UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

Commission File Number 1-11689

Fair Isaac Corporation

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		94-1499887 (I.R.S. Employer Identification No.)

901 Marquette Avenue, Suite 3200		55402-3232
Minneapolis, Minnesota		(Zip Code)
(Address of principal executive offices)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o		Accelerated Filer þ		Non-Accelerated Filer o		Smaller Reporting Company o
		(Do not check if a smaller reporting Company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

     The number of shares of common stock outstanding on January 31, 2010 was 46,495,026 (excluding 42,361,757 shares held by the Company as treasury stock).

 

 

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements			1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosures About Market Risk			29
Item 4. Controls and Procedures			30
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			30
Item 1A. Risk Factors			31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			40
Item 3. Defaults Upon Senior Securities			40
Item 4. Submission of Matters to a Vote of Security Holders			41
Item 5. Other Information			41
Item 6. Exhibits			41
Signatures			42
EX-3.1
EX-3.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I – FINANCIAL INFORMATION

Item 1.		Financial Statements

FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

		December 31,				September 30,
		2009				2009
		(In thousands, except par value data)
Assets
Current assets:
Cash and cash equivalents		$	206,207			$	178,157
Marketable securities available for sale, current portion			131,051				139,673
Accounts receivable, net			98,407				101,742
Prepaid expenses and other current assets			23,794				22,986
Total current assets			459,459				442,558
Marketable securities available for sale, less current portion			34,148				61,371
Other investments			11,074				11,074
Property and equipment, net			33,701				34,340
Goodwill			668,500				667,640
Intangible assets, net			35,152				38,255
Deferred income taxes			36,669				38,100
Other assets			9,871				10,550
		$	1,288,574			$	1,303,888
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	7,714			$	8,593
Accrued compensation and employee benefits			21,019				28,139
Other accrued liabilities			41,849				38,183
Deferred revenue			43,301				39,673
Total current liabilities			113,883				114,588
Revolving line of credit			295,000				295,000
Senior notes			275,000				275,000
Other liabilities			18,116				19,031
Total liabilities			701,999				703,619
Commitments and contingencies
Stockholders’ equity:
Preferred stock ($0.01 par value; 1,000 shares authorized; none issued and outstanding)			—				—
Common stock ($0.01 par value; 200,000 shares authorized, 88,857 shares issued, 46,546 and 48,156 shares outstanding at December 31, 2009 and September 30, 2009,respectively)			465				482
Paid-in-capital			1,104,204				1,106,292
Treasury stock, at cost (42,311 and 40,701 shares at December 31, 2009 and September 30, 2009, respectively)			(1,404,584	)			(1,375,400	)
Retained earnings			903,063				886,324
Accumulated other comprehensive loss			(16,573	)			(17,429	)
Total stockholders’ equity			586,575				600,269
		$	1,288,574			$	1,303,888

See accompanying notes to condensed consolidated financial statements.

FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

		Quarter Ended December 31,
		2009				2008
		(in thousands, except per share data)
Revenues:
Transactional and maintenance		$	115,106			$	123,658
Professional services			26,237				28,080
License			10,153				11,722
Total revenues			151,496				163,460
Operating expenses:
Cost of revenues (1)			42,519				59,019
Research and development			18,976				18,121
Selling, general and administrative (1)			55,203				54,769
Amortization of intangible assets (1)			3,165				3,247
Restructuring			—				8,078
Total operating expenses			119,863				143,234
Operating income			31,633				20,226
Interest income			539				1,655
Interest expense			(5,408	)			(7,158	)
Other income (expense), net			(381	)			1,446
Income from operations before income taxes			26,383				16,169
Provision for income taxes			8,697				4,059
Net income		$	17,686			$	12,110
Earnings per share:
Basic		$	0.37			$	0.25
Diluted		$	0.37			$	0.25
Shares used in computing earnings per share:
Basic			47,606				48,478
Diluted			47,915				48,522

See accompanying notes to condensed consolidated financial statements.

FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME
(Unaudited)

																						Accumulated
		Common Stock																				Other				Total
						Par				Paid-in-								Retained				Comprehensive				Stockholders’				Comprehensive
		Shares				Value				Capital				Treasury Stock				Earnings				Loss				Equity				Income
		(In thousands)
Balance at September 30, 2009			48,156			$	482			$	1,106,292			$	(1,375,400	)		$	886,324			$	(17,429	)		$	600,269
Share-based compensation			—				—				4,535				—				—				—				4,535
Exercise of stock options			33				—				(658	)			1,101				—				—				443
Tax effect from share-based payment arrangements			—				—				(1,970	)			—				—				—				(1,970	)
Repurchases of common stock			(1,736	)			(17	)			—				(33,376	)			—				—				(33,393	)
Issuance of ESPP shares from treasury			1				—				(7	)			18				—				—				11
Issuance of restricted stock to employees from treasury			92				—				(3,988	)			3,073				—				—				(915	)
Dividends paid			—				—				—				—				(947	)			—				(947	)
Net income			—				—				—				—				17,686				—				17,686			$	17,686
Unrealized loss on investments			—				—				—				—				—				(203	)			(203	)			(203	)
Cumulative translation adjustments			—				—				—				—				—				1,059				1,059				1,059
Balance at December 31, 2009			46,546			$	465			$	1,104,204			$	(1,404,584	)		$	903,063			$	(16,573	)		$	586,575			$	18,542

See accompanying notes to condensed consolidated financial statements.

FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Quarter Ended December 31,
		2009				2008
		(In thousands)
Cash flows from operating activities:
Net income		$	17,686			$	12,110
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			8,087				9,583
Share-based compensation			4,535				5,471
Deferred income taxes			—				1,531
Tax effect from share-based payment arrangements			(1,970	)			210
Excess tax benefits from share-based payment arrangements			(233	)			(117	)
Net amortization of premium on marketable securities			500				188
Provision for doubtful accounts, net			(250	)			499
Net loss on sales of property and equipment			94				30
Changes in operating assets and liabilities
Accounts receivable			3,706				19,755
Prepaid expenses and other assets			(361	)			(928	)
Accounts payable			(716	)			(448	)
Accrued compensation and employee benefits			(7,194	)			(3,224	)
Other liabilities			5,033				(14,478	)
Deferred revenue			2,339				6,482
Net cash provided by operating activities			31,256				36,664
Cash flows from investing activities:
Purchases of property and equipment			(4,488	)			(5,554	)
Cash proceeds from sale of product line assets			397				—
Purchases of marketable securities			(28,081	)			(55,852	)
Proceeds from maturities of marketable securities			63,316				54,240
Distribution from cost method investees			—				1,300
Net cash provided by (used in) investing activities			31,144				(5,866	)
Cash flows from financing activities:
Cash provided by (used in) issuances of common stock under employee stock option and purchase plans			(461	)			3,222
Dividends paid			(947	)			(970	)
Repurchases of common stock			(33,393	)			—
Excess tax benefits from share-based payment arrangements			233				117
Net cash provided by (used in) financing activities			(34,568	)			2,369
Effect of exchange rate changes on cash			218				(5,639	)
Increase in cash and cash equivalents			28,050				27,528
Cash and cash equivalents, beginning of year			178,157				129,678
Cash and cash equivalents, end of year		$	206,207			$	157,206
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds		$	1,958			$	15,687
Cash paid for interest		$	10,002			$	11,965

See accompanying notes to condensed consolidated financial statements.

1.

Nature of Business

Fair Isaac Corporation

     Incorporated under the laws of the State of Delaware, Fair Isaac Corporation (“FICO”) is a provider of analytic, software and data management products and services that enable businesses to automate, improve and connect decisions. FICO provides a range of analytical solutions, credit scoring and credit account management products and services to banks, credit reporting agencies, credit card processing agencies, insurers, retailers and healthcare organizations.

     In these consolidated financial statements, FICO is referred to as “we,” “us,” “our,” or “FICO”.

Principles of Consolidation and Basis of Presentation

     We have prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with the instructions to Form 10-Q and the applicable accounting guidance. Consequently, we have not necessarily included in this Form 10-Q all information and footnotes required for audited financial statements. In our opinion, the accompanying unaudited interim condensed consolidated financial statements in this Form 10-Q reflect all adjustments (consisting only of normal recurring adjustments, except as otherwise indicated) necessary for a fair presentation of our financial position and results of operations. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with our audited consolidated financial statements and notes thereto presented in our Annual Report on Form 10-K for the year ended September 30, 2009. The interim financial information contained in this report is not necessarily indicative of the results to be expected for any other interim period or for the entire fiscal year.

     The condensed consolidated financial statements include the accounts of FICO and its subsidiaries. All intercompany accounts and transactions have been eliminated.

Use of Estimates

     The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include, but are not limited to, assessing the following: the recoverability of accounts receivable, goodwill and other intangible assets, software development costs and deferred tax assets; the benefits related to uncertain tax positions, the determination of the fair value of stock-based compensation, the ability to estimate hours in connection with fixed-fee service contracts, the ability to estimate transactional-based revenues for which actual transaction volumes have not yet been received and the determination of whether fees are fixed or determinable and collection is probable or reasonably assured.

Adoption of Recent Accounting Pronouncements

     On October 1, 2009 we adopted new guidance on the accounting for business combinations. The guidance states that business combinations will result in all assets and liabilities of an acquired business being recorded at their fair values including contingent assets and liabilities. It also requires the capitalization of in-process research and development at fair value and requires the expensing of acquisition-related costs as incurred. This guidance has been applied to all acquisitions contemplated after October 1, 2009.

     In December 2007, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on non-controlling interests in consolidated financial statements. The guidance clarifies that a non-controlling or minority interest in a subsidiary is considered an ownership interest and, accordingly, requires all entities to report such interests in subsidiaries as equity in the consolidated financial statements. We adopted this guidance on October 1, 2009. The adoption of this guidance had an immaterial effect on our consolidated financial statements.

     On October 1, 2009, we adopted the authoritative guidance on fair value measurement for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Adoption of the new guidance did not impact our consolidated financial statements.

     On October 1, 2009, we adopted new accounting guidance for measuring liabilities at fair value. This guidance clarifies that the quoted price for an identical liability is a Level 1 measurement when no adjustments to the quoted price are necessary. If quoted

prices for identical liabilities are not available, the guidance provides valuation techniques to be used in determining the fair value of the liability. The adoption of this standard did not impact our consolidated financial statements during the first quarter of fiscal 2010.

     In May 2008, the FASB issued new guidance on the accounting for convertible instruments that may be settled in cash upon conversion. The guidance requires that proceeds from the issuance of convertible debt instruments be allocated between debt (at a discount) and an equity component. The debt discount is amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. We adopted this guidance on October 1, 2009. The guidance changed the accounting treatment for our Senior Convertible Notes, which were issued in August 2003; however, the only retrospective adjustment to our financial statements is a reclassification between equity accounts. The guidance does not require retrospective adoption if the instruments were not outstanding during any of the periods presented in the annual financial statements for the period of adoption, or if restatement would only lead to a reclassification between its opening equity accounts for periods presented in the annual financial statements. As a result, the adoption of this guidance did not impact our consolidated financial statements.

     On October 1, 2009, we adopted new guidance to be used in determining the useful life of intangible assets. The guidance amended the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This new guidance is intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. The adoption of this guidance did not affect our consolidated financial statements.

2.

Amortization of Intangible Assets

     Amortization expense associated with our intangible assets, which has been reflected as a separate operating expense caption within the accompanying condensed consolidated statements of income, consisted of the following:

		Quarter Ended December 31,
		2009				2008
		(In thousands)
Cost of revenues		$	1,739			$	1,723
Selling, general and administrative expenses			1,426				1,524
		$	3,165			$	3,247

     Cost of revenues reflects our amortization of completed technology and selling, general and administrative expenses reflects our amortization of other intangible assets. Intangible assets (excluding goodwill) were $35.2 million and $38.3 million, net of accumulated amortization of $107.8 million and $107.7 million, as of December 31, 2009 and September 30, 2009, respectively.

     Estimated future intangible asset amortization expense associated with intangible assets existing at December 31, 2009, was as follows (in thousands):

Fiscal year
Remainder of fiscal 2010		$	7,829
2011			7,750
2012			6,173
2013			4,156
2014			2,407
Thereafter			6,837
		$	35,152

3.

Restructuring Expenses

     The following table summarizes our restructuring accruals and certain FICO facility closures. The current portion and non-current portion is recorded in other accrued current liabilities and other long-term liabilities, respectively, within the accompanying condensed consolidated balance sheets. These balances are expected to be paid by fiscal 2018.

