Fair Value Measurements and Investments

12 Months Ended

Sep. 30, 2012

Investments and Fair Value Measurements [Abstract]

Fair Value Measurements and Investments

Note 4—Fair Value Measurements and Investments

Fair Value Measurements

The Company measures certain assets and liabilities at fair value. See Note 1—Summary of Significant Accounting Policies.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

	Fair Value Measurements at September 30 Using Inputs Considered as
	Level 1				Level 2				Level 3
	2012		2011		2012		2011		2012		2011
	(in millions)
Assets
Cash equivalents and restricted cash
Money market funds	$	5,676	$	4,225
U.S. government-sponsored debt securities					$	—	$	175
Commercial paper					93		—
Investment securities
U.S. government-sponsored debt securities					2,821		1,568
U.S. Treasury securities	1,066		350
Equity securities	68		57
Corporate debt securities					63		—
Auction rate securities									$	7	$	7
Prepaid and other current assets
Foreign exchange derivative instruments					13		30
	$	6,810	$	4,632	$	2,990	$	1,773	$	7	$	7
Liabilities
Accrued liabilities
Visa Europe put option									$	145	$	145
Earn-out related to PlaySpan acquisition									12		24
Foreign exchange derivative instruments					$	11	$	7

There were no significant transfers between Level 1 and Level 2 assets during fiscal 2012.

Level 1 assets measured at fair value on a recurring basis. Cash equivalents (money market funds), U.S. Treasury securities and equity securities are classified as Level 1 within the fair value hierarchy, as fair value is based on quoted prices in active markets.

Level 2 assets and liabilities measured at fair value on a recurring basis. The fair value of government-sponsored and corporate debt securities, as provided by third-party pricing vendors, is based on quoted prices in active markets for similar assets. The pricing data obtained from outside sources is reviewed internally for reasonableness, compared against benchmark quotes from additional pricing sources and confirmed or revised accordingly. Commercial paper and foreign exchange derivative instruments are valued using inputs that are observable in the market or can be derived principally from or corroborated with observable market data. There were no substantive changes to the valuation techniques and related inputs used to measure fair value during fiscal 2012.

Level 3 assets and liabilities measured at fair value on a recurring basis. Auction rate securities are classified as Level 3 due to a lack of trading in active markets and a lack of observable inputs in measuring fair value. There were no substantive change to the valuation techniques and related inputs used to measure fair value during fiscal 2012.

Visa Europe put option agreement. The Company has granted Visa Europe a perpetual put option which is carried at fair value in accrued liabilities on the consolidated balance sheets. The fair value of the put option was $145 million at September 30, 2012 and 2011. During fiscal 2011, the Company reduced the value of the put option by $122 million, recording non-cash, non-operating income in the consolidated statement of operations. See Note 2—Visa Europe. The liability is classified within Level 3 as the assumed probability that Visa Europe will elect to exercise its option and the estimated P/E differential are among several unobservable inputs used to value the put option.

Earn-out related to PlaySpan acquisition. In connection with the PlaySpan acquisition, the Company initially recorded a liability of $24 million to reflect the fair value of a potential earn-out provision included in the purchase agreement. The liability is classified as Level 3 due to a lack of observable inputs, such as the likelihood of meeting certain future revenue targets and other milestones. The fair value of the earn-out decreased to $12 million at September 30, 2012, primarily reflecting payments made upon achievement of certain revenue targets and other milestones during fiscal 2012. The remaining liability related to the earn-out is included in accrued liabilities on the consolidated balance sheets. Changes in fair value are included in general and administrative expense on the consolidated statements of operations. SeeNote 5—AcquisitionsandNote 8—Intangible Assets, Net.

A separate roll-forward of Level 3 investments measured at fair value on a recurring basis is not presented because the primary activities during fiscal 2012 and 2011 are already discussed above.

