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

For the quarterly period ended June 30, 2008

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

For the transition period from                       to                      

Fair Isaac Corporation

Delaware (State or other jurisdiction of incorporation or organization)		94-1499887 (I.R.S. Employer Identification No.)
901 Marquette Avenue, Suite 3200 Minneapolis, Minnesota (Address of principal executive offices)		55402-3232 (Zip Code)

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

Large accelerated filer þ		Accelerated filer o		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 July 31, 2008 was 48,455,865 (excluding 40,400,918 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			15
Item 3. Quantitative and Qualitative Disclosures About Market Risk			32
Item 4. Controls and Procedures			33
PART II – OTHER INFORMATION
Item 1. Legal Proceedings			33
Item 1A. Risk Factors			33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 3. Defaults Upon Senior Securities			42
Item 4. Submission of Matters to a Vote of Security Holders			42
Item 5. Other Information			42
Item 6. Exhibits			43
Signatures			44
Rule 13a-14(a)/15d-14(a) Certifications of CEO
Rule 13a-14(a)/15d-14(a) Certifications of CFO
Section 1350 Certification of CEO
Section 1350 Certification of CFO

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data)
(Unaudited)

		June 30,				September 30,
		2008				2007
Assets
Current assets:
Cash and cash equivalents		$	102,876			$	95,284
Marketable securities available for sale, current portion			52,895				125,327
Accounts receivable, net			152,564				169,293
Prepaid expenses and other current assets			21,930				23,008
Current assets of discontinued operations			––				9,839
Total current assets			330,265				422,751
Marketable securities available for sale, less current portion			76,512				13,776
Other investments			12,374				12,374
Property and equipment, net			48,360				51,007
Goodwill			702,074				685,452
Intangible assets, net			57,197				54,733
Deferred income taxes			16,071				14,828
Other assets			5,379				4,040
Long-term assets of discontinued operations			––				16,810
		$	1,248,232			$	1,275,771
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	10,248			$	15,204
Senior convertible notes			267,259				390,963
Accrued compensation and employee benefits			31,368				43,418
Other accrued liabilities			25,845				30,119
Deferred revenue			39,524				42,010
Current liabilities of discontinued operations			––				4,210
Total current liabilities			374,244				525,924
Revolving line of credit			38,000				170,000
Senior notes			275,000				––
Other liabilities			16,745				13,533
Total liabilities			703,989				709,457
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 shares issued and 48,426 and 51,064 shares outstanding at June 30, 2008 and September 30, 2007, respectively)			484				511
Paid-in-capital			1,105,805				1,097,327
Treasury stock, at cost (40,431 and 37,793 shares at June 30, 2008 and September 30, 2007, respectively)			(1,376,055	)			(1,290,393	)
Retained earnings			802,300				745,054
Accumulated other comprehensive income			11,709				13,815
Total stockholders’ equity			544,243				566,314
		$	1,248,232			$	1,275,771

See accompanying notes to condensed consolidated financial statements.

FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

		Quarter Ended								Nine Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Revenues		$	183,315			$	196,627			$	566,655			$	585,466
Operating expenses:
Cost of revenues (1)			68,709				65,291				208,627				192,806
Research and development			18,779				16,917				58,910				51,742
Selling, general and administrative (1)			59,734				69,464				187,858				203,679
Amortization of intangible assets (1)			3,797				4,833				10,481				16,585
Restructuring			2,176				—				7,855				—
Gain on sale of product line assets			—				—				—				(1,541	)
Total operating expenses			153,195				156,505				473,731				463,271
Operating income			30,120				40,122				92,924				122,195
Interest income			1,707				3,382				5,942				10,287
Interest expense			(5,203	)			(3,240	)			(13,461	)			(9,146	)
Other income, net			1,478				42				2,095				80
Income from continuing operations before income taxes			28,102				40,306				87,500				123,416
Provision for income taxes			9,304				14,194				30,092				44,063
Income from continuing operations			18,798				26,112				57,408				79,353
Income (loss) from discontinued operations			7,703				(2,344	)			2,766				(2,922	)
Net income		$	26,501			$	23,768			$	60,174			$	76,431
Basic earnings per share:
Continuing operations		$	0.39			$	0.47			$	1.17			$	1.39
Discontinued operations			0.16				(0.04	)			0.06				(0.05	)
Total		$	0.55			$	0.43			$	1.23			$	1.34
Diluted earnings per share:
Continuing operations		$	0.38			$	0.46			$	1.16			$	1.36
Discontinued operations			0.16				(0.04	)			0.06				(0.05	)
Total		$	0.54			$	0.42			$	1.21			$	1.31
Shares used in computing earnings per share:
Basic			48,521				55,776				49,111				56,928
Diluted			48,727				56,896				49,633				58,518

See accompanying notes to condensed consolidated financial statements.

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

																						Accumulated
		Common Stock																				Other				Total
						Par				Paid-In-				Treasury				Retained				Comprehensive				Stockholders’				Comprehensive
		Shares				Value				Capital				Stock				Earnings				Income				Equity				Income
Balance at September 30, 2007			51,064			$	511			$	1,097,327			$	(1,290,393	)		$	745,054			$	13,815			$	566,314
Share-based compensation			—				—				21,713				—				—				—				21,713
Exercise of stock options			500				5				(5,260	)			17,112				—				—				11,857
Tax effect from share-based payment arrangements			—				—				(1,874	)			—				—				—				(1,874	)
Forfeitures of restricted stock			(35	)			—				1,114				(1,114	)			—				—				—
Repurchases of common stock			(3,540	)			(35	)			—				(116,607	)			—				—				(116,642	)
Issuance of ESPP shares from treasury			384				3				(4,684	)			13,121				—				—				8,440
Issuance of restricted stock to employees from treasury			53				—				(2,531	)			1,826				—				—				(705	)
Dividends paid			—				—				—				—				(2,928	)			—				(2,928	)
Net income			—				—				—				—				60,174				—				60,174			$	60,174
Unrealized gains on investments			—				—				—				—				—				174				174				174
Cumulative translation adjustments			—				—				—				—				—				(2,280	)			(2,280	)			(2,280	)
Balance at June 30, 2008			48,426			$	484			$	1,105,805			$	(1,376,055	)		$	802,300			$	11,709			$	544,243			$	58,068

See accompanying notes to condensed consolidated financial statements.

