What changed in this filing

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Item 2. Management’s Discussion and Analysis

2009-10-29 compared with 2009-07-30 · 821 added, 447 removed, 21 unchanged (98% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Note of Caution Regarding Forward Looking Statements

Certain statements in this quarterly report on Form 10-Q relate to future results of the Company and are considered “forward-looking statements.” These statements, which may be expressed in a variety of ways, including the use of future or present tense language, relate to among other things, sufficiency and availability

of cash flows and other sources of liquidity, current levels of operations, anticipated growth, future market positions, synergies from integration, ability to execute its growth strategy, levels of capital expenditures and ability to satisfy current debt.

These forward-looking statements, and others forward-looking statements contained in other public disclosures of the Company are based on assumptions that involve risks and uncertainties, and that are subject to change based on various important

factors (some of which are beyond the Company’s control).

Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements.

Factors that could cause the anticipated results to differ from those described in the forward-looking statements include:

general volatility of the capital markets and the market price of the Company’s Class A common stock;

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

to stockholders of Exchange Offer by First American

On October 8,

2009, The First American Corporation (“First American”) commenced an exchange

offer (the “Offer”) to acquire all of the outstanding shares of the Company’s

Class A common stock (“Class A Shares”) not owned or controlled by First

American at an exchange ratio of 0.58 of a First American common share per Class

A Share, and First American filed an Offer to Exchange and related materials

with the Securities and Exchange Commission (“SEC”) on a Registration Statement

On October 8, 2009, the Company filed with the SEC a

Solicitation/Recommendation Statement on Schedule 14D-9.

Stockholders are urged

to read the Offer to Exchange and related materials and the

Solicitation/Recommendation Statement and any amendments thereto filed from time

to time, because they will contain important information.

Stockholders will be

able to obtain a free copy of the Offer to Exchange and related materials and

the Solicitation/Recommendation Statement at the SEC’s website at www.sec.gov

In addition, the Solicitation/Recommendation Statement, as well as

the Company’s other public SEC filings, can be obtained at

www.fadv.com.

Stockholders may also read and copy any reports,

statements and other information filed by First American or the Company with the

SEC at the SEC public reference room at 100 F Street N.E., Washington, D.C.

Please call the SEC at (800) 732-0330 or visit the SEC’s website for

further information on its public reference room.

of Caution Regarding Forward Looking Statements

statements in this quarterly report on Form 10-Q relate to future results of the

Company and are considered “forward-looking statements”.

statements, which may be expressed in a variety of ways, including the use of

future or present tense language, relate to among other things, sufficiency and

availability of cash flows and other

sources of liquidity, current levels of operations, anticipated growth, future

market positions, synergies from integration, ability to execute its growth

strategy, levels of capital expenditures and ability to satisfy current

These forward-looking statements, and others forward-looking

statements contained in other public disclosures of the Company are based on

assumptions that involve risks and uncertainties, and that are subject to change

based on various important factors (some of which are beyond the Company’s

Risks and uncertainties exist that may cause results to

differ materially from those set forth in these forward-looking

Factors that could cause the anticipated results to

differ from those described in the forward-looking statements include:

volatility of the capital markets and the market price of the Company’s Class A

common stock;

the Company’s ability to successfully raise capital;

the Company’s

ability to identify and complete acquisitions and to successfully integrate businesses it acquires;

ability to identify and complete acquisitions and to successfully integrate

businesses it acquires;

changes in applicable government regulations;

the degree and nature of the Company’s competition;

and nature of the Company’s competition;

increases in the Company’s expenses;

1 unchanged sentence

unanticipated technological changes and requirements;

the Company’s ability to identify suppliers of quality and cost-effective data;

and other factors described in this quarterly report

on Form 10-Q.

In addition to the risk factors set forth above and in this quarterly report on Form 10-Q, you should carefully consider the risk factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, as well as the other information contained the Company’s Annual Report, as updated or modified in subsequent filings.

The Company faces risks other than those listed in the Annual Report, as updated, including those that are unknown

and others of which the Company may be aware but, at present, considers immaterial.

Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties.

The forward-looking statements speak only as of the date they are made.

The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

First Advantage Corporation (Nasdaq:

FADV) (“First Advantage” or the “Company”) provides global risk mitigation, screening services and credit reporting to enterprise and consumer customers.

The Company operates in five primary business segments:

Credit Services, Data Services, Employer Services, Multifamily Services, and Investigative & Litigation Support Services.

In the first quarter of 2009, the Company consolidated the previous Lender Services and Dealer Services segments and moved the consumer credit business from the Data Services segment to create the Credit Services segment.

The prior periods have been recast to reflect the changed segments.

First Advantage is headquartered in Poway, California and has approximately

3,700 employees in offices throughout the United States and abroad.

The current economic downturn has caused decreased service revenue in the Credit Services segment related to the mortgage and auto industries and the Data Services segment related to the transportation and specialty finance businesses.

Management expects continued weakness in the real estate and mortgage markets to continue impacting

the Company’s Credit Services segment and the transportation and specialty credit businesses in the Data Services segment.

In addition, the effect of the issues in the real estate and related credit markets together with the other macroeconomic matters has resulted in higher unemployment rates negatively impacting the volumes in the Employer Services segment.

Given this outlook, management is focusing on expense reductions, operating efficiencies, and increasing market share throughout

Given the current economic environment and the uncertainties regarding the impact on the Company’s business, there can be no assurance that the Company’s estimates and assumptions regarding the duration of the ongoing economic downturn, or the period or strength of recovery, made for purposes of the Company’s goodwill impairment

testing during the year ended December 31, 2008 will prove to be accurate predictions of the future.

If the Company’s assumptions regarding forecasted revenue or margin growth rates of certain reporting units are not achieved, the Company may be required to record additional goodwill impairment losses in future periods, whether in connection with the Company’s next annual impairment testing in the fourth quarter of 2009 or prior to that, if any such change constitutes a triggering event in other than

the quarter in which the annual goodwill impairment test is performed.

It is not possible at this time to determine if any such future impairment loss would result or, if it does, whether such charge would be material.

Operating results for the three months ended June 30, 2009 included total service revenue of $164.7 million, this represents a decrease of 9.7% over the same period in 2008.

Operating results for the six months ended June 30, 2009 included total service revenue of $354.7 million, this represents a decrease of 4.3% over the same

the Company’s ability to

identify suppliers of quality and cost-effective data;

statements with respect

to First American's proposed exchange offer to acquire all of the outstanding

shares of the Company’s Class A common stock (“Class A Shares”) not owned or

controlled by First American at an exchange ratio of 0.58 of a First American

common share per Class A Share;

and other factors described in this quarterly

report on Form 10-Q.

In addition to the risk factors set forth

above and in this quarterly report on Form 10-Q, stockholders should

carefully consider the risk factors set forth in the Company’s Annual Report on

Form 10-K, as amended by the Form 8-K filed October 8, 2009, for the year ended

December 31, 2008, as well as the other information contained the Company’s

Annual Report, as updated or modified in subsequent filings.

Company faces risks other than those listed in the Annual Report, as updated,

including those that are unknown and others of which the Company may be aware

but, at present, considers immaterial.

Actual results may differ

materially from those expressed or implied as a result of these risks and

uncertainties.

The forward-looking statements speak only as of the date they are

The Company does not undertake to update forward-looking

statements to reflect circumstances or events that occur after the date the

forward-looking statements are made.

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

RESULTS OF OPERATIONS

Advantage Corporation (Nasdaq:

FADV) (“First Advantage” or the “Company”)

provides global risk mitigation, screening services and

credit reporting to enterprise and consumer customers.

operates in five primary business segments:

Credit Services, Data Services,

Employer Services, Multifamily Services, and Investigative & Litigation

Support Services.

In the first quarter of 2009, the Company

consolidated the previous Lender Services and Dealer Services segments and moved

the consumer credit business from the Data Services segment to create the Credit

Services segment.

The prior periods have been recast to reflect the changed

First Advantage is headquartered in Poway, California and

has approximately 3,800 employees in offices throughout the United States and

current economic downturn has caused decreased service revenue in the Credit

Services segment related to the mortgage and auto industries and the Data

Services segment related to the transportation and specialty finance

Management expects continued weakness in the real estate

and mortgage markets to continue impacting the Company’s Credit Services segment

and the transportation and specialty credit businesses in the Data Services

In addition, the effect of the issues in the real estate and

related credit markets together with the other macroeconomic matters has

resulted in higher unemployment rates negatively impacting the volumes in the

Employer Services segment.

Given this outlook, management is focusing

on expense reductions, operating efficiencies, and increasing market share

throughout the Company.

current economic environment and the uncertainties regarding the impact on the

Company’s business, there can be no assurance that the Company’s estimates and

assumptions regarding the duration of the ongoing economic downturn, or the

period or strength of recovery, made for purposes of the Company’s goodwill

impairment testing during the year ended December 31, 2008 will prove to be

accurate predictions of the future.

