MasterCard 2008 Annual Report Download - page 97

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except percent and per share data)
Property, plant and equipment—Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation of equipment and furniture and fixtures is computed using the
straight-line method over the related estimated useful lives of the assets, generally ranging from two to five
years. Amortization of leasehold improvements is generally computed using the straight-line method over the
lesser of the estimated useful lives of the improvements or the terms of the related leases. Capital leases are
amortized using the straight-line method over the lives of the leases. Depreciation on buildings is calculated
using the straight-line method over an estimated useful life of 30 years. Amortization of leasehold improvements
and capital leases is included in depreciation expense.
The Company evaluates the recoverability of all long-lived assets whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable. If the carrying value of the asset
cannot be recovered from estimated future cash flows, undiscounted and without interest, the fair value of the
asset is calculated using the present value of estimated net future cash flows. If the carrying amount of the asset
exceeds its fair value, an impairment is recorded.
Leases—The Company accounts for operating and capital leases in accordance with SFAS No. 13,
“Accounting for Leases”.
Goodwill—Goodwill represents the excess of cost over net assets acquired in connection with the
acquisition of certain businesses. The Company tests its goodwill for impairment annually as of October 1.
Impairment charges, if any, are recorded in general and administrative expense on the consolidated statements of
operations. See Note 8 (Goodwill) for additional information on the Company’s goodwill.
Intangible assets—Intangible assets consist of capitalized software costs, trademarks, tradenames, customer
relationships and other intangible assets, which have finite lives, and customer relationships related to the
acquisition of Europay International S.A. in 2002, which have indefinite lives. Intangible assets with finite useful
lives, other than customer relationships, are amortized over their estimated useful lives, which range from 3 to 5
years, under the straight-line method. Customer relationships with finite lives are amortized on a straight line
basis over their estimated useful lives of 10 or 20 years. MasterCard capitalizes average internal costs incurred
for payroll and payroll related expenses by department for the employees who directly devote time to the design,
development and testing phases of each capitalized software project.
The Company reviews intangible assets with finite lives for impairment when events or changes in
circumstances indicate that their carrying amount may not be recoverable. Impairment charges are recorded in
general and administrative expense on the consolidated statements of operations. Intangible assets with indefinite
lives are tested for impairment annually as of October 1. See Note 9 (Other Intangible Assets) for further detail
on impairment charges and other information regarding intangible assets.
Litigation—The Company is party to certain 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), 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. The Company evaluates the likelihood of an
unfavorable outcome of the legal or regulatory proceedings to which it is a party in accordance with SFAS No. 5,
“Accounting for Contingencies” (“SFAS 5”). These judgments are subjective based on the status of the legal or
regulatory proceedings, the merits of its defenses and consultation with in-house and external legal counsel. The
actual outcomes of these proceedings may materially differ from the Company’s judgments. Legal costs are accrued
as incurred and recorded in general and administrative expenses.
Settlement and travelers cheque risk—MasterCard has global risk management policies and procedures,
which include risk standards to provide a framework for managing the Company’s settlement exposure.
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