MasterCard 2013 Annual Report Download - page 54

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the needs for future expansion and support of our international operations. If our business plans change or our future
outcomes differ from our expectations, U.S. income tax expense and our effective tax rate could increase or decrease
in that period.
Valuation of Assets
The valuation of assets acquired in a business combination and asset impairment reviews require the use of significant
estimates and assumptions. The acquisition method of accounting for business combinations requires the Company to
estimate the fair value of assets acquired, liabilities assumed, and any non-controlling interest in the acquiree to properly
allocate purchase price consideration between assets that are depreciated and amortized from goodwill. Impairment
testing for assets, other than goodwill and indefinite-lived intangible assets, requires the allocation of cash flows to
those assets or group of assets and if required, an estimate of fair value for the assets or group of assets. The Company’s
estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.
These valuations require the use of management’s assumptions, which would not reflect unanticipated events and
circumstances that may occur.
We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis or sooner if indicators
of impairment exist. In the fourth quarter of 2012, the Company early adopted new Financial Accounting Standards
Board (FASB) guidance that simplifies how an entity tests indefinite-lived intangible assets for impairment, allowing
a qualitative assessment to be performed, which is similar to the FASB guidance for evaluating goodwill for impairment.
In performing these qualitative assessments, we consider relevant events and conditions, including but not limited to,
macroeconomic trends, industry and market conditions, overall financial performance, cost factors, company-specific
events, legal and regulatory factors and the Company's market capitalization. If the qualitative assessments indicate
that it is more likely than not that the fair value of the reporting unit or indefinite-lived intangible assets are less than
their carrying amounts, the Company must perform a quantitative impairment test.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential for economic losses to be incurred on market risk sensitive instruments arising from adverse
changes in market factors such as interest rates, foreign currency exchange rates and equity price risk. Our exposure
to market risk from changes in interest rates, foreign exchange rates and equity price risk is limited. Management
establishes and oversees the implementation of policies governing our funding, investments and use of derivative
financial instruments. We monitor risk exposures on an ongoing basis. The effect of a hypothetical 10% adverse change
in foreign currency rates could result in a fair value loss of approximately $189 million on our foreign currency derivative
contracts outstanding at December 31, 2013 related to the hedging program. A 100 basis point adverse change in
interest rates would not have a material impact on the Company's financial assets or liabilities at December 31, 2013
and 2012. In addition, there was no material equity price risk at December 31, 2013 or 2012. The Dodd-Frank Wall
Street Reform and Consumer Protection Act in the United States includes provisions related to derivative financial
instruments. The Company believes the adoption of such provisions will not have a material adverse effect on the
Company's financial position or results of operations.
Foreign Exchange Risk
We enter into 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 our functional currency. We also enter
into foreign currency derivative contracts to offset possible changes in value due to foreign exchange fluctuations of
earnings, assets and liabilities denominated in currencies other than the functional currency of the entity. The objective
of these activities is to reduce our exposure to transaction gains and losses resulting from fluctuations of foreign
currencies against our functional and reporting currencies, principally the U.S. dollar and euro. The terms of the forward
contracts are generally less than 18 months.