Visa 2012 Annual Report Download - page 71

Table of Contents VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2012
investments consist of equity holdings in non-public companies and are recorded in other assets on the consolidated balance
sheets.
The Company regularly reviews investments accounted for under the cost and equity methods for possible impairment, which
generally involves an analysis of the facts and changes in circumstances influencing the investment, expectations of the entity’s
cash flows and capital needs, and the viability of its business model.
Financial instruments
. The Company considers the following to be financial instruments: cash and cash equivalents, restricted
cash-litigation escrow, trading and available-for-sale investment securities, settlement receivable and payable, customer collateral,
non-marketable equity investments, settlement risk guarantee, derivative instruments, the Visa Europe put option and the earn-out
provision related to the PlaySpan acquisition. See Note 4—Fair Value Measurements and Investments .
Settlement receivable and payable . The Company operates systems for authorizing, clearing and settling payment
transactions worldwide. U.S. dollar settlements are settled within the same day and do not result in a receivable or payable
balance, while settlement currencies other than the U.S. dollar generally remain outstanding for one to two business days, resulting
in amounts due from and to clients. These amounts are presented as settlement receivable and payable on the consolidated
balance sheets, respectively.
Customer collateral . The Company holds cash deposits and other non-
cash assets from certain clients in order to ensure their
performance of settlement obligations arising from credit, debit and travelers cheque product clearings. The cash collateral assets
are restricted and fully offset by corresponding liabilities and both balances are presented on the consolidated balance sheets. Non-
cash collateral assets are held on behalf of the Company by a third party and are not recorded on the consolidated balance sheets.
See Note 12—Settlement Guarantee Management .
Client incentives. The Company enters into incentive agreements with select clients and other business partners designed to
build payments volume, increase product acceptance and win merchant preference to route transactions over our network. These
incentives are primarily accounted for as reductions to operating revenues or as operating expenses if a separate identifiable
benefit at fair value can be established. The Company generally capitalizes advance incentive payments under these agreements if
select criteria are met. The capitalization criteria include the existence of future economic benefits to Visa, 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 amounts deferred. Capitalized amounts are
amortized over the shorter of the period of contractual recoverability or the corresponding period of economic benefit. Incentives not
yet paid are accrued systematically and rationally based on management's estimate of each client's performance. These accruals
are regularly reviewed and estimates of performance are adjusted, as appropriate, based on changes in performance expectations,
actual client performance, amendments to existing contracts or the execution of new contracts.
Property, equipment and technology, net . Property, equipment and technology are recorded at historical cost less
accumulated depreciation and amortization, which are computed on a straight-line basis over the asset’s estimated useful life.
Depreciation and amortization of technology, furniture, fixtures and equipment are computed over estimated useful lives ranging
from 2 to 7 years. Capital leases are amortized over the lease term and leasehold improvements are amortized over the shorter of
the useful life of the asset or lease term. Building improvements are depreciated between 3 and 40 years, and buildings are
depreciated over 40 years. Improvements that increase functionality of the asset are capitalized and depreciated over the asset’s
remaining useful life. Land and construction-in-progress are not depreciated. Fully depreciated assets are retained in property,
equipment and technology, net, until removed from service.
Technology includes purchased and internally developed software, including technology assets obtained through acquisitions.
Internally developed software represents software primarily used by the VisaNet electronic payment network and CyberSource
platform. Internal and external costs incurred during the preliminary project stage are expensed as incurred. Qualifying costs
incurred during the application development stage are capitalized. Once the project is substantially complete and ready for its
intended use these costs are amortized on a straight-line basis over the technology's estimated useful life. Acquired technology
assets are initially recorded at fair value and amortized on a straight-line basis over the estimated useful life.
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