US Bank 2009 Annual Report Download - page 121

Company in the event of default. At December 31, 2009, the
value of airline tickets purchased to be delivered at a future
date was $3.4 billion. The Company held collateral of
$317 million in escrow deposits, letters of credit and
indemnities from financial institutions, and liens on various
assets. With respect to future delivery risk for other
merchants, the Company held $38 million of merchant
escrow deposits as collateral. In addition to specific
collateral or other credit enhancements, the Company
maintains a liability for its implied guarantees associated
with future delivery. At December 31, 2009, the liability was
$48 million primarily related to these airline processing
arrangements.
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, 2009, the Company had a
recorded liability for potential losses of $17 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, 2009, the maximum potential future payments
required to be made by the Company under these
arrangements was approximately $3 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, 2009,
the maximum potential future payments required to be made
by the Company under these agreements was $24 million.
Other Guarantees The Company has also made financial
performance guarantees related to the operations of its
subsidiaries. The maximum potential future payments
guaranteed by the Company under these arrangements were
approximately $7.8 billion at December 31, 2009.
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. In addition, 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 contingent obligation of member banks under the Visa
U.S.A. bylaws 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 with American Express and Discover Financial
Services, respectively. In addition to these settlements, 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 initial IPO and through
subsequent reductions to the conversion ratio applicable to
the Class B shares held by member financial institutions,
Visa Inc. has funded 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 liabilities and will decline as amounts are
paid out of the escrow account. On July 16, 2009, Visa
deposited additional funds into the escrow account and
further reduced the conversion ratio applicable to the
Class B shares. As a result, the Company recognized a
U.S. BANCORP 119