Visa 2012 Annual Report Download - page 50

Table of Contents
value. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable
inputs reflect assumptions regarding what a third party would use in pricing an asset or liability. As of September 30, 2012 , our
financial instruments measured at fair value on a recurring basis included approximately $9.8 billion of assets and $168 million of
liabilities. Of these instruments, $164 million , or less than 2%, had significant unobservable inputs, with the Visa Europe put option
liability constituting $145 million of this amount. At September 30, 2012 , debt instruments in this category included $7 million of
auction rate securities. See Note 4—Fair Value Measurements and Investments to our consolidated financial statements.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements are primarily comprised of guarantees and indemnifications. Visa has no off-balance
sheet debt, other than lease and purchase order commitments as discussed below and reflected in our contractual obligations
table.
Indemnifications
We indemnify clients for settlement losses suffered by failure of any other customer to honor Visa cards, traveler's cheques, or
other instruments processed in accordance with our operating regulations. The amount of the indemnification is limited to the
amount of unsettled Visa payment transactions at any point in time. We maintain global credit settlement risk policies and
procedures to manage settlement risk which may require clients to post collateral if certain credit standards are not met. See Note
1—Summary of Significant Accounting Policies and Note 12—Settlement Guarantee Management to our consolidated financial
statements.
In the ordinary course of business, we enter into contractual arrangements with financial institutions and other clients under
which we may agree to indemnify the client for certain types of losses incurred relating to the services we provide or otherwise
relating to our performance under the applicable agreement.
Contractual Obligations
Our contractual commitments will have an impact on our future liquidity. The contractual obligations identified in the table
below include both on- and off-balance sheet transactions that represent a material expected or contractually committed future
obligation as of September 30, 2012. We believe that we will be able to fund these obligations through cash generated from our
operations and available credit facilities, or the litigation escrow account.
48
Payments Due by Period
Less than
1 Year
1-3
Years
3-5
Years
More than
5 Years
Total
(in millions)
Purchase orders
(1)
$
847
$
148
$
48
$
—
$
1,043
Leases
(2)
101
123
63
64
351
Client incentives
(3)
2,537
3,509
2,025
582
8,653
Marketing and sponsorship
(4)
120
237
115
231
703
Litigation settlement payments
(5)
4,383
— — —
4,383
Dividends
(6)
221
— — —
221
Total
(7,8,9)
$
8,209
$
4,017
$
2,251
$
877
$
15,354
(1)
Represents agreements to purchase goods and services that specify significant terms, including: fixed or minimum quantities to
be purchased and fixed, minimum or variable price provisions, and the approximate timing of the transaction.
(2)
Includes both operating and capital leases for premises, equipment and software licenses, which range in terms from one to
eighteen years.
(3)
Represents future cash payments for incentive agreements with select clients under various programs designed to build
payments volume, increase acceptance and win merchant preference to route transactions over our network. These
agreements, which range in terms from one to thirteen years, can provide card issuance and/or conversion support, volume /
growth targets and marketing and program support based on specific performance requirements. Payments under these
agreements will generally be offset by revenues earned from higher corresponding payments and transaction volumes. These
payment amounts are estimates and will change based on customer performance, amendments to existing contracts or
execution of new contracts. Related amounts disclosed in Note 18—Commitments and Contingencies to our consolidated
financial statements