		Accrual at																Accrual at
		September 30,				Expense				Cash				Expense				December 31,
		2009				Additions				Payments				Reversals				2009
		(In thousands)
Facilities charges		$	3,771			$	—			$	(341	)		$	—			$	3,430
Less: current portion			(1,361	)															(1,121	)
Non-current		$	2,410															$	2,309

     During the first quarter of fiscal 2009, in connection with our reengineering initiative, we incurred net charges totaling $8.1 million consisting mainly of $5.9 million for severance costs associated with the reduction of 255 positions throughout the company and $2.6 million associated with vacating excess leased space. In addition, we reversed $0.4 million of accrued expenses as a result of a favorable lease termination agreement that we entered into for office space that was previously vacated. Cash payments for the severance costs were paid during fiscal 2009. There were no restructuring expenses incurred during the quarter ended December 31, 2009.

4.

Sale of Product Line Assets

     In June 2009, we sold the assets associated with our LiquidCredit^® for Telecom (“LCT”) and RoamEx^® product lines. LCT and RoamEx solutions were included primarily in our Applications segment. The LCT sale, which was for $3.5 million, included a $0.5 million receivable for post-closing working capital adjustments. The RoamEx sale, which was for $2.7 million, included a $1.4 million escrow balance and a $0.3 million receivable for post-closing working capital adjustments. Revenues attributable to the LCT and RoamEx product lines were $5.4 million during the quarter ended December 31, 2008.

5.

Composition of Certain Financial Statement Captions

		December 31, 2009				September 30, 2009
		(In thousands)
Property and equipment		$	210,255			$	206,068
Less: accumulated depreciation and amortization			(176,554	)			(171,728	)
		$	33,701			$	34,340

6.

Share-Based Payments

     We maintain the 1992 Long-term Incentive Plan (the “1992 Plan”) under which we may grant stock options, stock appreciation rights, restricted stock, restricted stock units and common stock to officers, key employees and non-employee directors. The 1992 Plan will terminate in February 2012. In November 2003, our Board of Directors approved the adoption of the 2003 Employment Inducement Award Plan (the “2003 Plan”). The 2003 Plan reserves shares of common stock solely for the granting of inducement stock options and other awards, as defined, that meet the “employment inducement award” exception to the New York Stock Exchange’s listing standards requiring shareholder approval of equity-based inducement incentive plans. Except for the employment inducement award criteria, awards under the 2003 Plan will be generally consistent with those made under our 1992 Plan. The 2003 Plan shall remain in effect until terminated by the Board of Directors. Stock option awards granted during fiscal 2010 typically had a maximum term of seven years and vested ratably over four years.

     The following table summarizes option activity during the quarter ended December 31, 2009:

										Weighted-
										average
						Weighted-				Remaining
						average				Contractual				Aggregate
		Shares				Price				Term				Intrinsic Value
		(In thousands)								(In years)				(In thousands)
Outstanding at October 1, 2009			7,354			$	31.60
Granted			528				20.31
Exercised			(33	)			13.54
Forfeited			(94	)			26.82
Expired			(440	)			36.10
Outstanding at December 31, 2009			7,315				30.65				4.13			$	9,813

     The following table summarizes restricted stock unit activity during the quarter ended December 31, 2009:

						Weighted-
						average
		Shares				Price
		(In thousands)
Outstanding at October 1, 2009			1,113			$	23.83
Granted			233				20.31
Released			(137	)			26.45
Forfeited			(61	)			23.92
Outstanding at December 31, 2009			1,148				22.80

7. Earnings Per Share

     The following reconciles the numerators and denominators of basic and diluted earnings per share (“EPS”):

		Quarter Ended December 31,
		2009				2008
		(In thousands, except per share data)
Numerator for diluted and basic earnings per share:
Net Income		$	17,686			$	12,110
Denominator — share:
Basic weighted-average shares			47,606				48,478
Effect of dilutive securities			309				44
Diluted weighted-average shares			47,915				48,522
Earnings per share:
Basic		$	0.37			$	0.25
Diluted		$	0.37			$	0.25

     The computation of diluted EPS for the quarters ended December 31, 2009 and 2008, excludes options to purchase approximately 5,476,000 and 7,949,000 shares of common stock, respectively, because the options’ exercise prices exceeded the average market price of our common stock in these periods and their inclusion would be antidilutive.

8. Segment Information

     Effective October 1, 2009, we implemented an organizational restructuring resulting in a consolidation of our current operating segment structure from four segments to three. Also, in the first quarter of fiscal 2010, we changed our segment operating income reporting measure to exclude certain corporate general and administrative expenses. Previously, corporate expenses, which mainly include finance, legal and human resource related expenses, were allocated to the segments. In addition, amortization expense is no longer allocated to the individual segments. All periods presented have been restated to reflect these changes. The new segments are as follows:

•     Applications. This segment includes the former Strategy Machine Solutions^TM segment, excluding our myFICO^® solutions for consumers, and associated professional services. Our Applications products are pre-configured Decision Management applications designed for a specific type of business problem or process, such as marketing, account origination, customer management, fraud and insurance claims management.

•     Scores. This segment includes our business-to-business scoring solutions, our myFICO^® solutions for consumers (previously included in the Strategy Machine^TM Solutions segment) and associated professional services. Our scoring solutions give our clients access to analytics that can be easily integrated into their transaction streams and decision-making processes. Our scoring solutions are distributed through major credit reporting agencies, as well as services through which we provide our scores to clients directly.

•     Tools. This segment includes the former Analytic Software Tools segment and associated professional services. The Tools segment is composed of software tools that clients can use to create their own custom Decision Management applications.

     The former Professional Services segment, which represents delivery and integration services, has been included within the applicable segment to which the services relate and is no longer its own segment.

     Our Chief Executive Officer evaluates segment financial performance based on segment revenues and segment operating income. Segment operating expenses consist of direct and indirect costs principally related to personnel, facilities, consulting, travel and depreciation. Indirect costs are allocated to the segments generally based on relative segment revenues, fixed rates established by management based upon estimated expense contribution levels and other assumptions that management considers reasonable. We do not allocate share-based compensation expense, restructuring expense, amortization expense, various corporate charges and certain other income and expense measures to our segments. These income and expense items are not allocated because they are not considered in evaluating the segment’s operating performance. Our Chief Executive Officer does not evaluate the financial performance of each segment based on its respective assets or capital expenditures; rather, depreciation amounts are allocated to the segments from their internal cost centers as described above.

