MasterCard 2010 Annual Report Download - page 73

realized gain from the sale of the Company’s RedeCard S.A. investment in 2008. The Company sold the
remaining 22% of its shares of common stock in RedeCard S.A., and realized gains of $86 million in
2008.
• Interest expenses decreased $63 million in 2010 due to a decrease in interest on litigation settlements
and on uncertain tax positions. Interest expense increased $11 million in 2009 due to interest accretion
associated with the American Express Settlement partially offset by lower interest accretion on the U.S.
Merchant Lawsuit Settlement. Additionally, in 2008 there was higher interest expense on uncertain tax
positions.
• Other income decreased $15 million in 2010 compared to 2009 primarily due to a gain in 2009 of
approximately $14 million on the prepayment of the Company’s remaining obligation on the U.S.
Merchant Lawsuit Settlement, with no comparable events in 2010. Other income decreased in 2009 due
to a $75 million gain related to the termination of a customer business agreement that was recognized in
2008. See Note 26 (Other Income) to the consolidated financial statements included in Part II, Item 8 for
additional discussion.
Income Taxes
The effective income tax rates for the years ended December 31, 2010, 2009 and 2008 were 33.0%, 34.1%,
and 33.7%, respectively. The tax rate for 2010 was lower than the tax rate for 2009 due primarily to the 2010
impact of actual and anticipated repatriations from foreign subsidiaries, partially offset by discrete adjustments in
2010 and 2009. The tax rate for 2009 was higher than the tax rate for 2008 due primarily to litigation settlement
charges recorded in 2008, which resulted in a pretax loss in a higher tax rate jurisdiction and pretax income in
lower tax jurisdictions. In addition, deferred tax assets were remeasured and reduced by $15 million and $21
million in 2009 and 2008, respectively, due to changes in our state effective tax rate. As a result of the
remeasurements, our income tax expense was increased for the same amounts.
The components impacting the effective income tax rates as compared to the U.S. federal statutory tax rate
of 35.0% are as follows:
For the years ended December 31,
2010 2009 2008
Dollar
Amount Percent
Dollar
Amount Percent
Dollar
Amount Percent
(in millions, except percentages)
Income (loss) before income tax expense ............. $2,757 $2,218 $(383)
Federal statutory tax .............................. 965 35.0% 776 35.0% (134) 35.0%
State tax effect, net of federal benefit ................ 19 0.7 25 1.1 11 (2.9)
Foreign tax effect, net of federal benefit .............. (24) (0.9) (22) (1.0) 2 (0.5)
Non-deductible expenses and other differences ......... 23 0.9 (18) (0.7) 2 (0.7)
Tax exempt income .............................. (5) (0.2) (6) (0.3) (10) 2.8
Foreign repatriation .............................. (68) (2.5) — — — —
Income tax expense (benefit) ....................... $ 910 33.0% $ 755 34.1% $(129) 33.7%
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