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

		Nine Months Ended
		June 30,
		2008				2007
Cash flows from operating activities:
Net income		$	60,174			$	76,431
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			29,753				39,219
Share-based compensation			21,713				28,232
Deferred income taxes			948				4,081
Tax effect from share-based payment arrangements			(1,874	)			15,589
Excess tax benefits from share-based payment arrangements			(1,301	)			(12,174	)
Gain on repurchase of senior convertible notes			(896	)			—
Net amortization (accretion) of premium (discount) on marketable securities			370				(999	)
Provision for doubtful accounts			2,867				3,997
Loss on sale of discontinued operations			6,952				—
Gain on sale of product line assets			—				(1,541	)
Net (gain) loss on sales of property and equipment			(37	)			5
Changes in operating assets and liabilities, net of acquisition and disposition effects:
Accounts receivable			13,576				(17,663	)
Prepaid expenses and other assets			2,353				47
Accounts payable			(3,159	)			4,653
Accrued compensation and employee benefits			(12,120	)			5,542
Other liabilities			(3,827	)			(10,607	)
Deferred revenue			(1,649	)			(5,591	)
Net cash provided by operating activities			113,843				129,221
Cash flows from investing activities:
Purchases of property and equipment			(17,613	)			(17,315	)
Cash proceeds from sale of product line assets			—				13,904
Cash proceeds from sales of property and equipment			1,552				—
Cash paid for acquisition, net of cash acquired			(33,336	)			—
Cash proceeds from sale of business unit			14,200				––
Purchases of marketable securities			(153,483	)			(171,666	)
Proceeds from sales of marketable securities			2,008				14,250
Proceeds from maturities of marketable securities			160,085				182,163
Investment in cost-method investees			—				(10,213	)
Net cash provided by (used in) investing activities			(26,587	)			11,123
Cash flows from financing activities:
Net increase (decrease) in revolving line of credit			(132,000	)			70,000
Repurchases of senior convertible notes			(122,808	)			—
Proceeds from issuance of senior notes			275,000				—
Debt issuance costs			(1,477	)			(408	)
Proceeds from issuances of common stock under employee stock option and purchase plans			19,592				77,245
Dividends paid			(2,928	)			(3,384	)
Repurchases of common stock			(116,642	)			(282,407	)
Excess tax benefits from share-based payment arrangements			1,301				12,174
Net cash used in financing activities			(79,962	)			(126,780	)
Effect of exchange rate changes on cash			298				1,524
Increase in cash and cash equivalents			7,592				15,088
Cash and cash equivalents, beginning of period			95,284				75,154
Cash and cash equivalents, end of period		$	102,876			$	90,242
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds		$	13,971			$	29,266
Cash paid for interest		$	10,513			$	4,677

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 is a provider of analytic, software and data management products and services that enable businesses to automate, improve and connect decisions. Fair Isaac Corporation 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, telecommunications providers, healthcare organizations and government agencies.

     In these consolidated financial statements, Fair Isaac Corporation is referred to as “we,” “us,” “our,” and “Fair Isaac.”

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 standards of accounting measurement set forth in Accounting Principles Board (“APB”) Opinion No. 28 and any amendments thereto adopted by the Financial Accounting Standards Board (“FASB”). 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/A for the year ended September 30, 2007. 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 Fair Isaac 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; estimated losses associated with contingencies and litigation; 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, the determination of whether fees are fixed or determinable and collection is probable or reasonably assured; and the development of assumptions for use in the Black-Scholes model that estimates the fair value of our share-based awards and assessing forfeiture rates of share-based awards.

Adoption of Accounting Pronouncement

     In June 2006 the FASB issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We adopted FIN 48 on October 1, 2007. See Note 9 for more information about the impact of adoption of this guidance.

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								Nine Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
						(In thousands)
Cost of revenues		$	2,043			$	2,857			$	5,464			$	10,402
Selling, general and administrative expenses			1,754				1,976				5,017				6,183
		$	3,797			$	4,833			$	10,481			$	16,585

     Cost of revenues reflects our amortization of completed technology, and selling, general and administrative expenses reflects our amortization of other intangible assets. Intangible assets were $57.2 million and $54.7 million, net of accumulated amortization of $101.1 million and $95.7 million, as of June 30, 2008 and September 30, 2007, respectively.

3. Restructuring and Acquisition-Related Expenses

     The following table summarizes our restructuring and acquisition-related accruals associated with acquisitions and certain Fair Isaac facility closures. The current portion and non-current portion is recorded in accrued compensation and employee benefits, other accrued current liabilities and other long-term liabilities within the accompanying condensed consolidated balance sheets. These balances are expected to be paid by fiscal 2012.