     The following tables summarize segment information for the quarters ended December 31, 2009 and 2008:

		Quarter Ended December 31, 2009
														Unallocated Corporate
		Applications				Scores				Tools				Expenses				Total
										(In thousands)
Segment revenues:
Transactional and maintenance		$	66,734			$	41,143			$	7,229			$	—			$	115,106
Professional services			21,462				410				4,365				—				26,237
License			4,676				—				5,477				—				10,153
Total segment revenues			92,872				41,553				17,071				—				151,496
Segment operating expense			(67,180	)			(14,278	)			(14,179	)			(16,526	)			(112,163	)
Segment operating income		$	25,692			$	27,275			$	2,892			$	(16,526	)			39,333
Unallocated share-based compensation expense																			(4,535	)
Unallocated amortization expense																			(3,165	)
Operating income																			31,633
Unallocated interest income																			539
Unallocated interest expense																			(5,408	)
Unallocated other expense, net																			(381	)
Income before income taxes																		$	26,383
Depreciation expense		$	3,734			$	342			$	513			$	333			$	4,922

		Quarter ended December 31, 2008
														Unallocated Corporate
		Applications				Scores				Tools				Expenses				Total
										(In thousands)
Segment revenues:
Transactional and maintenance		$	69,590			$	47,464			$	6,604			$	—			$	123,658
Professional services			20,937				177				6,966				—				28,080
License			4,418				—				7,304				—				11,722
Total segment revenues			94,945				47,641				20,874				—				163,460
Segment operating expense			(75,593	)			(15,273	)			(16,985	)			(18,587	)			(126,438	)
Segment operating income		$	19,352			$	32,368			$	3,889			$	(18,587	)			37,022
Unallocated share-based compensation expense																			(5,471	)
Unallocated amortization expense																			(3,247	)
Unallocated restructuring expense																			(8,078	)
Operating income																			20,226
Unallocated interest income																			1,655
Unallocated interest expense																			(7,158	)
Unallocated other income, net																			1,446
Income before income taxes																		$	16,169
Depreciation expense		$	4,818			$	437			$	588			$	493			$	6,336

9. Fair Value Measurements

     In fiscal 2009, we adopted guidance for financial assets and financial liabilities and for non-financial assets and non-financial liabilities that we recognize or disclose at fair value on a recurring basis (at least annually). These include cash equivalents, available-for-sale marketable securities, and our derivative financial instruments. We adopted the remaining aspects of the fair value measurement standard relative to nonfinancial assets and liabilities that are measured at fair value, but are recognized and disclosed at fair value on a nonrecurring basis, prospectively effective October 1, 2009.

     Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.

	•		Level 1 — uses unadjusted quoted prices that are available in active markets for identical assets or liabilities. Our Level 1 securities are comprised of money market funds and certain equity securities.
	•		Level 2 — uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data. Our Level 2 securities are comprised of U.S. government and corporate debt obligations that are generally held to maturity.
	•		Level 3 — uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, and significant management judgment or estimation. We do not have any assets or liabilities that are valued using inputs identified under a Level 3 hierarchy.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

     The following table represents financial assets that we measured at fair value on a recurring basis at December 31, 2009:

		Active Markets for				Significant Other
		Identical Instruments				Observable Inputs				Fair Value as of
December 31, 2009		(Level 1)				(Level 2)				December 31, 2009
Assets:
Cash equivalents (1)		$	141,991			$	—			$	141,991
U.S. corporate debt (2)			—				11,597				11,597
Non U.S. corporate debt (2)			—				42,838				42,838
U.S. government obligations (2)			—				106,781				106,781
Marketable securities (3)			3,982				—				3,982
Total		$	145,973			$	161,216			$	307,189

		Active Markets for				Significant Other
		Identical Instruments				Observable Inputs				Fair Value as of
September 30, 2009		(Level 1)				(Level 2)				September 30, 2009
Assets:
Cash equivalents (1)		$	113,468			$	—			$	113,468
U.S. corporate debt (2)			—				11,697				11,697
Non U.S. corporate debt (2)			—				38,977				38,977
U.S. government obligations (2)			—				146,610				146,610
Marketable securities (3)			3,760				—				3,760
Total		$	117,228			$	197,284			$	314,512

Where applicable, we use quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing applies to our Level 1 investments. To the extent quoted prices in active markets for assets or liabilities are not available, the valuation techniques used to measure the fair values of our financial assets incorporate market inputs, which include reported trades, broker/dealer quotes, benchmark yields, issuer spreads, benchmark securities and other inputs derived from or corroborated by observable market data. This methodology applies to our Level 2 investments. The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

As previously discussed, we adopted the provisions of the fair value measurement accounting and disclosure guidance related to non-financial assets and liabilities recognized or disclosed at fair value on a nonrecurring basis on October 1, 2009. Assets and liabilities subject to this new guidance primarily include goodwill and indefinite-lived intangible assets measured at fair value for impairment assessments, long-lived assets measured at fair value for impairment assessments and non-financial assets and liabilities measured at fair value in business combinations. The adoption of this new guidance did not affect our financial position, results of operations or cash flows for the periods presented.

10. Derivative Financial Instruments

     We use derivative instruments to manage risks caused by fluctuations in foreign exchange rates. The primary objective of our derivative instruments is to protect the value of foreign currency denominated accounts receivable and cash balances from the effects of volatility in foreign exchange rates that might occur prior to conversion to their functional currency. We principally utilize foreign currency forward contracts, which enable us to buy and sell foreign currencies in the future at fixed exchange rates and economically offset changes in foreign currency exchange rates. We routinely enter into contracts to offset exposures denominated in the British pound, Euro, Canadian dollar and Japanese yen.

     Foreign currency denominated accounts receivable and cash balances are re-measured at foreign currency rates in effect on the balance sheet date with the effects of changes in foreign currency rates reported in other income (expense), net. The forward contracts are not designated as hedges and are marked to market through other income (expense), net. Fair value changes in the forward contracts help mitigate the changes in the value of the re-measured accounts receivable and cash balances attributable to changes in foreign currency exchange rates. The forward contracts are short-term in nature and typically have average maturities at inception of less than three months.

