Visa 2015 Annual Report Download - page 94

VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2015
applicable functional currency are converted to the functional currency at the exchange rate on the
transaction date. At period end, monetary assets and liabilities are remeasured to the functional
currency using exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities
are remeasured at historical exchange rates. Resulting foreign currency transaction gains and losses
related to conversion and remeasurement are recorded in general and administrative expense in the
consolidated statements of operations and were not material for fiscal 2015, 2014 and 2013.
For certain foreign operations, the Company’s functional currency may be the local currency in
which a foreign subsidiary executes its business transactions. Translation from the local currency to
the U.S. dollar is performed for balance sheet accounts using exchange rates in effect at the balance
sheet date and for revenue and expense accounts using an average exchange rate for the period.
Resulting translation adjustments are reported as a component of accumulated other comprehensive
income or loss on the consolidated balance sheets.
Derivative financial instruments. The Company uses foreign exchange forward derivative contracts
to reduce its exposure to foreign currency rate changes on forecasted non-functional currency
denominated operational cash flows. Derivatives are carried at fair value on a gross basis in either
prepaid and other current assets or accrued liabilities on the consolidated balance sheets. At
September 30, 2015, derivatives outstanding mature within 12 months or less. Gains and losses
resulting from changes in fair value of derivative instruments are accounted for either in accumulated
other comprehensive income or loss on the consolidated balance sheets, or in the consolidated
statements of operations (in the corresponding account where revenue or expense is hedged, or to
general and administrative for hedge amounts determined to be ineffective) depending on whether they
are designated and qualify for hedge accounting. Fair value represents the difference in the value of
the derivative instruments at the contractual rate and the value at current market rates, and generally
reflects the estimated amounts that the Company would receive or pay to terminate the contracts at
the reporting date based on broker quotes for the same or similar instruments. The Company does not
enter into derivative contracts for speculative or trading purposes. See Note 12—Derivative Financial
Instruments.
Guarantees and indemnifications. The Company recognizes an obligation at inception for
guarantees and indemnifications that qualify for recognition, regardless of the probability of occurrence.
The Company indemnifies its financial institution clients for settlement losses suffered due to the failure
of any other client to fund its settlement obligations in accordance with the Visa Rules. The estimated
fair value of the liability for settlement indemnification is included in accrued liabilities on the
consolidated balance sheets and is described in Note 11—Settlement Guarantee Management. The
Company indemnifies Visa Europe for claims arising from the Company’s or Visa Europe’s activities
that are brought outside of Visa Europe’s region, as described in Note 2—Visa Europe.
Share-based compensation. The Company recognizes share-based compensation cost using the
fair value method of accounting. The Company recognizes compensation cost for awards with only
service conditions on a straight-line basis over the requisite service period, which is generally the
vesting period. Compensation cost for performance and market-condition-based awards is recognized
on a graded-vesting basis. The amount is initially estimated based on target performance and is
adjusted as appropriate based on management’s best estimate throughout the performance period.
See Note 16—Share-based Compensation.
81