Assets Measured at Fair Value on a Nonrecurring Basis

Non-marketable equity investments and investments accounted for under the equity method. These investments are classified as Level 3 due to the absence of quoted market prices, inherent lack of liquidity, and the fact that inputs used to measure fair value are unobservable and require management judgment. When certain events or circumstances indicate that impairment may exist, the Company revalues the investments using various assumptions, including the financial metrics and ratios of comparable public companies. The Company recognized a $2 million OTTI during fiscal 2012, compared with no impairment charges during fiscal 2011 and $3 million impairment loss recognized during fiscal 2010. At September 30, 2012 and 2011, these investments totaled $86 million and $100 million, respectively. These assets are classified in other assets on the consolidated balance sheets. See Note 6—Prepaid Expenses and Other Assets.

Non-financial assets and liabilities. Long-lived assets such as goodwill, indefinite-lived intangible assets, finite-lived intangible assets, and property, equipment and technology are considered non-financial assets. The Company does not have any non-financial liabilities measured at fair value on a nonrecurring basis. Finite-lived intangible assets primarily consist of customer relationships, reacquired rights, reseller relationships and tradenames obtained through acquisitions. See Note 5—Acquisitions.

The Company primarily uses an income approach for estimating the fair values of goodwill and indefinite-lived intangible assets when testing for and recording impairment, if any. As the assumptions employed to measure these assets on a non-recurring basis are based on management's judgment using internal and external data, these fair value determinations are classified in Level 3 of the fair value hierarchy. The Company completed its annual impairment review of its indefinite-lived intangible assets and goodwill as of February 1, 2012, and concluded there was no impairment. No recent events or changes in circumstances indicate that impairment existed at September 30, 2012. See Note 1—Summary of Significant Accounting Policies.

Other Financial Instruments not Measured at Fair Value

Certain financial instruments are not measured at fair value on the Company's consolidated balance sheet but require disclosure of their fair values, including cash, settlement receivable and payable, and customer collateral. The estimated fair value of such instruments at September 30, 2012, approximates their carrying value due to their generally short maturities.

Investments

Trading Investment Securities

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. See Note 1—Summary of Significant Accounting Policies. As of September 30, 2012 and 2011, trading investment securities totaled $66 million and $57 million, respectively.

Available-for-sale Investment Securities

The amortized cost, unrealized gains and losses and fair value of available-for-sale investment securities are as follows:

	September 30, 2012										September 30, 2011
	Amortized Cost		Gross Unrealized					Fair Value			Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses								Gains		Losses
	(in millions)
U.S. Treasury securities	$	1,065	$	1	$	—		$	1,066		$	350	$	—	$	—	$	350
U.S. government-sponsored debt securities	2,818		3		—			2,821			1,568		—		—		1,568
Corporate debt securities	63		—		—			63			—		—		—		—
Auction rate and equity securities	11		—		(1		)	10			7		—		—		7
Total	$	3,957	$	4	$	(1	)	$	3,960		$	1,925	$	—	$	—	$	1,925
Less: current portion of available-for-sale investment securities								(677		)							(1,214		)
Long-term available-for-sale investment securities								$	3,283								$	711

The available-for-sale investment securities primarily include U.S. Treasury securities, U.S. government-sponsored debt securities and corporate debt securities. Available-for-sale debt securities are presented below in accordance with their stated maturities. 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.

	Amortized Cost		Fair Value
	(in millions)
September 30, 2012:
Due within one year	$	674	$	674
Due after 1 year through 5 years	3,272		3,276
Due after 5 years through 10 years	—		—
Due after 10 years	7		7
Total	$	3,953	$	3,957

Investment Income

Investment income consisted of the following:

	For the Years Ended September 30,
	2012			2011			2010
	(in millions)
Interest and dividend income on cash and investments	$	17		$	16		$	26
Gain on other investments	17			92			20
Investment securities—trading:
Unrealized (losses) gains, net	9			(5		)	3
Realized gains (losses), net	(1		)	1			1
Investment securities—available-for-sale:
Realized gains (losses), net	—			4			2
Other-than-temporary impairment on investments	(6		)	—			(3		)
Investment income	$	36		$	108		$	49

The gain on other investments in fiscal 2011 primarily includes the pre-tax gain from the sale of the Company's equity interest in Visa Vale issuer Companhia Brasileira de Soluções e Serviços, or CBSS, of $85 million. The gain on other investments in fiscal 2010 includes the pre-tax gain of $20 million related to the Company's investment in the Reserve Primary Fund.