MasterCard 2011 Annual Report Download - page 126

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
It is the Company’s policy to account for interest expense related to income tax matters as interest expense
in its statement of operations, and to include penalties related to income tax matters in the income tax provision.
For the years ended December 31, 2011, 2010 and 2009, the Company recorded tax-related interest income of $2
million and $5 million, and interest expense of $5 million, respectively, in its consolidated statement of
operations. At December 31, 2011 and 2010 the Company had a net income tax-related interest payable of $16
million and $17 million, respectively, in its consolidated balance sheet. At December 31, 2011 and 2010, the
amounts the Company had recognized for penalties payable in its consolidated balance sheet were not significant.
Note 20. Legal and Regulatory Proceedings
MasterCard is a party to legal and regulatory proceedings with respect to a variety of matters in the ordinary
course of business. Some of these proceedings involve complex claims that are subject to substantial
uncertainties and unascertainable damages. Therefore, the probability of loss and an estimation of damages are
not possible to ascertain at present. While these types of contingencies are generally resolved over long periods
of time, the probability of loss or an estimation of damages can change due to discrete or a combination of
developments, which could result in a material adverse effect on our results of operations, cash flows or financial
condition. Except as discussed below, MasterCard has not established reserves for any of these proceedings.
MasterCard has recorded liabilities for certain legal proceedings which have been settled through contractual
agreements. Except as described below, MasterCard does not believe that any legal or regulatory proceedings to
which it is a party would have a material impact on its results of operations, financial position, or cash flows.
Although MasterCard believes that it has strong defenses for the pending litigations and regulatory proceedings
described below, it could in the future incur judgments and/or fines, enter into settlements of claims or be
required to change its business practices in ways that could have a material adverse effect on its results of
operations, financial position or cash flows. Notwithstanding MasterCard’s belief, in the event it were found
liable in a large class-action lawsuit or on the basis of a claim in the United States entitling the plaintiff to treble
damages or under which it were jointly and severally liable, charges it may be required to record could be
significant and could materially and adversely affect its results of operations, cash flow and financial condition,
or, in certain circumstances, even cause MasterCard to become insolvent. Moreover, an adverse outcome in a
regulatory proceeding could result in fines and/or lead to the filing of civil damage claims and possibly result in
damage awards in amounts that could be significant and could materially and adversely affect the Company’s
results of operations, cash flows and financial condition.
Department of Justice Antitrust Litigation and Related Private Litigations
In October 1998, the U.S. Department of Justice (“DOJ”) filed suit against MasterCard International, Visa
U.S.A., Inc. and Visa International Corp. in the U.S. District Court for the Southern District of New York
alleging that both MasterCard’s and Visa’s governance structure and policies violated U.S. federal antitrust laws.
First, the DOJ claimed that “dual governance”- the situation where a financial institution has a representative on
the Board of Directors of MasterCard or Visa while a portion of its card portfolio is issued under the brand of the
other association-was anti-competitive and acted to limit innovation within the payment card industry. Second,
the DOJ challenged MasterCard’s Competitive Programs Policy (“CPP”) and a Visa bylaw provision that
prohibited financial institutions participating in the respective associations from issuing competing proprietary
payment cards (such as American Express or Discover). The DOJ alleged that MasterCard’s CPP and Visa’s
bylaw provision acted to restrain competition.
In October 2001, District Court Judge Barbara Jones issued an opinion upholding the legality and
pro-competitive nature of dual governance. However, the judge also held that MasterCard’s CPP and the Visa
bylaw constituted unlawful restraints of trade under the federal antitrust laws. In November 2001, the judge
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