MasterCard 2008 Annual Report Download - page 126

MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except percent and per share data)
On June 24, 2008, MasterCard entered into a settlement agreement (the “American Express Settlement”)
with American Express Company (“American Express”) relating to the U.S. federal antitrust litigation between
MasterCard and American Express. The American Express Settlement ended all existing litigation between
MasterCard and American Express. Under the terms of the American Express Settlement, MasterCard is
obligated to make 12 quarterly payments of up to $150,000 per quarter beginning in the third quarter of 2008.
MasterCard’s maximum nominal payments will total $1,800,000. The amount of each quarterly payment is
contingent on the performance of American Express’s U.S. Global Network Services business. The quarterly
payments will be in an amount equal to 15% of American Express’s U.S. Global Network Services billings
during the quarter, up to a maximum of $150,000 per quarter. If, however, the payment for any quarter is less
than $150,000, the maximum payment for subsequent quarters will be increased by the difference between
$150,000 and the lesser amount that was paid in any quarter in which there was a shortfall. MasterCard assumes
American Express will achieve these financial hurdles. MasterCard recorded the present value of $1,800,000, at a
5.75% discount rate, or $1,649,345 for the year ended December 31, 2008.
In 2003, MasterCard entered into a settlement agreement (the “U.S. Merchant Lawsuit Settlement”) related
to the U.S. merchant lawsuit described under the caption “U.S. Merchant and Consumer Litigations” in Note 20
(Legal and Regulatory Proceedings) and contract disputes with certain customers. Under the terms of the U.S.
Merchant Lawsuit Settlement, the Company was required to pay $125,000 in 2003 and $100,000 annually each
December from 2004 through 2012. In addition, in 2003, several other lawsuits were initiated by merchants who
opted not to participate in the plaintiff class in the U.S. merchant lawsuit. The “opt-out” merchant lawsuits were
not covered by the terms of the U.S. Merchant Lawsuit Settlement and all have been individually settled.
We recorded liabilities for certain litigation settlements in prior periods. Total liabilities for litigation
settlements changed from December 31, 2006, as follows:
Balance as of December 31, 2006 .................................... $ 476,915
Provision for litigation settlements (Note 20) ........................... 3,400
Interest accretion on U.S. Merchant Lawsuit ........................... 38,046
Payments ....................................................... (113,925)
Balance as of December 31, 2007 .................................... 404,436
Provision for Discover Settlement ................................... 862,500
Provision for American Express Settlement ............................ 1,649,345
Provision for other litigation settlements .............................. 6,000
Interest accretion on U.S. Merchant Lawsuit Settlement .................. 32,879
Interest accretion on American Express Settlement ...................... 44,300
Payments on American Express Settlement ............................ (300,000)
Payments on Discover Settlement .................................... (862,500)
Payment on U.S. Merchant Lawsuit Settlement ......................... (100,000)
Other payments and accretion ....................................... (662)
Balance as of December 31, 2008 .................................... $1,736,298
See Note 20 (Legal and Regulatory Proceedings) for additional discussion regarding the Company’s legal
proceedings.
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