Visa 2007 Annual Report Download - page 82

Table of Contents
Total liabilities for legal matters changed as follows:
(in millions)
Balance at September 30, 2006 $ 1,000
Provision for settled legal matters 1,941
Provision for unsettled legal matters 714
Bank co-defendants' obligation to American Express(1) 185
Insurance recovery (2)
Interest accretion on settled matters 75
Payments on settled matters (231)
Balance at September 30, 2007 $ 3,682
(1) Visa Inc. will consolidate the initial payment to American Express (see discussion below) on behalf of the five co-defendant banks. Visa U.S.A. has recorded a corresponding receivable
in prepaid and other current assets on the Visa U.S.A.'s consolidated balance sheets at September 30, 2007.
Other Income (Expense)
Other income was $62 million in fiscal 2007 compared to other expense of $8 million in fiscal 2006. The increase in other income primarily reflects an
increase in Visa U.S.A.'s portion of equity earnings from Visa International as a result of an increase in net income for Visa International and an increase in
interest income as the result of a shift in Visa U.S.A.'s investment portfolio from tax-exempt securities to higher yielding money market and auction rate
securities.
The following table sets forth the components of our other income (expense) for fiscal 2007 and 2006.
Fiscal Year 2007 vs. 2006
2007 2006 $ Change % Change
(in millions, except percentages)
Equity in earnings of unconsolidated affiliates $ 40 $ 13 $ 27 208%
Interest expense (81) (89) 8 (9)%
Investment income, net 103 68 35 51%
Other Income (Expense) $ 62 $ (8) $ 70 NM
Equity in Earnings of Unconsolidated Affiliates
The increase in equity in earnings of unconsolidated affiliates in fiscal 2007 primarily reflected higher Visa International net income during fiscal 2007
compared to the prior fiscal year.
Interest Expense
The decrease in interest expense in fiscal 2007 primarily reflected lower accretion expense on the declining litigation balance in the Retailers' Litigation
matter. Interest expense is expected to increase in fiscal 2008 as a result of the American Express Litigation, for which accretion will be recorded beginning in
October 2008. See Note 20—Legal Matters to the Visa U.S.A fiscal 2007 consolidated financial statements.
Investment Income, Net
The increase in investment income, net in fiscal 2007 primarily reflects an increase in interest income due to a shift in the Visa U.S.A.'s investment
strategy from tax-exempt municipal bonds to higher yield fixed-income investment securities and to higher average investment balances during the year.
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