VISA stock accounting tips offered for CUs

WASHINGTON (1/11/08)—Credit unions currently sorting through the complex accounting issues associated with treatment of VISA Class B stock may find value in an analysis being released today by the Credit Union National Association's (CUNA's) Accounting Task Force.

Noting an absence to date of guidance from either the Financial Accounting Standards Board or the American Institute of Certified Public Accountants, Task Force Chairman Scott Waite , working with CUNA and in consultation with accounting regulators and practitioners, has developed tips for credit unions.

However, Waite and CUNA urge all credit unions affected by the stock offering ultimately to consult their own accountants for specific guidance for their situations.

"Although there is yet to be complete consensus, here is how a number (of practioners) are accounting for the Visa stock," said Waite, who is also SVP-CFO of Patelco CU, San Francisco. "It takes into account Visa's restructuring agreement plan under which some of the proceeds of the IPO will be used to fund an escrow account to pay for certain litigation and settlement costs."

The CUNA analysis states:

  • Financial Institutions should record their investment in VISA USA common stock received at its historical cost (carryover basis) which is most likely $0 (per SEC);

  • When and if recognized in 2008, the stock exchanged from VISA USA common stock to CLASS B common stock should be recorded at its carryover basis, in other words $0 (per SEC);

  • A liability should be established in 2007 for both the Amex settlement and the Discover estimate per FIN 45 and FAS 5:

  • The amounts are $2.065 billion for AMEX and $650 million for Discover – as disclosed, recorded, and SEC filed by VISA with the SEC;

  • Technically a FIN 45 liability should also be established for the remaining pending litigation;

  • A charge should be taken through earnings;

  • The amount is an estimate but should be generally based on an institution's membership proportion of interest in VISA USA times the AMEX and Discover amounts;

  • Despite the outcome of the IPO and its potential stock value, the restructuring agreement (already in effect in 2007) contains an indemnification clause (see VISA SEC filings S4 page 96 and VISA SEC filing 10K, item 3, page 49) that is now being considered the member's guarantee to pay as its liability, not VISA's;

  • The escrow will be funded when and if the IPO is completed by calculating a pro rata reduction of the stock held by financial institutions that may be converted to CLASS A stock so that the escrow account will have a balance to pay the litigation settlement. We understand that the SEC has indicated that the pro rata value of stock deposited in the escrow account should be considered "as if sold" and a gain recorded when the IPO is complete but only to the extent that a FIN 45 and FAS 5 liability was previously recorded. Or course this makes a timing difference in the recognition of the litigation indemnification and the gain of the conversion ratio of the shares used to fund the litigation escrow; and

  • The payment of the litigation costs by VISA members in the form of receiving less stock (net proceeds) still constitutes a payment by the members regardless of any exchange of cash.
This CUNA information is based on the the general conclusion that there will be carryover basis in the stock in 2008 and a liability for the fourth quarter of 2007 for the indemnification of litigation losses, Waite stated.

He added that the analysis is based on FAS 5 for settled cases and FASB's FIN 45 for the pending litigation . He reiterated that affected credit unions should work with their accountants to ensure they are accounting for the stock and related issues properly.

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