delivery of our products and services. Member relations and marketing expenses include the costs of acquiring new members and renewing existing members. General and administrative expenses include the costs of human resources and recruiting, finance and accounting, management information systems, facilities management, new program development, and other administrative functions. Depreciation and amortization expense includes the cost of depreciation of our property and equipment and includes amortization of costs associated with the development of business intelligence software and tools that are offered as part of certain of our membership programs, as well as the amortization of acquired developed technology. Included in our operating costs for each year presented are stock-based compensation expenses and expenses representing additional payroll taxes for compensation expense as a result of the taxable income employees recognized upon the exercise of common stock options and the vesting of restricted stock units.
Results of Operations
The following table shows statements of income data expressed as a percentage of revenue for the periods indicated and a second table shows the stock-based compensation expense included in the statements of income data expressed as a percentage of revenue for the periods indicated.

                                                         Year Ended March 31,
                                                     2007        2008        2009
        Revenue                                      100.0 %     100.0 %     100.0 %
        Costs and expenses:
        Cost of services                              47.5        46.7        50.6
        Member relations and marketing                21.2        21.0        22.7
        General and administrative                    12.0        11.5        11.6
        Depreciation and amortization                  1.1         1.6         2.5

        Total costs and expenses                      81.8        80.9        87.4

        Income from operations                        18.2        19.1        12.6
        Other income, net                              3.6         2.8         1.1

        Income before provision for income taxes      21.8        22.0        13.7
        Provision for income taxes                    (7.4 )      (7.3 )      (4.4 )

        Net income                                    14.4 %      14.6 %       9.3 %




                                                           Year Ended March 31,
                                                       2007        2008        2009
     Stock-based compensation expense included in:
     Costs and expenses:
     Cost of services                                   2.2 %       2.1 %       1.9 %
     Member relations and marketing                     1.5         1.2         1.1
     General and administrative                         2.7         2.5         2.5
     Depreciation                                       0.0         0.0         0.0

     Total costs and expenses                           6.3         5.7         5.5

     Net income                                        (4.2 )%     (3.8 %)     (3.7 %)

Fiscal years ended March 31, 2007, 2008, and 2009 Overview. Net Income increased 17.0% from $27.4 million in fiscal 2007 to $32.1 million in fiscal 2008 and decreased 33.0% to $21.5 million in fiscal 2009. The increase in net income during fiscal 2008 was primarily due to profitable growth as revenue for the period increased more than 15%, compared to expense increases of 14%, allowing us to leverage our existing costs over our expanding membership base and to invest in new program launches. The decrease in net income during fiscal 2009 was primarily due to lower revenue growth of 5%, compared to expense growth of 14% due to increases in costs to serve members, costs associated with the launch of new programs, and an increase in the number of new sales teams. We successfully introduced three, five, and four new membership programs in fiscal 2007, 2008, and 2009, respectively.
Revenue. Total revenue increased 15.3% from $189.8 million in fiscal 2007 to $219.0 million in fiscal 2008, and increased 5.2% to $230.4 million in fiscal 2009. Our contract value increased 15.3% from $200.1 million for the fiscal year ended March 31, 2007 to $230.8 million for the fiscal year ended March 31, 2008, and remained constant at $230.8 for the fiscal year ended March 31, 2009.
The increases in revenue and contract value over each of the fiscal years were primarily due to cross-selling existing programs to existing members, the introduction and expansion of new programs, price increase, and, to a lesser degree, the addition of new member organizations. During fiscal 2009 we experienced lower sales conversion rates when compared to prior years due to the economic downturn, which contributed to our lower growth rates for revenue and contract value.

