MasterCard 2012 Annual Report Download - page 128

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2012, all forward contracts to purchase and sell foreign currency had been entered into
with customers of MasterCard. MasterCard’s derivative contracts are summarized below:
December 31, 2012 December 31, 2011
Notional
Estimated
Fair Value Notional
Estimated
Fair Value
(in millions)
Commitments to purchase foreign currency ......... $ 76 $ (1) $ 21 $—
Commitments to sell foreign currency .............. 1,571 (2) 279 2
Balance Sheet Location:
Accounts Receivable ........................ $12 $ 4
Other Current Liabilities .................... (15) (2)
The amount of gain (loss) recognized in income for the contracts to purchase and sell foreign currency are
summarized below:
Year Ended December 31,
2012 2011 2010
(in millions)
Foreign currency derivative contracts
General and administrative .................................... $22 $(6) $(17)
Revenues .................................................. (6) (3) (3)
Total ..................................................... $16 $(9) $(20)
The fair value of the foreign currency forward contracts generally reflects the estimated amounts that the
Company would receive (or pay), on a pre-tax basis, to terminate the contracts at the reporting date based on
broker quotes for the same or similar instruments. The terms of the foreign currency forward contracts are
generally less than 18 months. The Company had no deferred gains or losses related to foreign exchange in
accumulated other comprehensive income as of December 31, 2012 and 2011 as there were no derivative
contracts accounted for under hedge accounting.
The Company’s derivative financial instruments are subject to both market and counterparty credit risk.
Market risk is the risk of loss due to the potential change in an instrument’s value caused by fluctuations in
interest rates and other variables related to currency exchange rates. The effect of a hypothetical 10% adverse
change in foreign currency rates could result in a fair value loss of approximately $166 million on the Company’s
foreign currency derivative contracts outstanding at December 31, 2012 related to the hedging program.
Counterparty credit risk is the risk of loss due to failure of the counterparty to perform its obligations in
accordance with contractual terms. To mitigate counterparty credit risk, the Company enters into derivative
contracts with selected financial institutions based upon their credit ratings and other factors. Generally, the
Company does not obtain collateral related to derivatives because of the high credit ratings of the counterparties.
Note 21. Segment Reporting
MasterCard has concluded it has one operating and reportable segment, “Payment Solutions.” MasterCard’s
President and Chief Executive Officer has been identified as the chief operating decision-maker. All of the
Company’s activities are interrelated, and each activity is dependent upon and supportive of the other.
Accordingly, all significant operating decisions are based upon analysis of MasterCard at the consolidated level.
Revenue by geographic market is based on the location of the Company’s customer that issued the card, as
well as the location of the merchant acquirer where the card is being used. Revenue generated in the U.S. was
124