Business Context and Reporting Period
Company: Mastercard Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: February 3, 2011
Subject: Execution of agreements regarding the sharing of costs and liabilities related to interchange fee litigation (MDL 1720).
Key Financial Metrics
This filing does not report revenue, profit, cash flow, margins, debt, or liquidity metrics. It focuses exclusively on legal contingencies and liability allocation.
Material Changes and Agreements
Mastercard and its subsidiary, MasterCard International, have executed two agreements to apportion potential costs and liabilities arising from merchant litigation (MDL 1720) involving allegations of antitrust violations regarding interchange fees:
- Omnibus Agreement: Divides overall responsibility between Visa (66.6667%) and Mastercard (33.3333%) for inter-network conspiracy claims or damages not attributed to a specific network.
- MasterCard Settlement and Judgment Sharing Agreement (MasterCard JSA): Defines Mastercard's specific financial responsibility within its 33.3333% portion relative to Defendant Banks.
Execution Status: All parties with financial responsibility have executed the agreements, except for two affiliates of one Defendant Bank. The agreements will become effective once these remaining parties sign, which is anticipated shortly.
Liability Allocation and Management Commentary
Settlement Sharing Responsibilities (Mastercard's portion of monetary settlement):
- Global Settlement (Visa, Mastercard, Banks): Mastercard pays 12%.
- Mastercard-Only Settlement: Mastercard pays 36%.
- Visa-Only Settlement: Mastercard pays 0%.
Judgment Sharing Responsibilities (Mastercard's portion of adverse judgment):
- Inter-network damages: Mastercard pays 12%.
- Mastercard-specific claims: Mastercard pays 36%.
- Visa-specific claims: Mastercard pays 0%.
- Unattributed damages: Mastercard pays 12% of the total judgment.
Management Commentary:
- Mastercard continues to defend the claims and states these agreements are not an admission of liability.
- The company believes it is not possible to estimate the ultimate liability or resolution of the litigation.
- Financial Impact: No provision for losses has been recorded in connection with these litigations.
Investor Verification Checklist
- Verify the final execution status of the Omnibus JSA and MasterCard JSA by the remaining two bank affiliates.
- Review the Company's Form 10-Q for the quarter ended September 30, 2010, for detailed background on MDL 1720.
- Monitor future filings for any updates on the litigation status or changes in the estimated liability range.
- Confirm that no financial provision has been made for these contingencies in the most recent balance sheet.