Visa 2010 Annual Report Download - page 65

Table of Contents
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 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.
Interest Rate Risk
Our investment portfolio assets are held in both fixed-rate and adjustable-rate securities. These assets are included in cash equivalents, short-term
available-for-sale investments and long-term available-for-sale investments. Investments in fixed rate instruments carry a degree of interest rate risk. The fair
value of fixed rate securities may be adversely impacted due to a rise in interest rates. Additionally, a falling rate environment creates reinvestment risk
because as securities mature the proceeds are reinvested at a lower rate, generating less interest income. Historically, we have been able to hold investments
until maturity. Our operating results or cash flows have not been, and are not expected to be, materially impacted by a sudden change in market interest rates.
The fair value balances of our fixed-rate investment securities in fiscal 2010 and 2009 were $135 million and $176 million, respectively. A hypothetical
100 basis point increase or decrease in interest rates would not have a material impact on our investment portfolio at September 30, 2010. The fair value
balances of our adjustable-rate debt securities were $13 million and $34 million at September 30, 2010 and 2009, respectively.
We also have fixed rate debt which is subject to interest rate risk. A hypothetical 100 basis point increase or decrease in interest rates would have
impacted the fair value of the debt by approximately $1 million at September 30, 2010.
Visa Europe Put Option
We have a liability related to the put option with Visa Europe which is recorded at fair market value at September 30, 2010. We are required to record
any change in the fair value of the put option on a quarterly basis. In the determination of the fair value of the put option at September 30, 2010, we have
assumed a 40% probability of exercise by Visa Europe at some point in the future and a P/E differential, at the time of exercise, of approximately 3.5x. The
use of a probability of exercise 5% higher than our estimate would have resulted in an increase of approximately $33 million in the value of the put option. An
increase of 1.0x in the assumed P/E differential would have resulted in an increase of approximately $81 million in the value of the put option. See Liquidity
and Capital Resources and Critical Accounting Estimates above.
Pension Plan Risks
Our U.S. defined benefit pension plan assets were $766 million and $703 million and projected benefit obligations were $743 million and $739 million
at September 30, 2010 and September 30, 2009, respectively. A material adverse decline in the value of pension plan assets and/or the discount rate for benefit
obligations would result in a decrease in the funded status of the plan, an increase in pension cost and an increase in required funding. We will continue to
monitor the performance of pension plan assets and market conditions as we evaluate the amount of our contribution to the plan for fiscal 2011, which we
expect to make in September 2011.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk are included in Item 7—Management's Discussion and Analysis of Financial Condition and
Results of Operations of this report.
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