MasterCard 2009 Annual Report Download - page 102

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except percent and per share data)
Note 5. Investment Securities
Amortized Costs and Fair Values—Available-for-Sale Investment Securities:
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,
2009
Municipal bonds .................................... $ 492,245 $22,281 $ (196) $ 514,330
Taxable short-term bond funds ......................... 305,574 4,474 (76) 309,972
Auction rate securities ............................... 211,750 — (31,763) 179,987
Other ............................................. 89 — (46) 43
Total ............................................. $1,009,658 $26,755 $(32,081) $1,004,332
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
1The majority of the unrealized losses relate to ARS, which have been in an unrealized loss position longer
than 12 months, but have not been deemed other-than-temporarily impaired.
The municipal bond portfolio is comprised of tax exempt bonds and is diversified across states and sectors.
The portfolio has an average credit quality of double-A. Municipal bonds in a gross unrealized loss position are
not considered other-than temporarily impaired, considering factors including their high credit quality.
The short-term bond funds invest in fixed income securities, including corporate bonds, mortgage-backed
securities, and asset-backed securities.
The Company holds investments in 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 38 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. During 2008, ARS were reclassified as Level 3 from Level 2. As of December 31, 2009, the ARS
market remained illiquid, but issuer call and redemption activity in the ARS student loan sector has occurred
periodically since the auctions began to fail. During 2009, the Company did not sell any ARS in the auction
market, but there were some calls at par.
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