Visa 2007 Annual Report Download - page 149

Table of Contents
VISA U.S.A. INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
policies and procedures that include risk standards to provide a framework for managing the Company's settlement exposure. To reduce the risk of settlement
exposure, the Company obtains collateral from members, as needed, to ensure a member's performance of its settlement obligations.
At September 30, 2007, management estimated its liability under credit and debit indemnification obligations by multiplying third-party estimates of
the probability of bank failure by member average daily volumes and estimated average number of days to settle. The Company's estimated settlement
exposure amounted to $14.8 billion at September 30, 2007. The resulting probability-weighted value of the guarantee, after consideration of collateral held
and estimated losses in the event of bank failure, was $0.4 million and $0.3 million in fiscal 2007 and 2006, respectively. These amounts are reflected in
accrued liabilities on the Company's consolidated balance sheets.
Member Advance Deposit Program
In September 2003, the Company introduced a Member Advance Deposit Program whereby members could choose to advance a deposit against their
quarterly member service fees. As an incentive for member participation, the amount of the deposit was discounted at 6%. Any principal member of Visa
U.S.A. could elect to participate in the Advance Deposit Program. All advance deposits under the program, totaling $536.4 million, were received by October
2003. One-sixteenth of the member's total undiscounted deposit amount is applied as a credit against the next sixteen quarterly operating certificate fees
otherwise payable to the Company, commencing with the first quarterly operating certificate filed subsequent to receipt of the member's initial deposit. At
September 30, 2007 and 2006, the balance of Member Deposits was $3.3 million and $137.4 million, respectively. Application of remaining Member
Deposits to quarterly operating certificate fees payable will continue through December 2007.
Indemnification of Visa International
In conjunction with the Inovant, Inc. purchase on January 1, 2003 between Visa U.S.A. and Visa International, the Company agreed to indemnify Visa
International in the event of future tax liability in connection with an adverse determination by a Taxing Authority resulting from the sale of stock of Inovant,
Inc. The indemnification is effective for ten years and extends through thirty years or statute of limitations in the event of a tax extension for the year of the
stock repurchase. Maximum potential future payments under the guarantee are difficult to assess due to the inability to predict future adverse tax
determinations by a Taxing Authority and the absence of exposure limits. Management has assessed the probability of making such payments in the future as
remote, based on current known facts. Consequently, the estimated maximum probability-weighted liability is considered immaterial and no liability has been
accrued.
Indemnification of Real Estate Joint Ventures
In August 2004, VISA U.S.A. agreed with VLD I and VLD II that Visa U.S.A. would assume financial responsibility for any prepayment fee incurred
by VLD I and VLD II in the event that Note Purchase Agreements of these organizations are called because of actions that are the sole responsibility of Visa
U.S.A. Management has assessed the probability of making payment on the guarantee as remote, based on current known facts, and as such, no liability has
been recorded. The total amount of the estimated pre-payment penalty in the event that the Note Purchase Agreements are paid before maturity is $5.4
million. The Company's portion of the estimated pre-payment penalty is $4.2 million. See Note 8—Investments in Joint Venture.
148