Visa 2007 Annual Report Download - page 83

Table of Contents
Income Taxes
Visa U.S.A.'s effective tax rate is a combination of federal and state statutory rates and allowable adjustments to taxable income. The effective tax rate
in fiscal 2007 of 23% represented a tax benefit while the effective rate of 35% for the prior year represented a tax expense. The 23% effective tax rate benefit
in fiscal 2007 resulted from the loss before income tax realized for the year. This benefit was less than would otherwise have been realized primarily as a
result of an adjustment in a reserve related to litigation.
The components impacting the effective tax rate are:
Fiscal Year
2007 2006
Dollars Percent Dollars Percent
(in millions, except percentages)
(Loss) income before income taxes and minority interest $ (1,387) $ 722
Minority interest expense 5 16
U.S. federal statutory tax (485) 35% 253 35%
State tax effect, net of federal benefit
(11)
1
% (11) (2)%
Reserve for tax uncertainties related to litigation 180 (13)% — —
Non-deductible expenses and other differences 2 —% 15 3%
Minority interest—not subject to tax (2) —% (6) (1)%
Income Tax (Benefit) Expense $ (316) 23% $ 251 35%
Visa U.S.A.'s fiscal 2007 statement of operations reflected a litigation provision of $2.7 billion associated with its outstanding and settled litigation.
This provision primarily reflected the amount required to settle the American Express litigation and management's liability estimate under the guidelines of
SFAS No. 5 related to the Discover litigation and other matters. For tax purposes, the deduction related to these matters will be deferred until the payments are
made and thus we established a deferred tax asset of $778 million related to these payments, which is net of a reserve to reflect Visa U.S.A.'s best estimate of
the amount of the benefit to be realized.
Minority Interest
The decrease in minority interest for fiscal 2007 compared to the prior year reflects lower Inovant net income as a result of charges for severance and
termination benefits related to Visa U.S.A.'s plans to outsource certain data processing and development support functions. See Note 16—Workforce
Reduction to the Visa U.S.A. fiscal 2007 consolidated financial statements.
Fiscal 2006 compared to Fiscal 2005
Operating Revenues
Operating revenues were $3.0 billion and $2.7 billion in fiscal 2006 and fiscal 2005, respectively, reflecting an increase of $0.3 billion, or 11%. The
increase in operating revenues was primarily driven by increases in service fees and data processing fees due to growth in payments volume and transactions,
both of which increased 17% during fiscal 2006. In fiscal 2006, growth in consumer credit volume continued to favorably impact operating revenues, driven
largely by Visa Signature, Visa U.S.A.'s premium credit platform, which generates higher fees. Operating revenues were also impacted by growth in debit
volumes and transactions processed, reflecting the ongoing impact of certain member conversions to the debit Interlink platform.
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