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
	2013		2012		2013		2012		2013		2012
	(in millions)
Assets
Cash equivalents and restricted cash:
Money market funds	$	1,071	$	5,676
Commercial paper					$	51	$	93
Investment securities, trading:
Equity securities	75		66
Investment securities, available-for-sale:
U.S. government-sponsored debt securities					2,704		2,821
U.S. Treasury securities	1,673		1,066
Equity securities	101		2
Corporate debt securities					269		63
Auction rate securities									$	7	$	7
Prepaid and other current assets:
Foreign exchange derivative instruments					23		13
Total	$	2,920	$	6,810	$	3,047	$	2,990	$	7	$	7
Liabilities
Accrued liabilities:
Visa Europe put option									$	145	$	145
Earn-out related to PlaySpan acquisition									—		12
Foreign exchange derivative instruments					$	15	$	11
Total	$	—	$	—	$	15	$	11	$	145	$	157

There were no significant transfers between Level 1 and Level 2 assets during fiscal 2013.

Level 1 assets measured at fair value on a recurring basis. Money market funds, publicly-traded equity securities and U.S. Treasury securities are classified as Level 1 within the fair value hierarchy, as fair value is based on quoted prices in active markets. The overall decrease in the Company's Level 1 assets primarily reflects payments from the litigation escrow account totaling $4.4 billion in connection with the covered litigation. See Note 3—Retrospective Responsibility Plan and Note 20—Legal Matters.

Level 2 assets and liabilities measured at fair value on a recurring basis. The fair value of U.S. government-sponsored debt securities and corporate debt securities, as provided by third-party pricing vendors, is based on quoted prices in active markets for similar, not identical, assets. The pricing data obtained from outside sources is reviewed internally for reasonableness, compared against benchmark quotes from independent pricing sources, then 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 by observable market data. There were no substantive changes to the valuation techniques and related inputs used to measure fair value during fiscal 2013.

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 changes to the valuation techniques and related inputs used to measure fair value during fiscal 2013.

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, 2013 and 2012. Changes in fair value are recorded as non-cash, non-operating income in the Company's consolidated statements 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 was 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 was reduced to zero, reflecting payments made in full during fiscal 2013, upon achieving certain revenue targets and other milestones.

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 2013 and 2012 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, the inherent lack of liquidity, and the fact that inputs used to measure fair value are unobservable and require management's 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 $15 million other-than-temporary impairment loss related to these investments during fiscal 2013, compared with a $2 million impairment loss recognized during fiscal 2012 and no impairment charges during fiscal 2011. At September 30, 2013 and 2012, these investments totaled $30 million and $86 million, respectively. These assets are classified in other assets on the consolidated balance sheets. See Note 5—Prepaid Expenses and Other Assets.

Due to a change in the Company's relationship with one of its investees during fiscal 2013, the Company reclassified equity securities previously accounted for as an equity method investment, with a carrying value of $12 million, to long-term available-for-sale investment securities. The fair value of this investment at September 30, 2013 was $99 million, resulting in the recognition of a pre-tax unrealized gain of $87 million in other comprehensive income.

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 non-recurring basis. Finite-lived intangible assets primarily consist of customer relationships, tradenames, and reseller relationships, all of which were obtained through acquisitions. See Note 7—Intangible Assets, Net.

If the Company were required to perform a quantitative assessment for impairment testing of goodwill and indefinite-lived intangible assets, the fair values would generally be estimated using an income approach. 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 as Level 3 in the fair value hierarchy. The Company completed its annual impairment review of its indefinite-lived intangible assets and goodwill as of February 1, 2013, and concluded that there was no impairment. No recent events or changes in circumstances indicate that impairment existed at September 30, 2013. 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, 2013, 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 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 non-operating income, and offset in personnel expense on the consolidated statements of operations. As of September 30, 2013 and 2012, trading investment securities totaled $75 million and $66 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, 2013										September 30, 2012
	Amortized Cost		Gross Unrealized					Fair Value			Amortized Cost		Gross Unrealized					Fair Value
	Amortized Cost		Gains		Losses			Fair Value			Amortized Cost		Gains		Losses			Fair Value
	(in millions)
U.S. government-sponsored debt securities	$	2,701	$	3	$	—		$	2,704		$	2,818	$	3	$	—		$	2,821
U.S. Treasury securities	1,671		2		—			1,673			1,065		1		—			1,066
Equity securities	14		88		(1		)	101			4		—		(1		)	3
Corporate debt securities	269		—		—			269			63		—		—			63
Auction rate securities	7		—		—			7			7		—		—			7
Total	$	4,662	$	93	$	(1	)	$	4,754		$	3,957	$	4	$	(1	)	$	3,960
Less: current portion of available-for-sale investment securities								(1,994		)								(677		)
Long-term available-for-sale investment securities								$	2,760									$	3,283

The available-for-sale investment securities primarily include U.S. government-sponsored debt securities, U.S. Treasury securities and corporate debt securities. Available-for-sale debt securities are presented below in accordance with their stated maturities. The majority of these investments, $2.8 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, 2013:
Due within one year	$	1,989	$	1,992
Due after 1 year through 5 years	2,652		2,654
Due after 5 years through 10 years	—		—
Due after 10 years	7		7
Total	$	4,648	$	4,653

Investment Income

Investment income is recorded as non-operating income in the Company's consolidated statements of operations and consisted of the following:



	For the Years Ended September 30,
	2013			2012			2011
	(in millions)
Interest and dividend income on cash and investments	$	27		$	17		$	16
Gain on other investments	5			17			92
Investment securities, trading:
Unrealized gains (losses), net	4			9			(5		)
Realized gains (losses), net	2			(1		)	1
Investment securities, available-for-sale:
Realized (losses) gains, net	(1		)	—			4
Other-than-temporary impairment on investments	(15		)	(6		)	—
Investment income	$	22		$	36		$	108

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.