		Accrual at																Accrual at
		September 30,				Expense				Cash				Expense				June 30,
		2007				Additions				Payments				Reversal				2008
		(In thousands)
Facilities charges		$	10,294			$	2,038			$	(2,453	)		$	(445	)		$	9,434
Employee separation			1,012				6,262				(5,523	)			—				1,751
			11,306			$	8,300			$	(7,976	)		$	(445	)			11,185
Less: current portion			(4,051	)															(4,785	)
Non-current		$	7,255															$	6,400

     During the quarter ended December 31, 2007, we recorded a $0.4 million expense reversal due to favorable sublease arrangements we entered into for office space that was vacated last year. During the quarter ended March 31, 2008, we incurred charges of $5.3 million for severance costs associated with the elimination of 190 positions across the organization. We also vacated excess lease space located in Colorado and recorded a lease exit accrual of $0.8 million. During the quarter ended June 30, 2008, we vacated excess lease space located in California and recorded a lease exit accrual for $1.3 million. We also incurred charges of $0.9 million for severance costs related to the elimination of 43 positions across the organization.

4. Composition of Certain Financial Statement Captions

		June 30,				September 30,
		2008				2007
		(In thousands)
Property and equipment		$	200,251			$	189,158
Less accumulated depreciation and amortization			(151,891	)			(138,151	)
		$	48,360			$	51,007

5. Acquisition

     On January 21, 2008, we acquired Dash Optimization (“Dash”), a leading provider of decision modeling and optimization software, for an aggregate cash purchase price of approximately $34.1 million. The acquisition of Dash was consummated principally to augment our decision management analytic tools. We accounted for this transaction using the purchase method of accounting. The results of Dash have been included in our operating results since January 21, 2008.

     The total purchase price is summarized as follows (in thousands):

Total cash consideration		$	33,835
Acquisition-related costs			303
Total purchase price		$	34,138

     Our allocation of the purchase price was as follows (in thousands):

Assets:
Cash and cash equivalents		$	499
Receivables, net			2,094
Prepaid expenses and other current assets			414
Goodwill			18,594
Intangible assets:
Completed technology			9,097
Customer contracts and relationships			3,437
Trade names			691
Total assets			34,826
Liabilities:
Current liabilities			371
Deferred revenue			317
Total liabilities			688
Net assets		$	34,138

     The acquired intangible assets have a weighted average useful life of approximately 4.3 years and are being amortized using the straight-line method over their estimated useful lives as follows: completed technology, four years; customer contracts and relationships, five years and trade names; five years. The goodwill was allocated to our Analytical Software Tools segment, and is deductible for tax purposes.

6. Discontinued Operations

     In March 2008, we entered into a definitive agreement for the sale of our Insurance Bill Review business unit. On April 30, 2008, the company completed the sale of the business unit for $14.2 million of cash, which is subject to a final working capital adjustment as defined under the agreement.

     We recorded a $4.2 million after-tax loss related to the disposition in our quarter ended March 31, 2008 as the carrying value of the net assets of the business exceeded the sales price. In the third quarter ended June 30, 2008, we recorded a tax benefit of approximately $7.6 million from the sale, which represents tax deductions related to intangible assets of the business that could not be recognized prior to the sale transaction. With the tax benefit, the overall after-tax gain on the sale was $3.4 million.

     The decision to sell the Insurance Bill Review business was the result of management’s decision to divest non-strategic businesses and focus resources on our core products and services. Insurance Bill Review was part of the Strategy Machine Solutions and Professional Services segments.

     In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we determined that the Insurance Bill Review business became a discontinued operation in the second quarter of 2008. We have segregated the net assets, net liabilities and operating results from continuing operations in our balance sheets and statements of income for all periods prior to the sale. Revenues from discontinued operations were $3.5 million and $9.1 million for the quarters ended June 30, 2008 and 2007, respectively, and were $22.9 million and $29.5 million for the nine months ended June 30, 2008 and 2007, respectively. Pre-tax income (loss) from discontinued operations was $111,000 and ($3.9) million for the quarters ended June 30, 2008 and 2007, respectively. Pre-tax loss from discontinued operations was $1.1 million and $4.8 million for the nine months ended June 30, 2008 and 2007, respectively.

     The following table presents balance sheet information for discontinued operations as of September 30, 2007.

		September 30,
		2007
		(In thousands)
Accounts receivable, net		$	8,109
Prepaid expenses and other current assets			1,730
Total current assets			9,839
Property and equipment, net			1,150
Goodwill			7,470
Intangible assets, net			8,190
Total assets		$	26,649
Accounts payable		$	1,096
Accrued compensation and employee benefits			784
Other accrued liabilities			1,768
Deferred revenue			562
Total liabilities		$	4,210

7. Earnings Per Share

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

		Quarter Ended								Nine Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
		(In thousands, except per share data)
Numerator for basic earnings per share — income from continuing operations		$	18,798			$	26,112			$	57,408			$	79,353
Interest expense on senior convertible notes, net of tax			1				1				3				3
Numerator for diluted earnings per share		$	18,799			$	26,113			$	57,411			$	79,356
Denominator — shares:
Basic weighted-average shares			48,521				55,776				49,111				56,928
Effect of dilutive securities			206				1,120				522				1,590
Diluted weighted-average shares			48,727				56,896				49,633				58,518
Earnings per share:
Basic		$	0.39			$	0.47			$	1.17			$	1.39
Diluted		$	0.38			$	0.46			$	1.16			$	1.36

     The computation of diluted EPS for the quarters ended June 30, 2008 and 2007, excludes options to purchase approximately 8,697,000 and 4,068,000 shares of common stock, respectively, and for the nine months ended June 30, 2008 and 2007, excludes options to purchase approximately 7,722,000 and 3,577,000 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

     We are organized into the following four reportable segments, to align with the internal management of our worldwide business operations based on product and service offerings:

•

Strategy Machine™ Solutions. These are pre-configured Decision Management (“DM”) applications, formerly Enterprise Decision Management applications, designed for a specific type of business problem or process, such as marketing, account origination, customer management, and fraud. This segment also includes our myFICO solutions for consumers.

