MasterCard 2008 Annual Report Download - page 104

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except percent and per share data)
Company has assigned a 20% discount to the par value of the ARS portfolio and recorded a temporary
impairment of $47,940 within accumulated other comprehensive income. The 20% discount on the ARS par
value reflects the Company’s assessment of fair value based on the income approach, as set forth in SFAS 157.
The income approach included a discounted cash flow analysis of the estimated future cash flows for the ARS
portfolio as of December 31, 2008. A hypothetical increase of 100 basis points in the discount rate would
increase the temporary impairment by approximately $24,000.
In determining whether the decline in value of the ARS investments was other-than-temporary, the
Company considered several factors including, but not limited to, the following: (1) the reasons for the decline in
value (credit event, interest related or market fluctuations); (2) MasterCard’s ability and intent to hold the
investments for a sufficient period of time to allow for recovery of value; (3) whether the decline is substantial;
and (4) the historical and anticipated duration of the events causing the decline in value. The evaluation for other-
than-temporary impairments is a quantitative and qualitative process, which is subject to various risks and
uncertainties. The risks and uncertainties include changes in the credit quality of the securities, changes in
liquidity affected by the auction mechanism or issuer calls of the securities, and the effects of changes in interest
rates. Currently, the Company has the intent and ability to hold its ARS investments until recovery of fair value,
which may be maturity or earlier if called, and therefore does not consider these unrealized losses to be other-
than-temporary.
The ARS investments have been classified within level 3 of the Valuation Hierarchy as their valuation
requires substantial judgment and estimation of factors that are not currently observable in the market due to the
lack of trading in the securities. This valuation may be revised in future periods as market conditions evolve.
Fair Value Hierarchy:
The distribution of the Company’s financial instruments, which are measured at fair value on a
recurring basis, in the Valuation Hierarchy, is as follows:
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value at
December 31,
2008
Municipal bonds1................................ $ — $485,490 $ — $485,490
Taxable short-term bond funds ...................... 102,588 — — 102,588
Auction rate securities ............................ — — 191,760 191,760
Foreign currency forward contracts .................. — 33,731 — 33,731
Other .......................................... 17 — 17
Total .......................................... $102,605 $519,221 $191,760 $813,586
1Available-for-sale municipal bonds are carried at fair value and are included in these tables. However,
held-to-maturity municipal bonds are carried at amortized cost and excluded from these tables.
94