MasterCard 2008 Annual Report Download - page 122

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except percent and per share data)
Upon termination of employment, excluding retirement, all of a participant’s unvested awards are forfeited.
However, when a participant terminates employment due to retirement, the participant generally retains all of
their awards without providing additional service to the Company. Eligible retirement is dependent upon age and
years of service, as follows: age 55 with ten years of service, age 60 with five years of service and age 65 with
two years of service. Compensation expense is recognized over the shorter of the vesting periods stated in the
EIP Plans and the LTIP, or the date the individual becomes eligible to retire.
There are 11,550 shares of Class A common stock reserved for equity awards under the LTIP. Although the
LTIP permits the issuance of shares of Class B common stock, no such shares have been reserved for issuance.
Shares issued as a result of stock option exercises and the conversions of RSUs are expected to be funded with
the issuance of new shares of Class A common stock.
Stock Options
The fair value of each stock option is estimated on the date of grant using a Black-Scholes option pricing
model. The following table presents the weighted average assumptions used in the valuation and the resulting
weighted average fair value per option granted for the years ended December 31:
2008 2007 2006
Risk-free rate of return ..................................... 3.2% 4.4% 5.0%
Expected term (in years) ................................... 6.25 6.25 6.25
Expected volatility ........................................ 37.9% 30.9% 32.1%
Expected dividend yield .................................... 0.3% 0.6% 1.0%
Weighted-average fair value per option granted ................. $78.54 $41.03 $14.64
The risk-free rate of return was based on the U.S. Treasury yield curve in effect on the date of grant. The
Company utilizes the simplified method for calculating the expected term of the option based on the vesting
terms and the contractual life of the option. As the Company did not have sufficient publicly traded stock data
historically, the expected volatility was primarily based on the average of the historical and implied volatility of a
group of companies that management believes is generally comparable to MasterCard. The expected dividends
were based on the Company’s expected annual dividend rate on the date of grant.
The following table summarizes the Company’s option activity for the year ended December 31, 2008:
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
Outstanding at January 1, 2008 .................. 845 $ 67
Granted ..................................... 131 $190
Exercised ................................... (185) $ 51
Forfeited/expired ............................. (86) $ 75
Outstanding at December 31, 2008 ............... 705 $ 93 8.0 $41,537
Exercisable at December 31, 2008 ............... 111 $ 71 7.8 $ 8,172
Options vested at December 31, 20081............ 446 $ 83 7.9 $ 29,570
1Includes options for participants that are eligible to retire and thus have fully earned their awards.
112