e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
September 30,
2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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For the transition period
from to
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Commission File Number 1-11689
Fair Isaac
Corporation
(Exact name of registrant as
specified in its charter)
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Delaware
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94-1499887
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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901 Marquette Avenue, Suite 3200
Minneapolis, Minnesota
(Address of principal
executive offices)
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55402-3232
(Zip
Code)
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Registrants telephone number, including area code:
612-758-5200
Securities registered pursuant to Section 12(b) of the
Act:
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(Title of Class)
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(Name of Each Exchange on Which Registered)
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Common Stock, $0.01 par value per share
Preferred Stock Purchase Rights
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New York Stock Exchange, Inc.
New York Stock Exchange, Inc.
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes þ No o
Indicate by check mark if the registrant is not required to file
report pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of March 31, 2010, the aggregate market value of the
registrants common stock held by non-affiliates of the
registrant was $770,150,790 based on the last transaction price
as reported on the New York Stock Exchange on such date. This
calculation does not reflect a determination that certain
persons are affiliates of the registrant for any other purposes.
The number of shares of common stock outstanding on
October 31, 2010 was 39,887,143 (excluding
48,969,640 shares held by the Company as treasury stock).
Items 10, 11, 12, 13 and 14 of Part III incorporate
information by reference from the definitive proxy statement for
the Annual Meeting of Stockholders to be held on
February 1, 2011.
FORWARD
LOOKING STATEMENTS
Statements contained in this Report that are not statements
of historical fact should be considered forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the Act). In
addition, certain statements in our future filings with the
Securities and Exchange Commission (SEC), in press
releases, and in oral and written statements made by us or with
our approval that are not statements of historical fact
constitute forward-looking statements within the meaning of the
Act. Examples of forward-looking statements include, but are not
limited to: (i) projections of revenue, income or loss,
earnings or loss per share, the payment or nonpayment of
dividends, capital structure and other statements concerning
future financial performance; (ii) statements of our plans
and objectives by our management or Board of Directors,
including those relating to products or services;
(iii) statements of assumptions underlying such statements;
(iv) statements regarding business relationships with
vendors, customers or collaborators; and (v) statements
regarding products, their characteristics, performance, sales
potential or effect in the hands of customers. Words such as
believes, anticipates,
expects, intends, targeted,
should, potential, goals,
strategy, and similar expressions are intended to
identify forward-looking statements, but are not the exclusive
means of identifying such statements. Forward-looking statements
involve risks and uncertainties that may cause actual results to
differ materially from those in such statements. Factors that
could cause actual results to differ from those discussed in the
forward-looking statements include, but are not limited to,
those described in Item 1A of Part I, Risk Factors,
below. The performance of our business and our securities may be
adversely affected by these factors and by other factors common
to other businesses and investments, or to the general economy.
Forward-looking statements are qualified by some or all of these
risk factors. Therefore, you should consider these risk factors
with caution and form your own critical and independent
conclusions about the likely effect of these risk factors on our
future performance. Such forward-looking statements speak only
as of the date on which statements are made, and we undertake no
obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement
is made to reflect the occurrence of unanticipated events or
circumstances. Readers should carefully review the disclosures
and the risk factors described in this and other documents we
file from time to time with the SEC, including our reports on
Forms 10-Q
and 8-K to
be filed by the Company in fiscal 2011.
PART I
GENERAL
Fair Isaac Corporation (NYSE: FICO) (together with its
consolidated subsidiaries, the Company, which may
also be referred to in this report as we,
us, our, and FICO) provides
products and services that enable businesses to automate,
improve and connect decisions to enhance business performance.
Our predictive analytics, which includes the industry-standard
FICO®
Score, and our Decision Management systems power hundreds of
billions of customer decisions each year.
We were founded in 1956 on the premise that data, used
intelligently, can improve business decisions. Today, we help
thousands of companies in over 80 countries use our Decision
Management technology to target and acquire customers more
efficiently, increase customer value, reduce fraud and credit
losses, lower operating expenses, and enter new markets more
profitably. Most leading banks and credit card issuers rely on
our solutions, as do insurers, retailers and healthcare
organizations. We also serve consumers through online services
that enable people to purchase and understand their
FICO®
Scores, the standard measure in the United States of credit
risk, empowering them to manage their financial health.
More information about us can be found on our principal website,
www.fico.com. We make our Annual Report on
Form 10-K,
our Quarterly Reports on
Form 10-Q
and our Current Reports on
Form 8-K,
as well as amendments to those reports, available free of charge
through our website as soon as reasonably practicable after we
electronically file them with the SEC. Information on our
website is not part of this report.
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PRODUCTS
AND SERVICES
We help businesses automate, improve and connect decisions
across the enterprise, an approach we commonly refer to as
Decision Management. Most of our solutions address customer
decisions, including customer targeting and acquisition, account
origination, customer management, fraud management, collections
and recovery. We also help businesses improve noncustomer
decisions such as transaction and claims processing, and network
integrity review. Our solutions enable users to make decisions
that are more precise, consistent and agile, and that
systematically advance business goals. This helps our clients to
reduce the cost of doing business, increase revenues and
profitability, reduce losses from risks and fraud, and increase
customer loyalty.
Our
Segments
Effective October 1, 2009, we implemented an organizational
restructuring resulting in a consolidation of our operating
segment structure from four segments to three. We now deliver
Decision Management through products and services that we
categorize into the following three operating segments:
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Applications. This segment includes the former
Strategy Machine SolutionsTM segment, excluding our
myFICO®
solutions for consumers, and associated professional services.
Our Applications products are pre-configured Decision Management
applications designed for a specific type of business problem or
process, such as marketing, account origination, customer
management, fraud and insurance claims management.
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Scores. This segment includes our
business-to-business
scoring solutions and services, our
myFICO®
solutions for consumers (previously included in the Strategy
Machine Solutions segment), and associated professional
services. Our scoring solutions give our clients access to
analytics that can be easily integrated into their transaction
streams and decision-making processes. Our scoring solutions
are distributed through major credit reporting agencies, as
well as services through which we provide our scores to clients
directly.
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Tools. This segment includes the former
Analytic Software Tools segment and associated professional
services. The Tools segment is composed of software tools that
clients can use to create their own custom Decision Management
applications.
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The former Professional Services segment, which represents
delivery and integration services, has been included within the
applicable segment to which the services relate and is no longer
its own segment.
