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included counterclaims against Morgan Stanley for interference with the Company’s efforts to resolve the antitrust lawsuit
against Visa and MasterCard and willful and material breach of the Special Dividend Agreement, which expressly
provided that the Company would have sole control over the investigation, prosecution and resolution of the antitrust
lawsuit.
Subsequent to a ruling by the New York State Court, the Company estimated that the amount that was probable it
would owe to Morgan Stanley was $837.7 million as of November 30, 2009. Of this amount, $808.8 million was
recorded as Special dividend – Morgan Stanley in liabilities on the statement of financial condition with an offset to
retained earnings and $28.9 million of interest related to delayed payment was recorded in other expense. On
February 11, 2010, the Company entered into a Settlement Agreement and Mutual Release with Morgan Stanley, in
which each party released and discharged the other party from claims related to the sharing of proceeds from the
antitrust suit against Visa and MasterCard. On the same day, the Company entered into a First Amendment to the
Separation and Distribution Agreement dated as of June 29, 2007 (the “First Amendment”) with Morgan Stanley. The
First Amendment provides that payments that Morgan Stanley receives from the Company in connection with the
settlement of the antitrust litigation with Visa and MasterCard shall not exceed a total of $775 million, inclusive of any
accrued and unpaid interest and fees under the agreement. In addition, on the same day, the Company paid Morgan
Stanley $775 million from restricted cash held in an escrow account in complete satisfaction of its obligations under the
Special Dividend Agreement.
Upon payment of the $775 million on February 11, 2010, the Company reversed the $28.9 million that had been
recorded in other expense in the fourth quarter 2009 and recorded a reduction to the liability attributable to the special
dividend from $808.8 million to $775 million with an offsetting increase to retained earnings.
22. Fair Value Disclosures
The Company is required to disclose the fair value of financial instruments for which it is practical to estimate fair value.
To obtain fair values, observable market prices are used if available. In some instances, observable market prices are not
readily available and fair value is determined using present value or other techniques appropriate for a particular
financial instrument. These techniques involve some degree of judgment and, as a result, are not necessarily indicative of
the amounts the Company would realize in a current market exchange. The use of different assumptions or estimation
techniques may have a material effect on the estimated fair value amounts.
The following table provides the estimated fair values of financial instruments (dollars in thousands):
November 30, 2010 November 30, 2009
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Financial Assets
Cash and cash equivalents............................................................................................. $ 5,098,733 $ 5,098,733 $13,020,719 $13,020,719
Restricted cash – special dividend escrow ......................................................................... $ 0 $ 0 $ 643,311 $ 643,311
Restricted cash – for securitization investors(1).................................................................... $ 1,363,758 $ 1,363,758 $ 0 $ 0
Other short-term investments .......................................................................................... $ 375,000 $ 375,000 $ 1,350,000 $ 1,350,000
Investment securities:
Available-for-sale(1) ................................................................................................... $ 5,002,579 $ 5,002,579 $ 2,645,481 $ 2,645,481
Held-to-maturity(1) ..................................................................................................... $ 72,816 $ 70,195 $ 2,389,816 $ 1,953,990
Net loan receivables(1)................................................................................................... $45,532,295 $45,835,543 $21,867,185 $21,984,317
Amounts due from asset securitization(1) ........................................................................... $ 0 $ 0 $ 1,692,051 $ 1,692,051
Derivative financial instruments....................................................................................... $ 4,995 $ 4,995 $ 1,369 $ 1,369
Financial Liabilities
Deposits...................................................................................................................... $34,413,383 $35,500,526 $32,093,012 $33,139,823
Long-term borrowings – owed to securitization investors(1) .................................................. $14,919,400 $15,148,534 $ 0 $ 0
Other long-term borrowings........................................................................................... $ 2,786,328 $ 3,118,967 $ 2,428,101 $ 2,524,320
Derivative financial instruments....................................................................................... $ 6,594 $ 6,594 $ 0 $ 0
(1) Upon adoption of Statements No. 166 and 167 on December 1, 2009, the Company consolidated the securitization trusts. Loan receivables increased by the amount of securitized loans and long-
term borrowings increased by the amount of debt issued from the trusts to third-party investors. Furthermore, applicable amounts of held-to-maturity and available-for-sale investment securities were
reclassified to loan receivables, while amounts recorded as due from asset securitization were either reclassified or reversed. See Note 2: Change in Accounting Principle for more information.
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