Mastercard (MA)

Overview

MasterCard is a leading global payment solutions company that provides a variety of services in support of the credit, debit and related payment programs of over 24,000 financial institutions and other entities that are our customers. We develop and market payment solutions, process payment transactions, and provide support services to our customers and, depending upon the service, to merchants and other clients. We manage a family of well-known, widely accepted payment card brands, including MasterCard^®, MasterCard Electronic™, Maestro^® and Cirrus^®, which we license to our customers. As part of managing these brands, we also establish and enforce rules and standards surrounding the use of our payment card network. We generate revenues from the fees that we charge our customers for providing transaction processing and other payment-related services and by assessing our customers based primarily on the dollar volume of activity on the cards that carry our brands. Cardholder and merchant relationships are managed principally by our customers. Accordingly, we do not issue cards, extend credit to cardholders, determine the interest rates (if applicable) or other fees charged to cardholders by issuers, or establish the merchant discount charged by acquirers in connection with the acceptance of cards that carry our brands.

We recorded net income of $367 million, or $2.80 per diluted share, for the three months ended March 31, 2009 versus net income of $447 million, or $3.37 per diluted share, for the three months ended March 31, 2008. As of March 31, 2009, our liquidity and capital positions remained strong, with $2.3 billion in cash, cash equivalents and current available-for-sale securities and $2.2 billion in equity.

Our net revenues decreased 2.2% in the three months ended March 31, 2009, versus the comparable period in 2008, primarily due to unfavorable foreign currency exchange impacts and higher rebates and incentives partially offset by pricing, increased transactions and increases in other payment-related services. The U.S. dollar strengthened versus the euro and Brazilian real, which decreased revenue by 4.0 percentage points. This decrease in revenues was almost entirely offset by an increase in revenues for the impact of pricing in the three months ended March 31, 2009.

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Our operating expenses decreased 10.8% in the three months ended March 31, 2009, versus the comparable period in 2008. The decrease in operating expenses in the three months ended March 31, 2009 was primarily due to cost containment initiatives and favorable foreign exchange impacts. Foreign currency fluctuation of the euro and the Brazilian real against the dollar contributed 2.9 percentage points to the decrease. Our operating expenses as a percentage of total net revenues were 51.4% in the three months ended March 31, 2009 versus 56.4% in the comparable period in 2008.

As part of a review of its presentation of certain of its financial information, during the three months ended March 31, 2009, the Company: (1) modified its presentation of details of the Company’s major revenue categories included within the Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) section of filings with the U.S. Securities and Exchange Commission (the “SEC”) and (2) reclassified certain cardholder-related enhancement expenses. In each case, the Company’s intent was to better align such information with the way in which management views the underlying drivers of the business and analyzes the Company’s results of operations. The modifications to the presentation within the MD&A of the detail of the Company’s revenue categories did not result in any changes to the Company’s historical financial statements and had no effect on the overall calculation of net revenue presented in the financial statements. The reclassification of certain cardholder-related enhancement expenses did not result in any impact to the Company’s overall operating expenses. See “—Operating Expenses” for more information.

We believe the trend within the global payments industry from paper-based forms of payment, such as cash and checks, toward electronic forms of payment, such as card payment transactions, creates significant opportunities for the growth of our business over the longer term. See, however, “—Business Environment” for a discussion of environmental considerations related to our long-term strategic objectives.

Overview

This Compensation Discussion and Analysis describes the material elements of compensation for our executive officers who are listed in the Summary Compensation Table following this section (the “named executive officers”). Our Compensation Committee is primarily responsible for ensuring on behalf of the Board of Directors that the compensation and benefit programs of the Company are competitive and appropriate to attract, retain and motivate our employees, including our named executive officers, and that the interests of our employees are aligned with stockholders’ interests.

