Discover 2009 Annual Report Download - page 144

The amount of dividends that a bank may pay in any year is subject to certain regulatory restrictions. Under the current
banking regulations, a bank may not pay dividends if such a payment would leave the bank inadequately capitalized. In
the year ended November 30, 2009, Discover Bank paid no dividends. During the years ended November 30, 2008
and 2007, Discover Bank paid dividends of $95 million and $1.6 billion, respectively, to its parent Discover Financial
Services, which were eliminated in consolidation.
22. Commitments, Contingencies and Guarantees
Lease commitments. The Company leases various office space and equipment under capital and non-cancelable
operating leases which expire at various dates through 2018. At November 30, 2009, future minimum payments on
leases with remaining terms in excess of one year, consist of the following (dollars in thousands):
Capitalized
Leases
Operating
Leases
2010.............................................................................................................................................................................. $1,948 $ 6,068
2011.............................................................................................................................................................................. 394 5,403
2012.............................................................................................................................................................................. — 6,121
2013.............................................................................................................................................................................. — 4,606
2014.............................................................................................................................................................................. — 4,561
Thereafter........................................................................................................................................................................ — 16,281
Total minimum lease payments ........................................................................................................................................... 2,342 $43,040
Less: Amount representing interest....................................................................................................................................... 74
Present value of net minimum lease payments........................................................................................................................ $2,268
Occupancy lease agreements, in addition to base rentals, generally provide for rent and operating expense escalations
resulting from increased assessments for real estate taxes and other charges. Total rent expense under operating lease
agreements, which considers contractual escalations, was $15.0 million, $15.1 million and $14.3 million for the years
ended November 30, 2009, 2008 and 2007, respectively. For the years ended November 30, 2009, 2008 and 2007,
sublease rental income was $1.0 million, $2.3 million and $5.2 million, respectively.
Unused commitments to extend credit. At November 30, 2009, the Company had unused commitments to extend credit
for consumer and commercial loans of approximately $172 billion. Such commitments arise primarily from agreements
with customers for unused lines of credit on certain credit cards and certain other consumer loan products, provided there
is no violation of conditions in the related agreement. These commitments, substantially all of which the Company can
terminate at any time and which do not necessarily represent future cash requirements, are periodically reviewed based
on account usage and customer creditworthiness.
Guarantees. The Company has certain obligations under certain guarantee arrangements, including contracts and
indemnification agreements, that contingently require the Company to make payments to the guaranteed party based on
changes in an underlying asset, liability or equity security of a guaranteed party, rate or index. Also included as
guarantees are contracts that contingently require the Company to make payments to a guaranteed party based on
another entity’s failure to perform under an agreement. The Company’s use of guarantees is disclosed below by type of
guarantee.
Securitized Asset Representations and Warranties. As part of the Company’s securitization activities, the Company
provides representations and warranties that certain securitized assets conform to specified guidelines. The Company may
be required to repurchase such assets or indemnify the purchaser against losses if the assets do not meet certain
conforming guidelines. Due diligence is performed by the Company to ensure that asset guideline qualifications are met.
The maximum potential amount of future payments the Company could be required to make would be equal to the current
outstanding balances of all assets subject to such securitization activities. The Company has not recorded any contingent
liability in the consolidated financial statements for these representations and warranties, and management believes that
the probability of any payments under these arrangements is low.
-132-