If the Company’s assumptions regarding

forecasted revenue or margin growth rates of certain reporting units are not

achieved, the Company may be required to record additional goodwill impairment

losses in connection with the Company’s next annual impairment testing in the

fourth quarter of 2009 or in future periods.

It is not possible at

this time to determine if any such future impairment loss would result or, if it

does, whether such charge would be material.

results for the three months ended September 30, 2009 included total service

revenue of $156.0 million, this represents a decrease of 10.7% over the same

period in 2008.

Operating income for the three and six months ended June 30, 2009 was $21.9 million and $40.8 million, respectively.

Operating income decreased $2.1 million for the three months ended June 30, 2009 in comparison to the same period in 2008.

Operating income decreased $10.4 million for the six months ended June 30, 2009 in comparison to the same period in 2008.

On June 29, 2009, the Company received an unsolicited proposal from First American to acquire all of the issued and outstanding shares of the Company's common stock not owned by First American at a fixed exchange ratio of 0.5375 of a share of First American's common stock for each share of the Company's common stock.

First American's proposal is subject to confirmatory due diligence, the negotiation of an acceptable definitive acquisition agreement and the receipt of all necessary stockholder and regulatory approvals.

First American's proposal is under consideration by the Special Committee of the Board of Directors of the Company, which is comprised of directors who are unaffiliated with First American.

As part of the Company’s streamlining initiative, in the second quarter of 2008, First Advantage sold First Advantage Investigative Services (“FAIS”), which was included in our Investigative and Litigation Support Services segment, and Credit Management Solutions, Inc.

Operating results for the nine months ended September

30, 2009 included total service revenue of $510.7 million, this represents a

decrease of 6.4% over the same period in 2008.

Operating income for

the three and nine months ended September 30, 2009 was $18.4 million and $59.2

million, respectively.

Operating income decreased $3.3 million for

the three months ended September 30, 2009 in comparison to the same period in

Operating income decreased $13.7 million for the nine months

ended September 30, 2009 in comparison to the same period in 2008.

October 8, 2009, First American issued a press release announcing its intention

to commence an exchange offer (the “Offer”) to acquire all of the outstanding

shares of the Company’s Class A common stock (“Class A Shares”) not owned or

controlled by First American at an exchange ratio of 0.58 of a First American

common share per Class A Share ( See Note 11 –

Subsequent Event) .

On October 9, 2009, First American filed a

Registration Statement on Form S-4 with the Securities and Exchange Commission

(the “SEC”), which contains the Offer to Exchange and related materials.

On that same day, the Company filed with the SEC a Solicitation/Recommendation

on Schedule 14D-9 pursuant to which the Special Committee of the Board of

Directors of the Company recommended on behalf of the Board of Directors of the

Company, that the stockholders of the Company accept the Offer and tender their

shares pursuant to the Offer.

The Offer is described in further

detail in Note 11 – Subsequent

that the Offer is accepted and consummated in the fourth quarter, operating

results for the fourth quarter will be negatively impacted due to related

As further described in Note 11 – Subsequent Event, u pon meeting certain conditions, First

American has announced that it intends to merge the Company with a wholly-owned

subsidiary of First American.

This merger will constitute a “Change

in Control” under the FADV 2003 Incentive Compensation Plan (“the

Upon a Change in Control, the unvested awards of stock

options, restricted stock units and restricted stock issued under the Plan will

vest and the unamortized costs of those awards will be expensed.

September 30, 2009, the unamortized compensation expense was approximately $8.5

million and approximately $0.9 million related to the unvested restricted stock

and unvested options, respectively.

In addition, Morgan Stanley is

acting as the Company’s financial advisor related to the

Pursuant to the terms of Morgan Stanley’s engagement, in the

event that the Offer is accepted, the Company has agreed to pay Morgan Stanley a

transaction fee which is currently estimated to be approximately $3.0

For the three

and nine months ended September 30, 2009, the Company incurred approximately

$1.6 million in legal expenses related to the Offer and related litigation and

expects additional professional fees in the fourth quarter related to the

Offer and related litigation.

of the Company’s streamlining initiative, in the second quarter of 2008, First

Advantage sold First Advantage Investigative Services (“FAIS”), which was

included in our Investigative and Litigation Support Services segment, and

Credit Management Solutions, Inc.

(“CMSI”), which was included in our Credit

Services segment.

The results of these businesses’ operations in the prior period are presented in discontinued operations in the Company’s Consolidated Statements of Income.

The following is a summary of the operating results by the Company’s business segments for the three and six months ended June 30, 2009 and June 30, 2008.

(in thousands, except percentages)

The results of these businesses’ operations in the

prior period are presented in discontinued operations in the Company’s

Consolidated Statements of Income.

following is a summary of the operating results by the Company’s business

segments for the three and nine months ended September 30, 2009 and

thousands, except percentages)

Invest/Litigation

Three Months Ended June 30, 2009

Credit Services

Data Services

Employer Services

Multifamily Services

Support Services

and Eliminations

Service revenue

Reimbursed government fee revenue

Total revenue

Cost of service revenue

Government fees paid

Total cost of service

Salaries and benefits

Facilities and telecommunications

Other operating expenses

Depreciation and amortization

Income (loss) from operations

Operating margin percentage

Months Ended September 30, 2009

government fee revenue

of service revenue

cost of service

and telecommunications

operating expenses

and amortization

(loss) from operations

margin percentage

Invest/Litigation

Three Months Ended June 30, 2008

Credit Services

Data Services

Employer Services

Multifamily Services

Support Services

and Eliminations

Service revenue

Reimbursed government fee revenue

Total revenue

Cost of service revenue

Government fees paid

Total cost of service

Salaries and benefits

Facilities and telecommunications

Other operating expenses

Depreciation and amortization

Impairment loss

Income (loss) from operations

Operating margin percentage

Months Ended September 30, 2008

government fee revenue

of service revenue

cost of service

and telecommunications

operating expenses

and amortization

(loss) from operations

margin percentage

Invest/Litigation

Six Months Ended June 30, 2009

Credit Services

Data Services

Employer Services

Multifamily Services

Support Services

and Eliminations

Service revenue

Reimbursed government fee revenue

Total revenue

Cost of service revenue

Government fees paid

Total cost of service

Salaries and benefits

Facilities and telecommunications

Other operating expenses

Depreciation and amortization

Income (loss) from operations

Operating margin percentage

Months Ended September 30, 2009

government fee revenue

of service revenue

cost of service

and telecommunications

operating expenses

and amortization

(loss) from operations

margin percentage

Invest/Litigation

Six Months Ended June 30, 2008

Credit Services

Data Services

Employer Services

Multifamily Services

Support Services

and Eliminations

Service revenue

Reimbursed government fee revenue

Total revenue

Cost of service revenue

Government fees paid

Total cost of service

Months Ended September 30, 2008

government fee revenue

of service revenue

cost of service

and telecommunications

operating expenses

and amortization

(loss) from operations

margin percentage

Services Segment

Three Months Ended September 30, 2009 Compared to Three Months

Ended September 30, 2008

revenue was $59.4 million for the three months ended September 30, 2009, a

decrease of $1.4 million compared to service revenue of $60.8 million for the

three months ended September 30, 2008.

The decrease is due

to a $6.9 million decrease in revenue related to vehicle financing,

reflecting an overall decline in auto and truck sales.

This is partially

offset by a $4.4 million increase in revenue related to our direct to

consumer credit business and a $1.1 million increase in mortgage related credit

revenue reflecting increased lending volumes as compared to the same period in

margin was $32.8 million for the three months ended September 30, 2009, an

increase of $0.9 million compared to gross margin of $31.9 million in the same

period of 2008.

The impact of the increase in transactions resulted

in an overall increase in gross margin.

Gross margin was 55.1% for the three

months ended September 30, 2009 as compared to 52.4% for the three months ended

September 30, 2008.

and benefits decreased by $2.1 million.

Salaries and benefits were

20.6% of service revenue for the three months ended September 30, 2009 compared

to 23.5% during the same period in 2008.

Salaries and benefits

Facilities and telecommunications

Other operating expenses

Depreciation and amortization

Impairment loss

Income (loss) from operations

Operating margin percentage

Credit Services Segment

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

Service revenue was $67.7 million for the three months ended June 30, 2009, an increase of $0.7 million compared to service revenue of $67.0 million for the three months ended June 30, 2008.

The increase is due to a $6.0 million increase in revenue related to our direct to consumer credit business and a $4.8 million increase in

mortgage related credit revenue reflecting increased lending volumes as compared to the same period in 2008.

These increases are partially offset by a $10.1 million decrease in revenue related to vehicle financing reflecting an overall decline in auto and truck sales.

Gross margin was $37.2 million for the three months ended June 30, 2009, an increase of $0.6 million compared to gross margin of $36.6 million in the same period of 2008.

The impact of the increase in transactions resulted in an overall increase in gross margin.

