Visa 2008 Annual Report Download - page 82

Table of Contents
Uses of Liquidity
Payments settlement requirements. Payments settlement due from and due to issuing and acquiring customers represents our most consistent liquidity
requirement, arising primarily from the payments settlement of certain credit and debit transactions and the timing of payments settlement between financial
institution customers with settlement currencies other than the U.S. dollar. These settlement receivables and payables generally remain outstanding for one to
two business days, consistent with standard market conventions for domestic transactions and foreign currency transactions. We maintain a liquidity position
sufficient to enable uninterrupted daily net settlement. Typically, the highest seasonal liquidity demand is experienced in December and early January during
the holiday shopping season. During fiscal 2008, we funded average daily net settlement receivable balances of $157 million, with the highest daily balance
being $455 million.
Litigation. We are parties to legal and regulatory proceedings with respect to a variety of matters, including certain litigation that we refer to as covered
litigation. We have a Retrospective Responsibility Plan to address settlements and judgments arising from covered litigation. As part of the plan, we deposited
$3.0 billion of our IPO proceeds into an escrow account from which settlements of, or judgments in, covered litigation will be paid. The amount deposited in
the escrow account caused the conversion ratio of class B shares to shares of class A common stock to decline. We may be directed by the litigation
committee to conduct additional sales of class A common stock in order to increase the escrow amount, in which case the conversion rate of the class B
common stock will be subject to an additional dilutive adjustment to the extent of the number of additional class A common shares sold. The litigation
committee was established pursuant to a litigation management agreement among Visa Inc., Visa U.S.A., Visa International and the members of the litigation
committee, all of whom are affiliated with, or act for, certain Visa U.S.A. members. The litigation committee may recommend or refer the cash payment
portion of a proposed settlement of any covered litigation to the Visa Inc. board of directors.
It is our intention to take steps during the first quarter of fiscal 2009 to fund our escrow account with an additional approximate $1.1 billion. Under our
Retrospective Responsibility Plan, our class B shareholders will bear the cost of funding the litigation escrow account via a further dilutive adjustment in the
conversion ratio of their class B shares to shares of class A common stock, reducing the total number of diluted class A shares outstanding for purposes of
calculating EPS. On November 14, 2008 we filed a definitive proxy with the Securities and Exchange Commission seeking to amend our charter to permit us
to deposit operating cash directly into the litigation escrow account with a corresponding reduction in the conversion ratio applicable to our class B common
shares. Funding the litigation escrow account in this manner would also effectively act as a share repurchase program in the amount of $1.1 billion. In the
event that the proxy is not approved by our shareholders it is our intention to fund the litigation escrow with an additional approximate $1.1 billion through an
underwritten public offering under the established terms of our Retrospective Responsibility Plan.
In March 2008, we recorded an additional litigation provision of $285 million related to the covered litigation as a charge against income. In the fourth
quarter of fiscal 2008 we also recorded a provision of $1.1 billion related to the Discover litigation in connection with an agreement to settle pending litigation
with Discover Financial Services. The determination to record both additional provisions was based on management's present understanding of its litigation
profile and the specifics of each case and takes into account the determination of the litigation committee.
Together with Visa U.S.A. and Visa International, we entered into an agreement with American Express that became effective on November 9, 2007 to
settle litigation, American Express Travel Related Services Co., Inc. v. Visa U.S.A. Inc. et al, that had been pending since 2004. The settlement ended all
current litigation between American Express and Visa U.S.A. and Visa International, as well as the related litigation between American Express and five co-
defendant banks. Under the settlement
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