MasterCard 2010 Annual Report Download - page 145

Download and view the complete annual report

Please find page 145 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
MasterCard-branded travelers cheques exposure under this guarantee as $361 million and $401 million at
December 31, 2010 and 2009, respectively. The reduction in travelers cheques exposure is attributable to
MasterCard branded travelers cheques no longer being issued.
A significant portion of the Company’s travelers cheques risk is concentrated in one MasterCard travelers
cheques issuer. MasterCard obtained an unlimited guarantee estimated at $280 million and $313 million at
December 31, 2010 and 2009, respectively, from a financial institution that is a member, to cover all of the
exposure of outstanding travelers cheques with respect to such issuer. In addition, MasterCard obtained a limited
guarantee estimated at $13 million and $14 million as of December 31, 2010 and 2009, respectively, from a
financial institution that is a member in order to cover the exposure of outstanding travelers cheques with respect
to another issuer. These guarantee amounts have also been reduced by an actuarial determination of travelers
cheques that are not anticipated to be presented for payment.
Beginning in 2008, many of the Company’s financial institution customers were directly and adversely
impacted by the unprecedented events that occurred in the financial markets around the world. The ongoing
economic turmoil presents increased risk that the Company may have to perform under its settlement and
travelers cheque guarantees. General economic conditions and political conditions in countries in which
MasterCard operates may also affect the Company’s settlement risk. The Company’s global risk management
policies and procedures, which are revised and enhanced from time to time, continue to be effective as evidenced
by the historically low level of losses that the Company has experienced from customer financial institution
failures.
MasterCard provides a guarantee to a financial institution that is also a principal member, indemnifying the
financial institution from losses stemming from failures of DataCash customers to perform duties. The amount of
the guarantee was estimated at 13 million U.K. pound sterling, or approximately $20 million, as of December 31,
2010.
The Company enters into business agreements in the ordinary course of business under which the Company
agrees to indemnify third parties against damages, losses and expenses incurred in connection with legal and
other proceedings arising from relationships or transactions with the Company. As the extent of the Company’s
obligations under these agreements depends entirely upon the occurrence of future events, the Company’s
potential future liability under these agreements is not determinable. See Note 5 (Fair Value).
Note 24. Foreign Exchange Risk Management
The Company enters into foreign currency forward contracts to manage risk associated with anticipated
receipts and disbursements which are either transacted in a non-functional currency or valued based on a
currency other than its functional currencies. The Company also enters into foreign currency forward contracts to
offset possible changes in value due to foreign exchange fluctuations of assets and liabilities denominated in
foreign currencies. The objective of this activity is to reduce the Company’s exposure to transaction gains and
losses resulting from fluctuations of foreign currencies against its functional currencies. On January 1, 2009, the
Company adopted the new disclosure requirements for derivative instruments and hedging activities. This
adoption had no impact on the Company’s financial position or results of operations; it required additional
financial statement disclosures. The Company has applied these disclosure requirements on a prospective basis.
Accordingly, disclosures related to periods prior to the date of adoption have not been presented.
MasterCard purchased U.K. pound sterling option contracts to limit the foreign exchange risk related to the
DataCash acquisition. The Company completed its acquisition of DataCash on October 22, 2010. See Note 2
(Acquisition of DataCash Group plc) for further details.
The Company does not designate foreign currency derivatives as hedging instruments pursuant to the
accounting standards for derivative instruments and hedging activities. The Company records the change in the
estimated fair value of the outstanding derivatives at the end of the reporting period to its consolidated balance
sheet and consolidated statement of operations.
135