Overview

MasterCard is a leading global payment solutions company that provides a variety of services in support of the credit, debit and related payment programs of over 24,000 financial institutions and other entities that are our customers. Through our three-tiered business model as franchisor, processor and advisor, we develop and market payment solutions, process payment transactions, and provide support services to our customers and, depending upon the service, to merchants and other clients. We manage a family of well-known, widely accepted payment card brands, including MasterCard^®, MasterCard Electronic™, Maestro^® and Cirrus^®, which we license to our customers. As part of managing these brands, we also establish and enforce rules and standards surrounding the use of our payment card network. We generate revenues from the fees that we charge our customers for providing transaction processing and other payment-related services (operations fees) and by assessing our customers based primarily on the dollar volume of activity on the cards that carry our brands (assessments).

A typical transaction processed over our network involves four parties in addition to us: the cardholder, the merchant, the issuer (the cardholder’s bank) and the acquirer (the merchant’s bank). Consequently, the payment network we operate is often referred to as a “four-party” payment system. Our customers are the financial institutions and other entities that act as issuers and acquirers. Using our transaction processing services, issuers and acquirers facilitate payment transactions between cardholders and merchants throughout the world, providing merchants with an efficient and secure means of receiving payment, and consumers and businesses with a convenient, quick and secure payment method that is accepted worldwide. We guarantee the settlement of many of these transactions among our customer financial institutions to ensure the integrity of our payment network. In addition, we undertake a variety of marketing activities designed to maintain and enhance the value of our brands. However, cardholder and merchant transaction relationships are managed principally by our customers. Accordingly, we do not issue cards, extend credit to cardholders, determine the interest rates (if applicable) or

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other fees charged to cardholders by issuers, or establish the merchant discount charged by acquirers in connection with the acceptance of cards that carry our brands.

Our business has a global reach and has continued to experience growth. Gross dollar volume (“GDV”) on cards carrying the MasterCard brand as reported by our customers was approximately $2.5 trillion in 2008, an 11.5% increase in U.S. dollar terms and a 10.7% increase in local currency terms over the GDV reported in 2007. In 2008, we processed 21.0 billion transactions, an 11.8% increase over the number of transactions processed in 2007.

We believe the trend within the global payments industry from paper-based forms of payment, such as cash and checks, toward electronic forms of payment, such as card payment transactions, creates significant opportunities for the growth of our business. Our strategy is to continue to grow by further penetrating our existing customer base and by expanding our role in targeted geographies and higher-growth segments of the global payments industry (such as premium/affluent and contactless cards, commercial payments, debit, prepaid and issuer processor and terminal driving services), enhancing our merchant relationships, expanding points of acceptance for our brands, seeking to maintain unsurpassed acceptance and continuing to invest in our brands. We also intend to pursue incremental payment processing opportunities throughout the world. We are committed to providing our customers with coordinated services through integrated, dedicated account teams in a manner that allows us to capitalize on our expertise in payment programs, marketing, product development, technology, processing and consulting and information services for these customers. By investing in strong customer relationships over the long term, we believe that we can increase our volume of business with customers over time.

We operate in a dynamic and rapidly evolving legal and regulatory environment. In recent years, we have faced heightened regulatory scrutiny and other legal challenges, particularly with respect to interchange fees. Interchange fees, which represent a sharing of payment system costs among acquirers and issuers, have been the subject of increased regulatory and legislative scrutiny and litigation as card-based forms of payment have become relatively more important to local economies. Although we establish certain interchange rates and collect and remit interchange fees on behalf of our customers, we do not earn revenues from interchange fees. However, if issuers were unable to collect interchange fees or were to receive reduced interchange fees, we may experience a reduction in the number of financial institutions willing to participate in a four-party payment card system such as ours and/or a reduction in the rate of number of cards issued, as well as lower overall transaction volumes. Proprietary end-to-end networks or other forms of payment may also become more attractive. Issuers might also decide to charge higher fees to cardholders, thereby making our card programs less desirable and reducing our transaction volumes and profitability. They also may attempt to decrease the expense of their card programs by seeking a reduction in the fees that we charge. In addition to those challenges relating to interchange fees, we are also exposed to a variety of significant lawsuits and regulatory actions, including federal antitrust claims, and claims under state unfair competition statutes. See “Risk Factors—Legal and Regulatory Risks” in Item 1A of this Report.

