US Bank 2006 Annual Report Download - page 102

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large tour operator tickets purchased to be delivered at a third party over a specified period of time. At December 31,
future date was $2.6 billion, with airline tickets representing 2006, the maximum potential future payments required to
90 percent of that amount. The Company held collateral of be made by the Company under these agreements was
$1.7 billion in escrow deposits, letters of credit and $36 million.
indemnities from financial institutions, and liens on various Other Guarantees The Company provides liquidity and
assets. With respect to future delivery risk for other credit enhancement facilities to a Company-sponsored
merchants, the Company held $40 million of merchant conduit, as more fully described in the ‘‘Off-Balance Sheet
escrow deposits as collateral. In addition to specific Arrangements’’ section within Management’s Discussion
collateral or other credit enhancements the Company and Analysis. Although management believes a draw against
maintains a liability for its implied guarantees associated these facilities is remote, the maximum potential future
with future delivery. At December 31, 2006, the liability payments guaranteed by the Company under these
was $30 million primarily related to these airlines, cruise arrangements were approximately $2.2 billion at
lines and large tour operators processing arrangements. December 31, 2006. The recorded fair value of the
In the normal course of business, the Company has Company’s liability for the credit enhancement liquidity
unresolved charge-backs that are in process of resolution. facility was $10 million at December 31, 2006, and was
The Company assesses the likelihood of its potential included in other liabilities.
liability based on the extent and nature of unresolved The Company has also made financial performance
charge-backs and its historical loss experience. At guarantees related to the operations of its subsidiaries. The
December 31, 2006, the Company had a recorded liability maximum potential future payments guaranteed by the
for potential losses of $19 million. Company under these arrangements were approximately
Contingent Consideration Arrangements The Company has $1.9 billion at December 31, 2006.
contingent payment obligations related to certain business
OTHER CONTINGENT LIABILITIES
combination transactions. Payments are guaranteed as long
as certain post-acquisition performance-based criteria are In connection with the spin-off of Piper Jaffray Companies
met or customer relationships are maintained. At in 2003, the Company has agreed to indemnify Piper
December 31, 2006, the maximum potential future Jaffray Companies against losses that may result from third-
payments required to be made by the Company under these party claims relating to certain specified matters. The
arrangements was approximately $34 million. If required, Company’s indemnification obligation related to these
the majority of these contingent payments are payable specified matters is capped at $18 million and can be
within the next 12 months. terminated by the Company if there is a change in control
event for Piper Jaffray Companies. Through December 31,
Minimum Revenue Guarantees In the normal course of
2006, the Company has paid approximately $12 million to
business, the Company may enter into revenue share
Piper Jaffray Companies under this agreement.
agreements with third party business partners who generate
The Company is subject to various other litigation,
customer referrals or provide marketing or other services
investigations and legal and administrative cases and
related to the generation of revenue. In certain of these
proceedings that arise in the ordinary course of its
agreements, the Company may guarantee that a minimum
businesses. Due to their complex nature, it may be years
amount of revenue share payments will be made to the
before some matters are resolved. While it is impossible to
ascertain the ultimate resolution or range of financial
liability with respect to these contingent matters, the
Company believes that the aggregate amount of such
liabilities will not have a material adverse effect on the
financial condition, results of operations or cash flows of
the Company.
100 U.S. BANCORP