Visa 2015 Annual Report Download - page 73

Income Taxes
Critical estimates. In calculating our effective income 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 liabilities for uncertain tax positions 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. 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 adverse effect on our financial results and
cash flows.
ITEM 7A. 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. Aggregate risk exposures are monitored on an ongoing basis.
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 U.S. dollar value of revenues generated from foreign
currency-denominated transactions and adverse changes in the U.S. 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 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.
The aggregate notional amounts of our foreign currency forward contracts outstanding in our
exchange rate risk management program, including contracts not designated for cash flow hedge
accounting, were $1.2 billion and $1.3 billion at September 30, 2015 and 2014, respectively. The
aggregate notional amount outstanding at September 30, 2015 is fully consistent with our strategy and
treasury policy aimed at reducing foreign exchange risk below a predetermined and approved
threshold. However, actual results could materially differ from our forecast. The effect of a hypothetical
10% change in the value of the U.S. dollar is estimated to create an additional fair value gain or loss of
approximately $91 million on our foreign currency forward contracts outstanding at September 30,
2015. See Note 1—Summary of Significant Accounting Policies and Note 12—Derivative Financial
Instruments to our consolidated financial statements.
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.
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