	•		Scoring Solutions. 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 lenders directly.
	•		Professional Services. Through our professional services, we tailor our DM products to our clients’ environments, and we design more effective decisioning environments for our clients. This segment includes revenues from custom engagements, business solution and technical consulting services, systems integration services, and data management services.
	•		Analytic Software Tools. This segment is composed of software tools that clients can use to create their own custom DM applications.

     Our Chief Executive Officer evaluates segment financial performance based on segment revenues and operating income. Segment operating expenses consist of direct and indirect costs principally related to personnel, facilities, consulting, travel, depreciation and amortization. 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 and acquisition-related expense 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 and amortization amounts are allocated to the segments from their internal cost centers as described above.

     The following tables summarize segment information for the quarters and nine months ended June 30, 2008 and 2007:

		Quarter Ended June 30, 2008
		Strategy												Analytic
		Machine				Scoring				Professional				Software
		Solutions				Solutions				Services				Tools				Total
		(In thousands)
Revenues		$	94,855			$	37,553			$	39,132			$	11,775			$	183,315
Operating expenses			(80,549	)			(15,838	)			(37,533	)			(10,344	)			(144,264	)
Segment operating income		$	14,306			$	21,715			$	1,599			$	1,431				39,051
Unallocated share-based compensation expense																			(6,755	)
Unallocated restructuring																			(2,176	)
Operating income																			30,120
Unallocated interest income																			1,707
Unallocated interest expense																			(5,203	)
Unallocated other income, net																			1,478
Income from continuing operations before income taxes																		$	28,102
Depreciation and amortization		$	6,435			$	1,298			$	1,449			$	708			$	9,890

		Quarter Ended June 30, 2007
		Strategy												Analytic
		Machine				Scoring				Professional				Software
		Solutions				Solutions				Services				Tools				Total
		(In thousands)
Revenues		$	104,132			$	47,229			$	35,165			$	10,101			$	196,627
Operating expenses			(84,264	)			(16,865	)			(35,570	)			(11,873	)			(148,572	)
Segment operating income (loss)		$	19,868			$	30,364			$	(405	)		$	(1,772	)			48,055
Unallocated share-based compensation expense																			(7,933	)
Operating income																			40,122
Unallocated interest income																			3,382
Unallocated interest expense																			(3,240	)
Unallocated other income, net																			42
Income from continuing operations before income taxes																		$	40,306
Depreciation and amortization		$	6,427			$	2,228			$	1,658			$	636			$	10,949

		Nine Months Ended June 30, 2008
		Strategy												Analytic
		Machine				Scoring				Professional				Software
		Solutions				Solutions				Services				Tools				Total
		(In thousands)
Revenues		$	293,639			$	119,556			$	114,645			$	38,815			$	566,655
Operating expenses			(250,400	)			(49,719	)			(110,409	)			(33,892	)			(444,420	)
Segment operating income		$	43,239			$	69,837			$	4,236			$	4,923				122,235
Unallocated share-based compensation expense																			(21,456	)
Unallocated restructuring																			(7,855	)
Operating income																			92,924
Unallocated interest income																			5,942
Unallocated interest expense																			(13,461	)
Unallocated other expense, net																			2,095
Income from continuing operations before income taxes																		$	87,500
Depreciation and amortization		$	18,151			$	4,116			$	4,086			$	2,047			$	28,400

		Nine Months Ended June 30, 2007
		Strategy												Analytic
		Machine				Scoring				Professional				Software
		Solutions				Solutions				Services				Tools				Total
		(In thousands)
Revenues		$	306,411			$	134,482			$	110,829			$	33,744			$	585,466
Operating expenses			(248,117	)			(48,102	)			(106,112	)			(34,908	)			(437,239	)
Segment operating income (loss)		$	58,294			$	86,380			$	4,717			$	(1,164	)			148,227
Unallocated share-based compensation expense																			(27,573	)
Unallocated gain on sale of product line assets																			1,541
Operating income																			122,195
Unallocated interest income																			10,287
Unallocated interest expense																			(9,146	)
Unallocated other income, net																			80
Income from continuing operations before income taxes																		$	123,416
Depreciation and amortization		$	21,804			$	6,679			$	5,612			$	2,313			$	36,408

9. Income Taxes

     Adoption of FIN 48

     FIN 48 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. On October 1, 2007, we adopted FIN 48 as a change in accounting principle. The cumulative effect of the change did not result in an adjustment to the beginning balance of retained earnings. Following implementation, the ongoing recognition of changes in measurement of uncertain tax positions will be reflected as a component of income tax expense.

     We conduct business globally and, as a result, file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities. With few exceptions, we are no longer subject to U.S. federal, state, local, or foreign income tax examinations for fiscal years before 2002.

     The cumulative effects of applying this interpretation have been recorded as an increase of $4.5 million to current tax liabilities, $4.1 million to deferred income tax assets and an increase of $0.4 million to goodwill as of October 1, 2007. Upon adoption at October 1, 2007, we had $26.5 million of total unrecognized tax benefits. Of this total, $14.8 million, net of the federal benefit on state issues, represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. We recognize interest related to unrecognized tax benefits and penalties as part of the provision for income taxes in our condensed consolidated statements of income. As of the adoption date, we had accrued interest of $2.3 million related to the unrecognized tax benefits.

     During the quarter ended June 30, 2008 the total unrecognized tax benefits and related interest did not change materially.

     We are currently in the process of settling audits of several open tax years and it is reasonably possible that our total unrecognized tax benefits could decrease by $14 to $16 million as a result of the settlement of these audits and payments within the next 12 months.

