Discover 2009 Annual Report Download - page 96

Off-Balance Sheet Arrangements
See “–Liquidity and Capital Resources – Funding Sources – Securitization Financing.”
Guarantees
Guarantees are contracts or indemnification agreements that contingently require us to make payments to a
guaranteed party based on changes in an underlying asset, liability, or equity security of a guaranteed party, rate or
index. Also included in guarantees are contracts that contingently require the guarantor to make payments to a
guaranteed party based on another entity’s failure to perform under an agreement. Our guarantees relate to certain
representations and warranties made with regard to securitized loans, transactions processed on the Discover Network
and certain transactions processed by PULSE and Diners Club. See Note 22: Commitments, Contingencies and
Guarantees to our consolidated financial statements for further discussion regarding our guarantees.
Contractual Obligations and Contingent Liabilities and Commitments
In the normal course of business, we enter into various contractual obligations that may require future cash payments.
Contractual obligations at November 30, 2009 include deposits, long-term borrowings, operating and capital lease
obligations and purchase obligations. Our future cash payments associated with our contractual obligations as of
November 30, 2009 are summarized below (dollars in thousands):
Payments Due By Period
Total
Less Than
One Year
One Year
Through
Three Years
Four Years
Through
Five Years
More Than
Five Years
Deposits .................................................................................................. $32,093,012 $14,826,778 $10,098,537 $5,958,198 $1,209,499
Long-term borrowings(1) ............................................................................. 2,428,246 621,930 306,316 — 1,500,000
Capital lease obligations ............................................................................ 2,342 1,948 394 — —
Operating leases ...................................................................................... 43,040 6,068 11,524 9,167 16,281
Interest payments on fixed rate debt ............................................................. 1,225,400 127,700 255,400 255,400 586,900
Purchase obligations(2) ............................................................................... 267,155 150,792 72,854 16,927 26,582
Other long-term liabilities(3) ........................................................................ 367,132 199,870 30,221 36,699 100,342
Total contractual obligations .................................................................... $36,426,327 $15,935,086 $10,775,246 $6,276,391 $3,439,604
(1) See Note 12: Long-Term Borrowings to the consolidated financial statements for further discussion. Total future payment of interest charges for the floating rate notes is estimated to be $5.0 million
as of November 30, 2009, utilizing the current interest rates as of that date.
(2) Purchase obligations for goods and services include payments under, among other things, consulting, outsourcing, data, advertising, sponsorship, software license and telecommunications
agreements. Purchase obligations also include payments under rewards program agreements with merchants. Purchase obligations at November 30, 2009 reflect the minimum purchase obligation
under legally binding contracts with contract terms that are both fixed and determinable. These amounts exclude obligations for goods and services that already have been incurred and are
reflected on our consolidated statement of financial condition.
(3) Other long-term liabilities include our expected future contributions to our pension and postretirement benefit plans and our prepaid FDIC special assessment.
As of November 30, 2009 our consolidated statement of financial condition reflects a liability for unrecognized tax
benefits of $305.7 million, and approximately $38.5 million of accrued interest and penalties. Since the ultimate amount
and timing of any future cash settlements cannot be predicted with reasonable certainty, the estimated income tax
obligations about which there is uncertainty, as addressed in ASC Topic 740, Income Taxes, (guidance formerly provided
by FASB Interpretation No. 48), have been excluded from the contractual obligations table. See Note 19: Income Taxes
to our consolidated financial statements for further information concerning our tax obligations.
We extended credit for consumer and commercial loans, primarily arising from agreements with customers for unused
lines of credit on certain credit cards, provided there is no violation of conditions established in the related agreement.
During 2009, our unused commitments were reduced by $35 billion to $172 billion at November 30, 2009, as part of
our risk management strategies. These commitments, substantially all of which we can terminate at any time and which do
not necessarily represent future cash requirements, are periodically reviewed based on account usage and customer
creditworthiness. In addition, in the ordinary course of business, we guarantee payment on behalf of subsidiaries relating
to contractual obligations with external parties. The activities of the subsidiaries covered by any such guarantees are
included in our consolidated financial statements.
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