Wells Fargo 2008 Annual Report Download - page 59

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Contractual Obligations
In addition to the contractual commitments and arrange-
ments previously described, which, depending on the nature
of the obligation, may or may not require use of our
resources, we enter into other contractual obligations in the
ordinary course of business, including debt issuances for the
funding of operations and leases for premises and equipment.
Table 13 summarizes these contractual obligations at
December 31, 2008, except obligations for short-term borrow-
ing arrangements and pension and postretirement benefit
plans. More information on those obligations is in Note 13
(Short-Term Borrowings) and Note 20 (Employee Benefits
and Other Expenses) to Financial Statements.
We are subject to the income tax laws of the U.S., its states
and municipalities, and those of the foreign jurisdictions in
which we operate. We have various unrecognized tax obliga-
tions related to these operations which may require future
cash tax payments to various taxing authorities. Because of
their uncertain nature, the expected timing and amounts of
these payments generally are not reasonably estimable or
determinable. We attempt to estimate the amount payable in
the next 12 months based on the status of our tax examina-
tions and settlement discussions. See Note 21 (Income Taxes)
to Financial Statements for more information.
We enter into derivatives, which create contractual obliga-
tions, as part of our interest rate risk management process,
for our customers or for other trading activities. See “Asset/
Liability and Market Risk Management” in this Report and Note 16
(Derivatives) to Financial Statements for more information.
PRUDENTIAL JOINT VENTURE Our financial statements include
Prudential Financial Inc.’s (Prudential) minority interest in
Wachovia Securities Financial Holdings, LLC (WSFH). As a
result of Wachovia’s contribution to WSFH on January 1,
2008, of the retail securities business of A.G. Edwards, Inc.
(A.G. Edwards), which Wachovia acquired on October 1, 2007,
Prudential’s percentage interest in WSFH was diluted as of
that date based on the value of the contributed business
relative to the value of WSFH. Although the adjustment in
Prudential’s interest will be effective on a retroactive basis
as of the January 1, 2008, contribution date, the valuations
necessary to calculate the precise reduction in that percentage
interest have not been finalized. Based on currently available
information, Wells Fargo estimates that Prudential’s percentage
interest has been diluted from its pre-contribution percentage
interest of 38% to approximately 23% as a result of the A.G.
Edwards contribution. This percentage interest may be
adjusted higher or lower in a subsequent quarter retroactive
to January 1, 2008, if the final valuations differ from
Wells Fargo’s current estimate.
In connection with Wachovia's contribution of A.G.
Edwards to the joint venture, Prudential elected to exercise
its lookback option, which permits Prudential to delay until
January 1, 2010, its decision to make or not make an addition-
al capital contribution to the joint venture or other payments
to avoid or limit dilution of its ownership interest in the joint
venture. During this lookback period, Prudential's share in
the joint venture's earnings and one-time costs associated
with the combination will be based on Prudential's diluted
ownership level following the A.G. Edwards combination.
At the end of the lookback period, Prudential may elect to
make an additional capital contribution or other payment,
based on the appraised value (as defined in the joint venture
agreements) of the existing joint venture and the A.G.
Edwards business as of January 1, 2008, to avoid or limit
dilution. Alternatively, at the end of the lookback period,
Prudential may put its joint venture interests to Wells Fargo
based on the appraised value of the joint venture, excluding
the A.G. Edwards business, as of January 1, 2008. Prudential
has announced its intention to exercise, but has not yet for-
mally exercised, this lookback put option. Prudential has
until September 30, 2009, to exercise the lookback put option.
If Prudential exercises the lookback put option, the closing
would occur on or about January 1, 2010. Prudential also
has a discretionary right to put its joint venture interests
to Wells Fargo, including the A.G. Edwards business, at any
time after July 1, 2008. If Prudential exercises this discre-
tionary put option, the closing would occur approximately
one year from the date of exercise and the appraised value
would be determined at that time. Wells Fargo may pay the
purchase price for either the lookback or discretionary put
option in cash, shares of Wells Fargo common stock, or a
combination thereof.
Table 13: Contractual Obligations
(in millions) Note(s) to Less than 1-3 3-5 More than Indeterminate Total
Financial 1 year years years 5 years maturity (1)
Statements
Contractual payments by period:
Deposits 12 $201,250 $ 27,084 $19,928 $ 3,213 $529,927 $ 781,402
Long-term debt (2) 7, 14 53,893 81,063 38,850 93,352 — 267,158
Operating leases 7 1,408 3,170 1,723 3,995 — 10,296
Unrecognized tax obligations 21 2,311 — — — 2,952 5,263
Purchase obligations (3) 510 878 192 41 — 1,621
Total contractual obligations $259,372 $112,195 $60,693 $100,601 $532,879 $1,065,740
(1) Includes interest-bearing and noninterest-bearing checking, and market rate and other savings accounts.
(2) Includes obligations under capital leases of $103 million.
(3) Represents agreements to purchase goods or services.