MasterCard 2011 Annual Report Download - page 103

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. 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.
As of December 31, 2011, the Company believed 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 basis
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 a 10% discount to the par value of the ARS portfolio at
December 31, 2011 and 2010. The pre-tax impairment included in accumulated other comprehensive income
related to the Company’s ARS was $8 million and $12 million as of December 31, 2011 and 2010, 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 $3 million and $2 million at December 31, 2011 and 2010, respectively.
Carrying and Fair Values—Held-to-Maturity Investment Securities:
As of December 31, 2011, the Company owned a held-to-maturity municipal bond investment security,
yielding interest of 5.0% per annum. The bond relates to the Company’s back-up processing center in Kansas
City, Missouri. As of December 31, 2010, the Company also owned held-to-maturity investment securities,
consisting of U.S. Treasury notes and the municipal bond yielding interest of 5.0% per annum. The U.S. Treasury
notes matured during 2011. The carrying value, gross unrecorded gains and fair value of these held-to-maturity
investment securities were as follows:
December 31,
2011
December 31,
2010
(in millions)
Carrying value ............................................. $36 $336
Gross unrecorded gains ...................................... 1 2
Fair value ................................................. $37 $338
Investment Maturities:
The maturity distribution based on the contractual terms of the Company’s investment securities at
December 31, 2011 was as follows:
Available-For-Sale Held-To-Maturity
Amortized
Cost Fair Value
Carrying
Value Fair Value
(in millions)
Due within 1 year ............................ $ 490 $ 490 $— $—
Due after 1 year through 5 years ................. 461 469 36 37
Due after 5 years through 10 years ............... 54 56 — —
Due after 10 years ............................ 74 67 — —
No contractual maturity ....................... 206 203 — —
Total ...................................... $1,285 $1,285 $ 36 $ 37
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