Discover 2010 Annual Report Download - page 46

us, or any other reason, if a service provider fails to provide the communications capacity or deliver services that we
require or expect, the failure could interrupt our services and operations and hamper our ability to process customers’
transactions in a timely and accurate manner or to maintain thorough and accurate records of those transactions. Such a
failure could adversely affect the perception of the reliability of our networks and services and the quality of our brands,
and could materially adversely affect our transaction volumes, our revenues and/or our results of operations.
Merchant defaults may adversely affect our business, financial condition, cash flows and results of operations.
As an issuer and merchant acquirer in the United States on the Discover Network, and as a holder of certain merchant
agreements internationally for the Diners Club network, we may be contingently liable for certain disputed credit card
sales transactions that arise between customers and merchants. If a dispute is resolved in the customer’s favor, we will
cause a credit or refund of the amount to be issued to the customer and charge back the transaction to the merchant or
merchant acquirer. If we are unable to collect this amount from the merchant or merchant acquirer, we will bear the loss
for the amount credited or refunded to the customer. Where the purchased product or service is not provided until some
later date following the purchase, such as an airline ticket, the likelihood of potential liability increases. For the years
ended November 30, 2010 and 2009, we had $2 million and $6 million, respectively, of losses related to merchant
chargebacks.
Our success is dependent, in part, upon our executive officers and other key employees. If we are unable to recruit,
retain and motivate key officers and employees to manage our business well, our business could be materially
adversely affected.
Our success depends, in large part, on our ability to retain, recruit and motivate key officers and employees to manage
our business. Our senior management team has significant industry experience and would be difficult to replace. We
believe we are in a critical period of competition in the financial services and payments industry. The market for qualified
individuals is highly competitive, and we may not be able to attract and retain qualified personnel or candidates to
replace or succeed members of our senior management team or other key personnel. We may be subject to restrictions
under future legislation or regulation limiting executive compensation. For example, the Federal Reserve recently issued
guidance on incentive compensation policies at banking organizations and the Reform Act imposes additional disclosures
and restrictions on compensation. These restrictions could negatively impact our ability to compete with other companies
in recruiting and retaining key personnel and could impact our ability to offer incentives that motivate our key personnel
to perform. If we are unable to recruit, retain and motivate key personnel to manage our business well, our business could
be materially adversely affected.
Damage to our reputation could damage our business.
Maintaining a positive reputation is critical to our attracting and retaining customers, investors and employees.
Damage to our reputation can therefore cause significant harm to our business and prospects. Harm to our reputation can
arise from numerous sources, including, among others, employee misconduct, litigation or regulatory outcomes, failing to
deliver minimum standards of service and quality, compliance failures, and the activities of customers and counterparties.
Negative publicity regarding us, whether or not true, may result in customer attrition and other harm to our business
prospects.
We may be unsuccessful in promoting and protecting our brands or protecting our other intellectual property, or third
parties may allege that we are infringing their intellectual property rights.
The Discover, PULSE and Diners Club brands have substantial economic and goodwill value. Our success is dependent
on our ability to promote and protect these brands and our other intellectual property. Our ability to attract and retain
customers is highly dependent upon the external perception of our company and brands. Our brands are licensed for use
to business partners and network participants, some of whom have contractual obligations to promote and develop our
brands. The value of our brands and our overall business success may be adversely affected by actions of our business
partners and network participants that diminish the perception of our brands.
We may not be able to successfully protect our brands and our other intellectual property. If others misappropriate, use
or otherwise diminish the value of our intellectual property, our business could be adversely affected. In addition, third
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