Annual Report - CoBank

Note 15 – Commitments and ContingentLiabilitiesOn at least a quarterly basis, we assess our liabilities andcontingencies in connection with outstanding legalproceedings utilizing the latest information available. Forthose matters where it is probable that we will incur a loss andthe amount of the loss can be reasonably estimated, we recorda liability in our consolidated financial statements. For matterswhere a loss is not probable or the amount of the loss is notestimable, we do not record a liability. While the outcome oflegal proceedings is inherently uncertain, based oninformation currently available, advice of legal counsel andavailable insurance coverage, we believe that our establishedlegal reserves are adequate as of December 31, 2011 and theliabilities arising from our legal proceedings will not have amaterial adverse effect on our financial position, results ofoperations or cash flows. However, in the event of unexpectedfuture developments, it is possible that the ultimate resolutionof these matters, if unfavorable, may be material to ourfinancial position, results of operations or cash flows.We have entered into employment agreements with twoof our senior officers which will provide specified payments,as well as certain enhanced retirement benefits, in the event ofa termination, except in the case of a termination for cause.These employment agreements also provide for enhancedpayments in the event of a change in control, as furtherdiscussed on page 134.We have various commitments outstanding andcontingent liabilities as discussed elsewhere in these notes toconsolidated financial statements. Under the Farm Credit Actof 1971, as amended, CoBank is primarily liable for its portionof Systemwide Debt Securities. Additionally, we arecontingently liable for the Systemwide Debt Securities of theother System banks. Total Systemwide Debt Securities of theSystem were $184.8 billion at December 31, 2011.There are several mechanisms in place affecting exposureto statutory joint and several liabilities. These mechanismsinclude:The statutory requirement for System banks tomaintain eligible assets at a level at least equal invalue to the total amount of debt for which suchSystem bank is primarily liable;The Insurance Fund, a statutorily created fund toassist in the timely payment of principal and intereston Systemwide Debt Securities in the event of adefault by a System bank to the extent that net assetsare available in the Insurance Fund. At December 31,2011, the assets of the Insurance Fund aggregated$3.4 billion; andMaintenance of certain financial criteria byagreements which, if not met, could limit orultimately deny a troubled System bank’s access toand participation in System debt issuances.CoBank 2011 Annual Report104