US Bank 2003 Annual Report Download - page 103

through the credit card associations under the charge-back December 31, 2003. The recorded fair value of the
provisions. Charge-back risk related to an airline is Company’s liability for the credit enhancement recourse
evaluated in a manner similar to credit risk assessments and obligation and liquidity facilities was $47.3 million at
merchant processing contracts consider the potential risk of December 31, 2003, and was included in other liabilities.
default. At December 31, 2003, the value of future delivery The Company guarantees payments to certain
airline tickets purchased was approximately $1.4 billion, certificate holders of Company-sponsored investment trusts
and the Company held collateral of $188.7 million in with varying termination dates extending through
escrow deposits and lines of credit related to airline September 2004. The maximum potential future payments
customer transactions. guaranteed by the Company under these arrangements was
In the normal course of business, the Company has approximately $49.1 million at December 31, 2003. At
unresolved charge-backs that are in process of resolution. December 31, 2003, the Company had a recorded liability
The Company assesses the likelihood of its potential of $44.1 million, held $15.0 million in cash collateral and
liability based on the extent and nature of unresolved has other contractual sources of recourse available to it
charge-backs and its historical loss experience. At including guarantees from third-parties and the underlying
December 31, 2003, the Company recorded a liability for assets held by the investment trusts.
potential losses of $22.7 million.
OTHER CONTINGENT LIABILITIES
Contingent Consideration Arrangements The Company has
In connection with the spin-off of Piper Jaffray Companies,
contingent payment obligations related to certain business
the Company has agreed to indemnify Piper Jaffray
combination transactions. Payments are guaranteed as long
Companies against losses that may result from third-party
as certain post-acquisition performance-based criteria are
claims relating to certain specified matters. The Company’s
met or customer relationships are maintained. At
indemnification obligation related to these specified matters
December 31, 2003, the maximum potential future
is capped at $17.5 million and can be terminated by the
payments required to be made by the Company under these
Company if there is a change in control event for Piper
arrangements was approximately $75.5 million and
Jaffray Companies.
primarily represented contingent payments related to the
The Company is subject to various other litigation,
acquisition of the State Street Corporate Trust business on
investigations and legal and administrative cases and
December 31, 2002. If required, these contingent payments
proceedings that arise in the ordinary course of its
would be payable within the next six months.
businesses. Due to their complex nature, it may be years
Other Guarantees The Company provides liquidity and before some matters are resolved. While it is impossible to
credit enhancement facilities to a Company-sponsored ascertain the ultimate resolution or range of financial
conduit, as more fully described in the ‘‘Off-Balance Sheet liability with respect to these contingent matters, the
Arrangements’’ section within Management’s Discussion Company believes that the aggregate amount of such
and Analysis. Although management believes a draw against liabilities will not have a material adverse effect on the
these facilities is remote, the maximum potential future financial condition, results of operations or cash flows of
payments guaranteed by the Company under these the Company.
arrangements was approximately $7.3 billion at
U.S. Bancorp 101