     The following table summarizes the fair value of our derivative instruments and their location in the consolidated balance sheet:

December 31, 2009

(In thousands)

Assets

Liabilities

Derivatives not designated as hedging instruments

Balance Sheet Location

Amount

Balance Sheet Location

Amount

Foreign currency forward contracts

Other current assets

$—

Other current liabilities

$

—

     The following table summarizes our outstanding forward foreign currency contracts, by currency at December 31, 2009:

December 31, 2009

Contract Amount

Fair Value

Foreign

Currency

US$

US$

(In thousands)

Sell foreign currency:

Canadian dollar (CAD)

CAD 1,050

$

997

$

—

Euro (EUR)

EUR 6,100

8,780

—

Japanese yen (JPY)

JPY 34,000

368

—

Buy foreign currency:

British pound (GBP)

GBP 3,459

5,600

—

     The forward foreign currency contracts were all entered into on December 31, 2009; therefore, the fair value was $0 on that date.

     The location in the consolidated statements of income and amounts of gains and losses related to derivative instruments not designated as hedging instruments are as follows:

Quarter ended December 31, 2009		Gain on Derivatives Recognized in Income
		Location				Amount
		(In thousands)
Foreign currency forward contracts		Other income (expense), net				$	220

11. Income Taxes

     Effective Tax Rate

     The effective income tax rate for the three months ended December 31, 2009 was 33.0% compared to 25.1% for the three months ended December 31, 2008. The provision for income taxes during interim quarterly reporting periods is based on our estimates of the effective tax rates for the respective full fiscal year.

     The effective tax rate in any quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution. The increase in our effective tax rate in the first quarter of 2010 was primarily due to the expiration of the Federal Research and Development credit. Further changes were a result of changes in the foreign and domestic earnings mix.

     The total unrecognized tax benefit for uncertain tax positions at December 31, 2009 is estimated to be approximately $19.6 million. We recognize interest expense related to unrecognized tax benefits and penalties as part of the provision for income taxes in our consolidated statements of income. We recognize interest earned as interest income in our consolidated statements of income. As of December 31, 2009, we have accrued interest of $1.1 million related to the unrecognized tax benefits.

12. Revolving Line of Credit

     We have a $600 million unsecured revolving line of credit with a syndicate of banks that expires on October 20, 2011. Proceeds from the revolving line of credit can be used for working capital and general corporate purposes and may also be used for the refinancing of existing debt, acquisitions, and the repurchase of the Company’s common stock. Interest on amounts borrowed under the revolving line of credit is based on (i) a base rate, which is the greater of (a) the prime rate and (b) the Federal Funds rate plus 0.50% or (ii) LIBOR plus an applicable margin. The margin on LIBOR borrowings ranges from 0.30% to 0.55% and is determined

based on our consolidated leverage ratio. In addition, we must pay utilization fees if borrowings and commitments under the revolving line of credit exceed 50% of the total commitment, as well as facility fees. The revolving line of credit contains certain restrictive covenants, including maintenance of consolidated leverage and fixed charge coverage ratios. The revolving line of credit also contains covenants typical of unsecured facilities. As of December 31, 2009, we were in compliance with all covenants under this revolving line of credit and we had $295.0 million of borrowings outstanding at an interest rate of 0.6%.

13. Senior Notes

     In May 2008, we issued $275 million of Senior Notes in a private placement to a group of institutional investors. The Senior Notes were issued in four series with maturities ranging from 5 to 10 years. The Senior Notes’ weighted average interest rate is 6.8% and the weighted average maturity is 7.9 years. The Senior Notes are subject to certain restrictive covenants that are substantially similar to those in the credit agreement for the revolving line of credit including maintenance of consolidated leverage and fixed charge coverage ratios. The purchase agreement for the Senior Notes also includes covenants typical of unsecured facilities.

14. Contingencies

     We are in disputes with certain customers regarding amounts owed in connection with the sale of certain of our products and services. We also have had claims asserted by former employees relating to compensation and other employment matters. We are also involved in various other claims and legal actions arising in the ordinary course of business. We believe that none of these aforementioned claims or actions will result in a material adverse impact to our consolidated results of operations, liquidity or financial condition. However, the amount or range of any potential liabilities associated with these claims and actions, if any, cannot be determined with certainty. Set forth below are additional details concerning certain ongoing litigation.

Braun Consulting, Inc.

     Braun (which we acquired in November 2004) was a defendant in a lawsuit filed on November 26, 2001, in the United States District Court for the Southern District of New York (Case No. 01 CV 10629) that alleges violations of federal securities laws in connection with Braun’s initial public offering in August 1999. This lawsuit is among approximately 300 coordinated putative class actions against certain issuers, their officers and directors, and underwriters with respect to such issuers’ initial public offerings. As successor-in-interest to Braun, we entered into a Stipulation and Agreement of Settlement along with most of the other defendant issuers in this coordinated litigation, where such issuers and their officers and directors would be dismissed with prejudice, subject to the satisfaction of certain conditions, including approval of the Court. Under the terms of this Agreement, we would not pay any amount of the settlement. However, since December 2006, certain procedural matters concerning the class status have been decided in the district and appellate courts of the Second Circuit, ultimately determining that no class status exists for the plaintiffs. Since there is no class status, there could be no agreement, thus the District Court entered an order formally denying the motion for final approval of the settlement agreement.

     The issuers and their insurers have recently reached a preliminary settlement agreement, which they believe to be consistent with the earlier court rulings and which has been presented to all parties for approval. The Company has given consent to the terms of the proposed settlement. Under the terms of this Agreement, we would not pay any amount of the settlement. We expect that the parties to the consolidated action will begin preparing formal settlement documents shortly. However, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of this matter.

15. New Accounting Pronouncements Not Yet Adopted

     In June 2009, the FASB issued new accounting guidance related to the consolidation of variable interest entities. The guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. We are in the process of determining what effect, if any; the adoption of this guidance will have on our consolidated financial statements.

