MasterCard 2009 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)
The table below includes a roll-forward of the Company’s ARS investments from January 1, 2008 to
December 31, 2009.
Significant Other
Inputs (Level 2)
Significant Unobservable
Inputs (Level 3)
Fair value, January 1, 2008 ....................................... $348,000 $ —
Purchases, January 1—March 31, 2008 ............................. 321,550 —
Sales, January 1—March 31, 2008 ................................. (420,400) —
Transfers in (out) ............................................... (249,150) 249,150
Sales, April 1—December 31, 2008 ................................ — (50)
Calls, July 1—December 31, 2008 ................................. — (9,400)
Unrealized losses ............................................... — (47,940)
Fair value, December 31, 2008 .................................... — 191,760
Calls, at par ................................................... — (27,950)
Recovery of unrealized losses due to issuer calls ...................... — 4,627
Increase in fair value ............................................ — 11,550
Fair value, December 31, 2009 .................................... $ — $179,987
The Company evaluated the estimated impairment of its ARS portfolio to determine if it was other-than-
temporary. The Company considered several factors including, but not limited to, the following: (1) the reasons for
the decline in value (changes in interest rates, credit event, or market fluctuations); (2) assessments as to whether it
is more likely than not that it will hold and not be required to sell the investments for a sufficient period of time to
allow for recovery of the cost basis; (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 credit quality, market liquidity, timing and amounts of issuer calls, and interest rates. As of
December 31, 2009, the Company believes that the unrealized losses on the ARS were not related to credit quality
but rather due to the lack of liquidity in the market. The Company believes that it is more likely than not that the
Company will hold and not be required to sell its ARS investments until recovery of their cost bases which may be
at maturity or earlier if called. Therefore MasterCard does not consider the unrealized losses to be other-than-
temporary. The Company estimated 15% and 20% discounts to the par value of the ARS portfolio at December 31,
2009 and 2008, respectively. The pre-tax impairment included in accumulated other comprehensive income related
to the Company’s ARS was $31,762 and $47,940 as of December 31, 2009 and 2008, respectively. A hypothetical
increase of 100 basis points in the discount rate used in the discounted cash flow analysis would have increased the
impairment by $23,293 and $24,000 as of December 31, 2009 and 2008, respectively.
Carrying and Fair Values—Held-to-Maturity Investment Securities:
As of December 31, 2009, the Company also owned held-to-maturity investment securities, which consisted
of U.S. Treasury notes and a municipal bond yielding interest at 5.0% per annum. The municipal bond relates to
the Company’s back-up processing center in Kansas City, Missouri. The Company cancelled $154,000 of short-
term municipal bonds related to its global technology and operations center located in O’Fallon, Missouri, called
Winghaven, on March 1, 2009, as further discussed in Note 15 (Consolidation of Variable Interest Entity). The
carrying value, gross unrecorded gains and fair value of these held-to-maturity investment securities were as
follows at December 31:
2009 2008
Carrying value ...................................................... $337,797 $191,450
Gross unrecorded gains ............................................... 1,892 1,913
Fair value .......................................................... $339,689 $193,363
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