MasterCard 2008 Annual Report Download - page 69

Brazilian real to the U.S. dollar. The increase in advertising and marketing in 2007 was primarily due to foreign
currency fluctuation of the euro and Brazilian real to the U.S. dollar. In addition, in 2008 and 2007 our
advertising and marketing activities supported multiple sponsorships and the timing of certain advertising and
marketing expenses varied due to their relationship to specific sponsorships or promotions. In 2006, a significant
amount of our advertising and marketing activities were allocated to the sponsorship of the 2006 World Cup
soccer events. During 2007, we reached an agreement to discontinue our sponsorship of the 2010 and 2014
World Cup soccer events. See Note 24 (Other Income) to the consolidated financial statements included in Item 8
of this Report for further discussion of this settlement agreement.
Litigation Settlements
On October 27, 2008, MasterCard and Visa Inc. (“Visa”) entered into the Discover Settlement with
Discover relating to the U.S. federal antitrust litigation amongst the parties. The Discover Settlement ended all
litigation between the parties for a total of $2.75 billion. In July 2008, MasterCard and Visa entered into a
judgment sharing agreement. In accordance with the terms of the judgment sharing agreement, MasterCard’s
share of the Discover Settlement was $863 million, which was paid to Discover in November 2008. Additionally,
in connection with the Discover Settlement, Morgan Stanley, Discover’s former parent company, paid
MasterCard $35 million in November 2008, pursuant to a separate agreement. The net pre-tax expense of $828
million was recorded in litigation settlements, in the consolidated statement of operations, during the third
quarter of 2008.
On June 24, 2008, MasterCard entered into the American Express Settlement which ended all existing
litigation between American Express and MasterCard. Under the terms of the American Express Settlement,
beginning on September 15, 2008, MasterCard is required to pay American Express up to $150 million each
quarter for 12 quarters, payable in cash on the 15th day of the last month of each quarter, for a maximum amount
of $1.8 billion. The charge is based on MasterCard’s assumption that American Express will achieve certain
financial performance hurdles. The quarterly payments will be in an amount equal to 15% of American Express’
United States Global Network Services billings during the quarter, up to a maximum of $150 million per quarter.
If, however, the payment for any quarter is less than $150 million, the maximum payment for subsequent
quarters will be increased by the difference between $150 million and the lesser amount that was paid in any
quarter in which there was a shortfall. MasterCard recorded the present value of $1.8 billion, at a 5.75% discount
rate, or $1.649 billion, pre-tax, in the second quarter of 2008.
In the first quarter of 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) to the consolidated financial statements included in
Item 8 of this Report and recorded a pre-tax charge of $721 million ($469 million after-tax) consisting of (i) the
monetary amount of the U.S. Merchant Lawsuit Settlement (discounted at 8 percent over the payment term),
(ii) certain additional costs in connection with, and in order to comply with, other requirements of the U.S.
Merchant Lawsuit Settlement, and (iii) costs to address the merchants who opted not to participate in the plaintiff
class in the U.S. merchant lawsuit. The $721 million pre-tax charge amount was an estimate, which was
subsequently revised based on the approval of the U.S. Merchant Lawsuit Settlement agreement by the court and
other factors.
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