The following table sets forth certain items from our condensed consolidated statements of income as a percentage of total revenue for the periods indicated:

                                                    Three Months Ended                  Six Months Ended
                                                         June 30,                           June 30,
                                                   2009             2008             2009             2008
Revenue                                            100.0 %          100.0 %          100.0 %          100.0 %

Cost of Revenue (exclusive of
depreciation and amortization expense
shown separately below):
Direct cost of services                              4.1              4.5              3.9              4.3
Network and infrastructure                          11.3             10.6             10.7             10.2
Sales and marketing                                 40.6             39.9             38.9             39.1
Product research and development                    13.6             13.3             12.8             12.7
General and administrative                          10.2             11.0              9.5             10.4
Depreciation and amortization                        4.8              4.0              4.2              3.9
Amortization of acquisition-related costs            2.0              2.2              2.0              2.2

Total costs and expenses                            86.6             85.5             82.0             82.8

Income from operations                              13.4             14.5             18.0             17.2
Interest Income                                      0.8              4.3              0.9              5.3
Other income (expense), net                          1.1             (1.7 )           (0.1 )           (1.2 )

Income before income tax expense                    15.3             17.1             18.8             21.3
Income tax expense                                   3.1              3.7              4.6              5.7

Net income                                          12.2 %           13.4 %           14.2 %           15.6 %

We acquired Think Subscription on September 1, 2008. The results of this acquisition must be factored into any comparison of our 2009 results to the results for 2008.
REVENUE. Our revenue was $96.6 million for the three months ended June 30, 2009 compared to $98.4 million for the same period in the prior year, a decrease of $1.8 million or 1.8%. For the six months ended June 30, 2009, revenue totaled $199.5 million, a decrease of $2.5 million, or 1.2%, from revenue of $202.0 million in the same period of the prior year. The revenue decreases were attributed to foreign currency impact year over year partially offset by an increase due to increased traffic, growth in the number of online game and consumer electronic clients we served and expanded strategic marketing activities with a larger number of clients. Sales of security software products for PCs represent the largest contributor to our revenues.
International e-commerce sales were approximately 39.4% and 37.6% of total sales in the three and six months ended June 30, 2009, compared to 44.1% and 43.6% in the same periods of the prior year. The decreases in international revenue were primarily driven by foreign currency exchange rate fluctuations and increased sales by key U.S. clients.
DIRECT COST OF SERVICES. Direct cost of services primarily includes costs related to personnel, product fulfillment, backup CD production and delivery solutions and certain client-specific costs. Direct cost of service expense decreased to $4.0 million for the three months ended June 30, 2009, compared to $4.5 million for the same period in the prior year. For the six months ended June 30, 2009, direct cost of service expense was $7.9 million, compared to $8.6 million for the same period of the prior year. The decrease was primarily attributable to lower CD production and delivery costs realized from the integration of our CD production companies acquired in January 2008. As a percentage of revenue, direct cost of services were 4.1% and 3.9% for the three and six months ended June 30, 2009, compared to 4.5% and 4.3% in the same periods of the prior year.
We currently believe 2009 direct cost of services will remain relatively flat compared to 2008 in absolute dollars as costs associated with moderately higher CD sales volume are offset by lower costs and efficiencies related to the full integration of our CD companies. If economic conditions improve or further deteriorate or we complete any future acquisitions we expect a correlating increase or decrease in direct cost of services in line with revenue. NETWORK AND INFRASTRUCTURE. Our network and infrastructure expenses primarily include personnel related expenses and costs to operate and maintain our technology platforms, customer service, data communication