10. Senior Convertible Notes

     In August 2003, we issued $400.0 million of 1.5% Senior Convertible Notes (“Senior Convertible Notes”) that mature on August 15, 2023. The Senior Convertible Notes become convertible into shares of Fair Isaac common stock, subject to the conditions described below, at an initial conversion price of $43.9525 per share, subject to adjustments for certain events. The initial conversion price is equivalent to a conversion rate of approximately 22.7518 shares of Fair Isaac common stock per $1,000 principal amount of the Senior Convertible Notes. Holders may surrender their Senior Convertible Notes for conversion, if any of the following conditions is satisfied: (i) prior to August 15, 2021, during any fiscal quarter, if the closing price of our common stock for at least 20 trading days in the 30 consecutive trading day period ending on the last day of the immediately preceding fiscal quarter is more than 120% of the conversion price per share of our common stock on the corresponding trading day; (ii) at any time after the closing sale price of our common stock on any date after August 15, 2021 is more than 120% of the then current conversion price; (iii) during the five consecutive business day period following any 10 consecutive trading day period in which the average trading price of a Senior Note was less than 98% of the average sale price of our common stock during such 10 trading day period multiplied by the applicable conversion rate; provided, however, if, on the day before the conversion date, the closing price of our common stock is greater than 100% of the conversion price but less than or equal to 120% of the conversion price, then holders converting their notes may receive, in lieu of our common stock based on the applicable conversion rate, at our option, cash or common stock with a value equal to 100% of the principal amount of the notes on the conversion date; (iv) if we have called the Senior Convertible Notes for redemption; or (v) if we make certain distributions to holders of our common stock or we enter into specified corporate transactions. The conversion price of the Senior Convertible Notes will be adjusted upon the occurrence of certain dilutive events as described in the indenture, which include but are not limited to: (i) dividends, distributions, subdivisions, or combinations of our common stock; (ii) issuance of rights or warrants for the purchase of our common stock under certain circumstances; (iii) the distribution to all or substantially all holders of our common stock of shares of our capital stock, evidences of indebtedness, or other non-cash assets, or rights or warrants; (iv) the cash dividend or distribution to all or substantially all holders of our common stock in excess of certain levels; and (v) certain tender offer activities by us or any of our subsidiaries.

     The Senior Convertible Notes are senior unsecured obligations of Fair Isaac and rank equal in right of payment with all of our unsecured and unsubordinated indebtedness. The Senior Convertible Notes are effectively subordinated to all of our existing and future secured indebtedness and existing and future indebtedness and other liabilities of our subsidiaries. The Senior Convertible Notes bear regular interest at an annual rate of 1.5%, payable on August 15 and February 15 of each year until August 15, 2008. Beginning August 15, 2008, regular interest will accrue at the rate of 1.5%, and be due and payable upon the earlier to occur of

redemption, repurchase, or final maturity. In addition, the Senior Convertible Notes bear contingent interest during any six-month period from August 15 to February 14 and from February 15 to August 14, commencing with the six-month period beginning August 15, 2008, if the average trading price of the Senior Convertible Notes for the five trading day period immediately preceding the first day of the applicable six-month period equals 120% or more of the sum of the principal amount of, plus accrued and unpaid regular interest on, the Senior Convertible Notes. The amount of contingent interest payable on the Senior Convertible Notes in respect to any six-month period will equal 0.25% per annum of the average trading price of the Senior Convertible Notes for the five trading day period immediately preceding such six-month period.

     We may redeem for cash all or part of the Senior Convertible Notes on and after August 15, 2008, at a price equal to 100% of the principal amount of the Senior Convertible Notes, plus accrued and unpaid interest. Holders may require us to repurchase for cash all or part of the $400 million of Senior Convertible Notes on August 15, 2008, August 15, 2013 and August 15, 2018, or upon a change in control, at a price equal to 100% of the principal amount of the Senior Convertible Notes being repurchased, plus accrued and unpaid interest.

     On March 31, 2005, we completed an exchange offer for the Senior Convertible Notes, whereby holders of approximately 99.9% of the total principal amount of our Senior Convertible Notes exchanged their existing securities for new 1.5% Senior Convertible Notes, Series B (“New Notes”). The terms of the New Notes are similar to the terms of the Senior Convertible Notes described above, except that: (i) upon conversion, we will pay holders cash in an amount equal to the lesser of the principal amount of such notes and the conversion value of such notes, and to the extent such conversion value exceeds the principal amount of the notes, the remainder of the conversion obligation in cash or common shares or combination thereof; (ii) in the event of a change of control, we may be required in certain circumstances to pay a make-whole premium on the New Notes converted in connection with the change of control and (iii) if the conversion condition in the first clause (iii) in the third paragraph preceding this paragraph is triggered and the closing price of our common stock is greater than 100% of the conversion price but less than or equal to 120% of the conversion price, the holders converting New Notes shall receive cash with a value equal to 100% of the principal amount of New Notes on the conversion date.

     In March 2008 we repurchased $23.7 million of New Notes from the noteholders and recognized a $0.4 million gain from this redemption during the quarter ended March 31, 2008. In May 2008 we repurchased $100.0 million of New Notes from the noteholders and recognized a $0.5 million gain from this redemption during the quarter ended June 30, 2008. As of June 30, 2008, $267.3 million of the New Notes remain outstanding and are classified as short-term debt in our consolidated condensed balance sheet, because noteholders may require us to repurchase for cash all or part of the New Notes on August 15, 2008.

11. Credit Agreement

     In October 2006, we entered into a five-year unsecured revolving credit facility with a syndicate of banks. In July 2007, we entered into an amended and restated credit agreement that increased the revolving credit facility from $300 million to $600 million. Proceeds from the credit facility 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 credit facility 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 credit facility exceed 50% of the total credit facility commitment, as well as facility fees. The credit facility contains certain restrictive covenants, including maintenance of consolidated leverage and fixed charge coverage ratios. The credit facility also contains covenants typical of unsecured facilities. As of June 30, 2008, we had $38.0 million of borrowings outstanding under the credit facility at an average interest rate of 3.125%.

12. Senior Notes

     On May 7, 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 as follows:

Series

Amount

Interest Rate

Maturity Date

A

$  41 million

6.37

%

May 7, 2013

B

$  40 million

6.37

%

May 7, 2015

C

$  63 million

6.71

%

May 7, 2015

D

$131 million

7.18

%

May 7, 2018

     We are required to pay the entire unpaid principal balances of each note series on its maturity date except for Series B notes, which requires five annual principal payments of $8.0 million starting on May 7, 2011. Future principal payments are as follows (in thousands);

Years Ended September 30,
2009		$	––
2010			––
2011			8,000
2012			8,000
2013			49,000
Thereafter			210,000
		$	275,000

     Interest is paid semi-annually on May 7 and November 7 of each year starting on November 7, 2008. Total debt issuance costs were $1.5 million. The Senior Notes are subject to certain restrictive covenants that are essentially similar to the credit agreement and include maintenance of consolidated leverage and fixed charge coverage ratios. The issuance of the Senior Notes also required us to make certain covenants typical of unsecured facilities.

13. Related Party Transactions

     We have a $10 million investment in convertible preferred stock in a private company. The company is developing a range of products focused on revenue cycle activities for hospitals and healthcare providers. Related party revenues for the quarter ended June 30, 2008 included $2.5 million in software license revenue and $1.6 million in professional services revenue. Related party revenues for the nine months ended June 30, 2008 included $2.5 million in software license revenue and $1.9 million in professional services revenue. The accounts receivable balance from this company was $3.6 million as of June 30, 2008.

14. Contingencies

     We have had 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 have entered into a Stipulation and Agreement of Settlement, pursuant to a Memorandum of Understanding, along with most of the other defendant issuers in this coordinated litigation, where such issuers and their officers and directors will be dismissed with prejudice, subject to the satisfaction of certain conditions, including, among others, 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 can be no agreement, thus the District Court entered an order formally denying the motion for final approval of the settlement agreement. We cannot predict whether the issuers and their insurers will be able to renegotiate a settlement that would comply with the appellate court’s ruling. Plaintiffs plan to replead their complaints and move for class certification again.

     We intend to continue to defend vigorously against these claims. However, due to the inherent uncertainties of litigation, we

cannot accurately predict the ultimate outcome of the litigation.

15. New Accounting Pronouncements Not Yet Adopted

     In September 2006, the FASB issued SFAS No. 157, Fair Value Measures (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured at fair value. The statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are in the process of determining what effect, if any, the adoption of SFAS No. 157 will have on our consolidated financial statements.

     In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets & Financial Liabilities — Including an Amendment of SFAS No. 115 (“SFAS 159”). SFAS 159 permits companies to choose to measure certain financial instruments and other items at fair value. The standard requires that unrealized gains and losses are reported in earnings for items measured using the fair value option. SFAS 159 will become effective for fiscal years beginning after November 15, 2007. We are in the process of determining what effect, if any, the adoption of SFAS 159 will have on our consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS 141(R)”). SFAS 141(R) states that business combinations will result in all assets and liabilities of an acquired business being recorded at their fair values. Certain forms of contingent consideration and acquired contingencies will be recorded at fair value at the acquisition date. SFAS 141(R) also states acquisition costs will generally be expensed as incurred and restructuring costs will be expensed in periods after the acquisition date. This statement is effective for financial statement issued for fiscal years beginning after December 15, 2008. We are in the process of determining what effect, if any, the adoption of SFAS 141(R) will have on our consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”). SFAS 160 clarifies that a noncontrolling 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. SFAS 160 is effective for fiscal years beginning after December 15, 2008. We are in the process of determining what effect, if any, the adoption of SFAS 160 will have on our consolidated financial statements.

     In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB statement No. 133 (“SFAS 161”). SFAS 161 expands the disclosure requirements about an entity’s derivative instruments and hedging activities. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We are in the process of determining what effect, if any, the adoption of SFAS No. 161 will have on our consolidated financial statements.

     In May 2008, the FASB issued FASB Staff Position (“FSP”) APB 14-a, Accounting for Convertible Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). The FSP requires that proceeds from the issuance of convertible debt instruments be allocated between debt (at a discount) and an equity component. The debt discount will be amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. This FSP is effective for fiscal years beginning after December 15, 2008, and will be applied retrospectively to prior periods. This FSP changes the accounting treatment for our Senior Convertible Notes, which were issued in August 2003. The new accounting treatment requires us to retrospectively record a significant amount of non-cash interest as the discount on the debt is amortized. We are in the process of determining what effect, if any, the adoption of this FSP 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 Item 1A of Part II, 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 2008.

RESULTS OF OPERATIONS

Overview

     We are a leader in Decision Management (“DM”) solutions, formerly known as Enterprise Decision Management solutions, that enable businesses to automate, improve and connect decisions to enhance business performance. Our predictive analytics and decision management systems power hundreds of 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, telecommunications providers, healthcare organizations, pharmaceutical 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 consumer credit, financial services and insurance industries, and during the quarter ended June 30, 2008, 71% of our revenues were derived from within these industries. A significant portion of our remaining revenues is derived from the telecommunications and retail industries, as well as the government sector. 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 wireless and wireline calls and subscriber levels. Approximately 73% and 75% of our revenues during the quarters ended June 30, 2008 and 2007, respectively, and 73% and 75% of our revenues for the nine months ended June 30, 2008 and 2007, respectively, 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, non-recurring professional service arrangements and gain-share arrangements where revenue is derived based on percentages of client revenue growth or cost reductions attributable to our products.

     Within a number of our sectors there has been a sizable amount of industry consolidation.  In addition, many of our sectors are experiencing increased levels of competition.  As a result of these factors, we believe that future revenues in particular sectors may decline.  However, due to the long-term customer arrangements we have with many of our customers, the near term impact of these declines may be more limited in certain sectors.

     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 re-sold only as a result of a significant sales effort. During the quarter ended June 30, 2008, we achieved bookings of $64.2 million, including two deals with bookings value of $3.0 million or more. In comparison, bookings in the prior year quarter ended June 30, 2007 were $78.7 million, including three with bookings values 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 Item 1A of Part II, Risk Factors, concerning timing and contingencies affecting product delivery and performance.  Although many of our contracts have fixed non-cancelable terms, some of our contracts are terminable by the client on short notice or without 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 continue to grow, and may in the future grow more rapidly than our revenues from domestic clients. International revenues totaled $57.7 million and $63.4 million during the quarters ended June 30, 2008 and 2007, respectively, representing 31% and 32% of total consolidated revenues in each of these periods. International revenues totaled $185.3 million and $180.1 million during the nine months ended June 30, 2008 and 2007, respectively, representing 33% and 31% of total consolidated revenues in each of these periods. In addition to clients acquired via our acquisitions, we believe that our international growth is a product of successful relationships with third parties that assist in international sales efforts and our own increased sales focus internationally, and we expect that the percentage of our revenues derived from international clients will increase in the future.

     On April 1, 2008, we announced the details of a reengineering plan designed to grow revenues through strategic resource allocation and improve profitability through cost reduction. Key components of the plan include rationalizing the business portfolio, simplifying management hierarchy, eliminating low-priority positions, consolidating facilities and managing fixed and variable costs. Also in connection with the plan, we sold our Insurance Bill Review business unit on April 30, 2008 to Mitchell International, Inc., and we exited our Cortronics neural research and FastPanel diagnostics product lines. The Insurance Bill Review business unit is classified as discontinued operations in our consolidated condensed financial statements and in the following management discussion and analysis.

     Once the initiatives under the reengineering plan are completed, which includes exiting the remaining non-strategic product lines, annual revenues are expected to be reduced by approximately $65 million and annual costs are expected to be reduced by approximately $107 million. In addition, we are restricting hiring activities and other anticipated expenditures as part of our cost management activities. A portion of these savings will be reinvested in programs designed to grow revenues.

     In January 2008, we acquired Dash Optimization Ltd., a leading provider of decision modeling and optimization software, for an aggregate purchase price of $34.1 million in cash. Results of operations from this acquisition are included in our results prospectively from the date of acquisition.

     In March 2007, we sold the assets and products associated with our mortgage banking solutions product line, which was included in the Strategy Machines Solutions segment, for $15.8 million in cash. We recognized a $1.5 million pre-tax gain, but a $0.4 million after-tax loss on the sale due to goodwill associated with the product line that was not deductible for income tax purposes. For the nine months ended March 31, 2007, we recorded revenues from the mortgage banking solutions product line of $7.7 million. The earnings contribution from the mortgage banking solutions product line was not significant to our fiscal 2007 results of operations.

     Our reportable segments are: Strategy Machine Solutions, Scoring Solutions, Professional Services and Analytic Software Tools. 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 June 30, 2008 and 2007 are set forth in Note 8 to the accompanying condensed consolidated financial statements.

Continuing Operations

Revenues

     The following tables set forth certain summary information on a segment basis related to our revenues for the fiscal periods indicated.

		Quarter Ended																				Period-to-Period
		June 30,								Percentage of Revenues								Period-to-Period				Percentage
		2008				2007				2008				2007				Change				Change
Segment		(In thousands)																(In thousands)
Strategy Machine Solutions		$	94,855			$	104,132				52	%			53	%		$	(9,277	)			(9	)%
Scoring Solutions			37,553				47,229				21	%			24	%			(9,676	)			(20	)%
Professional Services			39,132				35,165				21	%			18	%			3,967				11	%
Analytic Software Tools			11,775				10,101				6	%			5	%			1,674				17	%
Total revenues		$	183,315			$	196,627				100	%			100	%			(13,312	)			(7	)%

		Nine Months Ended																				Period-to-Period
		June 30,								Percentage of Revenues								Period-to-Period				Percentage
		2008				2007				2008				2007				Change				Change
		(In thousands)																(In thousands)
Strategy Machine Solutions		$	293,639			$	306,411				52	%			52	%		$	(12,772	)			(4	)%
Scoring Solutions			119,556				134,482				21	%			23	%			(14,926	)			(11	)%
Professional Services			114,645				110,829				20	%			19	%			3,816				3	%
Analytic Software Tools			38,815				33,744				7	%			6	%			5,071				15	%
Total revenues		$	566,655			$	585,466				100	%			100	%			(18,811	)			(3	)%

     Quarter Ended June 30, 2008 Compared to Quarter Ended June 30, 2007 Revenues

     Strategy Machine Solutions segment revenues decreased $9.3 million due to a $3.6 million decline in revenues from our collections and recovery solutions, a $2.9 million decrease in revenues from our fraud solutions, a $2.5 million decrease in revenues from our marketing solutions and a $1.1 million net decrease in revenues from our other strategy machine solutions. The revenue decline was partially offset by a $0.8 million increase in revenues from our originations solutions.

     The decrease in collections and recovery solutions revenues was due to a decline in license sales. The decrease partially reflects the timing of license sales, which includes large individual contracts. The decrease in fraud solutions revenues was attributable primarily to a large license sale that occurred in the prior year quarter and a decline in volumes associated with transactional-based agreements. In addition, we have experienced a delay in a product upgrade, which impacted current year bookings and revenues and may continue to impact fraud solutions bookings and revenues in future periods. The decrease in marketing solutions revenues was attributable primarily to a decline in sales volumes resulting from the loss last year of a large customer and pricing pressures.

