MasterCard 2008 Annual Report Download - page 79

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Financial Statement Caption/
Critical Accounting Estimate Assumptions/Approach Used
Effect if Actual Results Differ
from Assumptions
assessment revenues, representing
6%, 7% and 7% of total net
revenues for the years ended
December 31, 2008, 2007 and 2006,
respectively. Our revenue
recognition policies are fully
described in Note 1 (Summary of
Significant Accounting Policies) to
the consolidated financial
statements in Item 8 of this Report.
Differences are adjusted in the
period the customer reports.
Customers’ performance is
estimated by using historical
performance, customer reported
information, transactional
information accumulated from our
systems and discussions with our
customers.
performance by less than 5% of the
estimates on a quarterly basis.
Rebates and incentives are
estimated.
Rebates and incentives are
generally recorded as contra-
revenue based on our estimate of
each customer’s performance in a
given period and according to the
terms of the related customer
agreements.
If our customers’ actual
performance is not consistent with
our estimates of their performance,
contra-revenues may be materially
different than initially recorded.
Legal and Regulatory Matters
Legal Proceedings
We are party to legal and regulatory
proceedings with respect to a
variety of matters. Except as
described in Notes 18 (Obligations
Under Litigation Settlements) and
20 (Legal and Regulatory
Proceedings) to the consolidated
financial statements in Item 8 of this
Report, MasterCard does not
believe that any legal or regulatory
proceedings to which it is a party
would have a material adverse
impact on its business or prospects.
We evaluate the likelihood of an
unfavorable outcome of the legal
or regulatory proceedings to which
we are party in accordance with
SFAS No. 5, “Accounting for
Contingencies” (“SFAS No. 5”).
Our judgments are subjective
based on the status of the legal or
regulatory proceedings, the merits
of our defenses and consultation
with in-house and outside legal
counsel.
Due to the inherent uncertainties of
the legal and regulatory process in
the multiple jurisdictions in which
we operate, our judgments may be
materially different than the actual
outcomes.
Discount Rates for Litigation
Settlements
We have discounted two litigation
settlements over their respective
payment terms.
The U.S. Merchant Lawsuit
Settlement was discounted at 8%
over the ten-year payment term.
We estimated the discount rate
used to calculate the present value
of our obligations under litigation
settlements. The discount rate is a
matter of management judgment at
the time of each settlement, which
considers our expected post-
settlement credit rating and rates
for sources of credit that could be
used to finance the payment of
such obligations with similar
terms.
For the U.S. Merchant Lawsuit
Settlement, a one percent increase in
the discount rate would have
increased annual interest expense in
2008 by approximately $3 million,
and declining amounts thereafter.
The reverse impact would be
experienced for a one percent
decrease in such discount rate.
69