MasterCard 2008 Annual Report Download - page 103

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except percent and per share data)
Note 4. Investment Securities
Costs and Fair Values—Available for Sale:
The major categories of the Company’s available-for-sale investment securities, for which unrealized gains
and losses are recorded as a separate component of other comprehensive income (loss) on the consolidated
statements of comprehensive income (loss), and their respective cost bases and fair values are as follows:
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss1
Fair Value at
December 31,
2008
Municipal bonds .................................... $ 473,746 $ 12,771 $ (1,027) $ 485,490
Taxable short-term bond funds ......................... 102,588 — — 102,588
Auction rate securities ............................... 239,700 — (47,940) 191,760
Other ............................................. 127 (110) 17
Total ............................................. $ 816,161 $ 12,771 $(49,077) $ 779,855
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair Value at
December 31,
2007
Municipal bonds .................................... $ 550,855 $ 5,865 $ (1,271) $ 555,449
Taxable short-term bond funds ......................... 306,674 — (1,040) 305,634
Auction rate securities ............................... 348,000 — — 348,000
Other ............................................. 2,948 96,095 — 99,043
Total ............................................. $1,208,477 $101,960 $ (2,311) $1,308,126
1The majority of the unrealized losses above are related to investments that have been in a continuous loss
position fewer than 12 months.
The cost bases of the Company’s taxable short-term bond funds include $6,379 and $8,719 of other than
temporary impairments as of December 31, 2008 and 2007, respectively.
The Company holds investments in auction rate securities (“ARS”). Interest on these securities is exempt
from U.S. federal income tax and the interest rate on the securities typically resets every 35 days. The securities
are fully collateralized by student loans with guarantees, ranging from approximately 95% to 98% of principal
and interest, by the U.S. government, via the Department of Education.
Beginning on February 11, 2008, the auction mechanism that normally provided liquidity to the ARS
investments began to fail. Since mid-February 2008, all 44 investment positions in the Company’s ARS
investment portfolio have experienced failed auctions. The securities for which auctions have failed have
continued to pay interest in accordance with the contractual terms of such instruments and will continue to accrue
interest and be auctioned at each respective reset date until the auction succeeds, the issuer redeems the securities
or they mature. No ARS were sold or called by the issuer at less than par value during the year ended
December 31, 2008. Due to the lack of liquidity and management’s intent and ability to hold until recovery, the
Company reclassified its ARS portfolio from short-term available-for-sale to long-term available-for-sale
investment securities as of March 31, 2008.
As of December 31, 2008, the ARS market remained illiquid but issuer call and redemption activity in the
ARS student loan sector occurred during the year. Due to the continued lack of liquidity in the ARS market, the
Company has determined that the fair value of the ARS does not approximate par value. Accordingly, the
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