     Scoring Solutions segment revenues decreased $9.7 million primarily due to a reduction in prescreen revenues derived from the credit reporting agencies, which resulted from a decline in volumes. Revenues were also impacted by a reduction in revenues from our services sold directly to users, which resulted from increased pricing pressures and a decline in volumes due to a decrease in prescreening initiatives by our customers. In addition, revenues in the current quarter were adversely impacted by a true-up of royalty fees with one of the reporting agencies. 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 2008.

     During the quarters ended June 30, 2008 and 2007, revenues generated from our agreements with Equifax, TransUnion and Experian, collectively accounted for approximately 18% and 21%, respectively, of our total revenues, including revenues from these customers that are recorded in our other segments.

     Professional Services segment revenues increased $4.0 million due to an increase in implementation services for our collection and recovery solutions products and Blaze Advisor. We also had increased revenues from fraud consulting services. The increase was partially offset by a decline in revenues from development of predictive models.

     Analytic Software Tools segment revenues increased $1.7 million primarily due to sales of products acquired in our acquisition of Dash Optimization Ltd. and an increase in maintenance revenues. The increase in maintenance revenues was due to growth in our installed base of Blaze Advisor software applications. Revenues also increased on sales of model builder products.

     Nine Months Ended June 30, 2008 Compared to Nine Months Ended June 30, 2007 Revenues

     Strategy Machine Solutions segment revenues decreased $12.8 million due in part to the sale last year of our mortgage banking solutions product line, which contributed $7.1 million of segment revenues in the prior year nine-month period. In addition, segment revenues declined due to a $6.0 million decrease in revenues from our marketing solutions, a $2.5 million decline in revenues from our customer management solutions, a $1.6 million decrease in revenues from our fraud solutions and a $1.0 million net decrease in revenues from our other strategy machine solutions. The revenue decline was partially offset by a $3.0 million increase in revenues from our collections and recovery solutions and a $2.4 million increase in revenues from our consumer solutions.

     The decrease in marketing solutions revenues was attributable primarily to a decline in sales volumes resulting from the loss last year of a large customer and pricing pressures. The decrease in customer management revenues was due to a decline in license sales. The decrease in fraud solutions revenues was attributable primarily to a large license sale that occurred in the prior year period and a decline in volumes associated with transactional-based agreements. The increase in consumer solutions revenues was attributable to increases in revenues derived from myFICO.com as a result of increased volumes. The increase in collections and recovery solutions revenues was due to an increase in license sales that resulted from successful international sales efforts.

     Scoring Solutions segment revenues decreased $14.9 million primarily due to a reduction in revenues derived from our prescreening and account management services sold directly to users, which resulted from increased pricing pressures and a decline in volumes due to a decrease in prescreening initiatives by our customers. Revenues were also impacted by a decline in prescreen revenues derived from the credit reporting agencies. In addition, revenues in the current period were adversely impacted by a true-up of royalty fees with one of the reporting agencies. 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 2008.

     During the nine months ended June 30, 2008 and 2007, revenues generated from our agreements with Equifax, TransUnion and Experian collectively accounted for approximately 19% of our total revenues, including revenues from these customers that are recorded in our other segments.

     Professional Services segment revenues increased $3.8 million due to an increase in implementation services for our collection and recovery, customer management and Blaze Advisor products. The decrease was partially offset by a decline in implementation services for our origination products.

     Analytic Software Tools segment revenues increased $5.1 million primarily due to an increase in sales of Blaze Advisor and model builder licenses, sales of products acquired in our acquisition of Dash Optimization Ltd. and increased maintenance revenue. The increase partially reflects the timing of Blaze Advisor sales, which includes large individual contracts. The increase in maintenance revenues was due to growth in our installed base of Blaze Advisor software applications.

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.

		Quarter Ended																				Period-to-Period
		June 30,								Percentage of Revenues								Period-to-Period				Percentage
		2008				2007				2008				2007				Change				Change
		(In thousands)																(In thousands)
Revenues		$	183,315			$	196,627				100	%			100	%		$	(13,312	)		(7	)%
Operating expenses:
Cost of revenues			68,709				65,291				38	%			33	%			3,418			5	%
Research and development			18,779				16,917				10	%			9	%			1,862			11	%
Selling, general and administrative			59,734				69,464				33	%			35	%			(9,730	)		(14	)%
Amortization of intangible assets			3,797				4,833				2	%			3	%			(1,036	)		(21	)%
Restructuring			2,176				—				1	%			—				2,176			—
Total operating expenses			153,195				156,505				84	%			80	%			(3,310	)		(2	)%
Operating income			30,120				40,122				16	%			20	%			(10,002	)		(25	)%
Interest income			1,707				3,382				1	%			2	%			(1,675)			(50	)%
Interest expense			(5,203	)			(3,240	)			(3	)%			(2	)%			(1,963)			(61	)%
Other income, net			1,478				42				1	%			—				1,436			—
Income before income taxes			28,102				40,306				15	%			20	%			(12,204	)		(30	)%
Provision for income taxes			9,304				14,194				5	%			7	%			(4,890)			(34	)%
Income from continuing operations			18,798				26,112				10	%			13	%			(7,314)			(28	)%
Income (loss) from discontinued operations			7,703				(2,344	)			4	%			(1	)%			10,047			—
Net income		$	26,501			$	23,768				14	%			12	%			2,733			11	%
Number of employees at quarter end			2,597				2,760												(163	)		(6	)%