Visa 2007 Annual Report Download - page 144

Table of Contents
VISA U.S.A. INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Income tax expense (benefit) on net unrealized gains and losses on investment securities is recorded as a component of accumulated other
comprehensive income and was $1.7 million, $1.5 million and ($3.2) million in fiscal 2007, 2006 and 2005, respectively.
The Company recorded a cumulative effect of change in accounting principle related to its investment in Visa International in fiscal 2005. A deferred
tax liability was recorded related to the cumulative adjustment of approximately $54.1 million (Note 3—Cumulative Effect of Change in Accounting
Principle).
The income tax (benefit) expense differs from the amount of income tax determined by applying the applicable U.S. Federal statutory federal income
tax rate of 35% to (loss) income before income taxes as follows:
For the Years Ended September 30
2007 2006 2005
Dollars Percent Dollars Percent Dollars Percent
(in thousands)
U.S. federal income tax $ (485,596) 35.0% $ 252,636 35.0% $ 159,686 35.0%
State income taxes, net of federal benefit (11,288) 0.8% (11,249) (1.6%) 21,199 4.6%
Reserve for tax uncertainties related to litigation 180,322 (13.0%) — — — —
Other, net 2,203 (0.1%) 15,522 2.2% 5,298 1.2%
Minority interest—not subject to tax (1,634) 0.1% (5,571) (0.8%) (2,887) (0.6%)
Income tax (benefit) expense $ (315,993) 22.8% $ 251,338 34.8% $ 183,296 40.2%
Income taxes payable of $146.8 million and $7.9 million are included in accrued taxes as part of accrued liabilities at September 30, 2007 and 2006,
respectively. See Note 11—Accrued Liabilities. Income taxes receivable of $5.6 million are included in prepaid and other current assets at September 30, 2007
and 2006. There was no income tax receivable at September 30, 2007.
The difference in the state tax rate between fiscal 2006 and 2005 results primarily from partial results of a California examination relating to the proper
application of a previously issued ruling from the state.
Note 18—Related Parties
The Company conducts business as a non-stock, non-assessable membership corporation. The principal members of Visa U.S.A. are approximately
1,600 financial institutions that participate directly in the Company's payment programs. In addition, there are approximately 11,700 associate and participant
members that participate in the Company's payment programs through one or more principal members. As a membership corporation, the Company receives
revenue from its members in the form of service fees, data processing fees and other fees, which is then used to create and support products and services that
can be offered by the Company's members to cardholders and merchants.
At September 30, 2007, the Company's Board of Directors consisted of persons affiliated with various member financial institutions that were also the
Company's customers and persons who were deemed to be independent directors. The Company generated operating revenues of approximately $902.6
million or 25%, $808.1 million or 27%, and $884.4 million or 33% of total operating revenues from financial institutions and corporations represented on its
Board of Directors in fiscal 2007, 2006 and 2005, respectively. The Company incurred costs of $11.2 million, $11.0 million and $4.3 million, or less than 1%
of total operating expenses, for services provided by financial institutions and corporations represented on its Board of Directors in each of fiscal 2007, 2006
and 2005, respectively. These services primarily related to software maintenance and investment
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