Discover 2011 Annual Report Download - page 94

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For additional information regarding capital, dividends and share repurchases, see "Business - Supervision and
Regulation - Capital, Dividends and Share Repurchases," "Risk Factors - We may be limited in our ability to pay dividends and
repurchase our common stock," "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities," “- Regulatory Environment and Developments - Capital and Liquidity” and Note 19: Capital Adequacy to
our consolidated financial statements.
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 transactions processed on the Discover Network and
certain transactions processed by PULSE and Diners Club. See Note 20: 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, 2011 included 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, 2011 are
summarized below (dollars in thousands):
Deposits(1)
Borrowings(2)
Capital lease obligations
Operating leases
Interest payments on fixed rate debt
Purchase obligations(3)
Other liabilities(4)
Total contractual obligations
Total
$ 39,577,462
18,335,191
1,987
57,559
1,643,977
545,179
6,702,723
$ 66,864,078
Payments Due By Period
Less Than
One Year
$ 25,403,032
3,375,989
427
10,025
258,175
301,173
396,864
$ 29,745,685
One Year
Through
Three Years
$ 9,821,647
8,405,602
914
17,901
456,319
175,982
409,434
$ 19,287,799
Four Years
Through
Five Years
$ 3,547,568
999,639
646
14,417
431,600
55,584
5,794,656
$ 10,844,110
More Than
Five Years
$ 805,215
5,553,961
—
15,216
497,883
12,440
101,769
$ 6,986,484
(1) Deposits do not include interest charges.
(2) See Note 11: Borrowings to the consolidated financial statements for further discussion. Total future payment of interest charges for the floating rate notes is estimated to be
$429 million as of November 30, 2011, utilizing the current interest rates as of that date.
(3) Purchase obligations for goods and services include payments under, among other things, consulting, outsourcing, data, advertising, sponsorship, software license,
telecommunications agreements and global acceptance contracts. Purchase obligations also include payments under rewards program agreements with merchants. Purchase
obligations at November 30, 2011 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.
(4) Other liabilities include our expected future contributions to our pension and postretirement benefit plans, Discover Bank's agreement with Citi to purchase private student
loans and the contingent liability associated with our equity method securities.
As of November 30, 2011 our consolidated statement of financial condition reflects a liability for unrecognized tax benefits
of $507 million, and approximately $78.9 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 17: Income Taxes to our consolidated financial
statements for further information concerning our tax obligations.
We extend credit for consumer and commercial loans, primarily arising from agreements with customers for unused lines
of credit on certain credit cards and certain other consumer loan products, such as student loans, provided there is no violation
of conditions established in the related agreement. At November 30, 2011, our unused commitments were $163 billion. 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.
Prior to its acquisition by Discover Bank on December 31, 2010, SLC had an agreement with Citi providing for the
origination and servicing of private student loans. Citi would originate and fund such loans and, after final disbursement, SLC
would purchase the loans from Citi. This agreement between SLC and Citi was terminated on December 31, 2010, at which
time Discover Bank entered into an agreement with Citi to purchase (i) eligible private student loans originated by Citi prior to
December 31, 2010 and (ii) any private student loans originated by Citi on or after December 31, 2010 under a new loan
origination agreement entered into between Citi and SLC on December 31, 2010. Discover Bank has agreed to purchase the
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