MasterCard 2015 Annual Report Download - page 69

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
63
The distribution of the Company’s financial instruments which are measured at fair value on a recurring basis within the Valuation
Hierarchy was as follows:
December 31, 2015
Quoted Prices
in Active
Markets
(Level 1) 1
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair
Value
(in millions)
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 62 $ — $ 62
U.S. government and agency securities 2. . . . . . . . . . . . . . . . . . . 31 41 — 72
Corporate securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 630 — 630
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 57 — 57
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 52 — 54
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33 $ 842 $ — $ 875
December 31, 2014
Quoted Prices
in Active
Markets
(Level 1) 1
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair
Value
(in millions)
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 135 $ — $ 135
U.S. government and agency securities 2. . . . . . . . . . . . . . . . . . . 85 114 — 199
Corporate securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 618 — 618
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 178 — 178
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 56 — 69
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98 $ 1,101 $ — $ 1,199
1 During 2015, U.S. government securities were reclassified from Level 2 to Level 1 due to a reassessment of the availability of quoted prices. Prior
period amounts have been revised to conform to the 2015 presentation.
2 Excludes amounts held in escrow related to the U.S. merchant class litigation settlement of $541 million and $540 million at December 31, 2015 and
December 31, 2014, which would be included in Level 1 of the Valuation Hierarchy. See Note 10 (Accrued Expenses and Accrued Litigation) and Note
18 (Legal and Regulatory Proceedings) for further details.
The fair value of the Company’s available-for-sale municipal securities, U.S. government agency securities, corporate securities,
asset-backed securities and other fixed income securities included in the Other category are based on quoted prices for similar
assets in active markets and are therefore included in Level 2 of the Valuation Hierarchy. The Company’s foreign currency derivative
contracts have also been classified within Level 2 in the Other category of the Valuation Hierarchy, as the fair value is based on
broker quotes for the same or similar derivative instruments. See Note 20 (Foreign Exchange Risk Management) for further
details. The Company’s U.S. government securities and marketable equity securities are classified within Level 1 of the Valuation
Hierarchy as the fair values are based on unadjusted quoted prices for identical assets in active markets.
Financial Instruments - Non-Recurring Measurements
Certain financial instruments are carried on the consolidated balance sheet at cost, which approximates fair value due to their
short-term, highly liquid nature. These instruments include cash and cash equivalents, restricted cash, time deposits, accounts
receivable, settlement due from customers, restricted security deposits held for customers, accounts payable, settlement due
to customers and accrued expenses. In addition, nonmarketable equity investments are measured at fair value on a nonrecurring
basis for purposes of initial recognition and impairment testing.
Investments on the Consolidated Balance Sheet include both available-for-sale and held-to-maturity securities. Available-for-
sale securities are measured at fair value on a recurring basis and are included in the Valuation Hierarchy table above. Held-to-
maturity securities are made up of time deposits with maturities of greater than three months and less than one year and are
classified as Level 2 of the Valuation Hierarchy, but are not included in the table above due to their fair values not being measured
on a recurring basis. At December 31, 2015 and December 31, 2014, the cost, which approximates fair value, of the Company’s
held-to-maturity securities was $130 million and $70 million, respectively.