Visa 2013 Annual Report Download - page 84

VISA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
September 30, 2013
over the period in which the Company benefits from the sponsorship rights. Promotional items are
expensed as incurred, when the related services are received, or when the related event occurs.
Income taxes. The Company’s income tax expense consists of two components: current and
deferred. Current income tax expense represents taxes paid or payable for the current period. Deferred
tax assets and liabilities are recognized to reflect the future tax consequences attributable to temporary
differences between the financial statement carrying amounts and the respective tax basis of existing
assets and liabilities, and operating loss and credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. In assessing whether deferred tax
assets are realizable, management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. A valuation allowance is recorded for the portions that
are not expected to be realized based on the level of historical taxable income, projections of future
taxable income over the periods in which the temporary differences are deductible, and qualifying tax
planning strategies.
Where interpretation of the tax law may be uncertain, the Company recognizes, measures and
discloses income tax uncertainties. The Company accounts for interest expense and penalties related
to uncertain tax positions in non-operating income in the consolidated statements of operations. The
Company files a consolidated federal income tax return and, in certain states, combined state tax
returns. Foreign taxes paid have historically been deducted to reduce federal income taxes payable.
The Company elects to claim foreign tax credits in any given year if such election is beneficial to the
Company. See Note 19—Income Taxes.
Pension and other postretirement benefit plans. The Company’s defined benefit pension and other
postretirement benefit plans are actuarially evaluated, incorporating various critical assumptions
including the discount rate and the expected rate of return on plan assets (for qualified pension plans).
The discount rate is based on a “bond duration matching” methodology, which reflects the matching of
projected plan obligation cash flows to an average of high-quality corporate bond yield curves whose
duration matches the projected cash flows. The expected rate of return on pension plan assets
considers the current and expected asset allocation, as well as historical and expected returns on each
plan asset class. Any difference between actual and expected plan experience, including asset return
experience, in excess of a 10% corridor is recognized in net periodic pension cost over the expected
average employee future service period, which is approximately 8 years for United States plans. Other
assumptions involve demographic factors such as retirement age, mortality, attrition and the rate of
compensation increases. The Company evaluates assumptions annually and modifies them as
appropriate.
The Company recognizes the funded status of its benefit plans in its consolidated balance sheets
as other assets, accrued liabilities and other liabilities. The Company recognizes settlement losses
when it settles pension benefit obligations, including making lump-sum cash payments to plan
participants in exchange for their rights to receive specified pension benefits, when certain thresholds
are met. See Note 10—Pension, Postretirement and Other Benefits.
Foreign currency remeasurement and translation. The Company’s functional currency is the U.S.
dollar for the majority of its foreign operations. Transactions denominated in currencies other than the
applicable functional currency are converted to the functional currency at the exchange rate on the
transaction date. At period end, monetary assets and liabilities are remeasured to the functional
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