Gross margin was 54.9% for the three months ended June 30, 2009 as

compared to 54.6% for the three months ended June 30, 2008.

Salaries and benefits decreased by $2.9 million.

Salaries and benefits were 17.8% of service revenue for the three months ended June 30, 2009 compared to 22.3% during the same period in 2008.

Salaries and benefits expense decreased primarily due to operational efficiencies.

Facilities and telecommunication expenses decreased $0.5 million.

Facilities and telecommunication expense were 2.4% and 3.2% of service revenue for the three months ended June 30, 2009 and 2008, respectively.

The decrease is due to the consolidation of operations.

Other operating expenses decreased by $1.6 million.

Other operating expenses were 6.5% of service revenue in the second quarter of 2009 compared to 9.0% for the same period of 2008.

The decrease in 2009 is due to a decrease in lease expense, service fees, professional service fees, marketing expense, bad debt expense and travel expense, offset

by an increase in temporary labor.

Depreciation and amortization was flat compared to the same period in 2008.

Depreciation and amortization was 2.2% of service revenue during the second quarter of 2009 compared to 2.3% in the same period in 2008.

Income from operations was $17.6 million for the three months ended June 30, 2009 compared to $12.0 million in the same period of 2008.

The operating margin percentage increased from 17.9% to 26.0% primarily due operational efficiencies gained related to the segment’s cost reduction measures in 2008.

Data Services Segment

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

Total service revenue was $28.8 million for the three months ended June 30, 2009, an increase of $9.3 million compared to service revenue of $19.5 million in the same period of 2008.

This segment has experienced a significant increase in service revenue primarily due to the lead generation business, offset by reduced volumes in

the specialty credit and transportation businesses as a result of the overall economic downturn.

Gross margin was $13.4 million for the three months ended June 30, 2009, a decrease of $0.4 million compared to gross margin of $13.8 million in the same period of 2008.

Gross margin as a percentage of service revenue was 46.6% for the three months ended June 30, 2009 as compared to 70.8% for the three months ended June 30, 2008.

decrease in the gross margin as a percentage of service revenue is primarily due to the revenue mix.

The lead generation eAdvertising business has lower margins.

Salaries and benefits decreased by $0.6 million.

Salaries and benefits were approximately 15.1% of service revenue in the second quarter of 2009 compared to 25.6% of service revenue in the second quarter of 2008.

The decrease in expense is related to the decrease in staffing as compared to the same period in 2008.

Facilities and telecommunication expenses for the second quarter of 2009 were comparable to the same period in 2008.

Facilities and telecommunication expenses were approximately 2.3% of service revenue in the second quarter of 2009 compared to 3.3% of service revenue in the second quarter of 2008.

Other operating expenses increased by $2.0 million.

Other operating expenses were 13.3% of service revenue in the second quarter of 2009 and 9.6% in the second quarter of 2008.

The expense increase is primarily due to the increase in bad debt expense at the lead generation business.

Depreciation and amortization for the second quarter of 2009 was comparable to the same period in 2008.

Depreciation and amortization was 8.4% of service revenue during the second quarter of 2009 compared to 13.0% in the same period in 2008.

The operating margin percentage decreased from 19.3% to 7.5% in comparing the second quarter of 2008 to the second quarter of 2009.

The decrease in the operating margin is primarily due to the increase in bad debt expense and the change in the revenue mix of the businesses in the second quarter of 2009 compared to the same period

Income from operations was $2.2 million for the second quarter of 2009, a decrease of $1.6 million compared to $3.8 million in the second quarter of 2008.

The decrease is primarily driven by the lead generation business where cost of service and operating expenses have increased offset by an increase in revenue.

Employer Services Segment

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

Total service revenue was $40.2 million for the three months ended June 30, 2009, a decrease of $15.3 million compared to service revenue of $55.5 million in the same period of 2008.

The decrease was a result of a decrease in hiring in the United States and abroad.

The recession has caused increased unemployment, which

directly affects this segment.

Salaries and benefits decreased by $4.7 million.

Salaries and benefits were 38.9% of service revenue in the second quarter of 2009 compared to 36.6% in the same period of 2008.

The expense decrease is a direct effect of office consolidations and the reduction in staffing, offset by an increase in salary and benefit expense

related to moving technology personnel from Corporate to Employer Services.

Facilities and telecommunication expenses decreased by $0.4 million.

Facilities and telecommunication expenses were 5.3% of service revenue in the second quarter of 2009 and 4.6% in the second quarter of 2008.

The expense decrease is a direct effect of office consolidations.

Other operating expenses decreased by $4.6 million.

Other operating expenses were 13.2% and 17.9% of service revenue in the second quarter of 2009 and 2008, respectively.

The expense decrease in other operating expenses is primarily due to moving technology personnel from Corporate to Employer Services which were previously allocated from

Corporate to other expenses, a decrease in temporary labor, professional fees, bad debt expense and decreased foreign currency losses.

Depreciation and amortization increased by $0.5 million.

Depreciation and amortization was 9.4% of service revenue in the second quarter of 2009 compared to 5.9% in the same period of 2008.

The increase is primarily due to accelerated depreciation on software related to outsourcing some services in our drug screening

division in the second quarter of 2009.

The operating margin percentage increased from 5.4% to 6.7% primarily due to the decline in operating expenses offset by a decline in revenue.

Income from operations was $2.7 million for the three months ended June 30, 2009, a decrease of $0.3 million compared to income from operations of $3.0 million in the same period of 2008.

The decrease is due to the decline in service revenue, offset by an approximately 26% decrease in operating expenses.

Multifamily Services Segment

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

Total service revenue was $19.7 million for the three months ended June 30, 2009, a decrease of $0.3 million compared to service revenue of $20.0 million in the same period of 2008.

The decrease is primarily due to a decline in revenue at the screening business due to the current economic conditions.

Salaries and benefits cost decreased $0.6 million.

Salaries and benefits were 29.4% of service revenue for the second quarter of 2009 compared to 32.0% of service revenue in the same period of 2008.

The expense decrease is primarily due to a reduction in employees.

Facilities and telecommunication expenses decreased $0.2 million.

Facilities and telecommunication expenses were 3.7% of service revenue in the second quarter of 2009 and 4.5% in the second quarter of 2008.

The expense decrease is a direct effect of office consolidations.

Other operating expenses decreased $0.6 million.

Other operating expenses were 11.8% of service revenue in the second quarter of 2009 compared to 14.7% in the same period of 2008.

The decrease is due to reduced leased equipment, marketing and travel expenses.

Depreciation and amortization was flat when compared to the second quarter of 2008.

Depreciation and amortization was 7.7% of service revenue in the second quarter of 2009 compared to 7.2% in the same period of 2008.

Income from operations was $7.6 million in the second quarter of 2009 compared to income from operations of $6.6 million in the same period of 2008.

The operating margin percentage increased from 32.9% to 38.5% primarily due to reduced operating expenses.

The increase in operating margin is primarily due to management’s cost

expense decreased due to operational efficiencies and reduced

and telecommunication expenses decreased $0.4 million.

Facilities and

telecommunication expense were 3.0% in and 3.6% of service revenue for the three

months ended September 30, 2009 and 2008, respectively.

is due to the consolidation of operations.

operating expenses were flat compared to the three months ended September

Other operating expenses were 7.9% and 8.0% of service revenue in the

third quarter of 2009 and 2008, respectively.

and amortization decreased $0.2 million.

Depreciation and

amortization was 2.6% of service revenue during the third quarter of 2009

compared to 2.8% in the same period in 2008.

operations was $12.5 million for the three months ended September 30, 2009

compared to $7.1 million in the same period of 2008.

The operating margin

percentage increased from 11.6% to 21.0% primarily due operational efficiencies

gained related to the segment’s cost reduction measures in the prior

year and the $1.7 million impairment loss recorded in 2008.

Services Segment

Months Ended September 30, 2009 Compared to Three Months Ended September 30,

service revenue was $25.5 million for the three months ended September 30, 2009,

an increase of $3.6 million compared to service revenue of $21.9 million in the

same period of 2008.

This segment has experienced an increase in

service revenue primarily due to the lead generation business, offset by reduced

volumes in the specialty credit and transportation businesses as a result of the

overall economic downturn.

margin was $13.1 million for the three months ended September 30, 2009, a

decrease of $0.2 million compared to gross margin of $13.3 million in the same

period of 2008.

Gross margin as a percentage of service revenue was

51.3% for the three months ended September 30, 2009 as compared to 60.6% for the

three months ended September 30, 2008.

The decrease in the gross

margin as a percentage of service revenue is primarily due to the revenue

The lead generation’s eAdvertising business has lower

and benefits were flat when compared to the three months ended September 30,

Salaries and benefits were 19.0% of service revenue in the

third quarter of 2009 compared to 21.7% of service revenue in the third quarter

and telecommunication expenses for the third quarter of 2009 were comparable to

the same period in 2008.

