Discover 2010 Annual Report Download - page 47

parties may allege that our marketing, processes or systems may infringe their intellectual property rights. Given the
potential risks and uncertainties of such claims, our business could be adversely affected by having to pay significant
monetary damages or licensing fees and we may have to alter our business practices.
Acquisitions or strategic investments that we pursue may not be successful and could disrupt our business and harm
our financial condition.
We may consider or undertake strategic acquisitions of, or material investments in, businesses, products, portfolios of
loans or technologies, such as our recent acquisition of The Student Loan Corporation. We may not be able to identify
suitable acquisition or investment candidates, or even if we do identify suitable candidates, they may be difficult to
finance, expensive to fund and there is no guarantee that we can obtain any necessary regulatory approvals or complete
the transactions on terms that are favorable to us. To the extent we pay the purchase price of any acquisition or
investment in cash, it would reduce our cash balances and regulatory capital, which may have an adverse effect on our
financial condition; similarly, if the purchase price is paid with our stock, it would be dilutive to our stockholders. In
addition, we may assume liabilities associated with a business acquisition or investment, including unrecorded liabilities
that are not discovered at the time of the transaction, and the repayment of those liabilities may have an adverse effect on
our financial condition.
We may not be able to successfully integrate the personnel, operations, businesses, products, or technologies of an
acquisition or investment. Integration may be particularly challenging if we enter into a line of business in which we have
limited experience and the business operates in a difficult legal, regulatory or competitive environment. We may find that
we do not have adequate operations or expertise to manage the new business. The integration of any acquisition or
investment may divert management’s time and resources from our core business, which could impair our relationships
with our current employees, customers and strategic partners and disrupt our operations. Acquisitions and investments
also may not perform to our expectations for various reasons, including the loss of key personnel or customers. If we fail
to integrate acquisitions or investments or realize the expected benefits, we may lose the return on these acquisitions or
investments or incur additional transaction costs and our business and financial condition may be harmed as a result.
We are subject to regulation by a number of different regulatory agencies, which have broad discretion to require us
to alter our operations in ways that could adversely affect our business or subject us to penalties for noncompliance.
We must comply with an array of banking and consumer lending laws and regulations in all of the jurisdictions in
which we operate. As a bank holding company, we are subject to oversight, regulation and examination by the Federal
Reserve, including scrutiny of our risk management program; business strategy, earnings, capital and cash flow;
anti-money laundering program; and examination of our non-bank businesses, including Discover Network, PULSE and
Diners Club, and their relationships with our banking subsidiaries. Our subsidiary, Discover Bank, is subject to regulation
and regular examinations by the FDIC and the Delaware Bank Commissioner. In addition, we are subject to regulation by
the Federal Trade Commission, state banking regulators and the U.S. Department of Justice, as well as the SEC and New
York Stock Exchange in our capacity as a public company. In addition, as our payments business has expanded globally
through the acquisition of Diners Club, we are subject to government regulation in countries in which our networks
operate or our cards are used, either directly or indirectly through regulation affecting Diners Club network licensees.
Beginning in July 2011, we will also be subject to regulation by the Bureau of Consumer Financial Protection.
From time to time, these regulations and regulatory agencies have required us to alter certain of our operating
practices, and may require us to do the same in the future. Our ability to execute our business strategies through
acquisitions or the introduction of new products or pricing may be impaired or delayed as a result of regulatory review or
failure to obtain required regulatory approvals. Various federal and state regulators have broad discretion to impose
restrictions and requirements on our company, subsidiaries and operations, including restrictions on capital actions such
as increasing dividends. U.S. federal and state consumer protection laws and rules limit the manner and terms on which
we may offer and extend credit. We are subject to capital, funding and liquidity requirements prescribed by statutes,
regulations and orders, including initiatives under the Reform Act and Basel III that will require us to hold higher levels of
capital to support our businesses. We are also subject to the requirements of accounting standard setters and those who
interpret the accounting standards (such as the FASB, the SEC, banking regulators and our outside auditors), who may
add new requirements or change their interpretations on how standards should be applied, potentially materially
impacting how we record and report our financial condition and results of operations. We are also subject to FDIC
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