Visa 2014 Annual Report Download - page 71

(7) Visa granted a perpetual put option to Visa Europe, which if exercised, will require us to purchase all
of the outstanding shares of capital stock of Visa Europe from its members. Due to the perpetual
nature of the instrument and the various economic conditions, which could exist when the put is
exercised, the ultimate amount and timing of Visa’s obligation, if any, cannot be reliably estimated.
Therefore, no amounts related to this obligation have been included in the table. However, given the
current economic conditions and circumstances under which Visa Europe could exercise its option,
the purchase price under the terms of the put option would likely be in excess of $10 billion. The fair
value of the Visa Europe put option itself totaling $145 million at September 30, 2014 has also been
excluded from this table as it does not represent the amount, or an estimate of the amount, of Visa’s
obligation in the event of exercise. See the Liquidity and Capital Resources and Critical Accounting
Estimates sections of this Management’s Discussion and Analysis of Financial Condition and Results
of Operations and Note 2—Visa Europe to our consolidated financial statements.
(8) We evaluate the need to make contributions to our pension plan after considering the funded status
of the pension plan, movements in the discount rate, performance of the plan assets and related tax
consequences. Expected contributions to our pension plan have not been included in the table as
such amounts are dependent upon the considerations discussed above, and may result in a wide
range of amounts. See Note 10—Pension, Postretirement and Other Benefits to our consolidated
financial statements and the Liquidity and Capital Resources section of this Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America which require us to make judgments, assumptions
and estimates that affect the amounts reported. See Note 1—Summary of Significant Accounting
Policies to our consolidated financial statements. We have established policies and control procedures
which seek to ensure that estimates and assumptions are appropriately governed and applied
consistently from period to period. However, actual results could differ from our assumptions and
estimates, and such differences could be material.
We believe that the following accounting estimates are the most critical to fully understand and
evaluate our reported financial results, as they require our most subjective or complex management
judgments, resulting from the need to make estimates about the effect of matters that are inherently
uncertain and unpredictable.
Revenue Recognition—Client Incentives
Critical estimates. We enter into incentive agreements with financial institution clients and other
business partners for various programs designed to build payments volume, increase Visa-branded
card and product acceptance and win merchant routing transactions over our network. These
incentives are primarily accounted for as reductions to operating revenues; however, if a separate
identifiable benefit at fair value can be established, they are accounted for as operating expenses. We
generally capitalize 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 language (e.g., early termination clauses), management’s ability and intent
to enforce the recoverability language 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.
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