairment is assessed at the reporting unit level.
Indefinite-lived intangible assets. Annually or whenever events or changes in circumstances indicate that impairment may exist, we test each category
of indefinite-lived intangible assets for impairment on an aggregate basis, which may require the allocation of cash flows and/or an estimate of fair value to
those assets or asset group. Impairment exists if the fair value of the indefinite-lived intangible asset is less than the carrying value. We rely on a number of
factors when completing impairment assessment including a review of discounted future cash flows, business plans and use of present value techniques. As of
July 1, 2010, we evaluated our indefinite-lived intangible assets for impairment and concluded there was no impairment as of that date. No recent events or
changes in circumstances indicate that impairment may exist thereafter as reflected by the overall performance of our business and market capitalization.
Finite-lived intangible assets. We evaluate the recoverability of finite-lived intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If the sum of expected undiscounted future cash flows is
less than the carrying amount of an asset or asset group, an impairment loss is recognized. The loss is
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