MasterCard 2009 Annual Report Download - page 120

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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
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 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 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:
2009 2008 2007
Risk-free rate of return ....................................... 2.5% 3.2% 4.4%
Expected term (in years) ..................................... 6.17 6.25 6.25
Expected volatility .......................................... 41.7% 37.9% 30.9%
Expected dividend yield ...................................... 0.4% 0.3% 0.6%
Weighted-average fair value per option granted ................... $71.03 $78.54 $41.03
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. The expected volatility for options granted during 2009 was based on
the average of the implied volatility of MasterCard and a blend of the historical volatility of MasterCard and the
historical volatility of a group of companies that management believes is generally comparable to MasterCard.
The expected volatility for options granted during 2008 was based on the average of the implied volatility of
MasterCard and the historical volatility of a group of companies that management believes is generally
comparable to MasterCard. As the Company did not have sufficient publicly traded stock data historically, the
expected volatility for options granted during 2007 was primarily based on the average of the historical and
implied volatility of a group of companies that management believed was generally comparable to MasterCard.
The expected dividend yields were based on the Company’s expected annual dividend rate on the date of grant.
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