Visa 2014 Annual Report Download - page 96

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VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2014
sheet date and for revenue and expense accounts using an average exchange rate for the period.
Resulting translation adjustments are reported as a component of accumulated other comprehensive
income or loss on the consolidated balance sheets.
Derivative financial instruments. The Company uses foreign exchange forward derivative contracts
to reduce its exposure to foreign currency rate changes on forecasted non-functional currency
denominated operational cash flows. Derivatives are carried at fair value on a gross basis in either
prepaid and other current assets or accrued liabilities on the consolidated balance sheets. At
September 30, 2014, derivatives outstanding mature within 12 months or less. Gains and losses
resulting from changes in fair value of derivative instruments are accounted for either in accumulated
other comprehensive income or loss on the consolidated balance sheets, or in the consolidated
statements of operations (in the corresponding account where revenue or expense is hedged, or to
general and administrative for hedge amounts determined to be ineffective) depending on whether they
are designated and qualify for hedge accounting. Fair value represents the difference in the value of
the derivative instruments at the contractual rate and the value at current market rates, and generally
reflects the estimated amounts that the Company would receive or pay to terminate the contracts at
the reporting date based on broker quotes for the same or similar instruments. The Company does not
enter into derivative contracts for speculative or trading purposes. See Note 12—Derivative Financial
Instruments.
Guarantees and indemnifications. The Company recognizes an obligation at inception for
guarantees and indemnifications that qualify for recognition, regardless of the probability of occurrence.
The Company indemnifies its financial institution clients for settlement losses suffered due to the failure
of any other client to fund its settlement obligations in accordance with Visa’s operating regulations.
The estimated fair value of the liability for settlement indemnification is included in accrued liabilities on
the consolidated balance sheets and is described in Note 11—Settlement Guarantee Management.
The Company indemnifies Visa Europe for claims arising from the Company’s or Visa Europe’s
activities that are brought outside of Visa Europe’s region, as described in Note 2—Visa Europe.
Share-based compensation. The Company recognizes share-based compensation cost using the
fair value method of accounting. The Company recognizes compensation cost for awards with only
service conditions on a straight-line basis over the requisite service period, which is generally the
vesting period. Compensation cost for performance and market-condition-based awards is recognized
on a graded-vesting basis. The amount is initially estimated based on target performance and is
adjusted as appropriate based on management’s best estimate throughout the performance period.
See Note 16—Share-based Compensation.
Earnings per share. The Company calculates earnings per share using the two-class method to
reflect the different rights of each class and series of outstanding common stock. The dilutive effect of
incremental common stock equivalents is reflected in diluted earnings per share by application of the
treasury stock method. See Note 15 —Earnings Per Share.
Recently Issued Accounting Pronouncements
In January 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) 2013-01, which clarifies the scope of ASU 2011-11. As amended, ASU
2011-11 requires disclosure of the effect or potential effect of offsetting arrangements on a Company’s
financial position as well as enhanced disclosure of the rights of offset associated with a Company’s
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