Comparative segment revenues, operating income and related
financial information for fiscal 2010, 2009 and 2008 are set
forth in Note 20 to the accompanying consolidated financial
statements.
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Key
Products and Services by Operating Segment
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Operating Segment
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Key Products and Services
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Applications
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Marketing
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FICO®
Precision Marketing Manager
FICO®
Retail Action Manager
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Originations
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FICO®
LiquidCredit®
service
FICO®
Capstone®
Decision Manager
FICO®
Capstone®
Decision Accelerator
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Customer Management
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FICO®
TRIAD®
Customer Manager
FICO®
Transaction Scores
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Fraud
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FICOtm
Falcon®
Fraud Manager
FICOtm
Insurance Fraud Manager
FICOtm
Fraud Predictor with Merchant Profiles
FICOtm
Falcon®
ID solution
FICOtm
Card Alert Service
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Collections & Recovery
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FICO®
Debt
Managertm
solution
FICOtm
Recovery Management
Systemtm
solution
(RMStm)
FICO®
Network Services
FICOtm
PlacementsPlus®
service
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Analytics
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FICO®
Predictive Analytics
FICOtm
Custom Decision Optimization
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Scores
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Business-to-business
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FICO®
Scores
FICO®
Expansion®
Scores
FICO®
Revenue Scores
FICO®
Bankruptcy Scores
FICO®
Insurance Scores Property
PredictRtm,
a
FICO®
Insurance Score
FICO®
PreScore®
Service
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Business-to-consumer
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myFICO®
service
Score
Watch®
subscription
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Tools
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FICOtm
Blaze
Advisor®
business rules management system
FICOtm
Model Builder
FICOtm
Decision Optimizer
FICOtm
Xpress Optimization Suite
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Our
Solutions
Our solutions involve four fundamental disciplines:
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Analytics to identify the risks and opportunities associated
with individual clients, prospects and transactions, in order to
detect patterns such as fraud, and to improve the design of
decision logic or strategies;
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Data management and profiling that bring extensive consumer
information to every decision;
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Software such as rules management systems that implement
business rules, models and decision strategies, often in a
real-time environment; and
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Consulting services that help clients make the most of
investments in FICO applications, tools and analytics in the
shortest possible time.
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All of our solutions are designed to help businesses make
decisions that are faster, more precise, more consistent and
more agile, while reducing costs and risks incurred in making
decisions.
Applications
We develop industry-tailored Decision Management applications,
categorized as Applications, which apply analytics, data
management and Decision Management software to specific business
challenges and processes. These include credit offer
prescreening, insurance claims management and others. Our
Applications primarily serve clients in the banking, insurance,
healthcare, and retail sectors. Within our Applications segment
our customer management solutions accounted for 14%, 15% and 15%
of total revenues in each of fiscal 2010, 2009 and 2008,
respectively, our fraud solutions accounted for 20%, 20% and 18%
of total revenues in each of these periods, respectively, and
our marketing solutions accounted for 11%, 9% and 7% for each of
these periods, respectively.
Marketing
Applications
The chief offering for marketing is our
FICO®
Precision Marketing Manager. The Precision Marketing Manager
solution is a suite of products, capabilities and services
designed to integrate the technology and analytic services
needed to perform context-sensitive customer acquisition,
cross-selling and retention programs. The Precision Marketing
Manager solution enables companies that offer multiple products
and use multiple channels (companies such as large financial
institutions, consumer branded goods companies, pharmaceutical
companies, retail merchants and hospitality companies) to
execute more efficient and profitable customer interactions.
Services offered under the Precision Marketing Manager brand
name include customer data integration services; services that
enable real-time marketing through direct consumer interaction
channels; campaign management and optimization services;
interactive tools that automate the design, execution and
collection of customer response data across multiple channels;
and customer data collection, management and profiling services.
A number of our marketing products and services are designed for
specific industries, such as retail. For example, a product for
retailers is our
FICO®
Retail Action Manager, which determines the optimal products to
recommend to consumers based on purchase propensity.
Originations
Applications
We provide solutions that enable banks, credit unions, finance
companies, installment lenders and other companies to automate
and improve the processing of requests for credit or service.
These solutions increase the speed and efficiency with which
requests are handled, reduce losses and increase approval rates
through analytics that assess applicant risk, and reduce the
need for manual review by loan officers.
Our solutions include the web-based
FICO®
LiquidCredit®
service, which is primarily focused on credit decisions and is
offered largely to mid-tier banking institutions. In addition,
we offer
FICO®
Capstone®
Decision Manager, an end-user software solution for application
decisioning and processing and
FICO®
Capstone®
Decision Accelerator, a rules-based application based on our
FICOtm
Blaze
Advisor®
business rules management system. We also offer custom and
consortium-based credit risk and application fraud models.
Customer
Management Applications
Our customer management products and services enable businesses
to automate and improve decisions on their existing customers.
These solutions help businesses decide which customers to
cross-sell, what additional products and services to offer,
whether customer risk levels have increased or decreased, when
and how much to change a customers credit line, what
pricing adjustments to make in response to account performance
or promotional goals, and how to treat delinquent and high-risk
accounts.
We provide customer management solutions for:
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Banking. In banking, our leading account and
customer management product is the
FICO®
TRIAD®
Customer Manager. The solution is an adaptive control system, so
named because it enables businesses to
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rapidly adapt to changing business and internal conditions by
designing and testing new strategies in a
champion/challenger environment. The TRIAD system is
the worlds leading credit account management system, and
our adaptive control systems are used by more than 250 issuers.
The current version of the TRIAD system enables users to manage
risk and communications at both the account and customer level
from a single platform. We also offer transaction-based neural
network models (the term neural network is defined under
Technology later in this section) called
FICO®
Transaction Scores, which help card issuers identify high-risk
behavior more quickly and thus manage their credit card accounts
more profitably. We market and sell TRIAD end-user software
licenses, maintenance, consulting services, and strategy design
and evaluation. Additionally, we provide TRIAD services and
similar credit account management services through third-party
credit card processors worldwide, including the two largest
processors in the U.S., First Data Resources, Inc. and Total
System Services, Inc.
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Insurance. We provide property and casualty
insurers with Decision Management solutions that enable them to
create, test and implement decision strategies for areas such as
cross-selling, pricing, claims handling, retention, prospecting
and underwriting.
