Visa 2009 Annual Report Download - page 56

Table of Contents
Impact of Recent Accounting Pronouncements
In June 2008, the Financial Accounting Standards Board ("FASB") amended FASB ASC 260-10 to address whether instruments granted in share-based
payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share
under the two-class method. The amendment requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or
dividend equivalents as a separate class of securities in calculating earnings per share. We will adopt this amendment in the first quarter of fiscal 2010. This
change will not result in any impact to fiscal 2009 and 2008 full year diluted class A net income per share.
Quantitative and Qualitative Disclosures about Market Risk
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 rates, interest rates and equity prices. We do not hold or enter into derivatives or other financial instruments for trading or
speculative purposes. Aggregate risk exposures are monitored on an ongoing basis, and cash and cash equivalents are not considered to be subject to
significant interest rate risk due to the short period of time to maturity.
Foreign Currency Exchange Rate Risk
Although most of our activities are transacted in U.S. dollars, we are exposed to adverse movements in foreign currency exchange rates. Risks from
foreign currency exchange rate fluctuations are related primarily to adverse changes in the dollar value of revenues that are derived from foreign currency-
denominated transactions, and to adverse changes in the dollar value of payments in foreign currencies, primarily for costs and expenses at our non-U.S.
locations. We manage these risks by entering into foreign currency forward contracts with cash flow hedge accounting designation that hedges 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. We do not use foreign currency forward contracts
for speculative or trading purposes.
In fiscal 2009, we implemented a rolling hedge strategy program, which we anticipate utilizing going forward. Under this strategy, we seek to reduce
the exchange rate risk from forecasted net exposure of revenues derived from and payments made in foreign currencies during the immediately following
12 months. The aggregate notional amount of our foreign currency forward contracts outstanding in our exchange rate risk management program was
$742 million and $4 million, respectively, at September 30, 2009 and September 30, 2008. The aggregate notional amount of $742 million outstanding at
September 30, 2009 is fully consistent with our strategy and treasury policy aimed at reducing foreign exchange risk below a predetermined and approved
threshold. However, actual results for this period 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 $61 million on our foreign currency forward contracts outstanding at September 30, 2009. See Note
13—Derivative Financial Instruments.
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
customers relative to the timing of market trades for balancing currency positions. Risk in settlement activities is limited through daily operating procedures,
including the utilization of Visa settlement systems and our interaction with foreign exchange trading counterparties.
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