MasterCard 2008 Annual Report Download - page 121

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except percent and per share data)
MasterCard International has determined that it is the primary beneficiary of the Trust as a result of the
guarantee of the principal and interest on the Secured Notes described above which potentially exposes the
Company to the majority of the expected losses of the Trust. Accordingly, as of December 31, 2008, the
Company’s consolidated balance sheets included $154,000 in short-term municipal bonds held by the Trust,
$149,380 in short-term debt and $4,620 of minority interest relating to the equity in the Trust held by a third
party. The redemption value of the minority interest approximates its carrying value and will be redeemed by the
minority interest holders upon maturity of the Secured Notes. Leasehold improvements for Winghaven are
amortized over the economic life of the improvements. For the years ended December 31, 2008, 2007 and 2006,
the consolidation had no impact on net income. However, interest income and interest expense were each
increased by $11,390 in each of the years ended December 31, 2008, 2007 and 2006. The Company did not
provide any financial or other support that it was not contractually required to provide during each of the years
ended December 31, 2008, 2007, and 2006.
Note 16. Share Based Payment and Other Benefits
Prior to May 2006, the Company had never granted stock-based compensation awards to employees. In
contemplation of the Company’s IPO and to better align Company management with a new ownership and
governance structure (see Note 14 (Stockholders’ Equity)), the Company implemented the MasterCard
Incorporated 2006 Long-Term Incentive Plan (the “LTIP”). The LTIP is a shareholder-approved omnibus plan
that permits the grant of various types of equity awards to employees. In May 2006, the Company adopted SFAS
123R, upon granting of awards under the LTIP.
Historically, the Company provided cash compensation to certain employees under its EIP Plans. The EIP
Plans were cash-based performance unit plans, in which participants received grants of units with a value
contingent on the achievement of the Company’s long-term performance goals. The final value of units under the
EIP Plans was calculated based on the Company’s performance over a three-year period. The performance goals
were not, in whole or in part, based upon the Company’s stock price as there was no trading of the Company’s
stock at the time the goals were set. Upon completion of the three-year performance period, participants received
a cash payment equal to 80 percent of the award earned. The remaining 20 percent of the award was paid upon
completion of two additional years of service. The performance units vested over three and five year periods.
During 2006, in connection with the IPO, the Company offered employees who had outstanding awards
under the EIP Plans the choice of converting certain of those awards to restricted stock units (“RSUs”). Certain
other awards under the EIP Plans were mandatorily converted to RSUs. In each case, a 20 percent premium was
applied in the conversion. Approximately three hundred participants converted their existing awards under the
EIP Plans to RSUs in conjunction with the Company’s IPO in May 2006. The RSUs resulting from this
conversion retained the same vesting schedule as the original EIP Plan awards. The Company’s liability related
to the EIP Plans at December 31, 2008 and 2007 was $291 and $611, respectively, and the expense was $146,
$372 and $28,024 for the years ending December 31, 2008, 2007 and 2006, respectively.
The Company has granted RSUs, non-qualified stock options (“options”) and Performance Stock Units
(“PSUs”) under the LTIP. The RSUs generally vest after three to four years. The options, which expire ten years
from the date of grant, vest ratably over four years from the date of grant. The PSUs generally vest after three
years. Additionally, the Company made a one-time grant to all non-executive management employees upon the
IPO for a total of approximately 440 RSUs (the “Founders’ Grant”). The Founders’ Grant RSUs will vest three
years from the date of grant. The Company uses the straight-line method of attribution for expensing equity
awards. Compensation expense is recorded net of estimated forfeitures. Estimates are adjusted as appropriate.
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