Facilities and telecommunication expenses

were 2.2% of service revenue in the third quarter of 2009 compared to 2.9%

of service revenue in the third quarter of 2008.

operating expenses were flat when compared to the three months ended September

Other operating expenses were 6.6% of service revenue in the third

quarter of 2009 and 7.5% in the third quarter of 2008.

and amortization for the third quarter of 2009 was comparable to the same period

Depreciation and amortization was 9.5% of service revenue

during the third quarter of 2009 compared to 11.7% in the same period in

operating margin percentage decreased from 16.8% to 14.1% in comparing the third

quarter of 2008 to the third quarter of 2009.

The decrease in the

operating margin is primarily due to the change in the revenue mix of the

businesses in the third quarter of 2009 compared to the same period in

from operations was $3.6 million for the third quarter of 2009, a decrease of

$0.1 million compared to $3.7 million in the third quarter of

The decrease is primarily driven by the lead generation

business where cost of service and operating expenses have increased related to

the increase in service revenue.

Services Segment

Months Ended September 30, 2009 Compared to Three Months Ended September 30,

service revenue was $41.7 million for the three months ended September 30, 2009,

a decrease of $12.5 million compared to service revenue of $54.2 million in the

same period of 2008.

The decrease was a result of a decrease in

hiring in the United States and abroad.

The recession has caused

increased unemployment, which directly affects this segment.

and benefits decreased by $2.4 million.

Salaries and benefits were

38.7% of service revenue in the third quarter of 2009 compared to 34.2% in the

same period of 2008.

The expense decrease is a direct effect of

office consolidations and the reduction in staffing, offset by an increase in

salary and benefit expense related to moving technology personnel from Corporate

to Employer Services.

and telecommunication expenses decreased by $0.2 million.

and telecommunication expenses were 4.9% and 4.2% of service revenue in the

third quarter of 2009 and 2008, respectively.

decrease is a direct effect of office consolidations.

operating expenses decreased by $4.1 million.

Other operating expenses were

12.5% and 17.1% of service revenue in the third quarter of 2009 and 2008,

respectively.

The expense decrease in other operating expenses is

primarily due to moving technology personnel from Corporate to Employer Services

which were previously allocated from Corporate to other expenses,

a decrease in professional fees, bad debt expense and decreased foreign currency

and amortization increased by $0.5 million.

Depreciation and

amortization was 9.0% of service revenue in the third quarter of 2009 compared

to 6.0% in the same period of 2008.

The increase is primarily due to

accelerated depreciation on software related to outsourcing certain

services in our drug screening division in 2009.

operating margin percentage decreased from 12.3% to 9.4% primarily due to the

decline in revenue.

from operations was $3.9 million for the three months ended September 30, 2009,

a decrease of $2.7 million compared to income from operations of $6.6 million in

the same period of 2008.

The decrease is due to the decline in

service revenue, offset by a 18.5% decrease in operating expenses.

Services Segment

Months Ended September 30, 2009 Compared to Three Months Ended September 30,

service revenue was $19.9 million for the three months ended September 30, 2009,

an increase of $0.2 million compared to service revenue of $19.7 million in the

same period of 2008.

and benefits cost decreased $0.2 million.

Salaries and benefits were

30.7% of service revenue for the third quarter of 2009 compared to 32.1% of

service revenue in the same period of 2008.

The expense decrease is

primarily due to a reduction in employees.

and telecommunication expenses were flat when compared to the third quarter of

Facilities and telecommunication expenses were 3.8% of

service revenue in the third quarter of 2009 and 4.2% in the third quarter of

operating expenses were flat when compared to the third quarter of

Other operating expenses were 12.1% of service revenue in

the third quarter of 2009 compared to 12.9% in the same period of

The decrease is due to reduced leased equipment, marketing and

travel expenses.

and amortization was flat when compared to the third quarter of

Depreciation and amortization was 7.8% of service revenue

in the third quarter of 2009 compared to 7.3% in the same period of

from operations was $7.3 million in the third quarter of 2009 compared to income

from operations of $6.7 million in the same period of 2008.

The operating margin

percentage increased from 33.8% to 36.6% primarily due to management’s cost

containment initiatives.

Investigative and Litigation Services Segment

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

Total service revenue was $8.7 million for the three months ended June 30, 2009, a decrease of $12.5 million compared to service revenue of $21.2 million in the same period of 2008.

The decrease is primarily due to the case activity level in the Litigation Support Services division.

Salaries and benefits decreased by $3.4 million.

Salaries and benefits were 58.1% of service revenue in the second quarter of 2009 compared to 39.9% in the same period of 2008.

The expense decrease is mainly due to the decline of compensation related to revenue and profitability.

Facilities and telecommunication expenses were flat compared to the same period in 2008.

Facilities and telecommunication expenses were 8.3% of service revenue in the second quarter of 2009 and 3.4% in the second quarter of 2008.

Other operating expenses decreased by $1.8 million.

Other operating expenses were 16.1% of service revenue in the second quarter of 2009 and 15.1% for the same period of 2008.

The decrease in expense is primarily due to a reduction in bad debt expense, travel expenses

and professional fees.

Depreciation and amortization was flat when compared to the second quarter of 2008.

Depreciation and amortization was 8.4% of service revenue in the second quarter of 2009 compared to 4.1% in the same period of 2008.

The operating margin percentage decreased from 35.6% to 3.1%.

The decrease in margin is primarily due to the revenue decline on the higher margin electronic discovery business.

Income from operations was $0.3 million for the second quarter of 2009 compared to $7.5 million for the same period of 2008.

The decrease is primarily due to the revenue decrease on the higher margin electronic discovery business.

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

Corporate costs and expenses represent primarily compensation and benefits for senior management, administrative staff, and their related expenses in addition to an administrative fee paid to First American.

The corporate expenses were $8.3 million in the second quarter of 2009 compared to expenses of $8.8 million in the same period

The expense decrease is due to moving technology personnel from Corporate to Employer Services, decreases in compensation and benefit expenses, and travel expenses.

Consolidated Results

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

Consolidated service revenue for the three months ended June 30, 2009 was $164.7 million, a decrease of $17.7 million compared to service revenue of $182.4 million in the same period in 2008.

The decrease in service revenue compared to the second quarter of 2008 is directly related to the downturn in domestic and international hiring, weakness

in the credit markets, and overall economic slowdown, offset by the increase in the Data Services segment.

Salaries and benefits decreased $14.8 million.

Salaries and benefits were 29.2% of service revenue for the three months ended June 30, 2009 and 34.5% for the same period in 2008.

The decrease is primarily due to strategic reductions in employees, a decline of compensation related to revenue and profitability, and a reduction

in the 401(k) match expense.

Facilities and telecommunication decreased by $1.2 million compared to the same period in 2008.

Facilities and telecommunication expenses were 4.2% of service revenue in the second quarter of 2009 and 4.4% in the second quarter of 2008.

Investigative

and Litigation Services Segment

Months Ended September 30, 2009 Compared to Three Months Ended September 30,

service revenue was $9.8 million for the three months ended September 30, 2009,

a decrease of $8.8 million compared to service revenue of $18.6 million in the

same period of 2008.

The decrease is primarily due to

savings related to office consolidations.

Other operating expenses decreased by $4.3 million compared to the same period in 2008.

Other operating expenses were 11.3% and 12.6% of service revenue for the three months ended June 30, 2009 and 2008, respectively.

The decrease in expense is due to office consolidations and cost reduction measures.

is offset by an increase in bad debt expense at the Data Services segment.

Depreciation and amortization increased by $0.2 million due to fixed asset additions and the roll out of internally developed software, offset by certain fixed assets and intangibles becoming fully depreciated.

The consolidated operating margin was 13.3% for the three months ended June 30, 2009, compared to 13.2% for the same period in 2008.

Income from operations was $21.9 million for the three months ended June 30, 2009 compared to $24.0 million for the same period in 2008.

The decrease of $2.1 million is comprised of a decrease in

operating income of $7.3 million in Investigative and Litigation Support Services, $1.6 million in Data Services, and $0.3 million at Employer Services offset by increases in operating income of $5.6 million in Credit Services, $1.0 million in Multifamily Services and a decrease of corporate expenses of $0.5 million.

Credit Services Segment

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Service revenue was $132.1 million for the six months ended June 30, 2009, a decrease of $9.8 million compared to service revenue of $141.9 million for the six months ended June 30, 2008.

A decrease in revenue at the dealer services division resulted in an overall decrease in service revenue, which is partially offset by an increase

in revenue from the mortgage credit and consumer credit divisions.

The challenging credit markets and overall economy continues to affect our credit reporting businesses compared to the first half of 2008.

Gross margin was $72.5 million for the six months ended June 30, 2009, a decrease of $6.2 million compared to gross margin of $78.7 million in the same period of 2008.

The decline in gross margin is primarily due to the overall decrease in revenue and the revenue mix compared to prior year.