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Fraud
Applications
Our fraud management products improve our clients
profitability by predicting the likelihood that a given
transaction or customer account is experiencing fraud. Our fraud
products analyze customer transactions in real time and generate
recommendations for immediate action, which is critical to
stopping third-party fraud, as well as first-party fraud and
deliberate misuse of account privileges. These applications can
also detect some organized fraud schemes, such as skimming or
organized bust-out fraud, that are too complex and well-hidden
to be identified by other methods.
Our solutions are designed to detect and prevent a wide variety
of fraud and risk types across multiple industries, including
credit and debit payment card fraud; deposit account fraud;
identity fraud; technical fraud and bad debt; healthcare fraud;
Medicaid and Medicare fraud; and property and casualty insurance
fraud, including workers compensation fraud. FICO fraud
solutions protect merchants, financial institutions, insurance
companies, government agencies and employers from losses and
damaged customer relationships caused by fraud and related
criminal behavior.
Our leading fraud detection solution is
FICOtm
Falcon®
Fraud Manager, recognized as the leader in global payment card
fraud detection. Falcon Fraud Managers neural network
predictive models and patented profiling technology, both
further described below in the Technology section,
examine transaction, cardholder and merchant data to detect a
wide range of credit and debit card fraud quickly and
accurately. Falcon Fraud Manager analyzes card transactions in
real time, assesses the risk of fraud, and takes the
user-defined steps to prevent fraud while expediting legitimate
transactions.
FICOtm
Fraud Predictor with Merchant Profiles is used in conjunction
with Falcon Fraud Manager to improve fraud detection rates by
analyzing merchant profile data. The merchant profiles include
characteristics that reveal, for example, merchants that have a
history of higher fraud volumes, and which purchase types and
ticket sizes have most often been fraudulent at a particular
merchant.
FICOtm
Falcon®
ID solution enables lenders to control identity fraud across the
customer lifecycle. Falcon ID solution relies on multiple
sources of data and complex statistical modeling techniques to
identify activity that is at high risk of stemming from identity
theft. It also provides business rules management that companies
can use to identify and resolve cases that appear to involve
identity theft.
FICOtm
Insurance Fraud Manager, which uses predictive modeling to
detect claims fraud, abuse and errors before payment, and
identify suspicious providers as soon as aberrant behavior
patterns emerge. FICO offers versions tailored to Healthcare and
Workers Compensation.
In addition to the Falcon products, we offer
FICOtm
Card Alert Service. Card Alert Service is a solution for
fighting debit and ATM fraud in the U.S. The Card Alert
Service identifies and reports counterfeit payment cards to
issuers before the majority of them incur fraud losses. The
service analyzes daily transactions across
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multiple financial institutions, and uses this data to pinpoint
multi-card fraud and identify common points of compromise.
Collections &
Recovery Applications
Our leading solutions in this area are the
FICO®
Debt
Managertm
solution and the
FICOtm
Recovery Management
Systemtm
(RMS) solution. The Debt Manager solution automates
the full cycle of collections and recovery, including early
collections, late collections, asset disposal, agency placement,
recovery, litigation, bankruptcy, asset management and residual
balance recovery. The RMS solution is focused on the later
phases of distressed debt management, including bankruptcy and
agency management. Companies using the Debt Manager solution and
the RMS solution in the U.S. can access partner services
such as collection agencies and attorneys via
FICO®
Network Services, which provides web-based access to and from
thousands of third-party collections and recovery service
providers, as well as access to multiple data sources and FICO
solutions hosted in ASP mode. We also provide the
FICOtm
PlacementsPlus®
service, an account placement optimization and management system.
Analytics
We perform custom predictive, descriptive and decision modeling
and related analytic projects for clients in multiple industries
and to address multiple business processes across the customer
life cycle. This work leverages our analytic methodologies and
expertise to solve risk management and marketing challenges for
a single business, using that businesss data and industry
best practices to develop a highly customized solution. Most of
this work falls under predictive analytics, decision analysis
and optimization, which provide greater insight into customer
preferences and future customer behavior. Within decision
analysis and optimization, we apply data and proprietary
algorithms to the design of customer treatment strategies.
Scores
We develop the worlds leading credit scores based on
third-party data. Our
FICO®
Scores are used in most U.S. credit decisions, by most of
the major banks and credit card organizations as well as by
mortgage and auto loan originators. These scores provide a
consistent and objective measure of an individuals credit
risk. Credit grantors use the
FICO®
Scores to prescreen solicitation candidates, to evaluate
applicants for new credit and to review existing accounts. The
FICO®
Scores are calculated based on proprietary scoring models. The
scores produced by these models are available through each of
the three major credit reporting agencies in the United States:
TransUnion, Experian and Equifax. Users generally pay the credit
reporting agencies scoring fees based on usage, and the credit
reporting agencies share these fees with us.
The most recent version of the
FICO®
Score for U.S. lenders is the
FICO®
8 Score. This substantially upgraded version, available at the
three major credit reporting agencies, includes enhancements
that increase its predictive power, as well as enhancements that
consider authorized user accounts (accounts where another
consumer is added as a user of the primary cardholders
account) while limiting the possibility that such accounts are
used to artificially inflate scores.
Our scoring portfolio also includes the
FICO®
Expansion®
Score, which provides scores on U.S. consumers who do not
have traditional
FICO®
Scores, generally because they have too few credit accounts
being reported to the credit reporting agencies. The score
analyzes multiple sources of non-traditional credit data such as
subscription memberships, deposit account activity and utility
payment histories. The resulting scores have the same
300
850®
score range as the traditional
FICO®
Score.
In fiscal 2010, the
FICO®
Economic Impact Index became available at Equifax. It is the
first market-ready economic consumer risk measure available for
portfolio stress testing as well as individual credit decisions.
Our other solutions include the
FICO®
Credit Capacity
Indextm,
the first market-ready predictive analytic to assess a
consumers ability to pay new debt and is available for use
with four credit reporting agencies data in markets
worldwide.
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The
FICO®
Score Trends Service is a comprehensive reporting package that
allows lenders to drill down into industry
FICO®
Score trends, indexed by a range of criteria such as industry,
geography and time period, in order to regularly analyze their
own portfolios, and improve their risk management and
forecasting.
Through the combination of these scoring solutions, FICO offers
a comprehensive market-ready solution for giving lenders a 360
degree view of the customer, encompassing the risk view
(FICO®
Score), market view
(FICO®
Score Trends Service), opportunity view
(FICO®
Credit Capacity
Indextm)
and economic view
(FICO®
Economic Impact Index).
