Discover 2009 Annual Report Download - page 95

agreed that for such time as the U.S. Treasury continues to own any of our securities under the CPP, we will take all
necessary action to ensure that our compensation and other benefit plans with respect to our senior executive officers and
certain other employees comply with EESA restrictions relating to executive compensation, which include (i) limits on
compensation and incentives to take unnecessary and excessive risks that would threaten the value of the company, (ii) a
provision for recovery (i.e., clawback) of amounts of compensation that later prove to have been based on materially
inaccurate financial statements or other performance metrics, and (iii) limitations on golden parachute payments.
Furthermore, the U.S. Treasury issued interim final rules implementing the compensation and corporate governance
requirements under ARRA, which amended the requirements of EESA. For additional information, see “ – Legislative and
Regulatory Developments – Compensation Developments.” Additionally, we may not deduct for federal income tax
purposes executive compensation of our senior executive officers in excess of $500,000 per year, which includes any
portion of their stock-based deferred compensation earned after our participation in the CPP.
Dividends.Our board of directors declared a common stock cash dividend of $.02 per share in December 2009,
payable on January 21, 2010, to holders of record on December 31, 2009. The quarterly common stock dividend was
reduced from $.06 per share to $.02 per share in the first quarter of 2009 in order to enhance our capital position. This
reduction to $.02 per share has strengthened our capital base by approximately $20 million per quarter. The declaration
and payment of future dividends, as well as the amount thereof, are subject to the discretion of our board of directors and
will depend upon our results of operations, financial condition, capital levels, cash requirements, future prospects and
other factors deemed relevant by our board of directors. Accordingly, there can be no assurance that we will declare and
pay any dividends in the future. In addition, as a result of applicable banking law regulations and guidance and
provisions that may be contained in our borrowing agreements or the borrowing agreements of our subsidiaries, our
ability to pay dividends to our stockholders may be further limited. Under the terms of our CPP transaction, we are
prohibited from increasing dividends on our common stock above historical levels ($.06 per share) until March 2012
unless (i) all of the senior preferred stock issued to the U.S. Treasury is redeemed, (ii) all of the senior preferred stock
issued to the U.S. Treasury has been transferred to third parties, or (iii) we receive the consent of the U.S. Treasury.
Furthermore, so long as any of the preferred stock is outstanding, dividend payments on our common stock will be
prohibited unless all accrued and unpaid dividends are paid on such preferred stock.
Also in 2009, we accrued $43.9 million of dividends on our senior preferred stock issued under the CPP, which
represents a rate of 5% per year.
Special Dividend and Settlement of Visa and MasterCard Antitrust Litigation. On October 27, 2008, we settled our
antitrust litigation with Visa and MasterCard for $2.75 billion. We received a lump sum amount of $0.9 billion from
MasterCard in the fourth quarter of 2008 and $1.9 billion from Visa in 2009, which we recorded in other income in our
Direct Banking segment, formerly referred to as our U.S. Card segment. At the time of our spin-off, we entered into an
agreement with Morgan Stanley to give us sole control over the investigation, prosecution and resolution of the antitrust
lawsuit with Visa and MasterCard and to determine how proceeds from the litigation would be shared (the “Special
Dividend Agreement”). As a result, we have incurred an obligation to accrue amounts pursuant to the Special Dividend
Agreement with respect to settlement proceeds from Visa and MasterCard only to the extent that we have already earned
and received such proceeds pursuant to the terms of the settlement with Visa and MasterCard as of the balance sheet
date. At November 30, 2009, we had accrued $808.8 million in connection with the special dividend and $28.9 million
in related other expenses. The Special Dividend Agreement is a subject of litigation between Morgan Stanley and us. See
“Legal Proceedings” for additional background and recent developments related to this litigation.
Stock Repurchase Program. On December 3, 2007, we announced that our board of directors authorized the
repurchase of up to $1 billion of our outstanding shares of common stock. This share repurchase program expires on
November 30, 2010, and may be terminated at any time. At November 30, 2009, we had not repurchased any stock
under this program. Under the terms of our CPP transaction, we are prohibited from repurchasing our common stock until
March 2012, except in connection with the administration of an employee benefit plan in the ordinary course of business
consistent with past practice, unless (i) all of the senior preferred stock issued to the U.S. Treasury is redeemed, (ii) all of
the senior preferred stock issued to the U.S. Treasury has been transferred to third parties, or (iii) we receive the consent
of the U.S. Treasury. Furthermore, so long as any of the preferred stock issued under the CPP is outstanding, we may not
repurchase any of our shares of common stock unless all accrued and unpaid dividends are paid on such preferred stock.
-83-