Gross margin was 54.9% for the six months

ended June 30, 2009 as compared to 55.5% for the six months ended June 30, 2008.

Salaries and benefits decreased by $6.5 million.

Salaries and benefits were 18.3% of service revenue in the first six months of 2009 compared to 21.6% during the same period in 2008.

Salaries and benefits expense decreased due to operational efficiencies and reduced staffing.

Facilities and telecommunication expenses decreased $1.0 million.

Facilities and telecommunication expense were 2.6% of service revenue in the first six months of 2009 compared to 3.1% in the same period of 2008.

The decrease is due to the consolidation of offices.

Other operating expenses decreased by $3.0 million.

Other operating expenses were 7.3% of service revenue in the six months ended June 30, 2009 compared to 8.9% for the same period of 2008.

The decrease in 2009 is due to a decrease in service fees, lease expense, marketing expense, bad debt expense and travel expense, offset by an increase

in temporary labor and professional service fees.

Depreciation and amortization increased by $0.2 million.

Depreciation and amortization was 2.2% of service revenue during the first six months of 2009 compared to 1.9% in the same period in 2008.

The increase is primarily due to the rollout of new software projects.

Income from operations was $32.3 million for the six months ended June 30, 2009 compared to $28.3 million in the same period of 2008.

The operating margin percentage increased from 20.0% to 24.5% primarily due operational efficiencies gained related to the segment’s cost reduction measures in 2008.

the diminished case activity level in the Litigation Support Services

and benefits decreased by $2.3 million.

Salaries and benefits were

54.1% of service revenue in the third quarter of 2009 compared to 41.0% in the

same period of 2008.

The expense decrease is mainly due to the

decline of compensation related to revenue and profitability.

and telecommunication expenses were flat compared to the same period in

Facilities and telecommunication expenses were 6.9% of service

revenue in the third quarter of 2009 and 3.9% in the third quarter of

operating expenses decreased by $1.3 million.

Other operating expenses were

13.0% of service revenue in the third quarter of 2009 and 13.8% for the same

period of 2008.

The decrease in expense is primarily due to a

reduction in bad debt expense, travel expenses and professional

and amortization was flat when compared to the third quarter of

Depreciation and amortization was 7.4% of service revenue in

the third quarter of 2009 compared to 4.5% in the same period of

operating margin percentage decreased from 34.1% to 13.6%.

decrease in margin is primarily due to the revenue decline on the higher margin

electronic discovery business.

from operations was $1.3 million for the third quarter of 2009 compared to $6.3

million for the same period of 2008.

The decrease is primarily

due to the revenue decrease on the higher margin electronic discovery

Months Ended September 30, 2009 Compared to Three Months Ended September 30,

costs and expenses represent primarily compensation and benefits for senior

management, administrative staff, and their related expenses in addition to an

administrative fee paid to First American.

The corporate expenses

were $10.2 million in the third quarter of 2009 compared to expenses of $8.7

million in the same period of 2008.

The expense increase is

primarily due to $1.6 million in legal expenses recorded related to the Offer

and related litigation.

This increase is offset by expense decreases due

to moving technology personnel from Corporate to Employer Services, decreases in

compensation and benefit expenses, and travel expenses.

Months Ended September 30, 2009 Compared to Three Months Ended September 30,

service revenue for the three months ended September 30, 2009 was $156.0

million, a decrease of $18.7 million compared to service revenue of $174.7

million in the same period in 2008.

The decrease in service revenue compared to

the third quarter of 2008 is directly related to the downturn in domestic and

international hiring, weakness in the credit markets, and overall economic

slowdown, offset by the increase in the Data Services segment.

and benefits decreased $9.2 million.

Salaries and benefits were 32.0%

of service revenue for the three months ended September 30, 2009 and 33.8% for

the same period in 2008.

The decrease is primarily due to strategic reductions

in employees, a decline of compensation related to revenue and profitability,

and the elimination of the 401(k) match in 2009.

Facilities and

telecommunication decreased by $1.0 million compared to the same period in 2008.

Facilities and telecommunication expenses were 4.3% of service revenue in the

third quarter of 2009 and 4.5% in the third quarter of 2008.

decrease is primarily due to savings related to office

consolidations.

operating expenses decreased by $1.4 million compared to the same period in

Other operating expenses were 11.8% and 11.4% of service

revenue for the three months ended September 30, 2009 and 2008,

respectively.

The decrease in expense is due to office consolidations

and cost reduction measures offset by an increase in legal

and amortization was flat when compared to the third quarter of

Depreciation and amortization was 7.0% of service revenue in

the third quarter of 2009 compared to 6.2% in the same period of

consolidated operating margin was 11.8% for the three months ended September 30,

2009, compared to 12.4% for the same period in 2008.

operations was $18.4 million for the three months ended September 30, 2009

compared to $21.7 million for the same period in 2008.

The decrease of $3.3

million is comprised of an increase in Corporate expenses of $1.5 million, a

decrease in operating income of $5.0 million in Investigative and Litigation

Support Services, $0.1 million in Data Services, and $2.7 million at Employer

Services offset by increases in operating income of $5.4 million in Credit

Services, and $0.6 million in Multifamily Services.

Services Segment

Months Ended September 30, 2009 Compared to Nine Months Ended September 30,

revenue was $191.6 million for the nine months ended September 30, 2009, a

decrease of $11.1 million compared to service revenue of $202.7 million for the

nine months ended September 30, 2008.

A decrease in revenue at the

dealer services division resulted in an overall decrease in service revenue,

which is partially offset by an increase in revenue from the mortgage credit and

consumer credit divisions.

The challenging credit markets and overall

economy continues to affect our credit reporting businesses compared to the nine

months ended September 30, 2008.

margin was $105.3 million for the nine months ended September 30, 2009, a

decrease of $5.3 million compared to gross margin of $110.6 million in the same

period of 2008.

The decline in gross margin is primarily due to the

overall decrease in revenue and revenue mix compared to prior year.

was 55.0% for the nine months ended September 30, 2009 as compared to 54.6% for

the nine months ended September 30, 2008.

and benefits decreased by $8.5 million.

Salaries and benefits were

19.0% of service revenue in the nine months ended September 30, 2009 compared to

22.2% during the same period in 2008.

Salaries and benefits expense

decreased due to operational efficiencies and reduced staffing.

and telecommunication expenses decreased $1.4 million.

Facilities and

telecommunication expense were 2.7% and 3.2% of service revenue in the nine

months ended September 30, 2009 and 2008, respectively.

decrease is due to the office consolidations.

operating expenses decreased by $3.1 million.

Other operating expenses were 7.5%

of service revenue in the nine months ended September 30, 2009 compared to 8.6%

for the same period of 2008.

The decrease is due to a decline in lease

expense, marketing expense, bad debt expense, office expenses and travel

expense, offset by an increase in temporary labor and professional service

and amortization was flat when compared to the nine months ended

Depreciation and amortization was 2.3% of service revenue in

the third quarter of 2009 compared to 2.2% in the same period of

operations was $44.8 million for the nine months ended September 30, 2009

compared to $35.4 million in the same period of 2008.

The operating margin

percentage increased from 17.4% to 23.4% primarily due operational efficiencies

gained related to the segment’s cost reduction measures in 2008 the $1.7

million impairment loss recorded in 2008.

Services Segment

Months Ended September 30, 2009 Compared to Nine Months Ended September 30,

service revenue was $113.5 million for the nine months ended September 30, 2009,

an increase of $53.1 million compared to service revenue of $60.4 million in the

same period of 2008.

This segment has experienced a significant

increase in service revenue primarily due to the lead generation business,

offset by reduced volumes in the specialty credit and transportation businesses

as a result of the overall economic downturn.

margin was $44.7 million for the nine months ended September 30, 2009, an

increase of $3.7 million compared to gross margin of $41.0 million in the same

period of 2008.

Gross margin as a percentage of service revenue was

39.4% for the nine months ended September 30, 2009 as compared to 67.8% for the

nine months ended September 30, 2008.

The decrease in the gross

margin as a percentage of service revenue is primarily due to the revenue

The lead generation’s eAdvertising business has lower

and benefits decreased by $0.3 million.

Salaries and benefits

were 12.9% of service revenue in the nine months ended September 30, 2009

compared to 24.6% of service revenue in the same period of 2008.

decrease in expense is related to the reduction in staffing as compared to the

same period in 2008.

and telecommunication expenses decreased $0.2 million.

Facilities and

telecommunication expenses were 1.5% of service revenue in the nine months

ended September 30, 2009 compared to 3.2% of service revenue in the same period

operating expenses increased by $4.2 million.

Other operating expenses were 8.4%

of service revenue for the nine months ended September 30, 2009 and 8.9% in the

same period of 2008.

The expense increase is primarily due to the increase in

bad debt expense at the lead generation business.

and amortization decreased by $0.2 million.

