US Bank 2011 Annual Report Download - page 126

In the normal course of business, the Company has
unresolved charge-backs. The Company assesses the
likelihood of its potential liability based on the extent and
nature of unresolved charge-backs and its historical loss
experience. At December 31, 2011, the Company held $107
million of merchant escrow deposits as collateral and had a
recorded liability for potential losses of $12 million.
Contingent Consideration Arrangements The Company has
contingent payment obligations related to certain business
combination transactions. Payments are guaranteed as long as
certain post-acquisition performance-based criteria are met or
customer relationships are maintained. At December 31,
2011, the maximum potential future payments required to be
made by the Company under these arrangements was
approximately $4 million. If required, the majority of these
contingent payments are payable within the next 12 months.
Minimum Revenue Guarantees In the normal course of
business, the Company may enter into revenue share
agreements with third party business partners who generate
customer referrals or provide marketing or other services
related to the generation of revenue. In certain of these
agreements, the Company may guarantee that a minimum
amount of revenue share payments will be made to the third
party over a specified period of time. At December 31, 2011,
the maximum potential future payments required to be made
by the Company under these agreements were $31 million and
the Company had recorded a related liability of $20 million.
Tender Option Bond Program Guarantee As discussed in
Note 8, the Company sponsors a municipal bond securities
tender option bond program and consolidates the program’s
entities on its consolidated balance sheet. The Company
provides financial performance guarantees related to the
program’s entities. At December 31, 2011, the Company
guaranteed $5.3 billion of borrowings of the program’s
entities, included on the consolidated balance sheet in short-
term borrowings. The Company also included on its
consolidated balance sheet the related $5.4 billion of
available-for-sale investment securities serving as collateral for
this arrangement.
Other Guarantees and Commitments The Company has
also made other financial performance guarantees and
commitments related to the operations of its subsidiaries. At
December 31, 2011, the maximum potential future payments
guaranteed or committed by the Company under these
arrangements were approximately $3.1 billion and the
Company had recorded a related liability of $20 million.
Other Contingent Liabilities
Visa Restructuring and Card Association Litigation The
Company’s payment services business issues and acquires
credit and debit card transactions through the Visa U.S.A. Inc.
card association or its affiliates (collectively “Visa”). In 2007,
Visa completed a restructuring and issued shares of Visa Inc.
common stock to its financial institution members in
contemplation of its initial public offering (“IPO”) completed
in the first quarter of 2008 (the “Visa Reorganization”). As a
part of the Visa Reorganization, the Company received its
proportionate number of shares of Visa Inc. common stock,
which were subsequently converted to Class B shares of Visa
Inc. (“Class B shares”). The Company and certain of its
subsidiaries have been named as defendants along with Visa
U.S.A. Inc. (“Visa U.S.A.”) and MasterCard International
(collectively, the “Card Associations”), as well as several other
banks, in antitrust lawsuits challenging the practices of the
Card Associations (the “Visa Litigation”). Visa U.S.A.
member banks have a contingent obligation to indemnify Visa
Inc. under the Visa U.S.A. bylaws (which were modified at the
time of the restructuring in October 2007) for potential losses
arising from the Visa Litigation. The indemnification by the
Visa U.S.A. member banks has no specific maximum amount.
The Company has also entered into judgment and loss sharing
agreements with Visa U.S.A. and certain other banks in order
to apportion financial responsibilities arising from any
potential adverse judgment or negotiated settlements related
to the Visa Litigation.
In 2007 and 2008, Visa announced settlement agreements
relating to certain of the Visa Litigation matters. Visa U.S.A.
member banks remain obligated to indemnify Visa Inc. for
potential losses arising from the remaining Visa Litigation.
Using proceeds from its IPO and through reductions to the
conversion ratio applicable to the Class B shares held by Visa
U.S.A. member banks, Visa Inc. funds an escrow account for
the benefit of member financial institutions to fund the
expenses of the Visa Litigation, as well as the members’
proportionate share of any judgments or settlements that may
arise out of the Visa Litigation. The receivable related to the
escrow account is classified in other liabilities as a direct offset
to the related Visa Litigation contingent liability. The
Company recognized gains of $51 million in 2011, $72
million in 2010 and $39 million in 2009, related to Visa Inc.’s
funding of the escrow account and resulting reduction in the
conversion ratio applicable to the Class B shares. The amount
recognized in 2011 was net of an additional $58 million
increase to the Company’s liability related to the remaining
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