Outside of the United States and Canada, we offer, or are close
to launching, the
FICO®
Score, for consumer
and/or SME
lending, through credit reporting agencies in 11 markets
worldwide. We have installed client-specific versions of the
FICO®
Score in 11 countries. Like
FICO®
Scores in North America, these scores help lenders in multiple
countries leverage the
FICO®
Scores predictive analysis to assess the risk of
prospects, applicants and borrowers.
FICO®
Scores are in use or being implemented in 20 different countries
across five continents.
In addition to the scoring solutions noted above, we also offer
marketing and bankruptcy scores known as
FICO®
Revenue Scores and
FICO®
Bankruptcy Scores through the U.S. credit reporting
agencies; an application fraud, revenue and bankruptcy score
available in Canada; and commercial credit scores delivered by
both U.S. and U.K. credit reporting agencies, and soon to
be released in Singapore.
We have also developed scoring systems for insurance
underwriters and marketers. Such systems use the same underlying
statistical technology as our
FICO®
risk scores, but are designed to predict applicant or
policyholder insurance loss risk for automobile or
homeowners coverage. Our insurance scores are available in
the U.S. from TransUnion, Experian, Equifax and
ChoicePoint, Inc., and in Canada from Equifax. We also offer an
insurance score called the Property
PredictRtm
score, which analyzes property inspection database data from an
insurance services provider, Millennium Information Services,
Inc., to calculate the loss risk of a property.
We provide credit bureau scoring services and related consulting
directly to users in banking through the
FICO®
PreScore®
service for prescreening solicitation candidates.
Through our
myFICO®
service, we provide solutions based on our analytics to
consumers, sold directly by us or through distribution partners.
Consumers can use the myFICO.com website to purchase their
FICO®
Scores, the credit reports underlying the scores, explanations
of the factors affecting their scores, and customized advice on
how to manage their scores. Customers can use the myFICO service
to simulate how taking specific actions would affect their FICO
Score. Consumers can also purchase Equifaxs Score
Watch®
subscriptions, which deliver alerts via email and SMS or text
messages when the users scores or balances change. The
myFICO products and subscription offerings are available online
at www.myfico.com in partnership with two major U.S. credit
reporting agencies: Equifax Inc. (Equifax) and
TransUnion Corporation (TransUnion). The myFICO
products and subscription offerings are also available to
consumers through lenders, financial portals and numerous other
partners.
Tools
We provide end-user software products that businesses use to
build their own tailored Decision Management applications. In
contrast to our packaged Applications developed for specific
industry applications, our Tools support the addition of
Decision Management capabilities to virtually any application or
operational system. These tools are sold as licensed software,
and can be used by themselves or together to advance a
clients Decision Management initiatives. We use these
tools as common software components for our own Decision
Management applications, described above in the Applications
section. They are also key components of our Decision Management
architecture, described in the Technology section. We also
partner with third-party providers within given industry markets
and with major software companies to embed our tools within
existing applications.
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The principal products offered are software tools for:
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Rules Management. The
FICOtm
Blaze
Advisor®
business rules management system is used to design, develop,
execute and maintain rules-based business applications. The
Blaze Advisor system enables businesses to more quickly develop
complex decision-making applications, respond to changing
customer needs, implement regulatory compliance and reduce the
total cost of
day-to-day
operations. The Blaze Advisor system is sold as an end-user tool
and is also the rules engine within several of our Decision
Management applications. The Blaze Advisor system, available in
six languages, is a multi-platform solution that supports Web
Services and service-oriented architectures (SOA), Java 2
Enterprise Edition (J2EE) platforms, Microsoft .NET and COBOL
for z/OS mainframes, and is the first rules engine to support
Java, .NET and COBOL deployment of the same rules. It also
incorporates the exclusive Rete III rules execution
technology, which improves the efficiency and speed with which
the Blaze Advisor system is able to process and execute complex,
high-volume business rules.
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Model
Development. FICOtm
Model Builder enables the user to develop and deploy
sophisticated predictive models for use in automated decisions.
This software is based on the methodology and tools FICO uses to
build both client-level and industry-level predictive models,
which we have evolved over more than 40 years. The
predictive models produced can be embedded in custom production
applications or one of our Decision Management applications and
can also be executed in the FICO Blaze Advisor system.
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Optimization. FICOtm
Xpress Optimization Suite includes Xpress-Mosel, a powerful
compiled modeling and programming language specifically designed
for the rapid modeling and deployment of optimization problems;
Xpress-Optimizer, sophisticated, robust optimization algorithms
for solving large optimization problems; and Xpress-IVE, a
complete visual development environment for Xpress-Mosel under
Windows, incorporating a Mosel program editor, compiler and
execution environment. The Xpress tools are licensed to end
users, consultants and independent software vendors in several
industries, and Xpress-Optimizer is embedded in
FICOtm
Decision Optimizer software. Decision Optimizer is a software
tool that enables complex, large-scale optimizations involving
dozens of networked action-effect models, and enables
exploration and simulation of many optimized scenarios along an
efficient frontier of options. The data-driven
strategies produced by these tools can be executed by the
FICOtm
Blaze
Advisor®
system or one of our Decision Management applications.
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COMPETITION
The market for our advanced solutions is intensely competitive
and is constantly changing. Our competitors vary in size and in
the scope of the products and services they offer. We encounter
competition from a number of sources, including:
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in-house analytic and systems developers;
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scoring model builders;
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enterprise resource planning (ERP) and customer
relationship management (CRM) packaged solutions
providers;
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business intelligence solutions providers;
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business process management and business rules management
providers;
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providers of credit reports and credit scores;
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providers of automated application processing services;
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data vendors;
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neural network developers and artificial intelligence system
builders;
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third-party professional services and consulting organizations;
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providers of account/workflow management software; and
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software companies supplying modeling, rules, or analytic
development tools.
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We believe that none of our competitors offers the same mix of
products as we do, has the same expertise in predictive
analytics and their integration with Decision Management
software, and can offer the enhanced lifecycle management
capabilities we offer in areas like banking. However, certain
competitors may have larger shares of particular geographic or
product markets.
Applications
The competition for our Applications varies by both application
and industry.
In the marketing services market, we compete with Acxiom,
Epsilon, Equifax, Experian,
Harte-Hanks,
InfoUSA, KnowledgeBase, Merkle and TargetBase, among others. We
also compete with traditional advertising agencies and
companies own internal information technology and
analytics departments.
