Visa 2007 Annual Report Download - page 88

Table of Contents
Investment Income, Net
The decrease in investment income, net in fiscal 2006 primarily reflected the absence of a $42 million gain on the sale of Visa U.S.A.'s 50% equity
interest in Vital Processing Services LLC in fiscal 2005. The decrease was offset by higher earnings on fixed-income investment securities, due to higher
average investment balances and higher market interest rates for current year periods compared to the prior year.
Income Taxes
Visa U.S.A.'s effective tax rate decreased to 35% in fiscal 2006 from 40% in fiscal 2005. The lower effective tax rate is primarily attributable to
additional tax benefits granted by the state related to Visa U.S.A.'s tax filing methodology in fiscal 2006. The decrease also reflects the absence of a one-time
remeasurement of deferred tax assets related to the adoption of a new state tax filing methodology, which occurred in 2005.
The components impacting the effective tax rate are:
Fiscal
2006 2005
Dollars Percent Dollars Percent
(in millions, except percentages)
Income before income taxes, cumulative effect of accounting change and minority interest $ 722 $ 606
Cumulative effect of accounting change, gross — (150)
Income before income taxes and minority interest 722 456
Minority interest expense 16 8
U.S. federal statutory tax 253 35% 160 35%
State tax effect, net of federal benefit (11) (2)% 21 5%
Non-deductible expenses and other differences 15 3% 5 1%
Minority interest—not subject to tax (6) (1)% (3) (1)%
Income Tax Expense $ 251 35% $ 183 40%
Minority Interest
In September 2005, Inovant, Inc. sold a 10% interest in Inovant to Visa Europe and a 6% interest to Visa International and its CEMEA region at a price
equivalent to the founder's cost, thereby reducing Visa U.S.A.'s ownership of Inovant from 85% to 69%. This increase in third party ownership had a full year
impact in fiscal 2006 resulting in increased minority interest expense.
Liquidity and Capital Resources
Visa U.S.A. maintains comprehensive cash flow forecasts to project Visa U.S.A.'s short-term and long-term liquidity needs, and maintains controls and
governance over spending and investment decisions. Visa U.S.A.'s corporate investment policy was approved by its board of directors and Visa U.S.A.'s Asset
and Liability Committee oversees Visa U.S.A.'s treasury activity.
Visa U.S.A. requires capital resources and liquidity to:
• enable uninterrupted settlement of debit transactions;
• fund development of new technology, payment products and services;
• fund payment obligations under volume and support incentives;
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