Visa 2012 Annual Report Download - page 70

Table of Contents VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2012
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. The
Company's Level 2 assets and liabilities include U.S. government-sponsored debt securities, commercial paper, corporate debt
securities, and foreign exchange derivative instruments. See Note 4—Fair Value Measurements and Investments .
Level 3 —
Inputs to the valuation methodology are unobservable and cannot be corroborated by observable market data. Level
3 assets include the Company's investments in auction rate securities. Level 3 liabilities include the Visa Europe put option and the
earn-out related to the PlaySpan acquisition. See Note 4—Fair Value Measurements and Investments .
In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2011-04,
which provides common fair value measurement and disclosure requirements in accordance with U.S. GAAP and International
Financial Reporting Standards (“IFRS”). The Company adopted ASU 2011-04 effective January 1, 2012. The adoption did not have
a material impact on the consolidated financial statements. See Note 4—Fair Value Measurements and Investments .
Trading investment securities include mutual fund equity security investments related to various employee compensation and
benefit plans. Trading activity in these investments is at the direction of the Company's employees. These investments are held in a
trust and are not available for the Company's operational or liquidity needs. Interest and dividend income and changes in fair value
are recorded in investment income, and offset in personnel expense on the consolidated statements of operations.
Available-for-sale investment securities include investments in debt and equity securities. These securities are recorded at
cost at the time of purchase and are carried at fair value. The Company considers these securities to be available-for-sale to meet
working capital and liquidity needs. Investments with original maturities of greater than 90 days and stated maturities of less than
one year from the balance sheet date are classified as current assets, while those with stated maturities of greater than one year
from the balance sheet date are classified as non-current assets. The majority of these investments, $3.3 billion , are classified as
non-current as they have stated maturities of more than one year from the balance sheet date. However, these investments are
generally available to meet short-term liquidity needs. Unrealized gains and losses are reported in accumulated other
comprehensive income (loss) on the consolidated balance sheets until realized. The specific identification method is used to
calculate realized gain or loss on the sale of marketable securities, which is recorded in investment income on the consolidated
statements of operations. Dividend and interest income are recognized when earned and are included in investment income on the
consolidated statements of operations.
The Company evaluates its debt and equity securities for other-than-temporary impairment, or OTTI, on an ongoing basis.
When there has been a decline in fair value of a debt or equity security below amortized cost basis, the Company recognizes OTTI
if (1) it has the intent to sell the security, (2) it is more likely than not that it will be required to sell the security before recovery of the
amortized cost basis, or (3) it does not expect to recover the entire amortized cost basis of the security. The Company has not
presented required separate disclosures because its gross unrealized loss positions in debt or equity securities for the periods
presented are not material. The Company recognized $4 million of OTTI for available-for-sale securities during fiscal 2012. The
Company had no OTTI for available-for-sale securities during fiscal 2011 and 2010.
The Company applies the equity method of accounting for investments in other entities when it holds between 20% and 50%
ownership in the entity or when it exercises significant influence. Under the equity method, the Company’s share of each entity’s
profit or loss is reflected in the other line within the other income (expense) caption on the consolidated statements of operations.
The equity method of accounting is also used for flow-through entities such as limited partnerships and limited liability companies
when the investment ownership percentage is equal to or greater than
5% of outstanding ownership interests, regardless of
whether the Company has significant influence over the investees.
The Company applies the historical cost method of accounting for investments in other entities when it holds less than 20%
ownership in the entity and does not exercise significant influence, or for flow-through entities when the investment ownership is
less than 5% and the Company does not exercise significant influence. These
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