MasterCard 2011 Annual Report Download - page 139

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2011 and 2010, respectively, no individual country other than the United States accounted for
more than 10% of total uncollateralized Settlement Exposure at either December 31, 2011 or 2010. Of the total
uncollateralized Settlement Exposure attributable to non-compliant customers, five customers represented
approximately 73% and 64% at December 31, 2011 and 2010, respectively.
MasterCard guarantees the payment of MasterCard-branded travelers cheques in the event of issuer default.
The guarantee estimate is based on all outstanding MasterCard-branded travelers cheques, reduced by an
actuarial determination of cheques that are not anticipated to be presented for payment. The term of the guarantee
is unlimited, while the amount is limited to cheques issued but not yet cashed. MasterCard calculated its
MasterCard-branded travelers cheques exposure under this guarantee as $325 million and $361 million at
December 31, 2011 and 2010, respectively. The reduction in travelers cheques exposure is attributable to
MasterCard-branded travelers cheques being cashed since they are 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 $250 million and $280 million at
December 31, 2011 and 2010, respectively, from a financial institution that is a customer, 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 as of December 31, 2011 and 2010, from a financial institution that is a
customer 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 also affect the Company’s settlement risk. For example, the European sovereign debt crisis
introduces a heightened level of risk to the Company. 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 also provides guarantees to customers and certain other companies indemnifying them from
losses stemming from failures of third parties to perform duties. The amount of these guarantees was estimated at
approximately $59 million and $20 million, as of December 31, 2011 and 2010, respectively. Included in this
estimate are certain unlimited guarantees provided in the ordinary course of business, for which the Company
historically has not experienced any losses.
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 22. 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.
135