We offered 32 membership programs as of March 31, 2007, 37 as of March 31, 2008, and 41 as of March 31, 2009. Our membership base consisted of 2,662 member institutions as of March 31, 2007, 2,761 member institutions as of March 31, 2008, and 2,817 member institutions as of March 31, 2009. Our average contract value per member was $75,167 for fiscal 2007, compared to $83,595 for fiscal 2008 and $81,920 for fiscal 2009.
Cost of services. Cost of services increased 13.5% from $90.1 million in fiscal 2007 to $102.3 million in fiscal 2008, and increased 14.0% to $116.6 million in fiscal 2009. The total dollar increases in cost of services over each of the fiscal years were primarily due to increased personnel, travel, meetings, and deliverable costs from the introduction and expansion of new programs and costs associated with the delivery of program content and tools to our expanded membership base, including increased staffing and other costs. In addition, in fiscal year 2009, we incurred additional costs from the integration of Crimson Software, Inc. ("Crimson") into our operations, as well as increased contractor costs and licensing fees related to certain of our programs that include business intelligence tools. Stock-based compensation expense included in cost of services was $4.2 million in fiscal 2007, $4.6 million in fiscal 2008, and $4.3 million in fiscal 2009.
As a percentage of revenue, cost of services was 47.5% for fiscal 2007, 46.7% for fiscal 2008, and 50.6% for fiscal 2009. Cost of services decreased as a percentage of revenue for fiscal 2008 as compared to fiscal 2007 primarily due to a shift in timing of new product staffing costs between the first quarter of fiscal 2008 and the fourth quarter of fiscal 2007 resulting from the earlier launch of new programs. The increase in cost of services as a percentage of revenue for fiscal 2009 as compared to fiscal 2008 was due to the factors listed in the paragraph above, as well as the impact of slower revenue growth on our fixed cost structure. We expect cost of services as a percentage of revenue to fluctuate from period to period, depending on the number of members in our largely fixed cost programs, investments in new programs and services, and the number of new programs launched as up-front costs are expensed when incurred compared to revenue, which is spread over the membership period. Stock-based compensation expense included in cost of services was 2.2% of revenue, 2.1% of revenue, and 1.9% of revenue for fiscal 2007, 2008, and 2009, respectively.
Member relations and marketing. Member relations and marketing expense increased 14.1% from $40.2 million in fiscal 2007 to $45.9 million in fiscal 2008, and increased 14.0% to $52.3 million in fiscal 2009. The total dollar increases in member relations and marketing expense over each of the fiscal years were due to an increase in sales staff and related travel and other associated costs, as we had 95, 109, and 111 new business development teams as of March 31, 2007, 2008, and 2009, respectively, as well as an increase in member relations personnel and related costs required to serve the expanding membership base. As a percentage of revenue, member relations and marketing expense in fiscal 2007, 2008, and 2009 was 21.2%, 21.0%, and 22.7%, respectively. The increase in member relations and marketing as a percentage of revenue in fiscal 2009 was due to the factors listed above, as well as the impact of slower revenue growth. Stock-based compensation expense included in member relations and marketing was $2.8 million, or 1.5% of revenue, $2.6 million, or 1.2% of revenue, and $2.4 million or 1.1% of revenue for fiscal 2007, 2008, and 2009, respectively.
General and administrative. General and administrative expense increased from $22.8 million in fiscal 2007 to $25.3 million in fiscal 2008, and to $26.7 million in fiscal 2009. As a percentage of revenue, general and administrative expense in fiscal 2007, 2008, and 2009 was 12.0%, 11.5%, and 11.6%, respectively. Stock-based compensation expense included in general and administrative expense was $5.1 million, or 2.7% of revenue, $5.4 million, or 2.5% of revenue, and $5.7 million, or 2.5% of revenue, for fiscal 2007, 2008, and 2009, respectively. In addition to stock-based compensation expense, the increases in general and administrative expense for each of the fiscal years were primarily due to increased staffing in our recruiting, benefits, and training departments required to support our overall headcount growth. General and administrative expenses increased at a lower rate than revenue between fiscal 2007 and 2008 as we were able to leverage these expenses over a larger revenue base. General and administrative expense increased at the same rate as revenue between fiscal 2008 and fiscal 2009.
Depreciation and amortization. Depreciation expense increased from $2.1 million, or 1.1% of revenue, in fiscal 2007, to $3.6 million, or 1.6% of revenue, in fiscal 2008, and increased to $5.6 million, or 2.5% of revenue, in fiscal 2009. The increases for each of the fiscal years were primarily due to increased amortization expense from developed capitalized internal-use software tools, including acquired developed technology associated with the acquisition of Crimson, and depreciation expense related to the expansion of additional floors in our headquarters facility under the terms of our lease agreement.
Other income, net. Other income, net consisted solely of interest income for fiscal 2007 and 2008, and consisted of interest income and loss on foreign exchange rates in fiscal 2009. Other income, net decreased from $6.8 million in fiscal 2007 to $6.1 million in fiscal 2008, and to $3.5 million in fiscal 2009. Other income, net decreased during each of the fiscal years due to increased utilization of our share repurchase program and lower interest rates, and in fiscal 2009, the acquisition of Crimson, which resulted in lower cash, cash