In the origination market, we compete with Experian, Equifax,
and CGI, among others.
In the customer management market, we compete with Experian,
among others.
In the fraud solutions market, we mainly compete with NICE
Systems, ID Analytics, Experian, SAS, Retail Decisions plc,
Norkom and ACI Worldwide, a division of Transaction Systems
Architects, in the banking market; IBM and ViPS in the
healthcare segment; and SAS, Infoglide Software Corporation,
NetMap Analytics and Magnify in the property and casualty and
workers compensation insurance market.
In the collections and recovery solutions market, we mainly
compete with CGI, Experian, and various boutique firms for
software and ASP servicing and in-house scoring and computer
science departments, along with the three major U.S. credit
reporting agencies and Experian-Scorex for scoring and
optimization projects.
In the insurance and healthcare solutions market, we mainly
compete with Emdeon, Ingenix, ViPS, MedStat, Detica, SAS, Verisk
Analytics and IBM.
Scores
In this segment, we compete with both outside suppliers and
in-house analytics and computer systems departments for scoring
business. Major competitors among outside suppliers of scoring
models include the three major credit reporting agencies in the
U.S. and Canada, which are also our partners in offering
our scoring solutions; Experian and Experian-Scorex
(U.S. partner), TransUnion and TransUnion International,
Equifax, VantageScore (a joint venture entity established by the
major U.S. credit reporting agencies), CRIF and other
credit reporting agencies outside the United States; and other
data providers like LexisNexis and ChoicePoint, some of which
also represent FICO partners.
For our
direct-to-consumer
services that deliver credit scores, credit reports and consumer
credit education services, we compete with our credit reporting
agency partners and their affiliated companies, as well as with
Trilegiant, InterSections and others.
Tools
Our primary competitors in this segment include IBM, SAS, SPSS
(acquired by IBM), Angoss, Computer Associates International and
Pegasystems.
Competitive
Factors
We believe the principal competitive factors affecting our
markets include: technical performance; access to unique
proprietary databases; availability in ASP format; product
attributes like adaptability, scalability, interoperability,
functionality and
ease-of-use;
product price; customer service and support; the effectiveness
of sales and marketing efforts; existing market penetration; and
our reputation. Although we believe our products
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and services compete favorably with respect to these factors, we
may not be able to maintain our competitive position against
current and future competitors.
MARKETS
AND CUSTOMERS
Our products and services serve clients in multiple industries,
including primarily banking, insurance, retail and healthcare.
End users of our products include 88 of the 100 largest
financial institutions in the United States, and more than half
of the largest 100 banks in the world. Our clients also include
more than 400 insurers, including the top ten U.S. property
and casualty insurers; more than 200 retailers and general
merchandisers, including about one-third of the top 100
U.S. retailers; more than 100 government or public
agencies; and more than 150 healthcare and pharmaceuticals
companies, including eight of the worlds top ten
pharmaceuticals companies. Nine of the top ten companies on the
2010 Fortune 500 list use FICOs solutions.
In addition, our consumer services are marketed to an estimated
200 million U.S. consumers whose credit relationships
are reported to the three major credit reporting agencies.
In the United States, we market our products and services
primarily through our own direct sales organization that is
organized around vertical markets. Sales groups are based in our
headquarters and in field offices strategically located both in
and outside the United States. We also market our products
through indirect channels, including alliance partners and other
resellers.
During fiscal 2010, 2009 and 2008, revenues generated from our
agreements with Equifax, TransUnion and Experian collectively
accounted for 20%, 19%, and 19% of our total revenues,
respectively.
Outside the United States, we market our products and services
primarily through our subsidiary sales organizations. Our
subsidiaries license and support our products in their local
countries as well as within other foreign countries where we do
not operate through a direct sales subsidiary. We also market
our products through resellers and independent distributors in
international territories not covered by our subsidiaries
direct sales organizations.
Our largest market segments outside the United States are the
United Kingdom and Canada. In addition, we have delivered
products to users in over 80 countries.
Revenues from international customers, including end users and
resellers, amounted to 35%, 32% and 33% of our total revenues in
fiscal 2010, 2009 and 2008, respectively. See Note 20 to
the accompanying consolidated financial statements for a summary
of our operating segments and geographic information.
TECHNOLOGY
We specialize in analytics, software and data management
technologies that analyze data and drive business processes and
decision strategies. We maintain active research in a number of
fields for the purposes of deriving greater insight and
predictive value from data, making various forms of data more
usable and valuable to the model-building process, and
automating and applying analytics to the various processes
involved in making high-volume decisions in real time.
Because of our pioneering work in credit scoring and fraud
detection, we are widely recognized as the leader in predictive
analytics. In addition, our Blaze Advisor software is
consistently ranked as a leader in rules management systems. In
all our work, we believe that our tools and processes are among
the very best commercially available, and that we are uniquely
able to integrate advanced analytic, software and data
technologies into mission-critical business solutions that offer
superior returns on investment.
Recent product releases support our integrated technical
architecture for Decision Management, which ensures
interoperability across FICO systems. Our intention is to bring
greater flexibility, higher analytic performance and better
decisions across the lifecycle. Building on FICOs broad
and deep experience in developing Decision Management
applications, the architecture is service-oriented, designed for
easy standards-based integration with our clients core
systems and will support and deliver ever more powerful
analytics that operate both within specific stages of the
customer lifecycle and across them. This Decision
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Management architecture contains capabilities from existing FICO
products, from new and existing components and from third-party
providers. We have developed the architectures components
and are continuing to migrate our software products onto the
architecture. This migration takes the form of successive
product releases that also provide immediate client value
through added functionality.
The technologies listed below are all supported by the Decision
Management architecture, which will create tighter integration
between our Decision Management Applications, as well as our
Tools.
Principal
Areas of Expertise
Predictive Modeling. Predictive modeling
identifies and mathematically represents underlying
relationships in historical data in order to explain the data
and make predictions or classifications about future events. Our
models summarize large quantities of data to amplify its value.
Predictive models typically analyze current and historical data
on individuals to produce easily understood metrics such as
scores. These scores rank-order individuals by likely future
performance, e.g., their likelihood of making credit payments on
time, or of responding to a particular offer for services. We
also include in this category models that detect the likelihood
of a transaction being fraudulent. Our predictive models are
frequently operationalized in mission-critical transactional
systems and drive decisions and actions in near real time. A
number of analytic methodologies underlie our products in this
area. These include proprietary applications of both linear and
nonlinear mathematical programming algorithms, in which one
objective is optimized within a set of constraints, and advanced
neural systems, which learn complex patterns from
large data sets to predict the probability that a new individual
will exhibit certain behaviors of business interest. We also
apply various related statistical techniques for analysis and
pattern detection within large datasets.