MasterCard Incorporated was incorporated as a Delaware stock corporation in May 2001. We conduct our business principally through MasterCard Incorporated’s principal operating subsidiary, MasterCard International Incorporated (“MasterCard International”), a Delaware membership corporation that was formed in November 1966. Our financial institution customers are generally either principal members of MasterCard International, which participate directly in MasterCard International’s business, or affiliate members of MasterCard International, which participate indirectly in MasterCard International’s business through a principal member. In May 2006, we completed a plan for a new ownership and governance structure for MasterCard Incorporated, which we refer to as the “ownership and governance transactions”, and which included the appointment of a new Board of Directors comprised of a majority of directors who are independent from our financial institution customers and the establishment of a charitable foundation incorporated in Canada, The MasterCard Foundation (the “Foundation”). Part of the ownership and governance transactions included an initial public offering of a new class of common stock (the “IPO”) in May 2006. Prior to our change in governance and ownership structure,

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the common stock of MasterCard Incorporated was owned by principal members of MasterCard International. For more information about our capital structure, voting rights of our common stock, repurchases of our Class A common stock and conversions of shares of our Class B common stock into shares of our voting Class A common stock, see Note 14 (Stockholders’ Equity) to the consolidated financial statements included in Item 8 of this Report.

Overview

Overview

Overview

MasterCard is a leading global payment solutions company that provides a variety of services in support of the credit, debit and related payment programs of over 24,000 financial institutions and other entities that are our customers. We develop and market payment solutions, process payment transactions, and provide support services to our customers and, depending upon the service, to merchants and other clients. We manage a family of well-known, widely accepted payment card brands, including MasterCard^®, MasterCard Electronic™, Maestro^® and Cirrus^®, which we license to our customers. As part of managing these brands, we also establish and enforce rules and standards surrounding the use of our payment card network. We generate revenues from the fees that we charge our customers for providing transaction processing and other payment-related services (operations fees) and by assessing our customers based primarily on the dollar volume of activity on the cards that carry our brands (assessments). Cardholder and merchant relationships are managed principally by our customers. Accordingly, we do not issue cards, extend credit to cardholders, determine the interest rates (if applicable) or other fees charged to cardholders by issuers, or establish the merchant discount charged by acquirers in connection with the acceptance of cards that carry our brands.

We recorded a net loss of $254 million, or $1.95 per diluted share, for the year ended December 31, 2008 versus net income of $1.1 billion, or $8.00 per diluted share, for the year ended December 31, 2007 and net income of $50 million, or $0.37 per diluted share, in 2006. As of December 31, 2008, our liquidity and capital positions remained strong, with $2.1 billion in cash, cash equivalents and current available-for-sale securities and $1.9 billion in stockholders’ equity as of December 31, 2008.

Net revenue growth of 22.7% in 2008 was primarily due to increased transactions and volumes. The foreign currency fluctuation of the euro and the Brazilian real against the dollar contributed 2.5 percentage points of the increase while pricing adjustments contributed approximately 6 percentage points to the net revenue growth. During the fourth quarter of 2008, we began to experience a slowdown in purchase volumes and transactions, primarily due to economic conditions around the world. See “—Business Environment Challenges” for additional information.

Our operating expenses increased 86.7% in 2008. Excluding the impact of special items specifically identified in the reconciliation table included in “—Operating Expenses”, operating expenses increased 2.9% in 2008, of which 1.7 percentage points was due to foreign currency fluctuation of the euro and Brazilian real against the U.S. dollar. The increase in operating expenses in 2008 was primarily due to litigation settlements. See “—Litigation Settlements” and Note 18 (Obligations Under Litigation Settlements) and Note 20 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Item 8 of this Report for additional information related to our litigation settlements. The increase in operating expenses in 2008, excluding the impact of special items, was primarily due to increases in general and administrative expenses and foreign currency fluctuations, partially offset by decreases in advertising and marketing expenses. Our operating expenses as a percentage of total net revenues were 110.7% in 2008, versus 72.8% in 2007 and 93.1% in 2006. Excluding the impact of special items, our operating expenses as a percentage of total net revenues were 61.0% in 2008 versus 72.7% in 2007 and 80.5% in 2006.