Depreciation and amortization was

6.5% of service revenue in the nine months ended September 30, 2009 compared to

12.6% in the same period of 2008.

operating margin percentage decreased from 18.6% to 10.0% primarily due to the

revenue mix of the businesses in the nine months ended September 30, 2009

compared to the same period in 2008.

from operations was $11.4 million for the nine months ended September 30, 2009,

an increase of $0.2 million compared to $11.2 million in the nine months ended

September 30, 2008.

The increase is primarily driven by the

lead generation business where revenue has increased, offset by increased cost

of service and operating expenses.

Services Segment

Months Ended September 30, 2009 Compared to Nine Months Ended September 30,

service revenue was $119.4 million for the nine months ended September 30, 2009,

a decrease of $44.0 million compared to service revenue of $163.4 million in the

same period of 2008.

The decrease was a result of the

decline in hiring in the United States and abroad.

The recession

has caused increased unemployment, which directly affects this

and benefits decreased by $10.2 million.

Salaries and benefits were

41.0% of service revenue in the nine months ended September 30, 2009 compared to

36.2% in the same period of 2008.

The decrease in expense is a direct

effect of office consolidations and the reduction in staffing, offset by an

increase in expense related to moving technology personnel from Corporate to

Employer Services.

and telecommunication expenses decreased by $1.1 million.

and telecommunication expenses were 5.2% and 4.5% of service revenue in the nine

months ended September 30, 2009 and 2008, respectively.

expense decrease is a direct effect of office consolidations.

operating expenses decreased by $13.2 million.

Other operating expenses were

13.1% and 17.7% of service revenue in the nine months ended September 30, 2009

and 2008, respectively.

The expense decrease in other operating

expenses is primarily due to moving technology personnel from Corporate to

Employer Services which increased costs allocated out of Employer services, a

decrease in temporary labor, a decrease in bad debt expense and decreased

foreign currency losses.

and amortization increased by $1.4 million.

Depreciation and amortization was

9.3% of service revenue in the nine months ended September 30, 2009 compared to

5.9% in the same period of 2008.

The increase is primarily due to the

rollout of internally developed software and the accelerated depreciation on

software related to outsourcing certain services in our drug screening

operating margin percentage decreased from 8.0% to 5.1% primarily due to the

decline in service revenue.

from operations was $6.1 million for the nine months ended September 30, 2009, a

decrease of $7.0 million compared to income from operations of $13.1 million in

the same period of 2008.

The decrease is due to the decline in

service revenue, offset by a 22.2% decrease in operating

Services Segment

Months Ended September 30, 2009 Compared to Nine Months Ended September 30,

service revenue was $57.5 million for the nine months ended September 30, 2009,

a decrease of $0.5 million compared to service revenue of $58.0 million in the

same period of 2009.

The decrease is primarily due to a decline in

revenue related to the current economic conditions.

and benefits cost decreased $1.7 million.

Salaries and benefits were

31.7% of service revenue for the nine months ended September 30, 2009 compared

to 34.4% of service revenue in the same period of 2008.

decrease is primarily due to a reduction in employees.

and telecommunication expenses decreased $0.4

Facilities and telecommunication expenses were 3.9% of

service revenue in the nine months ended September 30, 2009 and 4.6% in the same

period of 2008.

The expense decrease is a direct effect of

office consolidations.

operating expenses decreased $1.0 million.

Other operating

expenses were 12.0% of service revenue in the nine months ended September 30,

2009 compared to 13.7% in the same period of 2008.

The decrease is

due to reduced leased equipment, marketing and travel expenses.

and amortization increased $0.3 million.

Depreciation and

amortization was 7.9% of service revenue in the nine months ended September 30,

2009 compared to 7.3% in the same period of 2008.

operating margin percentage increased from 31.0% to 35.7% primarily due to

management’s cost containment initiatives.

Income from operations was

$20.5 million in the nine months ended September 30, 2009 compared to income

from operations of $18.0 million in the same period of 2008.

Investigative

and Litigation Services Segment

Months Ended September 30, 2009 Compared to Nine Months Ended September 30,

service revenue was $30.2 million for the nine months ended September 30, 2009,

a decrease of $33.1 million compared to service revenue of $63.3 million in the

same period of 2008.

The decrease is primarily due to the diminished

case activity level in the Litigation Support Services division.

and benefits decreased by $8.3 million.

Salaries and benefits were

56.3% of service revenue in the nine months ended September 30, 2009 compared to

40.0% in the same period of 2008.

The expense decrease is mainly due

to the decline of compensation related to revenue and

profitability.

and telecommunication expenses decreased $0.2 million.

Facilities and

telecommunication expenses were 6.6% of service revenue in the nine months ended

September 30, 2009 and 3.5% in the first quarter of 2008.

operating expenses decreased by $3.4 million.

Other operating expenses were

16.3% of service revenue in the nine months September 30, 2009 and 13.2% for the

same period of 2008.

The decrease in expense is primarily due to a

reduction in bad debt expense, travel expenses and professional

and amortization decreased $0.3 million.

Depreciation and

amortization was 7.2% of service revenue in the nine months ended September 30,

2009 compared to 3.9% in the same period of 2008.

operating margin percentage decreased from 37.0% to 9.1%.

operations was $2.8 million for the nine months ended September 30, 2009

compared to $23.4 million for the same period of 2008.

decrease in margin is primarily due to the revenue decrease on the higher margin

electronic discovery business.

Months Ended September 30, 2009 Compared to Nine Months Ended September 30,

costs and expenses represent primarily compensation and benefits for senior

management, administrative staff, and their related expenses in addition to an

administrative fee paid to First American.

The Corporate expenses

were $26.4 million in the nine months ended September 30, 2009 compared to

expenses of $28.2 million in the same period of 2008.

decrease is due to moving technology personnel from Corporate to Employer

Services, decreases in compensation and benefit expenses, and travel

The decrease is offset by $1.6 million in legal expenses

recorded in the current quarter related to the Offer and related

Months Ended September 30, 2009 Compared to Nine Months Ended September 30,

service revenue for the nine months ended September 30, 2009 was $510.7 million,

a decrease of $34.6 million compared to service revenue of $545.3 million in the

same period in 2008.

The decrease in service revenue is directly related to the

downturn in domestic and international hiring, the decline in the mortgage

industry, weakness in the credit markets, and overall economic slowdown,

partially offset by an increase in the Data Services segment.

and benefits decreased $37.3 million.

Salaries and benefits were

29.6% of service revenue for the nine months ended September 30, 2009 and 34.6%

for the same period in 2008.

The decrease is primarily due to strategic

reductions in employees, office consolidations, a decline of compensation

related to revenue and profitability, and a reduction in the 401(k) match

Facilities and

telecommunication decreased by $3.8 million compared to the same period in 2008.

Facilities and telecommunication expenses were 4.0% of service revenue in the

nine months ended September 30, 2009 and 4.4% in the same period of

The decrease is primarily due to savings related to office

consolidations.

operating expenses decreased by $9.2 million compared to the same period in

Other operating expenses were 11.0% and 12.0% of service

revenue for the nine months ended September 30, 2009 and 2008,

respectively.

The decrease in expense is due to office consolidations

and cost reduction measures.

This is offset by an increase in bad

debt expense at the Data Services segment and $1.6 million in legal expenses

recorded related to the Offer and related litigation.

and amortization increased by $1.1 million due to fixed asset additions and the

roll out of internally developed software, offset by certain fixed assets and

intangibles becoming fully depreciated.

consolidated operating margin was 11.6% for the nine months ended September 30,

2009, compared to 13.4% for the same period in 2008.

operations was $59.2 million for the nine months ended September 30, 2009

compared to $72.9 million for the same period in 2008.

The decrease of $13.7

million is comprised of a decrease in operating income of $20.6 million in

Investigative and Litigation Support Services, and $7.0 million at Employer

Services offset by increases in operating income of $9.4 million in Credit

Services, $0.2 million in Data Services, $2.5 million in Multifamily Services

and a decrease of Corporate expenses of $1.8 million.

Accounting Estimates

accounting policies are those policies used in the preparation of the Company’s

financial statements that require management to make estimates and judgments

that affect the reported amounts of certain assets, liabilities, revenues,

expenses and related disclosure of contingencies.

A summary of these policies

can be found in Management’s Discussion and Analysis in the Company’s Annual

Report on Form 10-K for year ended December 31, 2008.

and Capital Resources

Company’s principal sources of capital include, but are not limited to, existing

cash balances, operating cash flows and borrowing under its Secured Credit

Facility (see Note 6 to the Consolidated Financial Statements).

Company’s short-term and long-term liquidity depends primarily upon its level of

net income, working capital management (accounts receivable, accounts payable

and accrued expenses), capital expenditures and bank borrowings.

Company believes that, based on current forecasts and anticipated market

conditions, sufficient operating cash flow will be generated to meet all

operating needs, to make planned capital expenditures, scheduled debt payments,

and tax obligations for the next twelve months.