Decision Analysis and Optimization. Decision
analysis refers to the broad quantitative field that deals with
modeling, analyzing and optimizing decisions made by
individuals, groups and organizations. Whereas predictive models
analyze multiple aspects of individual behavior to forecast
future behavior, decision analysis analyzes multiple aspects of
a given decision to identify the most effective action to take
to reach a desired result. We have developed an integrated
approach to decision analysis that incorporates the development
of a decision model that mathematically maps the entire decision
structure; proprietary optimization technology that identifies
the most effective strategies, given both the performance
objective and constraints; the development of designed testing
required for active, continuous learning; and the robust
extrapolation of an optimized strategy to a wider set of
scenarios than historically encountered. Our optimization
capabilities also include a proprietary mathematical modeling
and programming language, an easy-to-use development
environment, and a
state-of-the-art
set of optimization algorithms. These capabilities allow us to
solve a large variety of optimization problems across all
industries.
Transaction Profiling. Transaction profiling
is a patent-protected technique used to extract meaningful
information and reduce the complexity of transaction data used
in modeling. Many of our products operate using transactional
data, such as credit card purchase transactions, or other types
of data that change over time. In its raw form, this data is
very difficult to use in predictive models for several reasons.
First, an isolated transaction contains very little information
about the behavior of the individual who generated the
transaction. In addition, transaction patterns change rapidly
over time. Finally, this type of data can often be highly
complex. To overcome these issues, we have developed a set of
proprietary techniques that transform raw transactional data
into a mathematical representation that reveals latent
information, and which make the data more usable by predictive
models. This profiling technology accumulates data across
multiple transactions of many types to create and update
profiles of transaction patterns. These profiles enable our
neural network models to efficiently and effectively make
accurate assessments of, for example, fraud risk and credit risk
within real-time transaction streams.
Customer Data Integration. Decisions made on
customers or prospects can benefit from data stored in multiple
sources, both inside and outside the enterprise. We have focused
on developing data integration processes that are able to
assemble and integrate those disparate data sources into a
unified view of the customer or household, through the
application of persistent keying technology.
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Decision Management Software. In order to make
a decision strategy operational, the various steps and rules
need to be programmed or exported into the business
software infrastructure, where it can communicate with
front-end, customer-facing systems and back-end systems such as
billing systems. We have developed software systems, sometimes
known as decision engines and business rules management systems,
which perform the necessary functions to execute a decision
strategy. Our software includes very efficient programs for
these functions, facilitating, for example, business user
definition of extremely complex decision strategies using
graphic user interfaces; simultaneous testing of hundreds of
decision strategies in champion/challenger
(test/control) mode; high-volume processing and analysis of
transactions in real time; integration of multiple data sources;
and execution of predictive models for improved behavior
forecasts and finer segmentation. Decision Management software
is an integral part of our Decision Management Applications,
described earlier.
Research
and Development Activities
Our research and development expenses were $73.6 million,
$73.6 million and $77.8 million in fiscal 2010, 2009
and 2008, respectively. We believe that our future success
depends on our ability to continually maintain and improve our
core technologies, enhance our existing products, and develop
new products and technologies that meet an expanding range of
markets and customer requirements. In the development of new
products and enhancements to existing products, we use our own
development tools extensively.
We have traditionally relied primarily on the internal
development of our products. Based on timing and cost
considerations; however, we have acquired, and in the future may
consider acquiring, technology or products from third parties.
PRODUCT
PROTECTION AND TRADEMARKS
We rely on a combination of patent, copyright, trademark and
trade secret laws and confidentiality agreements and procedures
to protect our proprietary rights.
We retain the title to and protect the suite of models and
software used to develop scoring models as a trade secret. We
also restrict access to our source code and limit access to and
distribution of our software, documentation and other
proprietary information. We have generally relied upon the laws
protecting trade secrets and upon contractual nondisclosure
safeguards and restrictions on transferability to protect our
software and proprietary interests in our product and service
methodology and know-how. Our confidentiality procedures include
invention assignment and proprietary information agreements with
our employees and independent contractors, and nondisclosure
agreements with our distributors, strategic partners and
customers. We also claim copyright protection for certain
proprietary software and documentation.
We have patents on many of our technologies and have patent
applications pending on other technologies. The patents we hold
may not be upheld as valid and may not prevent the development
of competitive products. In addition, patents may never be
issued on our pending patent applications or on any future
applications that we may submit. We currently hold 83
U.S. and 14 foreign patents with 130 applications pending.
Despite our precautions, it may be possible for competitors or
users to copy or reproduce aspects of our software or to obtain
information that we regard as trade secrets. In addition, the
laws of some foreign countries do not protect proprietary rights
to the same extent as do the laws of the United States. Patents
and other protections for our intellectual property are
important, but we believe our success and growth will depend
principally on such factors as the knowledge, ability,
experience and creative skills of our personnel, new products,
frequent product enhancements and name recognition.
We have developed technologies for research projects conducted
under agreements with various United States government
agencies or their subcontractors. Although we have acquired
commercial rights to these technologies, the United States
government typically retains ownership of intellectual property
rights and licenses in the technologies that we develop under
these contracts. In some cases, the United States government can
terminate our rights to these technologies if we fail to
commercialize them on a timely basis.
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In addition, under United States government contracts, the
government may make the results of our research public, which
could limit our competitive advantage with respect to future
products based on funded research.
We have used, registered
and/or
applied to register certain trademarks and service marks for our
technologies, products and services. We currently have 39
trademarks registered in the U.S. and select foreign
countries.
PERSONNEL
As of September 30, 2010, we employed 2,157 persons
worldwide. Of these, 333 full-time employees were located
in our Minneapolis and Arden Hills, Minnesota offices,
281 full-time employees were located in our
San Rafael, California office, 311 full-time employees
were located in our San Diego, California office,
340 full-time employees were located in our India-based
office and 220 full-time employees were located in our
United Kingdom-based offices. None of our employees is covered
by a collective bargaining agreement, and no work stoppages have
been experienced.
Information regarding our officers is included in
Executive Officers of the Registrant at the end of
Part I of this report.