     In September 2009, the FASB issued new accounting guidance related to non-software revenue arrangements with multiple deliverables. The guidance eliminates the requirement for entities to have objective and reliable evidence of fair value to separately account for deliverables. In many cases, this will create more units of accounting and less revenue deferral because certain deliverables previously were not separable from other elements of an arrangement. The guidance will also require the use of the “relative selling price approach” to allocate the arrangement fees to the deliverables; use of the residual method is no longer acceptable. In addition, the FASB issued new guidance that narrows the definition of products subject to software accounting rules to exclude certain tangible products that contain software and non-software elements that function together to deliver

the combined product’s essential functionality. As such, certain products that were previously accounted for under the scope of software revenue recognition guidance will no longer be accounted for as software. The guidance for both standards is effective for fiscal years beginning on or after June 15, 2010 (though early adoption is permitted) and entities can elect to apply these issues on a prospective or a retrospective basis. We are in the process of determining what effect, if any; the adoption of this guidance will have on our consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

     Statements contained in this Report that are not statements of historical fact should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). In addition, certain statements in our future filings with the Securities and Exchange Commission (“SEC”), in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenue, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other statements concerning future financial performance; (ii) statements of our plans and objectives by our management or Board of Directors, including those relating to products or services; (iii) statements of assumptions underlying such statements; (iv) statements regarding business relationships with vendors, customers or collaborators; and (v) statements regarding products, their characteristics, performance, sales potential or effect in the hands of customers. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” “should,” “potential,” “goals,” “strategy,” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in Part II, Item 1A “Risk Factors”, below. The performance of our business and our securities may be adversely affected by these factors and by other factors common to other businesses and investments, or to the general economy. Forward-looking statements are qualified by some or all of these risk factors. Therefore, you should consider these risk factors with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Such forward-looking statements speak only as of the date on which statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events or circumstances. Readers should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the SEC, including our reports on Forms 10-Q and 8-K to be filed by the Company in fiscal 2010.

OVERVIEW

     We are a leader in Decision Management (“DM”) solutions that enable businesses to automate, improve and connect decisions to enhance business performance. Our predictive analytics, which include the industry standard FICO^® score, and our Decision Management systems power billions of customer decisions each year. We help companies acquire customers more efficiently, increase customer value, reduce fraud and credit losses, lower operating expenses and enter new markets more profitably. Most leading banks and credit card issuers rely on our solutions, as do many insurers, retailers, healthcare organizations, pharmaceutical companies and government agencies. We also serve consumers through online services that enable people to purchase and understand their FICO^® scores, the standard measure in the United States of credit risk, empowering them to manage their financial health.

     Most of our revenues are derived from the sale of products and services within the banking (including consumer credit) and insurance industries, and during the quarter ended December 31, 2009, 78% of our revenues were derived from within these industries. A significant portion of our remaining revenues is derived from the healthcare and retail industries. Our clients utilize our products and services to facilitate a variety of business processes, including customer marketing and acquisition, account origination, credit and underwriting risk management, fraud loss prevention and control, and client account and policyholder management. A significant portion of our revenues is derived from transactional or unit-based software license fees, annual license fees under long-term software license arrangements, transactional fees derived under scoring, network service or internal hosted software arrangements, and annual software maintenance fees. The recurrence of these revenues is, to a significant degree, dependent upon our clients’ continued usage of our products and services in their business activities. The more significant activities underlying the use of our products in these areas include: credit and debit card usage or active account levels; lending acquisition, origination and customer management activity; and customer acquisition, cross selling and retention programs. Approximately 76% of our revenues during the quarters ended December 31, 2009 and 2008 were derived from arrangements with transactional or unit-based pricing. We also derive revenues from other sources which generally do not recur and include, but are not limited to, perpetual or time-based licenses with upfront payment terms and non-recurring professional service arrangements.

     One measure used by management as an indicator of our business performance is the volume of bookings achieved. We define a booking as estimated future contractual revenues, including agreements with perpetual, multi-year and annual terms. Bookings values may include: (i) estimates of variable fee components such as hours to be incurred under new professional services arrangements and

customer account or transaction activity for agreements with transactional-based fee arrangements; (ii) additional or expanded business from renewals of contracts; and (iii) to a lesser extent, previous customers that have attrited and been resold only as a result of a significant sales effort. During the quarter ended December 31, 2009, we achieved bookings of $59.9 million, including two deals with a booking value of $3.0 million or more. In comparison, bookings in the prior year quarter ended December 31, 2008 were $52.5 million, including one deal with a booking value of $3.0 million or more.

     Management regards the volume of bookings achieved, among other factors, as an important indicator of future revenues, but they are not comparable to, nor should they be substituted for, an analysis of our revenues, and they are subject to a number of risks and uncertainties, including those described in Part II, Item 1A “Risk Factors” below, concerning timing and contingencies affecting product delivery and performance. Although many of our contracts have fixed noncancelable terms, some of our contracts are terminable by the client on short notice. Accordingly, we do not believe it is appropriate to characterize all of our bookings as backlog that will generate future revenue.

     Our revenues derived from clients outside the United States have generally grown, and may in the future grow, more rapidly than our revenues from domestic clients. International revenues totaled $51.2 million during the quarters ended December 31, 2009 and 2008, representing 34% and 31% of total consolidated revenues in each of these periods. We expect that the percentage of our revenues derived from international clients will increase in the future, subject to the impact of foreign currency fluctuations.

Reengineering Initiative

     In January 2009, we completed additional actions under our reengineering initiative. These actions were aimed at reducing costs through headcount reductions and facility consolidations. With respect to the headcount reductions, we identified and eliminated 255 positions throughout the company. We expect annual cost savings of approximately $30 million.

Current Business Environment

     Throughout fiscal 2009 financial markets continued to experience significant volatility and general economic conditions remained unstable. These conditions have had a substantial impact on our customers, especially financial institutions. This has included continued consolidations among our customers, a significant decline in new account acquisition activities and extension of credit by financial institutions and a general slowing of software purchases and related implementation services by our customers. These unfavorable conditions continued to impact our business during the quarter ended December 31, 2009 and are expected to continue to affect us through most of fiscal 2010.

     As a result of this difficult business environment, we will continue to aggressively manage our expenses in an effort to maintain solid earnings and cash flows. We also plan to continue to invest in our Decision Management solutions as well as our core business operations.

Segment Information

     Effective October 1, 2009, we implemented an organizational restructuring resulting in a consolidation of our current operating segment structure from four segments to three. The former Professional Services segment, which represents delivery and integration services, is now included within the applicable segment to which the services relate. Our current segment structure is as follows:

	•		Applications. This segment includes the Decision Management applications formerly included within the Strategy Machine SolutionsTM segment, excluding our myFICO® solutions for consumers, and associated professional services.
	•		Scores. This segment includes our business-to-business Scoring Solutions, our myFICO® solutions for consumers (previously included in the Strategy MachineTM Solutions segment) and associated professional services.
	•		Tools. This segment includes the Decision Management tools formerly included within the Analytic Software Tools segment and associated professional services.

