MasterCard 2009 Annual Report Download - page 69

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Advertising and marketing expenses decreased $179 million and $67 million, or 19.2% and 6.7%, in 2009
and 2008, respectively. The decreases in 2009 and 2008 were primarily due to cost management initiatives and
market realities. Additionally, the impact of foreign currency relating to the translation of amounts from our
functional currencies to U.S. dollars contributed approximately 2 percentage points to the decrease in 2009 and
offset approximately 2 percentage points of the decrease in 2008. 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. During 2007, we reached an
agreement to discontinue our sponsorship of the 2010 and 2014 World Cup soccer events. See Note 25 (Other
Income) to the consolidated financial statements included in Part II, Item 8 for further discussion of this
settlement agreement.
Litigation Settlements
Expense for litigation settlements was $7 million, $2.5 billion and $3 million for the years ended
December 31, 2009, 2008 and 2007, respectively. See Note 21 (Legal and Regulatory Proceedings) to the
consolidated financial statements included in Part II, Item 8 for information on litigation settlements.
In 2008, MasterCard and Visa Inc. (“Visa”) entered into a settlement agreement with Discover (the
“Discover Settlement”) relating to the U.S. federal antitrust litigation amongst the parties. The Discover
Settlement ended all litigation among the parties for a total of $2.8 billion. Previously, 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 2008.
Also in 2008, MasterCard entered into a settlement agreement with American Express which ended all
existing litigation between American Express and MasterCard (the “American Express Settlement”). 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 $1.6 billion, pre-tax, in 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 21
(Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 and
recorded a pre-tax charge of $721 million 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. On July 1, 2009, MasterCard entered into
an agreement (the “Prepayment Agreement”) with plaintiffs of the U.S. Merchant Lawsuit Settlement whereby
MasterCard agreed to make a prepayment of its remaining $400 million in payment obligations at a discounted
amount of $335 million. The Company paid $335 million on September 30, 2009, in accordance with the
Prepayment Agreement.
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