Visa 2014 Annual Report Download - page 104

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VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2014
There were no significant transfers between Level 1 and Level 2 assets during fiscal 2014.
Level 1 assets measured at fair value on a recurring basis. Money market funds, publicly-traded
equity securities and U.S. Treasury securities are classified as Level 1 within the fair value hierarchy,
as fair value is based on quoted prices in active markets. The increase in the Company’s Level 1
assets primarily reflects the receipt of takedown payments related to the interchange multidistrict
litigation, which were deposited into the Company’s litigation escrow account. See Note 3—
Retrospective Responsibility Plan and Note 20—Legal Matters.
Level 2 assets and liabilities measured at fair value on a recurring basis. The fair value of U.S.
government-sponsored debt securities and corporate debt securities, as provided by third-party pricing
vendors, is based on quoted prices in active markets for similar, not identical, assets. The pricing data
obtained from outside sources is reviewed internally for reasonableness, compared against benchmark
quotes from independent pricing sources, then confirmed or revised accordingly. Commercial paper
and foreign exchange derivative instruments are valued using inputs that are observable in the market
or can be derived principally from or corroborated by observable market data. There were no
substantive changes to the valuation techniques and related inputs used to measure fair value during
fiscal 2014.
Level 3 assets and liabilities measured at fair value on a recurring basis. Auction rate securities
are classified as Level 3 due to a lack of trading in active markets and a lack of observable inputs in
measuring fair value. There were no substantive changes to the valuation techniques and related
inputs used to measure fair value during fiscal 2014.
Visa Europe put option agreement. The Company has granted Visa Europe a perpetual put option
which is carried at fair value in accrued liabilities on the consolidated balance sheets. The fair value of
the put option was $145 million at September 30, 2014 and 2013. Changes in fair value are recorded
as non-cash, non-operating income in the Company’s consolidated statements of operations. See Note
2—Visa Europe. The liability is classified within Level 3 as the assumed probability that Visa Europe
will elect to exercise its option and the estimated P/E differential are among several unobservable
inputs used to value the put option.
Assets Measured at Fair Value on a Non-recurring Basis
Non-marketable equity investments and investments accounted for under the equity method.
These investments are classified as Level 3 due to the absence of quoted market prices, the inherent
lack of liquidity, and the fact that inputs used to measure fair value are unobservable and require
management’s judgment. When certain events or circumstances indicate that impairment may exist,
the Company revalues the investments using various assumptions, including the financial metrics and
ratios of comparable public companies. The Company recognized a $15 million other-than-temporary
impairment loss related to these investments during fiscal 2013. There were no significant impairment
charges incurred during fiscal 2014 and 2012. At September 30, 2014 and 2013, these investments
totaled $35 million and $30 million, respectively. These assets are classified in other assets on the
consolidated balance sheets. See Note 5—Prepaid Expenses and Other Assets.
Due to a change in the Company’s relationship with one of its investees during fiscal 2013, the
Company reclassified equity securities previously accounted for as an equity method investment, with
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