     Although we sell solutions and services into a large number of end user product and industry markets, our reportable business segments reflect the primary method in which management organizes and evaluates internal financial information to make operating decisions and assess performance. Comparative segment revenues, operating income, and related financial information for the quarters ended December 31, 2009 and 2008 are set forth in Note 8 to the accompanying condensed consolidated financial statements. All periods presented have been restated to reflect the aforementioned changes.

RESULTS OF OPERATIONS

Revenues

     The following table sets forth certain summary information on a segment basis related to our revenues for the fiscal periods indicated:

																						Period-to-Period
		Quarter Ended December 31,								Percentage of Revenues								Period-to-Period				Percentange
Segment		2009				2008				2009				2008				Change				Change
		(In thousands)																(In thousands)
Applications		$	92,872			$	94,945				61	%			58	%		$	(2,073	)			(2	)%
Scores			41,553				47,641				28	%			29	%			(6,088	)			(13	)%
Tools			17,071				20,874				11	%			13	%			(3,803	)			(18	)%
Total revenue		$	151,496			$	163,460				100	%			100	%			(11,964	)			(7	)%

Quarter Ended December 31, 2009 Compared to Quarter Ended December 31, 2008 Revenues

Applications

														Period-to-Period
		Quarter Ended December 31,								Period-to-Period				Percentage
Applications		2009				2008				Change				Change
		(In thousands)								(In thousands)
Transactional and maintenance		$	66,734			$	69,590			$	(2,856	)			(4	)%
Professional services			21,462				20,937				525				3	%
License			4,676				4,418				258				6	%
Total		$	92,872			$	94,945				(2,073	)			(2	)%

     Applications segment revenues decreased $2.1 million due to a $4.3 million decrease in revenues from our originations solutions and a $2.4 million decrease in our fraud solutions. The revenue decline was partially offset by a $4.6 million increase in our marketing solutions.

     The decrease in originations solutions was attributable to the June 2009 divestiture of our Liquid Credit Service for Telecom product line, which accounted for $3.2 million of revenue in the quarter ended December 31, 2008. The decrease in fraud solutions revenues was attributable to the June 2009 divestiture of our RoamEx product line, which accounted for $2.2 million of revenue in the quarter ended December 31, 2008. The increase in our marketing solutions revenues was attributable to sales of a new product, FICO^® Retail Action Manager.

Scores

														Period-to-Period
		Quarter Ended December 31,								Period-to-Period				Percenage
Scores		2009				2008				Change				Change
		(In thousands)								(In thousands)
Transactional and maintenance		$	41,143			$	47,464			$	(6,321	)			(13	)%
Professional services			410				177				233				132	%
Total		$	41,553			$	47,641				(6,088	)			(13	)%

     Scores segment revenues decreased $6.1 million due to a $4.2 million decrease in our myFICO^® business-to-consumer services and a $1.9 million decrease in our business-to-business Scores. The decline in our business-to-consumer services was primarily attributable to Experian terminating its relationship with myFICO.com. Business-to-business Scores revenue was impacted by a $1.8 million reduction in revenues from our services sold directly to users. These services have experienced increased pricing pressure in addition to a decline in volumes due to a decrease in prescreening initiatives by our customers. We expect that competitive pricing pressures as well as reduced volumes due to weakness in the U.S. financial credit market will continue to adversely affect segment revenues in fiscal 2010.

     During the quarters ended December 31, 2009 and 2008, revenues generated from our agreements with Equifax, TransUnion and Experian, collectively accounted for approximately 20% and 19%, respectively, of our total revenues, including revenues from these customers that are recorded in our other segments.

Tools

														Period-to-Period
		Quarter Ended December 31,								Period-to-Period				Percentage
Tools		2009				2008				Change				Change
		(In thousands)								(In thousands)
Transactional and maintenance		$	7,229			$	6,604			$	625				9	%
Professional services			4,365				6,966				(2,601	)			(37	)%
License			5,477				7,304				(1,827	)			(25	)%
Total		$	17,071			$	20,874				(3,803	)			(18	)%

     Tools segment revenues decreased $3.8 million primarily due to a decrease of license sales related to our Blaze Advisor product, which was negatively impacted by the current business environment. In addition, professional services revenue declined due to the completion of several large installations in prior periods.

Operating Expenses and Other Income (Expense)

     The following table sets forth certain summary information related to our statements of income for the fiscal periods indicated:

																						Period-to-
																						Period
		Quarter Ended December 31,								Percentage of Revenues								Period-to-Period				Percentage
		2009				2008				2009				2008				Change				Change
		(In thousands, except																(In thousands,
		employees)																except employees)
Revenues		$	151,496			$	163,460				100	%			100	%		$	(11,964	)			(7	)%
Operating expenses:
Cost of revenues			42,519				59,019				28	%			36	%			(16,500	)			(28	)%
Research and development			18,976				18,121				13	%			11	%			855				5	%
Selling, general and administrative			55,203				54,769				36	%			34	%			434				1	%
Amortization of intangible assets			3,165				3,247				2	%			2	%			(82	)			(3	)%
Restructuring			—				8,078				—	%			5	%			(8,078	)			(100	)%
Total operating expenses			119,863				143,234				79	%			88	%			(23,371	)			(16	)%
Operating income			31,633				20,226				21	%			12	%			11,407				56	%
Interest income			539				1,655				—	%			1	%			(1,116	)			(67	)%
Interest expense			(5,408	)			(7,158	)			(4)	%			(4	)%			1,750				(24	)%
Other income (expense), net			(381	)			1,446				—	%			1	%			(1,827	)			(126	)%
Income from operations before income taxes			26,383				16,169				17	%			10	%			10,214				63	%
Provision for income taxes			8,697				4,059				5	%			3	%			4,638				114	%
Net income		$	17,686			$	12,110				12	%			7	%			5,576				46	%
Number of employees at quarter end			2,091				2,360												(269	)			(11	)%

     Cost of Revenues

     Cost of revenues consists primarily of employee salaries and benefits for personnel directly involved in developing, installing and supporting revenue products; travel costs; overhead costs; costs of computer service bureaus; internal network hosting costs; amounts payable to credit reporting agencies for scores; software costs; and expenses related to our business-to-consumer services.