Any material variance

of operating results could require us to seek other funding alternatives

including raising additional capital, which may be difficult in the current

economic conditions.

previous years, First Advantage sought to acquire other businesses as part of

its growth strategy.

The Company will continue to evaluate acquisitions in order

to achieve economies of scale, expand market share and enter new

uncertainties within the Company’s industry exist, management is not aware of

any trends or events likely to have a material adverse effect on liquidity or

the accompanying financial statements.

Management expects continued weakness in

the real estate and mortgage markets to continue impacting the Company’s Credit

Services segment and the transportation and specialty credit businesses in the

Data Services segment.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Total service revenue was $87.9 million for the six months ended June 30, 2009, an increase of $49.4 million compared to service revenue of $38.5 million in the same period of 2008.

This segment has experienced a significant increase in service revenue primarily due to the lead generation business, offset by reduced volumes in

the specialty credit and transportation businesses as a result of the overall economic downturn.

Gross margin was $31.6 million for the six months ended June 30, 2009, an increase of $3.9 million compared to gross margin of $27.7 million in the same period of 2008.

Gross margin as a percentage of service revenue was 35.9% for the six months ended June 30, 2009 as compared to 71.9% for the six months ended June 30, 2008.

decrease in the gross margin as a percentage of service revenue is primarily due to the revenue mix.

The lead generation eAdvertising business has lower margins.

Salaries and benefits decreased by $0.4 million.

Salaries and benefits were approximately 11.1% of service revenue in the first six months of 2009 compared to 26.3% of service revenue in the same period of 2008.

The decrease in expense is related to the decrease in staffing as compared to the same period in 2008.

Facilities and telecommunication expenses for the six months ended June 30, 2009 were comparable to the same period in 2008.

Facilities and telecommunication expenses were approximately 1.4% of service revenue in the first six months of 2009 compared to 3.3% of service revenue in the same period of 2008.

Other operating expenses increased by $4.2 million.

Other operating expenses were 9.0% of service revenue for the six months ended June 30, 2009 and 9.6% in the same period of 2008.

The expense increase is primarily due to the increase in bad debt expense at the lead generation business.

Depreciation and amortization for the six months ended June 30, 2009 was comparable to the same period in 2008.

The operating margin percentage decreased from 19.6% to 8.9% in comparing the six months ended June 30, 2008 to same period of 2009.

The decrease in the operating margin is primarily due to the revenue mix of the businesses in the first half of 2009 compared to the same period in 2008.

Income from operations was $7.8 million for the six months ended June 30, 2009, an increase of $0.3 million compared to $7.5 million in the first six months of 2008.

The increase is primarily driven by the lead generation business where revenue has increased, offset by increased cost of service and operating expenses.

In addition, the effect of the issues in the

real estate and related credit markets and other macroeconomic matters has

resulted in higher unemployment rates negatively impacting the volumes in the

Employer Services segment.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Total service revenue was $77.6 million for the six months ended June 30, 2009, a decrease of $31.6 million compared to service revenue of $109.2 million in the same period of 2008.

The decrease was a result of a decrease in hiring in the United States and abroad.

The recession has caused increased unemployment, which

directly affects this segment.

Salaries and benefits decreased by $7.8 million.

Salaries and benefits were 42.2% of service revenue in the first six months of 2009 compared to 37.2% in the same period of 2008.

The decrease in expense is a direct effect of office consolidations and the reduction in staffing, offset by an increase in expense related

to moving technology personnel from Corporate to Employer Services.

Facilities and telecommunication expenses decreased by $0.8 million.

Facilities and telecommunication expenses were 5.4% of service revenue in the six months ended June 30, 2009 and 4.6% in the same period of 2008.

The expense decrease is a direct effect of office consolidations.

Other operating expenses decreased by $9.1 million.

Other operating expenses were 13.5% and 18.0% of service revenue in the six months ended June 30, 2009 and 2008, respectively.

The expense decrease in other operating expenses is primarily due to moving technology personnel from Corporate to Employer Services which increased costs

allocated out of Employer services, a decrease in temporary labor, bad debt expense and decreased foreign currency losses.

Depreciation and amortization increased by $0.9 million primarily.

Depreciation and amortization was 9.4% of service revenue in the second quarter of 2009 compared to 5.8% in the same period of 2008.

The increase is primarily due to the rollout of internally developed software and the accelerated depreciation on software related

to outsourcing some services in our drug screening division.

The operating margin percentage decreased from 5.9% to 2.8% primarily due to the decline in service revenue.

Income from operations was $2.2 million for the six months ended June 30, 2009, a decrease of $4.3 million compared to income from operations of $6.5 million in the same period of 2008.

The decrease is due to the decline in service revenue, offset by an approximately 24% decrease in operating expenses.

Multifamily Services Segment

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Total service revenue was $37.6 million for the six months ended June 30, 2009, a decrease of $0.7 million compared to service revenue of $38.3 million in the same period of 2009.

The decrease is primarily due to a decline in revenue due to the current economic conditions.

Salaries and benefits cost decreased $1.5 million.

Salaries and benefits were 32.2% of service revenue for the six months ended June 30, 2009 compared to 35.6% of service revenue in the same period of 2008.

The expense decrease is primarily due to a reduction in employees.

Facilities and telecommunication expenses decreased $0.3 million.

Facilities and telecommunication expenses were 4.0% of service revenue in the first six months of 2009 and 4.8% in the same period of 2008.

The expense decrease is a direct effect of office consolidations.

Other operating expenses decreased $0.9 million.

Other operating expenses were 11.9% of service revenue in the first six months of 2009 compared to 14.1% in the same period of 2008.

The decrease is due to reduced leased equipment, marketing and travel expenses.

Depreciation and amortization increased $0.2 million.

Depreciation and amortization was 8.0% of service revenue in the first quarter of 2009 compared to 7.3% in the same period of 2008.

The operating margin percentage increased from 29.6% to 35.3% due to reduced operating expenses.

Income from operations was $13.3 million in the first six months of 2009 compared to income from operations of $11.3 million in the same period of 2008.

Investigative and Litigation Services Segment

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Total service revenue was $20.4 million for the six months ended June 30, 2009, a decrease of $24.3 million compared to service revenue of $44.7 million in the same period of 2008.

The decrease is primarily due to the case activity level in the Litigation Support Services division.

Salaries and benefits decreased by $6.0 million.

Salaries and benefits were 57.3% of service revenue in the first six months of 2009 compared to 39.6% in the same period of 2008.

The expense decrease is mainly due to the decline of compensation related to revenue and profitability.

Facilities and telecommunication expenses decreased $0.2 million.

Facilities and telecommunication expenses were 6.4% of service revenue in the six months ended June 30, 2009 and 3.3% in the first quarter of 2008.

Other operating expenses decreased by $2.1 million.

Other operating expenses were 18.0% of service revenue in the first six months of 2009 and 13.0% for the same period of 2008.

The decrease in expense is primarily due to a reduction in bad debt expense, travel expenses and professional fees.

Depreciation and amortization decreased $0.2 million.

Depreciation and amortization was 7.1% of service revenue in the six months ended June 30, 2009 compared to 3.6% in the same period of 2008.

The operating margin percentage decreased from 38.2% to 6.9%.

The decrease in margin is primarily due to the revenue decline on the higher margin electronic discovery business.

Income from operations was $1.4 million for the six months ended June 30, 2009 compared to $17.1 million for the same period of 2008.

The decrease is primarily due to the revenue decrease on the higher margin electronic discovery business.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

The corporate expenses were $16.2 million in the six months ended June 30, 2009 compared to expenses of $19.6 million in

the same period of 2008.

The expense decrease is due to moving technology personnel from Corporate to Employer Services, decreases in compensation and benefit expenses, and travel expenses.

Consolidated Results

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Consolidated service revenue for the six months ended June 30, 2009 was $354.7 million, a decrease of $16.0 million compared to service revenue of $370.7 million in the same period in 2008.

The decrease in service revenue is directly related to the downturn in domestic and international hiring, the decline in the mortgage industry, weakness

in the credit markets, and overall economic slowdown, partially offset by an increase in the Data Services segment.

Salaries and benefits decreased $28.1 million.

Salaries and benefits were 28.6% of service revenue for the six months ended June 30, 2009 and 34.9% for the same period in 2008.

The decrease is primarily due to strategic reductions in employees, a decline of compensation related to revenue and profitability, and a reduction

in the 401(k) match expense.

Facilities and telecommunication decreased by $2.8 million compared to the same period in 2008.

Facilities and telecommunication expenses were 3.8% of service revenue in the first six months of 2009 and 4.4% in the first quarter of 2008.

The decrease is primarily due to

savings related to office consolidations.

Other operating expenses decreased by $7.8 million compared to the same period in 2008.

Other operating expenses were 10.7% and 12.3% of service revenue for the six months ended June 30, 2009 and 2008, respectively.

