MasterCard 2011 Annual Report Download - page 102

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2010
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss 1
Fair
Value
(in millions)
Municipal securities ............................ $305 $ 10 $— $315
Taxable short-term bond funds .................... 511 5 — 516
Auction rate securities .......................... 118 — (12) 106
Total ........................................ $934 $ 15 $ (12) $937
1The unrealized losses primarily 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 securities are primarily comprised of tax-exempt bonds and are diversified across states and
sectors. The short-term bond funds invest in fixed income securities, including corporate bonds, mortgage-
backed securities and asset-backed securities. The corporate securities are comprised of fixed income securities,
including commercial paper and corporate bonds.
The Company holds investments in ARS. Interest on these securities is exempt from U.S. federal income
tax.
Beginning on February 11, 2008, the auction mechanism that normally provided liquidity to the ARS
investments began to fail. Since mid-February 2008, all 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. As of December 31, 2011, 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 2011, 2010 and
2009, the Company did not sell any ARS in the auction market, but there were calls at par.
The table below includes a roll-forward of the Company’s ARS investments from January 1, 2010 to
December 31, 2011.
Significant
Unobservable
Inputs (Level 3)
(in millions)
Fair value, December 31, 2009 ............................................ $180
Calls, at par ........................................................... (94)
Recovery of unrealized losses due to issuer calls .............................. 13
Increase in fair value .................................................... 7
Fair value, December 31, 2010 ............................................ 106
Calls, at par ........................................................... (40)
Recovery of unrealized losses due to issuer calls .............................. 4
Fair value, December 31, 2011 ............................................ $ 70
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
98