     The quarter over quarter decrease of $16.5 million in cost of revenues resulted from an $8.3 million decrease in personnel and other labor-related costs, a $4.5 million decrease in facilities and infrastructure costs, a $2.6 million decrease in third party software and data costs and a $1.1 million decrease in billable travel costs. The decrease in personnel and other labor-related costs was attributable primarily to a decline in salary and related benefit costs resulting from staff reductions and from the decline in professional services activities. The decrease in facilities and infrastructure costs was attributable primarily to a decline in allocated costs resulting from overhead reductions and exiting certain facilities. The decrease in third party software and data costs was due to decreased sales in our consumer solutions that required data acquisition. The decrease in billable travel was driven by the overall reduction in professional services activities.

     Over the next several quarters, we expect that cost of revenues as a percentage of revenues will be consistent with those incurred during the quarter ended December 31, 2009.

     Research and Development

     Research and development expenses include the personnel and related overhead costs incurred in the development of new products and services, including the research of mathematical and statistical models and the development of new versions of Applications and Tools products.

     The quarter over quarter increase of $0.9 million in research and development expenditures was attributable primarily to a $0.4 million increase in personnel and related costs, a $0.4 million increase in facilities and infrastructure costs and a $0.1 million increase in other expenses. The increase in personnel and related cost was due to increased salaries and incentives for the period ended December 31, 2009. The increase in facilities and infrastructure costs was due to an increase in allocated facility and information system costs.

     Over the next several quarters, we expect that research and development expenditures as a percentage of revenues will be consistent with those incurred during the quarter ended December 31, 2009.

     Selling, General and Administrative

     Selling, general and administrative expenses consist principally of employee salaries and benefits, travel, overhead, advertising and other promotional expenses, corporate facilities expenses, legal expenses, business development expenses, and the cost of operating computer systems.

     The quarter over quarter increase of $0.4 million in selling, general and administrative expenses was attributable to a $1.7 million increase in marketing expenses and a $0.9 million increase in personnel and related costs, partially offset by a $1.0 million decrease in professional fees, a $0.7 million decrease in bad debt expense and a $0.5 million decrease in other expenses. The quarter over quarter increase in marketing expenses was primarily due to lower expenses incurred in the prior quarter from management’s efforts to reduce discretionary spending. Marketing activities were at historical levels in the current quarter. The increase in personnel and related cost was due to increased salaries and incentives for the period ended December 31, 2009. The decline in professional fees was primarily due to decreased legal fees. The decline in bad debt expense was due to successful collection efforts and a decrease in revenues.

     Over the next several quarters, we expect that selling, general and administrative expenses as a percentage of revenues will be consistent with those incurred during the quarter ended December 31, 2009.

     Amortization of Intangible Assets

     Amortization of intangible assets consists of amortization expense related to intangible assets recorded in connection with acquisitions accounted for by the purchase method of accounting. Our definite-lived intangible assets, consisting primarily of completed technology and customer contracts and relationships, are being amortized using the straight-line method or based on forecasted cash flows associated with the assets over periods ranging from two to fifteen years.

     In fiscal 2010, we expect that amortization expense will be slightly lower than the amortization expense we recorded in fiscal 2009.

     Restructuring

     During the quarter ended December 31, 2008, in connection with our reengineering initiative, we incurred net charges totaling $8.1 million. The charges included $5.9 million for severance costs associated with the reduction of 255 positions throughout the company. Cash payments for all severance costs were paid during fiscal 2009. We also recognized charges of $2.6 million associated with vacating excess leased space. The charge represents future cash lease payments, net of estimated sublease income, which will be paid by fiscal 2018. In addition, we reversed $0.4 million of accrued expenses as a result of a favorable lease termination agreement that we entered into for office space that was previously vacated.

     Interest Income

     Interest income is derived primarily from the investment of funds in excess of our immediate operating requirements. The quarter over quarter decrease in interest income of $1.1 million was attributable to a decline in interest rates and investment income yields due to market conditions.

     Interest Expense

     Interest expense recorded during the quarter ended December 31, 2009 included interest on our Senior Notes and interest associated with borrowings under our revolving line of credit. The decrease in interest expense of $1.8 million was the result of lower average interest rates on our revolving line of credit.

     Interest expense associated with our revolving line of credit will likely increase over time due to an increase in market interest rates or if we refinance the revolving line of credit at a higher interest rate.

     Other Income (Expense), Net

     Other income (expense), net consists primarily of realized investment gains/losses, exchange rate gains/losses resulting from re-measurement of foreign-denominated receivable and cash balances into the U.S. dollar functional currency at period-end market rates, net of the impact of offsetting forward exchange contracts, and other non-operating items.

     Other expense, net in the quarter ended December 31, 2009, primarily consisted of foreign exchange currency losses of $0.3 million. In the quarter ended December 31, 2008, other income, net resulted from foreign exchange currency gains of $1.3 million.

     Provision for Income Taxes

     Our effective tax rate was 33.0% and 25.1% during the quarters ended December 31, 2009 and 2008, respectively. The provision for income taxes during interim quarterly reporting periods is based on our estimates of the effective tax rates for the respective full fiscal year. The tax rate in any quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution.

     Our effective tax rate for the quarter ended December 31, 2009, was negatively affected by the delay in the extension of the U.S. federal research tax credit. We were unable to recognize this tax credit during the quarter ended December 31, 2009 as legislation providing for reinstatement of this credit was not yet enacted.

     Operating Income

     The following table sets forth certain summary information on a segment basis related to our operating income for the fiscal periods indicated.

														Period-to-
														Period
		Quarter Ended December 31,								Period-to-Period				Percentage
Segment		2009				2008				Change				Change
		(In thousands)								(In thousands)
Applications		$	25,692			$	19,352			$	6,340				33	%
Scores			27,275				32,368				(5,093	)			(16	)%
Tools			2,892				3,889				(997	)			(26	)%
Corporate expenses			(16,526	)			(18,587	)			2,061				(11	)%
Total segment operating income			39,333				37,022				2,311				6	%
Unallocated stock-based compensation			(4,535	)			(5,471	)			936				(17	)%
Unallocated amortization expense			(3,165	)			(3,247	)			82				(3	)%
Unallocated restructuring			—				(8,078	)			8,078				(100	)%
Operating income		$	31,633			$	20,226				11,407				56	%