The decrease in expense is due to office consolidations and cost reduction measures.

offset by an increase in bad debt expense at the Data Services segment.

Depreciation and amortization increased by $1.0 million due to fixed asset additions and the roll out of internally developed software, offset by certain fixed assets and intangibles becoming fully depreciated.

The consolidated operating margin was 11.5% for the six months ended June 30, 2009, compared to 13.8% for the same period in 2008.

Income from operations was $40.8 million for the six months ended June 30, 2009 compared to $51.2 million for the same period in 2008.

The decrease of $10.4 million is comprised of a decrease in operating

income of $15.6 million in Investigative and Litigation Support Services, and $4.3 million at Employer Services offset by increases in operating income of $4.0 million in Credit Services, $1.9 million in Multifamily Services, $0.3 million in Data Services, and a decrease of corporate expenses of $3.3 million.

Critical Accounting Estimates

Critical accounting policies are those policies used in the preparation of the Company’s financial statements that require management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosure of contingencies.

A summary of these policies can be found in Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K for year ended December 31, 2008.

Liquidity and Capital Resources

The Company’s principal sources of capital include, but are not limited to, existing cash balances, operating cash flows and borrowing under its Secured Credit Facility (see Note 6 to the Consolidated Financial Statements).

The Company’s short-term and long-term liquidity depends primarily upon its level of net income,

working capital management (accounts receivable, accounts payable and accrued expenses), capital expenditures and bank borrowings.

The Company believes that, based on current forecasts and anticipated market conditions, sufficient operating cash flow will be generated to meet all operating needs, to make planned capital expenditures, scheduled debt payments, and tax obligations for the next twelve months.

Any material variance of operating results could require us to seek other funding alternatives

including raising additional capital, which may be difficult in the current economic conditions.

In previous years, First Advantage sought to acquire other businesses as part of its growth strategy.

The Company will continue to evaluate acquisitions in order to achieve economies of scale, expand market share and enter new markets.

While uncertainties within the Company’s industry exist, management is not aware of any trends or events likely to have a material adverse effect on liquidity or the accompanying financial statements.

Management expects continued weakness in the real estate and mortgage markets to continue impacting the Company’s Credit Services

segment and the transportation and specialty credit businesses in the Data Services segment.

In addition, the effect of the issues in the real estate and related credit markets and other macroeconomic matters has resulted in higher unemployment rates negatively impacting the volumes in the Employer Services segment.

Given this outlook, management is focusing on expense reductions, operating efficiencies, and increasing market share throughout the Company.

Statements of Cash Flows

The Company’s primary source of liquidity is cash flow from operations and amounts available under credit lines the Company has established with a bank.

As of June 30, 2009, cash and cash equivalents were $60.5 million.

Net cash provided by operating activities of continuing operations was $37.2 million in the six months ended June 30, 2009 compared to cash used in operating activities of continuing operations was $2.5 million for same period in 2008.

Cash provided by operating activities of continuing operations increased by $39.7 million when

comparing the six months ended June 30, 2009 and the same period in 2008.

Income from continuing operations was $23.4 million in the first half of 2009 and $29.6 million for the same period in 2008.

The increase in cash provided by operating activities was primarily due to the income tax payments of $56.9 million in 2008 related to the sale of DealerTrack shares.

Cash used in investing activities of continuing operations was $30.4 million and $70.4 million for the six months ended June 30, 2009 and 2008, respectively.

In the six months ended June 30, 2009, net cash in the amount of $19.5 million was used for acquisitions compared to $51.2 million in the same period of 2008.

Purchases of property and

equipment were $9.8 million in the first half of 2009 compared to $17.5 million in the same period of 2008.

Cash provided by financing activities of continuing operations was $0.5 million for the six months ended June 30, 2009, compared to $35.6 million for the six months ended June 30, 2008.

In the six months ended June 30, 2009, proceeds from existing credit facilities were $50.4 million compared to $90.0 million in the same period

Repayment of debt was $45.1 million in the first half of 2009 and $52.0 million in the same period of 2008.

Cash used to acquire noncontrolling interest in a consolidated subsidiary was $5.1 million and $8.0 million for the six months ended June 30, 2009 and 2008, respectively.

Debt and Capital

In 2005, the Company executed a revolving credit agreement with a bank syndication (the “Credit Agreement”).

Borrowings available under the Credit Agreement total up to $225 million.

The Credit Agreement includes a $10 million sub-facility for the issuance of letters of credit and up to a $5 million swing

Given this outlook, management is focusing

on expense reductions, operating efficiencies, and increasing market share

throughout the Company.

Statements of Cash

Company’s primary source of liquidity is cash flow from operations and amounts

available under credit lines the Company has established with a

As of September 30, 2009, cash and cash equivalents were $57.8

provided by operating activities of continuing operations was $57.0 million and

$33.0 million in the nine months ended September 30, 2009 and 2008,

respectively.

Cash provided by operating activities of continuing

operations increased by $24.0 million when comparing the nine months ended

September 30, 2009 and the same period in 2008.

continuing operations was $34.8 million in the nine months ended September 30,

2009 compared to $41.9 million for the same period in 2008.

The increase in cash

provided by operating activities was primarily due to the first quarter 2008

income tax payments of $56.9 million related to the sale of DealerTrack

in investing activities of continuing operations was $36.1 million and $78.4

million for the nine months ended September 30, 2009 and 2008, respectively.

the nine months ended September 30, 2009, net cash in the amount of $19.5

million was used for earnout provisions from prior year acquisitions, compared

to $51.2 million in the same period of 2008.

Purchases of property and equipment

were $14.5 million in the nine months ended September 30, 2009 compared to $24.3

million in the same period of 2008.

in financing activities of continuing operations was $16.5 million for the nine

months ended September 30, 2009, compared to cash provided by financing

activities of continuing operations of $12.4 million for the nine months ended

September 30, 2008.

In the nine months ended September 30, 2009,

proceeds from existing credit facilities were $50.9 million compared to $100.3

million in the same period of 2008.

Repayment of debt was $62.3 million in the

nine months ended September 30, 2009 and $85.5 million in the same period of

Cash used to acquire noncontrolling interest in a consolidated

subsidiary was $5.9 million and $8.0 million for the nine months ended September

30, 2009 and 2008, respectively.

In addition, $1.1 million was distributed

to noncontrolling interests in the nine months ended September 30,

the Company executed a revolving credit agreement with a bank syndication (the

“Credit Agreement”).

Borrowings available under the Credit Agreement

total up to $225 million.

The Credit Agreement includes a $10 million

sub-facility for the issuance of letters of credit and up to a $5 million swing

loan facility.

The credit facility maturity date is September 28,

The Credit Agreement is collateralized by the stock and accounts receivable of the Company’s subsidiaries.

At June 30, 2009, the Company had available lines of credit of $195.1 million.

At June 30, 2009, the Company was in compliance with the financial covenants of its loan agreements.

First Advantage filed a Registration Statement with the Securities and Exchange Commission for the issuance of up to 5.0 million shares of our Class A common stock, par value $.001 per share, from time to time as full or partial consideration for the acquisition of businesses, assets or securities of other business entities.

Registration Statement was declared effective on January 9, 2006.

A total of 1,338,631 shares were issued for acquisitions as of June 30, 2009.

Contractual Obligations and Commercial Commitments

The following is a schedule of long-term contractual commitments, as of June 30, 2009, over the periods in which they are expected to be paid.

(In thousands)

Minimum contract purchase commitments

Advertising commitments

Operating leases

Debt and capital leases

Interest payments related to debt (1)

The Credit Agreement is collateralized by the stock and accounts

receivable of the Company’s subsidiaries.

September 30, 2009, the Company had available lines of credit of $209.7 million,

and was in compliance with the financial covenants of its loan agreements.

the event that the First American Offer is accepted and consummated with a

merger, this may be determined to be an "Event of Default," under the terms of

the Credit Agreement.

Advantage filed a Registration Statement with the Securities and Exchange

Commission for the issuance of up to 5.0 million shares of our Class A common

stock, par value $.001 per share, from time to time as full or partial

consideration for the acquisition of businesses, assets or securities of other

business entities.

The Registration Statement was declared effective

on January 9, 2006.

A total of 1,338,631 shares were issued for

acquisitions as of September 30, 2009.

Obligations and Commercial Commitments

following is a schedule of long-term contractual commitments, as of September

30, 2009, over the periods in which they are expected to be paid.

contract purchase commitments

and capital leases

payments related to debt (1)

(1) Estimated interest payments are calculated assuming current interest rates over minimum maturity periods specified in debt agreements.

(2) Excludes FIN 48 tax liability of $4.9 million due to uncertainty of payment period.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the Company’s risk since filing its Form 10-K for the year ended December 31, 2008.

(2) Excludes tax liability of $4.9 million due to uncertainty of payment period.

Quantitative and Qualitative Disclosures About

been no material changes in the Company’s risk since filing its Form 10-K for

the year ended December 31, 2008.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis