Visa 2008 Annual Report Download - page 75

Table of Contents
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.
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. See Note 23—Legal Matters to our consolidated financial statements included elsewhere in this report.
Investment income, net
The increase in investment income, net in fiscal 2007 primarily reflected 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.
Income Taxes
Fiscal 2008 compared to Fiscal 2007
Visa Inc.'s effective tax rate is a combination of federal, state and foreign statutory rates and certain required adjustments to taxable income. The
effective tax rate was 40% for the year ended September 30, 2008, compared to Visa U.S.A.'s 23% for the year ended September 30, 2007. The increase in the
effective tax rate is primarily due to tax reserves related to litigation, and the combined effect of the loss of the California special deduction after the IPO, the
change in state tax apportionment, and a one-time benefit attributable to the remeasurement of deferred taxes.
Fiscal 2007 compared to Fiscal 2006
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 what would otherwise
have been realized, primarily as a result of an adjustment to a reserve related to litigation.
The components impacting the effective tax rate are:
Fiscal Year ended September 30,
2007 2006
Dollars Percent Dollars Percent
(in millions, except percentages)
(Loss) income before income taxes and minority interest $ (1,387) $ 722
Minority interest 5 16
U.S. federal statutory tax (485) 35% 253 35%
State tax effect, net of federal benefit (11) 1% (11) (1)%
Reserve for tax uncertainties related to litigation 180 (13)% — —
Non-deductible expenses and other differences 2 — % 15 2%
Minority interest—not subject to tax (2) — % (6) (1)%
Income Tax (Benefit) Expense $ (316) 23% $ 251 35%
74