MasterCard 2008 Annual Report Download - page 128

MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except percent and per share data)
Effective Income Tax Rate
The effective income tax rates for the years ended December 31, 2008, 2007 and 2006 were 33.7%, 35.0%
and 82.9%, respectively. The decrease in the effective income tax rate in 2008 compared to 2007 was primarily
due to the impact of the charges associated with the Discover Settlement and American Express Settlement.
These charges caused a change in the geographic distribution of pretax income (loss) resulting in pretax income
in lower tax jurisdictions and pretax loss in higher tax jurisdictions. The resulting tax benefit of the loss was
offset by a tax charge for the remeasurement of deferred tax assets as a result of a change in the Company’s state
effective tax rate. As a result of the remeasurement, the Company’s deferred tax assets were reduced by $20,605
and an income tax expense was recorded for the same amount. The change in the effective income tax rate in
2007 compared to 2006 primarily relates to a non-deductible charitable contribution of shares of MasterCard
Class A common stock to the Foundation during 2006. MasterCard recorded a significant expense equal to the
value of the Class A common stock donated to the Foundation. Under the terms of the contribution to the
Foundation, this donation is generally not deductible to MasterCard for tax purposes. This transaction is
discussed in more detail in Note 14 (Stockholders’ Equity).
Deferred Taxes
Deferred tax assets and liabilities represent the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities. The net deferred tax asset at
December 31 was comprised of the following:
Assets (Liabilities)
2008 2007
Current Non-current Current Non-current
Accrued liabilities (including litigation settlements) ...... $268,376 $386,608 $ 61,996 $111,271
Deferred compensation and benefits .................. 5,670 72,163 4,250 52,003
Stock based compensation .......................... — 50,621 — 39,287
Intangible assets .................................. — (49,476) — (43,897)
Property, plant and equipment ....................... — (23,406) — (13,941)
State taxes and other credits ........................ 21,513 31,589 21,513 40,197
Other items ...................................... (11,764) 29,760 (9,505) 16,277
Redecard unrealized gain ........................... — — (33,729) —
Valuation allowance .............................. — (4,810) — (9,332)
$283,795 $493,049 $ 44,525 $191,865
The 2008 and 2007 valuation allowances relate to the Company’s ability to recognize tax benefits associated
with state net operating losses. If not utilized, approximately $17,234 of state carryforward net operating losses
will begin to expire commencing in 2011.
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