equivalents, and marketable securities balances. During fiscal 2009, we recognized a foreign exchange loss of $1.1 million due to effect of the strengthening U.S dollar on our receivable balances from international members at March 31, 2009. The effect of the movement in foreign exchange rates on our income statement was immaterial during fiscal years 2007 and 2008.
Provision for income taxes. Our provision for income taxes was $14.0 million, $16.0 million, and $10.1 million in fiscal years 2007, 2008, and 2009, respectively. Our effective tax rate in fiscal 2007, 2008, and 2009 was 33.9%, 33.3%, and 32.0%, respectively. Our effective tax rate decreased in fiscal 2008 due to a reduction in non-deductible stock-based compensation expense related to incentive stock option exercises and other permanent differences, and decreased in fiscal 2009 due to the positive effect on our effective tax rate of certain Washington, D.C. income tax credits, for which we qualify under the New E-conomy Transformation Act of 2000 (the "Act"), as our net income has decreased.
Stock-based Compensation Expense. We recognized the following FAS 123(R) stock-based compensation expense in the consolidated statements of income line items for stock options and RSUs issued under our stock incentive plans and for shares issued under our employee stock purchase plan for the years ending March 31, 2007, 2008, and 2009 (in thousands except per share amounts):

                                                          Year Ended March 31,
                                                    2007          2008          2009
  Stock-based compensation expense included in:
  Costs and expenses:
  Cost of services                                $   4,167     $   4,558     $   4,273
  Member relations and marketing                      2,753         2,599         2,436
  General and administrative                          5,080         5,406         5,738
  Depreciation and amortization                           -             -             -

  Total costs and expenses                           12,000        12,563        12,447

  Income from operations                            (12,000 )     (12,563 )     (12,447 )

  Net income                                      $  (7,933 )   $  (8,380 )   $  (8,464 )

  Impact on diluted earnings per share            $   (0.41 )   $   (0.45 )   $   (0.51 )

There are no stock-based compensation costs capitalized as part of the cost of an asset.
Stock-based compensation expense by award type is below (in thousands):

                                                        Year Ended March 31,
                                                   2007         2008         2009
       Stock-based compensation by award type:
       Stock options                             $ 10,155     $  8,933     $  7,209
       Restricted stock units                       1,768        3,552        5,179
       Employee stock purchase rights                  77           78           59

       Total stock-based compensation            $ 12,000     $ 12,563     $ 12,447

As of March 31, 2009, $17.2 million of total unrecognized compensation cost related to stock-based compensation is expected to be recognized over a weighted average period of 1.6 years.
Liquidity and Capital Resources
Cash flows generated from operating activities are our primary source of liquidity and we believe that existing cash, cash equivalents, and marketable securities balances and operating cash flows will be sufficient to support operating and capital expenditures, as well as share repurchases and potential acquisitions, during the next 12 months. We had cash, cash equivalents, and marketable securities balances of $150.1 million and $93.8 million at March 31, 2008 and 2009, respectively. We repurchased $86.5 million and $61.5 million shares of our common stock through our share repurchase program during the years ended March 31, 2008 and 2009, respectively. We have no long-term indebtedness.
Cash flows from operating activities. The combination of revenue growth, profitable operations, and payment for memberships in advance of accrual revenue typically results in operating activities generating net positive cash flows on an annual basis. Net cash

flows provided by operating activities were $50.2 million in fiscal 2007, $60.3 million in fiscal 2008, and $39.7 million in fiscal 2009. The increase in net cash flows provided by operating activities in Fiscal 2008 was primarily due to the increase in net income during the same period. The decrease in net cash flows provided by operating activities in fiscal 2009 was primarily due to the decrease in net income during the same period.
Cash flows from investing activities. The Company's cash management and investment strategy and capital expenditure programs affect investing cash flows. Net cash flows used in investing activities were $9.1 million in fiscal 2007. Net cash flows provided by investing activities were $7.7 million and $27.4 million in fiscal 2008 and 2009, respectively.
In fiscal 2007, investing activities used $9.1 million of cash, primarily from $10.2 million of capital expenditures, which included $2.2 million in purchases of property and equipment related primarily to the scheduled expansion of our headquarters facility and $6.5 million of capitalized development costs related to our newer research programs that include web-based business intelligence tools. Investing activities also included our final payment made for the acquisition of OptiLink of $0.9 million. These activities were partially offset by $2.0 million in net proceeds on the redemption of marketable securities.
In fiscal 2008, investing activities provided $7.7 million in cash, primarily from the net proceeds on the redemption of marketable securities of $17.2 million, which was primarily used to fund our share repurchase program. This amount was partially offset by capital expenditures of $9.6 million, which included $1.9 million in purchases of property and equipment related primarily to the scheduled expansion of our headquarters facility and $5.9 million of capitalized software development costs related to our newer research programs that include web-based business intelligence tools.
In fiscal 2009, investing activities provided $27.4 million in cash, primarily from the net proceeds on the redemption of marketable securities of $61.0 million, which was primarily used to fund our share repurchase program and our acquisition of Crimson for $18.6 million. This amount and was partially offset by capital expenditures of $15.0 million, which included $3.8 million in purchases of property and equipment related primarily to the scheduled expansion of our headquarters facility and $9.7 million of capitalized software development costs related to our newer research programs that include web-based business intelligence tools.
Cash flows from financing activities. We used net cash flows in financing activities of $49.6 million, $63.3 million, and $61.3 million in fiscal 2007, 2008, and 2009, respectively. In fiscal 2007, 2008, and 2009, we received approximately $9.9 million, $17.6 million, and $0.4 million, respectively, from the exercise of stock options. Also in fiscal 2007, 2008, and 2009, we received approximately $0.4 million, $0.4 million, and $0.3 million, respectively, in proceeds from the issuance of common stock under our employee stock purchase plan. We repurchased 1,274,770, 1,536,095, and 2,051,225 shares of our common stock at a total cost of approximately $66.9 million, $86.5 million, and $61.5 million in fiscal 2007, 2008, and 2009, respectively, pursuant to our share repurchase program. Also in fiscal years 2008 and 2009, we had $0.8 million and $0.8 million in shares, respectively, withheld to satisfy minimum employee tax withholding for vested restricted stock units.
Contractual obligations. In November 2006, we entered into a $20 million revolving credit facility with a commercial bank that can be used for working capital, share repurchases, or other general corporate purposes. Borrowings on the credit facility, if any, will be collateralized by certain of our marketable securities and will bear interest at an amount based on the published LIBOR rate. We are also required to maintain an interest coverage ratio for each of our fiscal years of not less than three to one. The credit facility renews automatically each year until 2011, and can be increased at our request by up to an additional $10 million per year up to $50 million in the aggregate. There have been no borrowings under the credit facility.
The following summarizes our contractual obligations at March 31, 2009 and the effect such obligations are expected to have on our liquidity and cash flows in future periods. These obligations relate primarily to our headquarters and other offices leases, which are more fully described in Note 13 to the consolidated financial statements, and payments related to our acquisition of Crimson, which are more fully described in Note 5 to the consolidated financial statements.

                                                                               Payments due by Period
                                                                                   (in thousands)
                                                              Total       <1 Year     1-3 Yrs      4-5 Yrs       >5 Yrs
Non-cancelable operating leases                             $ 57,157     $ 6,230     $ 17,638     $ 10,870     $ 22,419
Milestone payments relating to acquisition of Crimson (1)        800         800            -            -            -

(1) In connection with the acquisition of Crimson, we are required to pay up to $3.4 million of additional cash payments that will become due and payable if certain milestones are met over the evaluation period beginning at the acquisition date through March 31, 2010. The Company paid $2.3 million in cash for achievement of some of these milestones in the fiscal year ended March 31, 2009. As of March 31, 2009, the estimated remaining balance of these cash payments was approximately $0.8 million.

Off-Balance Sheet Arrangements
At March 31, 2009, we had no off-balance sheet financing or other arrangements with unconsolidated entities or financial partnerships (such as entities often referred to as structured finance or special purpose entities) established for purposes of facilitating off-balance sheet financing or other debt arrangements or for other contractually narrow or limited purposes. Share Repurchase

In January 2004, the Company's Board of Directors authorized the repurchase of up to $50 million of the Company's common stock, which authorization was increased in amount to $100 million in October 2004, to $150 million in February 2006, to $200 million in January 2007, to $250 million in July 2007, and to $350 million in April 2008. All repurchases to date have been made in the open market. No minimum number of shares has been fixed, and the share repurchase authorization has no expiration date. The Company intends to fund the share repurchases with cash on hand and with cash generated from operations. At March 31, 2009, the remaining authorized repurchase amount was $46.0 million. Exercise of Stock Options and Purchases Under our Employee Stock Purchase Plan Options granted to participants under our stock-based incentive compensation plans that were exercised to acquire shares in fiscal 2007, 2008, and 2009 generated cash of approximately $9.9 million, $17.6 million, and $0.4 million, respectively, from payment of option exercise prices. In addition, in fiscal 2007, 2008, and 2009 we generated cash of approximately $0.4 million, $0.4 million, and $0.3 million, respectively, in discounted stock purchases from participants under our employee stock purchase plan.
We recognized approximately $0.4 million, $0.5 million, and $0.1 million in compensation expense reflecting additional Federal Insurance Corporation Act taxes as a result of the taxable income that employees recognized upon the exercise of non-qualified common stock options and restricted stock units in fiscal 2007, 2008, and 2009, respectively. We also incurred additional compensation deductions for tax reporting purposes, but not for financial reporting purposes, that increased the deferred tax asset to reflect allowable tax deductions. These tax deductions will be realized in the determination of our income tax liability and therefore reduce our future income tax payments. In connection with these transactions, our deferred tax asset increased by approximately $6.9 million, $5.9 million, and $0.3 million in fiscal 2007, 2008, and 2009, respectively. Although the provision for income taxes for financial reporting purposes did not change, our actual cash payments will be reduced as the deferred tax asset is utilized.
Summary of Critical Accounting Policies
We have identified the following policies as critical to our business operations and the understanding of our results of operations. This listing is not a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management's judgment in their application. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result. Certain of our accounting policies are particularly important to the presentation of our financial condition and results of operations and may require the application of significant judgment by our management. In applying those policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical experience, our observance of trends in the industry, information provided by our members, and information available from other outside sources, as appropriate. For a more detailed discussion on the application of these and other accounting policies, . . .