Risks
Related to Our Business
We
have expanded the pursuit of our Decision Management strategy,
and we may not be successful, which could cause our growth
prospects and results of operations to suffer.
We have expanded the pursuit of our business objective to become
a leader in helping businesses automate and improve decisions
across their enterprises, an approach that we commonly refer to
as Decision Management, or DM. Our DM strategy is
designed to enable us to increase our business by selling
multiple products to clients, as well as to enable the
development of custom client solutions that may lead to
opportunities to develop new proprietary scores or other new
proprietary products. The market may be unreceptive to this
general DM business approach, including being unreceptive to
purchasing multiple products from us or unreceptive to our
customized solutions. If our DM strategy is not successful, we
may not be able to grow our business, growth may occur more
slowly than we anticipate or our revenues and profits may
decline.
We
derive a substantial portion of our revenues from a small number
of products and services, and if the market does not continue to
accept these products and services, our revenues will
decline.
As we implement our DM strategy, we expect that revenues derived
from our scoring solutions, account management solutions, fraud
solutions, originations and collections and recovery solutions
will continue to account for a substantial portion of our total
revenues for the foreseeable future. Our revenues will decline
if the market does not continue to accept these products and
services. Factors that might affect the market acceptance of
these products and services include the following:
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changes in the business analytics industry;
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changes in technology;
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our inability to obtain or use key data for our products;
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saturation or contraction of market demand;
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loss of key customers;
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industry consolidation;
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failure to execute our selling approach; and
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inability to successfully sell our products in new vertical
markets.
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If we
are unable to access new markets or develop new distribution
channels, our business and growth prospects could
suffer.
We expect that part of the growth that we seek to achieve
through our DM strategy will be derived from the sale of DM
products and service solutions in industries and markets we do
not currently serve. We also expect to grow our business by
delivering our DM solutions through additional distribution
channels. If we fail to penetrate these industries and markets
to the degree we anticipate utilizing our DM strategy, or if we
fail to develop additional distribution channels, we may not be
able to grow our business, growth may occur more slowly than we
anticipate or our revenues and profits may decline.
If we
are unable to develop successful new products or if we
experience defects, failures and delays associated with the
introduction of new products, our business could suffer serious
harm.
Our growth and the success of our DM strategy depend upon our
ability to develop and sell new products or suites of products.
If we are unable to develop new products, or if we are not
successful in introducing new products, we may not be able to
grow our business, or growth may occur more slowly than we
anticipate. In addition, significant undetected errors or delays
in new products or new versions of products may affect market
acceptance of our products and could harm our business,
financial condition or results of operations. In the past, we
have experienced delays while developing and introducing new
products and product enhancements, primarily due to difficulties
developing models, acquiring data and adapting to particular
operating environments. We have also experienced errors or
bugs in our software products, despite testing prior
to release of the products. Software errors in our products
could affect the ability of our products to work with other
hardware or software products, could delay the development or
release of new products or new versions of products and could
adversely affect market acceptance of our products. Errors or
defects in our products that are significant, or are perceived
to be significant, could result in rejection of our products,
damage to our reputation, loss of revenues, diversion of
development resources, an increase in product liability claims,
and increases in service and support costs and warranty claims.
We
rely on relatively few customers, as well as our contracts with
the three major credit reporting agencies, for a significant
portion of our revenues and profits. Certain of our large
customers have been negatively impacted by the recent financial
crisis. If these customers continue to be negatively impacted,
or if the terms of these relationships otherwise change, our
revenues and operating results could decline.
Most of our customers are relatively large enterprises, such as
banks, credit card processors, insurance companies, healthcare
firms and retailers. As a result, many of our customers and
potential customers are significantly larger than we are and may
have sufficient bargaining power to demand reduced prices and
favorable nonstandard terms.
In addition, since mid-2007, global financial markets have
suffered substantial stress, volatility, illiquidity and
disruption. These forces reached unprecedented levels in the
fall of 2008, resulting in the bankruptcy or acquisition of, or
government assistance to, several major domestic and
international financial institutions which are customers of our
company. The potential for increased and continuing economic
disruption presents considerable risks to our business,
including potential bankruptcies or credit deterioration of
financial institutions with which we have substantial
relationships. Further deterioration or a continuation of the
market conditions experienced since the fall of 2008 is likely
to lead to a continued decline in the volume of transactions
that we execute for our customers.
We also derive a substantial portion of our revenues and
operating income from our contracts with the three major credit
reporting agencies, TransUnion, Equifax and Experian, and other
parties that distribute our products to certain markets. We are
also currently involved in litigation with Experian arising from
its development and marketing of credit scoring products
competitive with our products. We have asserted various claims,
including trademark infringement, unfair competition, and
antitrust violations against Experian and the joint venture
entity, VantageScore, LLC, that Experian formed with the other
major credit reporting agencies. This litigation could have a
material adverse effect on our relationship with one or more of
the major credit reporting agencies, or with major customers.
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The loss of or a significant change in a relationship with a
major customer, the loss of or a significant change in a
relationship with one of the major credit reporting agencies
with respect to their distribution of our products or with
respect to our
myFICO®
offerings, the loss of or a significant change in a relationship
with a significant third-party distributor or the delay of
significant revenues from these sources, could have a material
adverse effect on our revenues and results of operations.
We
rely on relationships with third parties for marketing,
distribution and certain services. If we experience difficulties
in these relationships, our future revenues may be adversely
affected.
Most of our products rely on distributors, and we intend to
continue to market and distribute our products through existing
and future distributor relationships. Our Scores segment relies
on, among others, TransUnion, Equifax and Experian. Failure of
our existing and future distributors to generate significant
revenues, demands by such distributors to change the terms on
which they offer our products or our failure to establish
additional distribution or sales and marketing alliances could
have a material adverse effect on our business, operating
results and financial condition. In addition, certain of our
distributors presently compete with us and may compete with us
in the future either by developing competitive products
themselves or by distributing competitive offerings. For
example, TransUnion, Equifax and Experian have developed a
credit scoring product to compete directly with our products and
are collectively attempting to sell the product. Competition
from distributors or other sales and marketing partners could
significantly harm sales of our products and services.
If we
do not engage in acquisition activity to the extent we have in
the past, we may be unable to increase our revenues at
historical growth rates.
Our historical revenue growth has been augmented by numerous
acquisitions, and we anticipate that acquisitions may continue
to be an important part of our revenue growth. Our future
revenue growth rate may decline if we do not make acquisitions
of similar size and at a comparable rate as in the past.
