Visa 2010 Annual Report Download - page 64

Table of Contents
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
reserves for audit matters 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, including our current and deferred tax benefits associated with
the settlement of the American Express litigation and the Discover litigation and other matters. See Note 22—Legal Matters to our consolidated financial
statements. 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.
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 exchange rates, interest rates and equity prices. Cash and cash equivalents are not considered to be subject to significant
interest rate risk due to the short period of time to maturity. Aggregate risk exposures are monitored on an ongoing basis. We do not hold or enter into
derivatives or other financial instruments for trading or speculative purposes.
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 dollar value of revenues generated from foreign currency-
denominated transactions and adverse changes in the 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 with cash flow hedge accounting designation 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.
We utilize a rolling hedge strategy program 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 $627 million and $742 million at September 30, 2010 and September 30, 2009, respectively. The aggregate
notional amount of $627 million outstanding at September 30, 2010 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 approximately $55 million on our foreign currency
forward contracts outstanding at September 30, 2010. See Note 14—Derivatives Financial Instruments to our consolidated financial statements.
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