Visa 2011 Annual Report Download - page 80

Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2011
(in millions, except as noted)
on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's
economic performance. The adoption did not have a material impact on the consolidated financial statements.
Use of estimates. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions about future events. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Future actual results
could materially differ from these estimates. The use of estimates in specific accounting policies is described further below as appropriate.
Cash and cash equivalents. Cash and cash equivalents include cash and certain highly liquid investments with original maturities of 90 days or less
from the date of purchase. Cash equivalents are recorded at cost, which approximates fair value.
Restricted cash—litigation escrow. The Company deposited funds from the IPO and its own funds into an escrow account from which settlements of, or
judgments in, the covered litigation will be paid. See Note 21—Legal Matters for a discussion of covered litigation. The escrow funds are held in money
market investments together with the income earned, less applicable taxes payable, and classified as restricted cash on the consolidated balance sheets. The
amount of the escrow account, equivalent to the actual undiscounted amount of payments expected to be made beyond one year from the balance sheet date
for settled claims, is classified as a non-current asset. Interest earned on escrow funds is included in investment income, net, on the consolidated statements of
operations.
Investments and fair value. The Company measures certain required assets and liabilities at fair value. Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are reported
under a three-level valuation hierarchy. The classification of the Company's financial assets and liabilities within the hierarchy is as follows:
Level 1—Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities. The fair value of the
Company's cash equivalents (money market funds), mutual fund equity securities, U.S. Treasury securities, and exchange-traded equity securities are based on
quoted prices and are therefore classified as Level 1. See Note 4—Fair Value Measurements and Investments.
Level 2—Inputs to the valuation methodology can include: (1) quoted prices in active markets for similar (not identical) assets or liabilities; (2) quoted
prices for identical or similar assets in non-active markets; (3) inputs other than quoted prices that are observable for the asset or liability; or (4) inputs that are
derived principally from or corroborated by observable market data.
Level 2 assets include U.S. government-sponsored debt securities for which fair value is based on quoted prices in active markets for similar assets, and
other observable inputs. Foreign exchange derivative instruments in an asset or liability position are also classified as Level 2 and are valued using inputs that
are derived principally from or corroborated with observable market data. See Note 4—Fair Value Measurements and Investments.
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