Visa 2010 Annual Report Download - page 78

Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2010
(in millions, except as noted)
Restricted cash—litigation escrow. The Company deposited funds from the IPO and its own funds into an escrow account from which settlements of, or
judgments in, the covered litigation will be paid. See Note 4—Retrospective Responsibility Plan for discussion of covered litigation. The escrow funds are
held in money market investments together with the income earned, less applicable taxes payable, and classified as restricted cash on the consolidated balance
sheet. The amount of the escrow account, equivalent to the actual undiscounted amount of payments expected to be made beyond one year from the balance
sheet date for settled claims, is classified as a non-current asset. Interest earned on escrow funds is included in investment income, net, on the consolidated
statement of operations.
Investments and fair value. The Company measures certain required assets and liabilities at fair value. Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are reported
under a three-level valuation hierarchy. The classification of the Company's financial assets and liabilities within the hierarchy is as follows:
Level 1—Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities. The fair value of the
Company's cash equivalents (money market funds), mutual fund equity securities and exchange-traded equity securities are based on quoted prices and are
therefore classified as Level 1.
Level 2—Inputs to the valuation methodology can include: (1) quoted prices in active markets for similar (not identical) assets or liabilities; (2) quoted
prices for identical or similar assets in non-active markets; (3) inputs other than quoted prices that are observable for the asset or liability; or (4) inputs that are
derived principally from or corroborated by observable market data.
Level 2 assets include U.S. government-sponsored debt securities for which fair value is based on quoted prices in active markets for similar assets, and
other observable inputs. Foreign exchange derivative instruments in an asset or liability position are also classified in Level 2 and are valued using inputs that
are derived principally from or corroborated with observable market data.
Level 3—Inputs to the valuation methodology are unobservable and cannot be corroborated by observable market data. Inputs reflect the use of
significant management judgment via the use of pricing models for which the assumptions include estimates of market participant assumptions. Level 3 assets
include the Company's auction rate securities, corporate debt securities, mortgage backed securities and other asset backed securities. Level 3 liabilities
include the Visa Europe put option. See Note 3—Visa Europe.
Effective fiscal 2010, the Company adopted guidance issued by the Financial Accounting Standards Board ("FASB") that allows companies to use net
asset value per share as a fair value measurement without further adjustment as a practical expedient. The adoption did not have a material impact on the
consolidated financial statements. Additional disclosures required are not presented because the related investments are not material to the overall
consolidated financial statements.
Furthermore, the Company adopted FASB guidance to disclose significant transfers into and out of Level 1 and Level 2 of the fair value hierarchy. The
guidance also clarified existing disclosure requirements for the disaggregation of assets and liabilities presented and discussion of inputs and valuation
techniques. See Note 5—Investments and Fair Value Measurements.
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