Visa 2010 Annual Report Download - page 87

Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2010
(in millions, except as noted)
The estimated fair value of the put option represents a Level 3 accounting estimate due to a lack of trading in active markets and a lack of observable
inputs in measuring fair value. See Note 5—Investments and Fair Value Measurements. The valuation of the put option therefore requires substantial
judgment. The most subjective of estimates applied in valuing the put option are the assumed probability that Visa Europe will elect to exercise its option and
the estimated differential between the P/E ratio and the P/E ratio applicable to Visa Europe on a standalone basis at the time of exercise, which the Company
refers to as the "P/E differential".
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). The Company estimates 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. Factors impacting the assumed P/E differential used in the calculation include material changes in the P/E ratio of Visa Inc. and those of a group of
comparable companies used to estimate the forward price-to-earnings multiple applicable to Visa Europe.
In determining the fair value of the put option at September 30, 2010, the Company assumed a 40% probability of exercise by Visa Europe at some
point in the future and an estimated long-term P/E differential at the time of exercise of 3.5x. In determining the fair value of the put option at September 30,
2009, the Company assumed a 40% probability of exercise by Visa Europe and an estimated long-term P/E differential at the time of exercise of 5.3x. The
decrease in the P/E differential reflects the overall decrease in Visa Inc.'s P/E during the second half of fiscal 2010.
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 the obligation resulting from the exercise of the instrument could become payable within 12 months.
Visa Call Option Agreement. Visa Europe granted to Visa Inc. a perpetual call option under which the Company may be entitled to purchase all of the
share capital of Visa Europe. The Company may exercise the call option, in the event of certain triggering events. These triggering events involve the
performance of Visa Europe measured as an unremediated decline in the number of merchants or ATM's in the Visa Europe region that accepts Visa-branded
products. The Company believes the likelihood of these triggers occurring to be remote.
The Framework Agreement. The relationship between Visa Inc. and Visa Europe is governed by a Framework Agreement, which provides for
trademark and technology licenses and bilateral services as described below.
The Company granted to Visa Europe exclusive, irrevocable and perpetual licenses to use the Visa trademarks and technology intellectual property
owned by the Company and certain affiliates within the Visa Europe region for use in the field of financial services, payments, related information
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