MasterCard 2008 Annual Report Download - page 82

Financial Statement Caption/
Critical Accounting Estimate Assumptions/Approach Used
Effect if Actual Results Differ
from Assumptions
Postemployment Benefit Plan
We have a formal severance plan
which sets forth the guidelines with
respect to severance payments to
salaried employees whose normal
assignment is within the United
States. Approximately 3,600 of our
employees are covered by the Plan.
Severance benefits are determined
primarily by years of service and
career level in accordance with
either a standard or enhanced
payment schedule, which is
determined by the cause of the
severance action. The Company has
a severance plan committee with
members from different functional
responsibilities, including human
resources, legal and finance, that
review and approve assumptions
used in the determination of the
liability for expected future
severance obligations. Key
assumptions include the number of
severed participants, number of
severed individuals by career level,
benefit package and discount rate.
The assumption for the number of
severed participants used in the
calculation was 100, 100 and 120
for 2008, 2007 and 2006,
respectively. The career levels for
these individuals was estimated
using historical experience as a
base, adjusted for a number of
strategic and human resource
initiatives implemented during
these years and current
employment levels. We review
historical trends and future
expectations when determining the
assumptions.
The discount rate for our
postemployment plan is subject to
change each year, consistent with
changes in high-quality, long-term
corporate bond markets. To select
a discount rate, we performed an
analysis which matched the plans
expected cash flows with spot rates
developed from a yield curve
comprised of high-grade non-
callable corporate bonds and
arithmetically rounded this result.
Our discount rate of 5.75% as of
December 31, 2008 is 25 basis
points higher than the rate used in
calculating the severance
obligations for 2007, which was
5.5%.
A 5% increase in the number of
severed participants would increase
our severance obligations by $1.6
million. An equal but opposite
effect would be experienced for a
5% decrease in the number of
participants.
A quarter of a percentage point
decrease or increase in our discount
rate would have an impact of
approximately $0.4 million on our
severance obligations.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS
141R”) which replaces SFAS No. 141, “Business Combinations”. SFAS 141R establishes the principles and
requirements for how an acquirer: 1) recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the acquiree; 2) recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase; and 3) discloses the business
combination. SFAS 141R applies to all transactions in which an entity obtains control of one or more businesses,
including transactions that occur without the transfer of any type of consideration. SFAS 141R is effective on a
prospective basis for all business combinations on or after January 1, 2009, with the exception of the accounting
for valuation allowances on deferred taxes and acquired tax contingencies. Early adoption is not allowed. The
Company will adopt SFAS 141R on January 1, 2009 and its effect on future periods will be dependent upon the
nature and significance of any acquisitions subject to this statement.
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