and data center operations. Network and infrastructure expenses were $11.0 million and $10.4 million for the three months ended June 30, 2009 and 2008, respectively. For the six months ended June 30, 2009, network and infrastructure expenses were $21.3 million, up from $20.6 million for the same period of the prior year. The increases were mainly due to increased data communication expenses and higher client website traffic as a result of various marketing campaigns and client product launches.
As a percentage of revenue, network and infrastructure increased to 11.3% and 10.7% for the three and six months ended June 30, 2009, compared to 10.6% and 10.2% in the same period of the prior year.
We currently believe network and infrastructure expenses will increase in absolute dollars in 2009 compared to
2008 as we continue to expand our global data center and customer service capacity. Also, in the second half of 2009 we will incur approximately $1 million of one-time severance and transition costs related to outsourcing our customer service operations to Tennessee-based Sitel. We believe the partnership with Sitel, which has offices in 27 countries and 60,000 associates, will allow us to more efficiently scale to meet the growing requirements of our growing global client base. We will be able to offer more flexible staffing, expanded support in emerging markets, added multi-lingual capabilities, and in the near future, new global services such as in-bound and out-bound telesales. SALES AND MARKETING. Our sales and marketing expenses mainly include credit card transaction and other payment processing fees, personnel and related costs, advertising, promotional and product marketing expenses, credit card chargebacks and bad debt expense. Sales and marketing expenses were flat at $39.2 million for the three months ended June 30, 2009, and 2008. Higher payment processing related fees and new or expanded client paid search marketing programs in 2009 were offset by lower personnel related costs and foreign currency translation favorability on our European transactions. Sales and marketing expense decreased to $77.6 million for the six months ended June 30, 2008 from $79.0 million for the same period in the prior year. The decrease in sales and marketing for the six months ended June 30, 2009 compared to the same period of the prior year resulted mainly from foreign currency favorability which was partially offset by increased payment processing related fees and new or expanded client paid search marketing programs associated with higher revenue.
As a percentage of revenue, sales and marketing expenses were 40.6% and 38.9% in the three and six months ended June 30, 2009, compared to 39.9% and 39.1% in the same periods in the prior year.
We currently believe sales and marketing expenses will increase in absolute dollars in 2009 compared to 2008. We plan to increase our global sales force to strengthen our leadership position in our core software business and support the expansion of our client relationships through investments in subscriptions, international payment processing, strategic marketing services and business-to-business or B2B software markets. We also expect to continue our investments in key vertical markets, in particular consumer electronics and games. If economic conditions improve or further deteriorate or we complete any future acquisitions we expect a correlating increase or decrease in sales and marketing expenses.
PRODUCT RESEARCH AND DEVELOPMENT. Our product research and development expenses include personnel and related expenses associated with developing, maintaining and enhancing our technology platforms and related systems. Product research and development expenses were flat at $13.1 million for the three months ended June 30, 2009 and 2008. For the six month period ended June 30, 2009 product research and development expenses were $25.5 million compared to $25.7 million for the same periods in the prior year. Higher research and development workforce related costs were incurred during the six month period ended June, 30 2009 as compared to the same periods of the prior year to support increased investment in technologies to strengthen our leadership position in software and unlock opportunities in markets such consumer electronics, games, subscriptions, and business-to-business software. The higher research and development workforce related expenses were offset by the benefit of foreign currency translation and increased capitalization of internal and consulting labor to support on-going initiatives in our e-commerce infrastructure. These investments advance global system scalability, our e-marketing capabilities, data management and client reporting. We capitalized internal software development employee and consultant labor costs of $5.7 million and $10.8 million for the three and six months ended June 30, 2009, respectively, compared to $0.2 million in the same periods of the prior year. This capitalization primarily related to the development of our new enterprise resource planning (ERP) system and new data management and reporting infrastructure. We expect these investments to drive long-term operational efficiencies across the organization and provide further competitive differentiation.
As a percentage of revenue, product research and development expenses were 13.6% and 12.8% in the three and six months ended June 30, 2009, compared to 13.3% and 12.7% for the same periods in the prior year.

