The international volume was up 18.3% year-over-year, due to an increase in global travel.

Included in the total year-over-year increase was currency conversion to cross-border revenue, and reclassification of $31 million from assessments to operations fees.

Total operating expenses increased 8.2% to $601 million during the first quarter.

The increase was primarily driven by a 14.6% increase in general and administrative expenses primarily due to two factors.
- An increase in personnel costs, due to the hiring of additional sales staff, as well as increased performance incentives and contractor fees.
- An increase in professional fees primarily related to legal costs to defend outstanding litigation and other strategic initiatives.

Offsetting increase in G&A was a 2.3% decrease, advertising and marketing expenses, reflecting a shift in planned spending to later quarters this year versus last year.

Prepaid expenses increased $60 million primarily due to the timing of payments related to advertising and amounts paid to customers under incentive agreements. Expenses decreased $134 million mainly due to payments of 2006 employee performance incentives and advertising.

At the end of the quarter, the firm had $2.5 billion in cash, cash equivalents and available-for-sale securities.

The company also had $2.6 billion in stockholders’ equity. The firm generated $71 million in cash flow from operations during the quarter. First quarter is traditionally a period of large cash outflows due to employee performance incentives and advertising expenses, both of which were accrued in the fourth quarter of 2006.

During the quarter, the firm had several recent significant business developments.

The firm announced an agreement with Lloyds TSB in the UK and this became effective in March. Lloyds will issue a majority of their credit card portfolio through MasterCard. The deal enhances the firm’s existing strong relationship with Lloyds.

In April, the firm announced the launch of a new world elite program with Sotheby’s and GE Money. MasterCard’s world elite program allows its customers to target executives and the lead affluent customers by delivering significant benefits and rewards including premium travel services. The Sotheby’s World Elite Card expands its position in capital goods segment by its cardholders with exclusive access to the card world, partnerships with prestigious museums, and a suite of luxury rewards.

The company continues to make progress with its PayPass initiative. The firm now has over 14 million cards and devices, which can be used, at over 51,000 merchant locations worldwide including acceptance environments such as vending, taxis, phone booth, and transit. This quarter, the firm expanded its PayPass efforts within Europe and Asia-Pacific. In the US, the firm equipped 6,000 vending machines that offer the nation’s leading brands such as Coca-Cola and Cadbury Schweppes to accept electronic forms of payments including PayPass.

Second Quarter Outlook

- The firm will no longer see the growth impact resulting from the restructuring of the cross-border transaction pricing implemented in April last year.
- In the second quarter of 2006, MasterCard incurred certain costs related to a large debit portfolio conversion. In the second quarter 2007, the firm will not incur these costs though they will be partially offset by rebates and incentives related to the new buying activity on these cards.

The firm anticipates very modest growth in A&M in 2007 in response to competitive opportunities and leverage momentum in the business. The firm expects second quarter A&M as a percentage of full year A&M spend to be slightly higher than the traditional non-world cup year, but lower than 2006.

There are three special items in the second quarter 2007.
- A $23 million expense for litigation settlement.
- A $395 million non-cash charge for a contribution of stocks to MasterCard Foundation.
- $7 million in interest income on IPO proceeds helpful redemption.

Key questions and answers from the first quarter fiscal 2007 earnings call conducted by MasterCard Inc. on May 2, 2007.

Craig Maurer: You are in line with the industry in terms of pulling back marketing in the quarter. Could you comment on why you didn’t see the same level of opportunity in the quarter that you have seen in the past despite the exceptionally strong growth in all your volume numbers?

Chris McWilton What the firm wanted to do was keep a little bit of its powder dry for the second quarter. The company has some competitors who are cutting back on advertising marketing right now. MasterCard has some competitors who appear to be distracted with some internal organizational matters. The management believes that it can be more effective in deploying some of that advertising marketing in an impactful way in second quarter. Hence the firm took a look at its spend during the quarter and again, wanted to keep some of its powder dry for later in the year.

Christopher Mammone: The Banc of America is going to start issuing MasterCards in August. Can you talk a little bit about that deal?