MasterCard 2012 Annual Report Download - page 98

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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
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, 2012, 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, 2012 and 2011. The pre-tax impairment included in accumulated other comprehensive income
related to the Company’s ARS was $3 million and $8 million as of December 31, 2012 and 2011, 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 $2 million and $3 million at December 31, 2012 and 2011, respectively.
Investment Maturities:
The maturity distribution based on the contractual terms of the Company’s investment securities at
December 31, 2012 was as follows:
Available-For-Sale
Amortized
Cost Fair Value
(in millions)
Due within 1 year ................................................ $1,418 $1,418
Due after 1 year through 5 years .................................... 1,254 1,263
Due after 5 years through 10 years .................................. 59 60
Due after 10 years ............................................... 35 32
No contractual maturity ........................................... 209 210
Total .......................................................... $2,975 $2,983
All the securities due after ten years are ARS. Taxable short-term bond funds have been included in the
table above in the no contractual maturity category, as these investments do not have a stated maturity date;
however, the short-term bond funds have daily liquidity.
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