Other income in 2008 included realized gains of approximately $86 million for the sale of the remaining shares of an available-for-sale security, Redecard S.A., and $75 million related to the termination of a customer business agreement. Other income in 2007 included realized gains of approximately $391 million for the partial sale of our holdings of equity securities of Redecard S.A. that were classified as an available-for-sale security, and $90 million from the organization that operates the World Cup soccer events in resolution of all outstanding disputes pertaining to our sponsorship of the 2010 and 2014 World Cup soccer events. See “—Other Income (Expense)”.

We believe the trend within the global payments industry from paper-based forms of payment, such as cash and checks, toward electronic forms of payment, such as card payment transactions, creates significant opportunities for the growth of our business. Our strategy is to continue to grow by further penetrating our

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existing customer base and by expanding our role in targeted geographies and higher-growth segments of the global payments industry (such as premium/affluent and contactless cards, commercial payments, debit, prepaid and issuer processor and terminal driving services), enhancing our merchant relationships, expanding points of acceptance for our brands, seeking to maintain unsurpassed acceptance and continuing to invest in our brands. We also intend to pursue incremental payment processing opportunities throughout the world. We are committed to providing our customers with coordinated services through integrated, dedicated account teams in a manner that allows us to capitalize on our expertise in payment programs, marketing, product development, technology, processing and consulting and information services for these customers. By investing in strong customer relationships over the long-term, we believe that we can increase our volume of business with customers over time. See “—Business Environment Challenges” for discussion of environmental considerations related to our strategic objectives.

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Overview

Overview

Overview

We are a global payment solutions company that provides a variety of services in support of our customers’ credit, debit and related payment programs. We manage a family of well-known, widely accepted payment card brands including MasterCard^®, MasterCard Electronic™, Maestro^® and Cirrus^®, which we license to our customers. As part of managing these brands, we also establish and enforce rules and standards surrounding the use of our payment card system. Cardholder and merchant relationships are managed principally by our customers. Accordingly, we do not issue cards, extend credit to cardholders, determine the interest rates (if applicable) or other fees charged to cardholders by issuers, or establish the merchant discount charged by acquirers in connection with the acceptance of cards that carry our brands.

Our financial results during the three and nine months ended September 30, 2008 were significantly impacted by the legal environment in which we operate our business. During the three and nine months ended September 30, 2008, we recorded provisions for litigation settlements of $828 million and $2.477 billion, respectively. See Notes 12 and 17 to the Consolidated Financial Statements included in Part I, Item 1 and “– Operating Expenses” in Part I, Item 2 of this Form 10-Q for further discussion. As a result of these settlements, we recorded net losses of $194 million, or $1.49 per diluted share, and $493 million, or $3.79 per diluted share, for the three and nine months ended September 30, 2008, respectively, versus net income of $314 million, or $2.31 per diluted share, and $782 million, or $5.73 per diluted share, in the comparable periods in 2007. As of September 30, 2008, our liquidity and capital positions remained strong with $2.8 billion in cash, cash equivalents and current available-for-sale securities, and $1.8 billion in stockholders’ equity.

We achieved net revenue growth of 23.6% and 25.8% for the three and nine months ended September 30, 2008, respectively, primarily due to increased transactions and volumes. Pricing increases accounted for approximately 5 percentage points of our net revenue growth in each of the three and nine months ended September 30, 2008 versus the comparable periods in 2007. Foreign currency fluctuation of the euro and Brazilian real against the U.S. dollar accounted for 3.5 and 4.6 percentage points of our net revenue growth for the three and nine months ended September 30, 2008, respectively, versus the comparable periods in 2007.

Our operating expenses increased 121.7% and 131.4% for the three and nine months ended September 30, 2008, respectively, versus the comparable periods in 2007. Excluding the impact of litigation settlements identified in the table included in “– Operating Expenses”, our operating expenses increased 8.3% and 11.3% in the three and nine months ended September 30, 2008, respectively, versus the comparable periods in 2007, of which 2.4 and 3.3 percentage points, respectively, were due to the foreign currency fluctuation of the euro and Brazilian real against the U.S. dollar. See “—Impact of Foreign Currency Rates”.

Other income in the nine months ended September 30, 2008 included realized gains of approximately $86 million for the sale of the remaining shares of our available-for-sale security, Redecard S.A., and $75 million related to the termination of a customer business agreement. See “—Other Income (Expense)”.

We believe the trend within the global payments industry from paper-based forms of payment, such as cash and checks, toward electronic forms of payment, such as cards, creates significant opportunities for the continued growth of our business. Our strategy is to continue our growth by further penetrating our existing customer base and by expanding our role in targeted geographies and higher-growth segments of the global payments industry (such as premium/affluent and contactless cards, commercial payments and debit), enhancing our merchant relationships, growing acceptance and continuing to invest in our brands. We also intend to pursue incremental payment processing opportunities throughout the world. We are committed to providing our customers with coordinated services through integrated, dedicated account teams in a manner that allows us to capitalize on our expertise in payment programs, marketing, product development, technology, processing, consulting and information services. By investing in strong customer relationships over the long-term, we believe that we can increase our volume of business with customers over time. See “—Business Environment Challenges” for discussion of environmental considerations related to our strategic objectives.

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Overview

We are a global payment solutions company that provides a variety of services in support of our customers’ credit, debit and related payment programs. We manage a family of well-known, widely accepted payment card brands including MasterCard^®, MasterCard Electronic™, Maestro^® and Cirrus^®, which we license to our customers. As part of managing these brands, we also establish and enforce rules and standards surrounding the use of our payment card system. Cardholder and merchant relationships are managed principally by our customers. Accordingly, we do not issue cards, extend credit to cardholders, determine the interest rates (if applicable) or other fees charged to cardholders by issuers, or establish the merchant discount charged by acquirers in connection with the acceptance of cards that carry our brands.

Our financial results during the three and six months ended June 30, 2008 were significantly impacted by the legal environment in which we operate our business. During the second quarter, we settled a lawsuit (the “American Express Settlement”) with American Express Company (“American Express”) which resulted in a pre-tax charge of $1.649 billion. Accordingly, we recorded a net loss of $747 million, or $5.74 per diluted share, and $300 million, or $2.29 per diluted share, for the three and six months ended June 30, 2008, respectively, versus net income of $252 million, or $1.85 per diluted share, and $467 million, or $3.42 per diluted share, in the comparable periods in 2007. As of June 30, 2008, our liquidity and capital positions remained strong with $2.5 billion in cash, cash equivalents and current available-for-sale securities, and $2.0 billion in stockholders’ equity.

We achieved net revenue growth of 25.0% and 27.0% for the three and six months ended June 30, 2008, respectively, primarily due to increased transactions and volumes. Foreign currency fluctuation of the euro and Brazilian real against the U.S. dollar accounted for 5.4 and 5.2 percentage points of our net revenue growth for the three and six months ended June 30, 2008, respectively, versus the comparable periods in 2007. Pricing increases accounted for approximately 5 percentage points of our net revenue growth in each of the three and six month periods ended June 30, 2008, respectively, versus the comparable periods in 2007.

Our operating expenses increased 240.6% and 136.7% for the three and six months ended June 30, 2008, respectively, versus the comparable periods in 2007. Excluding the impact of litigation settlements identified in the table included in “—Operating Expenses”, our operating expenses increased 14.6% and 12.9% in the three and six months ended June 30, 2008, respectively, versus the comparable periods in 2007, of which 4.5 and 3.9 percentage points, respectively, were due to the foreign currency fluctuation of the euro and Brazilian real against the U.S. dollar. See “—Impact of Foreign Currency Rates”.

Other income in the six months ended June 30, 2008 included realized gains of approximately $86 million for the sale of the remaining shares of our available-for-sale security, Redecard S.A., and $75 million related to the termination of a customer business agreement. See “—Other Income (Expense)”.

We believe the trend within the global payments industry from paper-based forms of payment, such as cash and checks, toward electronic forms of payment, such as cards, creates significant opportunities for the continued growth of our business. Our strategy is to continue our growth by further penetrating our existing customer base and by expanding our role in targeted geographies and higher-growth segments of the global payments industry (such as premium/affluent and contactless cards, commercial payments and debit), enhancing our merchant relationships, growing acceptance and continuing to invest in our brands. We also intend to pursue incremental payment processing opportunities throughout the world. We are committed to providing our customers with coordinated services through integrated, dedicated account teams in a manner that allows us to capitalize on our expertise in payment programs, marketing, product development, technology, processing, consulting and information services. By investing in strong customer relationships over the long-term, we believe that we can increase our volume of business with customers over time.

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Overview

We are a global payment solutions company that provides a variety of services in support of our customers’ credit, debit and related payment programs. We manage a family of well-known, widely accepted payment card brands including MasterCard^®, MasterCard Electronic™, Maestro^® and Cirrus^®, which we license to our customers. As part of managing these brands, we also establish and enforce rules and standards surrounding the use of our payment card system. Cardholder and merchant relationships are managed principally by our customers. Accordingly, we do not issue cards, extend credit to cardholders, determine the interest rates (if applicable) or other fees charged to cardholders by issuers, or establish the merchant discount charged by acquirers in connection with the acceptance of cards that carry our brands.

We recorded net income of $447 million, or $3.38 per diluted share, for the three months ended March 31, 2008 compared to $215 million, or $1.57 per diluted share, in the same period in 2007. Our liquidity and capital positions remain strong with $2.7 billion in cash, cash equivalents and current available-for-sale securities, and $3.2 billion in stockholders’ equity as of March 31, 2008.

We achieved net revenue growth of 29.2% in the first three months of 2008, compared to the first three months of 2007, principally due to increased transactions and volumes. Foreign currency fluctuation of the euro and the Brazilian real against the U.S. dollar accounted for 5.1% and pricing increases accounted for approximately 6% of the net revenue growth, respectively.

Operating expenses increased 10.9% in the first three months of 2008, compared to the first three months of 2007, of which 3.3% was due to the impact of foreign currency fluctuation related to the euro and the real. The increase in operating expenses was primarily due to an increase in general and administrative expenses to support our customer focused strategy. Our operating expenses as a percentage of total revenues were 56.4% in the first three months of 2008 versus 65.7% in the comparable period a year ago.

Other income in the three months ended March 31, 2008 includes realized gains of approximately $86 million for the sale of the remaining shares of our available-for-sale security, Redecard S.A., and $75 million related to the termination of a customer business agreement. See “—Other Income (Expense)”.

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Regulatory actions, litigation, the economic environment and any resulting impact on credit risk and/or consumer spending, competition, consolidation within the banking industry and the growing influence of customers and merchants may lead us to change our pricing arrangements, reducing our overall revenues and having an adverse impact on our business. See Item 1A – Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 for these and other risks facing our business.

We believe the trend within the global payments industry from paper-based forms of payment, such as cash and checks, toward electronic forms of payment, such as cards, creates significant opportunities for the continued growth of our business. Our strategy is to continue our growth by further penetrating our existing customer base and by expanding our role in targeted geographies and higher-growth segments of the global payments industry (such as premium/affluent and contactless cards, commercial payments and debit), enhancing our merchant relationships, growing acceptance and continuing to invest in our brands. We also intend to pursue incremental payment processing opportunities throughout the world. We are committed to providing our customers with coordinated services through integrated, dedicated account teams in a manner that allows us to capitalize on our expertise in payment programs, marketing, product development, technology, processing, consulting and information services. By investing in strong customer relationships over the long-term, we believe that we can increase our volume of business with customers over time.

Overview

This Compensation Discussion and Analysis describes the material elements of compensation for our executive officers. Our Compensation Committee is primarily responsible for ensuring on behalf of the Board of Directors that the compensation and benefit programs of the Company are competitive and appropriate to attract, retain and motivate our employees, including our named executive officers, who are listed in the Summary Compensation Table following this section, and that the interests of our employees are aligned with stockholders’ interests.

Overview

Overview

We are a global payment solutions company that provides a variety of services in support of our customers’ credit, debit and related payment programs. We manage a family of well-known, widely accepted payment card brands including MasterCard^®, MasterCard Electronic™, Maestro^® and Cirrus^®, which we license to our customers. As part of managing these brands, we also establish and enforce rules and standards surrounding the use of our payment card system. Cardholder and merchant relationships are managed principally by our customers. Accordingly, we do not issue cards, extend credit to cardholders, determine the interest rates (if applicable) or other fees charged to cardholders by issuers, or establish the merchant discount charged by acquirers in connection with the acceptance of cards that carry our brands.

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We recorded net income of $1.1 billion, or $8.00 per diluted share, for the year ended December 31, 2007 versus $50 million, or $0.37 per diluted share, in 2006. Our liquidity and capital position remain strong, with $3.0 billion in cash, cash equivalents and available-for-sale securities and $3.0 billion in stockholders’ equity as of December 31, 2007.

Net revenue growth of 22.3% in 2007 was primarily due to increased transactions and volumes. The foreign currency fluctuation of the euro and the Brazilian real against the dollar accounted for 3.1% of the growth while approximately 2% of our 2007 net revenue growth was due to the impact of pricing adjustments.

Operating expenses decreased 4.4% in 2007. This decrease in operating expenses includes a 1.8% favorable impact for the foreign currency fluctuation of the euro and the Brazilian real against the U.S. dollar. Excluding the impact of special items specifically identified in the reconciliation table included in “—Operating Expenses”, operating expenses increased 10.4% in the year ended December 31, 2007. In 2007, the increase in operating expenses, excluding the impact of special items, was primarily due to an increase in general and administrative expenses to support our customer focused strategy. Our operating expenses as a percentage of total revenues were 72.8% in 2007 versus 93.1% in 2006. Excluding the impact of special items, our operating expenses as a percentage of total net revenues in 2007 declined to 72.7% from 80.5% in 2006.

Other income in 2007 includes realized gains of approximately $391 million for the partial sale of an available-for-sale security, Redecard S.A. and $90 million from the organization that operates the World Cup soccer events in resolution of all outstanding disputes pertaining to our sponsorship of the 2010 and 2014 World Cup soccer events. See “—Other Income (Expense)”.

Regulatory actions, litigation, consolidation within the banking industry and the growing power of merchants may lead us to change our pricing arrangements, reducing our overall revenues and having an adverse impact on our business. See “Item 1A—Risk Factors” of this Report for these and other risks facing our business.

We believe the trend within the global payments industry from paper-based forms of payment, such as cash and checks, toward electronic forms of payment, such as cards, creates significant opportunities for the continued growth of our business. Our strategy is to continue our growth by further penetrating our existing customer base and by expanding our role in targeted geographies and higher-growth segments of the global payments industry (such as premium/affluent and contactless cards, commercial payments and debit), enhancing our merchant relationships, growing acceptance and continuing to invest in our brands. We also intend to pursue incremental payment processing opportunities throughout the world. We are committed to providing our customers with coordinated services through integrated, dedicated account teams in a manner that allows us to capitalize on our expertise in payment programs, marketing, product development, technology, processing, consulting and information services. By investing in strong customer relationships over the long-term, we believe that we can increase our volume of business with customers over time.

Overview

We are a global payment solutions company that provides a variety of services in support of our customers’ credit, debit and related payment programs. We manage a family of well-known, widely accepted payment card brands including MasterCard^®, MasterCard Electronic™, Maestro^® and Cirrus^®, which we license to our customers. As part of managing these brands, we also establish and enforce rules and standards surrounding the use of our payment card system. Cardholder and merchant relationships are managed principally by our customers. Accordingly, we do not issue cards, extend credit to cardholders, determine the interest rates (if applicable) or other fees charged to cardholders by issuers, or establish the merchant discount charged by acquirers in connection with the acceptance of cards that carry our brands.

We achieved revenue growth of 20.1% and 20.4% in the three and nine months ended September 30, 2007, of which 2.3% in each of these periods was due to the impact of foreign currency fluctuation related to the euro. The growth in revenues was principally due to increased transactions and volumes. Approximately 2% of our revenue growth for the three months ended

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September 30, 2007 was due to pricing adjustments. In the nine months ended September 30, 2007 approximately 2% of our revenue growth was due to the impact of the restructuring of currency conversion pricing in April 2006, in addition to the pricing adjustments in 2007. Our net revenue growth was moderated by a $39 million, or 13.8%, and $133 million, or 17.3%, increase in rebates and incentives to our customers and merchants in the three and nine months ended September 30, 2007, respectively.

Operating expenses increased 16.3% in the three months ended September 30, 2007 and decreased 10.6% in the nine months ended September 30, 2007, respectively, of which 1.6% and 1.2%, respectively, was due to the impact of foreign currency fluctuation related to the euro. Excluding the impact of special items specifically identified in the reconciliation table included in “—Operating Expenses”, operating expenses increased 9.1% in the nine months ended September 30, 2007. The increase in operating expenses was primarily due to an increase in general and administrative expenses to support our customer-focused strategy. Excluding the impact of special items, our operating expenses as a percentage of total net revenues was 68.6% in the nine months ended September 30, 2007 versus 75.8% in the comparable period in 2006.

Other income in the three and nine months ended September 30, 2007 includes gains of approximately $107 million relating to the partial sale of our Redecard S.A. available-for-sale securities. The nine months ended September 30, 2007 also includes $90 million received from the organization that operates the World Cup soccer events in resolution of all outstanding disputes pertaining to our sponsorship of the 2010 and 2014 World Cup soccer events. See “—Other Income (Expense)”.

Our liquidity and capital position remain strong, as we had $3.3 billion in cash, cash equivalents and available-for-sale securities, and $3.2 billion in stockholders’ equity as of September 30, 2007.

We believe that the trend within the global payments industry from paper-based forms of payment such as cash and checks toward electronic forms of payment such as cards creates significant opportunities for the continued growth of our business. Our strategy is to continue our growth by further penetrating our existing customer base and by expanding our role in targeted geographies and higher-growth opportunities of the global payments industry (such as corporate, premium and debit payments), enhancing our merchant relationships, maintaining unsurpassed acceptance and continuing to invest in our brands. We are committed to providing our key customers with coordinated services through integrated, dedicated account teams in a manner that allows us to capitalize on our expertise in payment programs, brand marketing, product development, technology, processing and consulting services for these customers. By investing in strong customer relationships over the long-term, we believe that we can increase our volume of business with key customers over time. In support of this strategy, we are continuing to hire additional personnel and develop our existing workforce. We intend to expand our role in targeted geographies by, among other things, pursuing incremental payment processing opportunities in Europe, Latin America and Asia/Pacific countries.

There is increased regulatory scrutiny of interchange fees and other aspects of the payments industry which could have an adverse impact on our business. In addition, we face exposure to antitrust and other types of litigation. Competition and pricing pressure within the global payments industry is increasing, due in part to consolidation within the banking sector and the growing power of merchants. Regulatory actions, litigation and pricing pressure may lead us to change our pricing arrangements and could reduce our overall revenues. See Item 1A — Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 for these and other risks facing our business.

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