MasterCard 2009 Annual Report Download - page 101

MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except percent and per share data)
Short-term and Long-term Debt
The Company estimates the fair value of its debt by applying a current discount rate to the remaining cash
flows under the terms of the debt. As of December 31, 2009 and 2008, the carrying values on the consolidated
balance sheets totaled $21,598 and $168,767, respectively. The fair values totaled $22,315 and $172,292 for the
Company’s debt as of December 31, 2009 and 2008, respectively. During 2009, the Company repaid $149,380 of
notes payable classified as short-term debt at December 31, 2008 related to its variable interest entity. See Note
15 (Consolidation of Variable Interest Entity) for further discussion.
Obligations Under Litigation Settlements
The Company estimates the fair values of its obligations under litigation settlements by applying a current
discount rate to the remaining cash flows under the terms of the litigation settlements. At December 31, 2009 and
2008, the carrying values on the consolidated balance sheet totaled $869,721 and $1,736,298, respectively, and
the fair values totaled $894,628 and $1,824,630, respectively, for these obligations. For additional information
regarding the Company’s obligations under litigation settlements, see Note 19 (Obligations Under Litigation
Settlements).
Settlement Guarantee Liabilities
The Company estimates the fair values of its settlement guarantees by applying market assumptions for
relevant though not directly comparable undertakings, as the latter are not observable in the market given the
proprietary nature of such guarantees. Additionally, loss probability and severity profiles against the Company’s
gross and net settlement exposures are considered. The carrying value and estimated fair value of settlement
guarantee liabilities were de minimis as of December 31, 2009 and 2008. For additional information regarding
the Company’s settlement guarantee liabilities, see Note 22 (Settlement and Travelers Cheque Risk
Management).
Refunding Revenue Bonds
The Company holds refunding revenue bonds with the same payment terms as, and which contain the right
of set-off with, a capital lease obligation related to the Company’s global technology and operations center
located in O’Fallon, Missouri, called Winghaven. The Company has netted the refunding revenue bonds and the
corresponding capital lease obligation in the consolidated balance sheet at December 31, 2009 and estimates that
the carrying value approximates the fair value for these bonds. See Note 8 (Property, Plant and Equipment) for
further details.
Non-Financial Instruments
Certain assets and liabilities are measured at fair value on a nonrecurring basis. The Company’s assets and
liabilities measured at fair value on a nonrecurring basis include property, plant and equipment, goodwill and
other intangible assets. These assets are not measured at fair value on an ongoing basis; however, they are subject
to fair value adjustments in certain circumstances, such as when there is evidence of impairment.
The valuation methods used in the impairment testing of goodwill and other intangible assets involve
assumptions concerning comparable company multiples, discount rates, growth projections and other
assumptions of future business conditions. As the assumptions employed to measure these assets on a
nonrecurring basis are based on management’s judgment using internal and external data, these fair value
determinations are classified in Level 3 of the Valuation Hierarchy.
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