We currently believe that product research and development expenses will increase moderately in absolute dollars in 2009 compared to 2008, as a result of continued investments in product development required to remain competitive and drive increased revenue. However, if global economic conditions continue to deteriorate, cost containment actions may result in lower product research and development spending in 2009 as compared to 2008. If we complete any future acquisitions we expect research and development expenses to increase in line with higher revenue.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses primarily include executive, accounting and administrative personnel and related expenses, professional fees for legal, tax and audit services, bank fees and insurance. General and administrative expenses were $9.8 million and $19.0 million, respectively, for the three and six months ended June 30, 2009, compared to $10.8 million and $21.1 million for the same periods in the prior year. The decrease in general and administrative costs for the three and six months ended June 30 2009, compared to the same periods in 2008 were mainly due to lower personnel related costs as a result of targeted cost control measures. As a percentage of revenue, general and administrative expenses was 10.2% and 9.5% for the three and six months ended June 30, 2009, compared to11.0% and 10.4% for the same periods of the prior year.
We currently believe that general and administrative expenses will decrease in absolute dollars in 2009 compared to 2008. We plan to continue to invest in our infrastructure to support continued organic growth. However, we expect these incremental expenses will be offset by efficiencies gained through the implementation of our new ERP system, client reporting enhancements and cost containment measures. If we complete any future acquisitions we expect a correlating increase in our general and administrative expenses in line with increased revenue.
DEPRECIATION AND AMORTIZATION. Our depreciation and amortization expenses include the depreciation of computer equipment and office furniture and the amortization of purchased and internally developed software, leasehold improvements made to our leased facilities and debt financing costs. Computer equipment, software and furniture are depreciated under the straight-line method using three to seven year lives and leasehold improvements are amortized over the shorter of the life of the asset or the remaining length of the lease. Depreciation and amortization expense was $4.6 and $8.5 million for the three and six months ended June 30, 2009, respectively, compared to $4.0 million and $7.8 million for the same periods in the prior year.
We currently believe depreciation and amortization expenses will increase in absolute dollars in 2009 compared to 2008. In 2009, we expect to complete significant data management and client reporting projects to support our business initiatives and begin the amortization of our new ERP system and the depreciation of the associated equipment.
AMORTIZATION OF ACQUISITION-RELATED INTANGIBLES. For the period ended June 30, 2009 our amortization of acquisition-related intangibles line item consisted of amortization of intangible assets recorded from eight acquisitions in the past four years. Amortization of acquisition-related intangible assets was $1.9 million and $3.9 million, respectively, for the three and six months ended June 30, 2009, compared to $2.2 million and $4.3 million for the same periods in the prior year. The decreases in 2009 were primarily due to the benefit of foreign currency translation on our NetGiro acquisition.
We have purchased, and expect to continue purchasing assets or businesses which may include the purchase of intangible assets. We intend to pursue partnerships and acquisitions that can help strengthen and broaden our e-commerce platform, expand our geographical footprint and grow our client base.
INTEREST INCOME. Our interest income represents the total of interest income on our cash, cash equivalents, short-term investments and long-term investments. Interest income was $0.8 million and $2.0 million for the three and six months ended June 30, 2009, compared to $4.3 million and $10.5 million for the same period in the prior year. The significant decrease in interest income was due to the use of approximately $188 million of cash in January 2009, to satisfy the majority of holders of our 1.25% Convertible Senior Notes due 2024 who exercised their put option to require the company to repurchase their notes. Additionally, yields on fixed income investments have declined substantially from 2008. We currently anticipate interest income will continue to decline in 2009 due to lower cash balances and lower market yields when compared to 2008.
OTHER INCOME (EXPENSE), NET. Our other income (expense), net line item includes the total of interest expense on our debt, foreign currency transaction gains and losses and asset disposal gains and losses. Interest

expense was $0.0 million and $0.1 million, respectively, for the three and six months ended June 30, 2009, compared to $0.6 million and $1.2 million for the same periods in the prior year. The decrease in other interest expense was due to the significant decrease in our outstanding Convertible Senior Notes in January 2009. Foreign currency re-measurement was a gain of $1.1 million and a $0.2 million loss for the three and six months ended June 30, 2009, respectively, compared to a loss of $0.0 million and $0.1 million for the same periods in the prior year. Gains and losses on asset disposals were immaterial for the three and six months ended June 30, 2009 compared to a loss of $1.0 million for the same periods in the prior year. The loss on asset disposals included one-time charges of approximately $0.5 million each for a settlement of patent litigation and a write-down of intangible assets related to our 2007 Bitpass asset acquisition.
INCOME TAXES. For the three months ended June 30, 2009 and 2008, our tax expense was $3.0 million and $3.7 million, respectively. For the three months ended June 30, 2009, our tax expense consisted of approximately $3.4 million of U.S. tax expense and $0.4 million of foreign tax benefit. For the three months ended June 30, 2009 and 2008, the tax rate was 20.4% and 21.7%, respectively. Differences in our effective tax rate from the U.S. statutory rate are primarily due to our mix of earnings from international operations and the differences in statutory rates in these countries from the U.S. rate.
For the six months ended June 30, 2009 and 2008, our tax expense was $9.2 million and $11.5 million, respectively. For the six months ended June 30, 2009, our tax expense consisted of approximately $8.3 million of U.S tax expense and $0.9 million of foreign tax expense. For the six months ended June 30, 2009 and 2008, the tax rate was 24.4% and 26.7%, respectively. Off Balance Sheet Arrangements
None

