MasterCard 2011 Annual Report Download - page 86

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Organization
MasterCard Incorporated and its consolidated subsidiaries, including MasterCard International Incorporated
(“MasterCard International” and together with MasterCard Incorporated, “MasterCard” or the “Company”), is a
global payments and technology company that connects consumers, financial institutions, merchants,
governments and businesses worldwide, enabling them to use electronic forms of payment instead of cash and
checks. MasterCard primarily (1) offers a wide range of payment solutions, which enable its customers (which
include financial institutions and other entities that act as “issuers” and “acquirers”) to develop and implement
credit, debit, prepaid and related payment programs for its customers (which include individual consumers,
businesses and government entities); (2) manages a family of well-known, widely-accepted payment brands,
including MasterCard®, Maestro®and Cirrus®, which it licenses to its customers for use in their payment
programs; (3) processes payment transactions over the MasterCard Worldwide Network; and (4) provides
support services to its customers and, depending upon the service, merchants and other clients.
Consolidation and basis of presentation
The consolidated financial statements include the accounts of MasterCard and its majority-owned and
controlled entities, including any variable interest entities for which the Company is the primary beneficiary.
Intercompany transactions and balances have been eliminated in consolidation. Certain prior period amounts
have been reclassified to conform to the 2011 presentation. The Company follows accounting principles
generally accepted in the United States of America (“GAAP”).
The Company is a variable interest holder in certain entities that do not have sufficient equity at risk to
finance their activities without additional subordinated financial support from other parties or whose equity
investors lack the ability to control the entity’s activities (referred to as VIEs). These variable interests arise from
contractual, ownership or other monetary interests in the entities. The Company consolidates a VIE if it is the
primary beneficiary, defined as the entity that has both the power to direct the activities that most significantly
impact the VIE’s economic performance and a variable interest that could potentially be significant to the VIE.
To determine whether or not a variable interest the Company holds could potentially be significant to the VIE,
the Company considers both qualitative and quantitative factors regarding the nature, size and form of the
Company’s involvement with the VIE. The Company assesses whether or not it is the primary beneficiary of a
VIE on an on-going basis. Investments in variable interest entities for which the Company is not considered the
primary beneficiary are not consolidated and are accounted for as equity method or cost method investments. See
Note 14 (Consolidation of Variable Interest Entity) for further discussion.
Non-controlling interests represent the equity interest not owned by the Company and is recorded for
consolidated entities in which the Company owns less than 100% of the interests. Non-controlling interests are
reported as a component of equity. In addition, changes in a parent’s ownership interest while the parent retains
its controlling interest are accounted for as equity transactions, and upon a gain or loss of control, retained
ownership interests are remeasured at fair value, with any gain or loss recognized in earnings.
The Company accounts for investments in common stock or in-substance common stock under the equity
method of accounting when it has the ability to exercise significant influence over the investee, generally when it
holds between 20% and 50% ownership in the entity. The excess of the cost over the underlying net equity of
investments accounted for under the equity method is allocated to identifiable tangible and intangible assets and
liabilities based on fair values at the date of acquisition. The amortization of the excess of the cost over the
underlying net equity of investments and MasterCard’s share of net earnings or losses of entities accounted for
under the equity method of accounting is included in other income (expense) on the consolidated statement of
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