Visa 2009 Annual Report Download - page 75

Table of Contents
VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2009
(in millions, except as noted)
Volume and support incentives—The Company enters into incentive agreements with financial institution customers, merchants, and other business
partners designed to build payments volume and to increase product acceptance. These incentives are generally accounted for as reductions of operating
revenues or expenses where an identifiable benefit can be identified. The Company generally capitalizes certain incentive payments under these agreements if
certain criteria are met. The capitalization criteria includes the existence of legally enforceable recoverability clauses, such as early termination clauses,
management's ability and intent to enforce the recoverability clauses and the ability to generate future earnings from the agreement in excess of the deferred
amounts. Incentives are accrued systematically and rationally based on management's estimate of the customers' performance. These accruals are regularly
reviewed and estimates of performance are adjusted as appropriate. Capitalized amounts are amortized over the period of contractual recoverability.
Accrued litigation—The Company evaluates the likelihood of an unfavorable outcome of legal or regulatory proceedings to which it is a party and
records a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These judgments are
subjective, based on legal or regulatory proceedings, the merits of the Company's defenses and consultation with corporate and external legal counsel, and
actual outcomes of related legal proceedings may materially differ from the Company's judgment. Accrued litigation associated with settled obligations to be
paid over periods longer than one year is initially recorded using the present value of future payment obligations. The obligation is accreted to its full payment
value with the corresponding accretion charge included in interest expense on the consolidated statement of operations. The Company expenses legal costs as
incurred in professional and consulting fees. See also Note 21—Legal Matters.
Revenue recognition—The Company's operating revenues are comprised principally of service revenues, data processing revenues, international
transaction revenues and other revenues, reduced by costs incurred under volume and support incentives. The Company recognizes revenue when the price is
fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably
assured.
Service revenues predominantly represent payments by customers with respect to their card programs carrying marks of the Visa brand and are based
principally upon spending on Visa-branded cards for goods and services. Current quarter service revenues are assessed using a calculation of pricing applied
to the prior quarter's payments volume. The Company also earns revenues from assessments designed to support ongoing acceptance and volume growth
initiatives. These revenues are recognized in the same period the related volume is transacted.
Data processing revenues represent revenues earned for authorization, clearing, settlement, transaction processing services and other maintenance and
support services that facilitate transaction and information processing among the Company's customers globally and Visa Europe. These revenues are
recognized in the same period the related transactions occur or services are rendered.
International transaction revenues are assessed to customers on cardholder transactions where the cardholder's issuer country is different from the
merchant's country. Revenues from these cross-border transactions are recognized in the same period the related transactions occur or services are rendered.
Other revenues include revenues earned from Visa Europe in connection with the Framework Agreement (see Note 3—Visa Europe), optional card
enhancements, such as extended cardholder
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