Liquidity and Capital Resources
As of June 30, 2009, we had $350.4 million of cash and cash equivalents. Our primary source of internal liquidity is our operating activities. Net cash provided by operations for the six months ended June 30, 2009, of $46.5 million was primarily the result of net income adjusted for non-cash expenses and balance sheet changes such as a decrease in other accrued liabilities. Net cash provided by operations for the six months ended June 30, 2008, of $40.0 million was primarily the result of net income adjusted for non-cash expenses and balance sheet changes such as a decrease in accounts payable and income tax payable.
Net cash used for investing activities for the six months ended June 30, 2009, was $8.6 million and was the result of net sales of investments of $13.9 million, cash paid for acquisitions net of cash received of $3.2 million, and purchases of capital equipment of $19.4 million. Net cash used for investing activities for the six months ended June 30, 2008 was $21.9 million and was the result of net sales of investments of $5.0 million, cash paid for acquisitions net of cash received of $17.4 million, and purchases of capital equipment of $9.5 million.
Net cash used for financing activities for the six months ended June 30, 2009, was $178.3 million. Cash paid for convertible senior notes was $186.7 million, proceeds of $7.4 million were provided by the sale of stock through the exercise of stock options, proceeds of $1.3 million were provided by the sale of stock under the employee stock purchase plan, cash used in the repurchase of restricted stock to satisfy tax withholding obligation was $0.5 million and proceeds of $0.1 million were provided by the excess tax benefit from stock-based compensation. Net cash used for financing activities for the six months ended June 30, 2008, was $131.4 million. Proceeds of $4.4 million were provided by the sale of stock through the exercise of stock options, proceeds of $1.4 million were provided by the sale of stock under the employee stock purchase plan, cash used in the repurchase of restricted stock to satisfy tax withholding obligation was $0.4 million, and proceeds of $1.0 million were provided by the excess tax benefit from stock-based compensation and we repurchased $137.9 million of common stock.
As of June 30, 2009, we held $102.4 million of investments at par value, $94.6 million fair value, in auction-rate securities (ARS), all are AAA/Aaa rated and 105%-115% over collateralized by student loans guaranteed by the U.S. government with the exception of one security which is rated A3/AAA and one security which is rated AAA/Aa1. All the securities are 100% guaranteed by the Department of Education or the Federal Family Education Loan Program (FFELP) with the exception of two securities which are 82.5% and 99% guaranteed by FFELP. Almost all of these securities continue to fail at auction due to illiquid market conditions.
The Company determined a market value discount, due to current illiquid market conditions, was required and recorded a temporary fair value reduction of $16.3 million (14.9% of par value) recorded to "Accumulated other comprehensive income" on the December 31, 2008 balance sheet. In the second quarter, $7.1 million of our ARS were successfully liquidated at par. As of June 30, 2009, the Company has recorded a market value discount of $7.8 million (7.6% of par value) to "Accumulated other comprehensive income".
The determination of fair value required management to make estimates and assumptions about the ARS. The discounted cash flow model we used to value these securities included the following assumptions:
• determination of the penalty coupon rate, frequency of reset period associated with each ARS

• an average redemption period of seven years

• a contribution of the ARS paying its contractually stated interest rate

• determination of the risk adjusted discount rate based on LIBOR rates for these maturities plus market information on student loan credit spreads

In aggregate the ARS portfolio is yielding 1.2% and we continue to receive 100% of the contractually required interest payments. We continue to believe that we will be able to liquidate at par over time. We do not intend to sell the investments prior to recovery of their amortized cost basis nor do we believe it is more likely than not we may be required to sell the investments prior to recovery of their amortized cost basis. Accordingly, we treated the fair value decline as temporary. We anticipate we will have sufficient cash flow from operations to execute our business strategy and fund our operational needs. We believe that capital markets are also available if we need to finance other investing alternatives. See Note 8 Fair Value Measurements for further information.
Application of Critical Accounting Policies Critical Accounting Estimates and Policies

A detailed description of our critical accounting policies can be found in our most recent Annual Report on Form 10-K for the year ended December 31, 2008. Recent Accounting Pronouncements
In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) 107-1 and Accounting Principles Board (APB) Opinion No. 28-1 (FSP 107-1 and APB 28-1), "Interim Disclosures about Fair Value of Financial . . .