Visa 2012 Annual Report Download - page 54

Table of Contents
and whether an exposure is reasonably estimable. Our judgments are subjective based on the status of the legal or regulatory
proceedings, the merits of our defenses and consultation with in-house and outside legal counsel. As additional information
becomes available, we reassess the potential liability related to pending claims and may revise our estimates.
Our retrospective responsibility plan only addresses monetary liabilities from settlements of, or final judgments in, the covered
litigation. The plan's mechanisms include the use of the litigation escrow account. The accrual related to the covered litigation could
be either higher or lower than the litigation escrow account balance. We recorded an additional accrual of $4.1 billion for the
covered litigation during fiscal 2012. See Note 3—Retrospective Responsibility Plan and Note 21—Legal Matters to our
consolidated financial statements.
Impact if Actual Results Differ from Assumptions. Due to the inherent uncertainties of the legal and regulatory processes in
the multiple jurisdictions in which we operate, our judgments may be materially different than the actual outcomes, which could
have material adverse effects on our business, financial conditions and results of operations. See Note 21—Legal Matters to our
consolidated financial statements.
Income Taxes
Critical Estimates. In calculating our effective tax rate, we make judgments regarding certain tax positions, including the timing
and amount of deductions and allocations of income among various tax jurisdictions.
Assumptions and Judgment. We have various tax filing positions with regard to the timing and amount of deductions and
credits, the establishment of liabilities for uncertain tax positions and the allocation of income among various tax jurisdictions. We
are also required to inventory, evaluate and measure all uncertain tax positions taken or to be taken on tax returns and to record
liabilities for the amount of such positions that may not be sustained, or may only be partially sustained, upon examination by the
relevant taxing authorities.
Impact if Actual Results Differ from Assumptions. Although we believe that our estimates and judgments are reasonable,
actual results may differ from these estimates. Some or all of these judgments are subject to review by the taxing authorities. If one
or more of the taxing authorities were to successfully challenge our right to realize some or all of the tax benefit we have recorded,
and we were unable to realize this benefit, it could have a material and adverse effect on our financial results and cash flows.
Market risk is the potential economic loss arising from adverse changes in market factors. Our exposure to financial market
risks results primarily from fluctuations in foreign currency exchange rates, interest rates and equity prices. Aggregate risk
exposures are monitored on an ongoing basis.
Foreign Currency Exchange Rate Risk
Although most of our activities are transacted in U.S. dollars, we are exposed to adverse fluctuations in foreign currency
exchange rates. Risks from foreign currency exchange rate fluctuations are primarily related to adverse changes in the U.S. dollar
value of revenues generated from foreign currency-denominated transactions and adverse changes in the U.S. dollar value of
payments in foreign currencies, primarily for expenses at our non-U.S. locations. We manage these risks by entering into foreign
currency forward contracts that hedge exposures of the variability in the U.S. dollar equivalent of anticipated non-U.S. dollar
denominated cash flows. Our foreign currency exchange rate risk management program reduces, but does not entirely eliminate,
the impact of foreign currency exchange rate movements.
The aggregate notional amounts of our foreign currency forward contracts outstanding in our exchange rate risk management
program were $739 million and $651 million at September 30, 2012 and 2011 , respectively. The aggregate notional amount of
$739 million outstanding at September 30, 2012 , is fully consistent with our strategy and treasury policy aimed at reducing foreign
exchange risk below a predetermined and approved threshold. However, actual results could materially differ from our forecast. The
effect of a hypothetical 10% change of the U.S. dollar is estimated to create an additional fair value gain or loss of approximately
$40 million on our foreign currency forward contracts outstanding at September 30, 2012 . See Note 13—Derivative Financial
Instruments to our consolidated financial statements.
We are also subject to foreign currency exchange risk in daily settlement activities. This risk arises from the timing of rate
setting for settlement with clients relative to the timing of market trades for balancing currency
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ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk