MasterCard 2010 Annual Report Download - page 105

Download and view the complete annual report

Please find page 105 of the 2010 MasterCard annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 162

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162

MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
The Company’s foreign currency derivative contracts have been classified within Level 2 of the valuation
hierarchy, as the fair value is based on broker quotes for the same or similar derivative instruments. See Note 24
(Foreign Exchange Risk Management) for further details.
Financial Instruments—Non-Recurring Measurements
Certain financial instruments are carried on the consolidated balance sheet at cost, which approximates fair
value due to their short-term, highly liquid nature. These instruments include cash and cash equivalents, accounts
receivable, settlement due from customers, restricted security deposits held for customers, prepaid expenses,
accounts payable, settlement due to customers and accrued expenses.
Investment Securities Held-to-Maturity
The Company utilizes quoted prices for identical or similar securities from active markets to estimate the
fair value of its held-to-maturity securities. See Note 6 (Investment Securities) for fair value disclosure.
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, 2010, the carrying value on the consolidated balance sheet
and the fair value each totaled $20 million. As of December 31, 2009, the carrying value on the consolidated
balance sheet and the fair value each totaled $22 million. As of December 31, 2010, the carrying value of the
current portion of the Company’s debt is included in other current liabilities on the consolidated balance sheet.
During 2009, the Company repaid $149 million of notes payable classified as short-term debt at December 31,
2008 related to its variable interest entity. See Note 16 (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, 2010 and
2009, the carrying values on the consolidated balance sheet totaled $302 million and $870 million, respectively,
and the fair values totaled $307 million and $895 million, respectively, for these obligations. For additional
information regarding the Company’s obligations under litigation settlements, see Note 20 (Obligations Under
Litigation Settlements).
Settlement and Other Guarantee Liabilities
The Company estimates the fair values of its settlement and other 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. At December 31, 2010 and 2009, the
carrying value of settlement and other guarantee liabilities were de minimis The estimated fair value of
settlement and other guarantee liabilities as of December 31, 2010 was approximately $45 million. The estimated
fair value of settlement and other guarantee liabilities as of December 31, 2009 was de minimis. For additional
information regarding the Company’s settlement and other guarantee liabilities, see Note 23 (Settlement and
Other Risk Management).
Refunding Revenue Bonds
The Company holds refunding revenue bonds with the same payment terms, and which contain the right of
set-off with, a capital lease obligation related to the Company’s global technology and operations center located
95