MasterCard 2010 Annual Report Download - page 130

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Note 20. Obligations Under Litigation Settlements
On October 27, 2008, MasterCard and Visa Inc. (“Visa”) entered into a settlement agreement (the “Discover
Settlement”) with Discover Financial Services, Inc. (“Discover”) relating to the U.S. federal antitrust litigation
amongst the parties. The Discover Settlement ended all litigation among the parties for a total of $2.75 billion. In
July 2008, MasterCard and Visa had entered into a judgment sharing agreement that allocated responsibility for
any judgment or settlement of the Discover action among the parties. Accordingly, the MasterCard share of the
Discover Settlement was $863 million, which was paid to Discover in November 2008. In addition, 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 impact of $828 million is included in litigation
settlements for the year ended December 31, 2008.
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 million per quarter beginning in the third quarter of 2008.
MasterCard’s maximum nominal payments will total $1.8 billion. 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 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
assumes American Express will achieve these financial hurdles. MasterCard recorded the present value of $1.8
billion, at a 5.75% discount rate, or $1.6 billion for the year ended December 31, 2008. As of December 31,
2010, the Company has two quarterly payments for a total of $300 million remaining.
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 22
(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 million in 2003 and $100 million annually
each December from 2004 through 2012. 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 on September 30, 2009. The Company made the prepayment at the discounted amount of $335 million on
September 30, 2009, after the Prepayment Agreement became final. 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.
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