If we
engage in acquisitions, significant investments in new
businesses, or divestitures of existing businesses, we will
incur a variety of risks, any of which may adversely affect our
business.
We have made in the past, and may make in the future,
acquisitions of, or significant investments in, businesses that
offer complementary products, services and technologies. Any
acquisitions or investments will be accompanied by the risks
commonly encountered in acquisitions of businesses, which may
include:
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failure to achieve the financial and strategic goals for the
acquired and combined business;
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overpayment for the acquired companies or assets;
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difficulty assimilating the operations and personnel of the
acquired businesses;
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product liability and other exposure associated with acquired
businesses or the sale of their products;
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disruption of our ongoing business;
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dilution of our existing stockholders and earnings per share;
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unanticipated liabilities, legal risks and costs;
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retention of key personnel;
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distraction of management from our ongoing business; and
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impairment of relationships with employees and customers as a
result of integration of new management personnel.
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We have also divested ourselves of businesses in the past and
may do so again in the future. Any divestitures will be
accompanied by the risks commonly encountered in the sale of
businesses, which may include:
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disruption of our ongoing business;
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reductions of our revenues or earnings per share;
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unanticipated liabilities, legal risks and costs;
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the potential loss of key personnel;
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distraction of management from our ongoing business; and
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impairment of relationships with employees and customers as a
result of migrating a business to new owners.
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These risks could harm our business, financial condition or
results of operations, particularly if they occur in the context
of a significant acquisition. Acquisitions of businesses having
a significant presence outside the U.S. will increase our
exposure to the risks of conducting operations in international
markets.
Our
reengineering initiative may not be successful which could cause
our growth prospects and profitability to suffer.
As part of our management approach, we implemented an ongoing
reengineering initiative designed to grow revenues through
strategic resource allocation and improve profitability through
cost reductions. Periodically, implementation of our
reengineering initiative may reduce our revenues as a result of
our exit from non-strategic product lines. Our reengineering
initiative may not be successful as a result of our failure to
reduce expenses at the anticipated level, our inability to exit
all non-strategic product lines included in the initiative, or a
lower, or no, positive impact on revenues from strategic
resource allocation. If our reengineering initiative is not
successful, our revenues, results of operations and business may
suffer.
The
occurrence of certain negative events may cause fluctuations in
our stock price.
The market price of our common stock may be volatile and could
be subject to wide fluctuations due to a number of factors,
including variations in our revenues and operating results. We
believe that you should not rely on
period-to-period
comparisons of financial results as an indication of future
performance. Because many of our operating expenses are fixed
and will not be affected by short-term fluctuations in revenues,
short-term fluctuations in revenues may significantly impact
operating results. Additional factors that may cause our stock
price to fluctuate include the following:
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variability in demand from our existing customers;
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failure to meet the expectations of market analysts;
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changes in recommendations by market analysts;
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the lengthy and variable sales cycle of many products, combined
with the relatively large size of orders for our products,
increases the likelihood of short-term fluctuation in revenues;
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consumer dissatisfaction with, or problems caused by, the
performance of our products;
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the timing of new product announcements and introductions in
comparison with our competitors;
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the level of our operating expenses;
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changes in competitive and other conditions in the consumer
credit, banking and insurance industries;
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fluctuations in domestic and international economic conditions,
including a continuation of the substantial disruption currently
being experienced by the global financial markets;
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our ability to complete large installations on schedule and
within budget;
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acquisition-related expenses and charges; and
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timing of orders for and deliveries of software systems.
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In addition, the financial markets have experienced significant
price and volume fluctuations that have particularly affected
the stock prices of many technology companies and financial
services companies, and these fluctuations sometimes have been
unrelated to the operating performance of these companies. Broad
market fluctuations, as well as industry-specific and general
economic conditions may adversely affect the market price of our
common stock.
Due to ongoing uncertainty in economic conditions and weakness
in financial credit markets, the fair value of our businesses
has declined. If difficult market and economic conditions
continue over a sustained period, we may experience a further
decline in the fair value of one or more of our businesses from
fiscal 2010 year-end levels. Such further declines in fair
value may require us to record an impairment charge related to
goodwill, which could adversely affect our results of
operations, stock price and business.
Our
products have long and variable sales cycles. If we do not
accurately predict these cycles, we may not forecast our
financial results accurately, and our stock price could be
adversely affected.
We experience difficulty in forecasting our revenues accurately
because the length of our sales cycles makes it difficult for us
to predict the quarter in which sales will occur. In addition,
our selling approach is complex because it emphasizes the sale
of complete DM solutions involving multiple products or services
across our customers organizations. This makes forecasting
of revenues in any given period more difficult. As a result of
our sales approach and lengthening sales cycles, revenues and
operating results may vary significantly from period to period.
For example, the sales cycle for licensing our products
typically ranges from 60 days to 18 months. Customers
are often cautious in making decisions to acquire our products,
because purchasing our products typically involves a significant
commitment of capital, and may involve shifts by the customer to
a new software
and/or
hardware platform or changes in the customers operational
procedures. Since our DM strategy contemplates the sale of
multiple decision solutions to a customer, expenditures by any
given customer are expected to be larger than with our prior
sales approach. This may cause customers, particularly those
experiencing financial stress, to make purchasing decisions more
cautiously. Delays in completing sales can arise while customers
complete their internal procedures to approve large capital
expenditures and test and accept our applications. Consequently,
we face difficulty predicting the quarter in which sales to
expected customers will occur and experience fluctuations in our
revenues and operating results. If we are unable to accurately
forecast our revenues, our stock price could be adversely
affected.
We
typically have revenue-generating transactions concentrated in
the final weeks of a quarter, which may prevent accurate
forecasting of our financial results and cause our stock price
to decline.
Large portions of our software license agreements are
consummated in the weeks immediately preceding quarter end.
Before these agreements are consummated, we create and rely on
forecasted revenues for planning, modeling and earnings
guidance. Forecasts, however, are only estimates and actual
results may vary for a particular quarter or longer periods of
time. Consequently, significant discrepancies between actual and
forecasted results could limit our ability to plan, budget or
provide accurate guidance, which could adversely affect our
stock price. Any publicly-stated revenue or earnings projections
are subject to this risk.
The
failure to recruit and retain additional qualified personnel
could hinder our ability to successfully manage our
business.
Our DM strategy and our future success will depend in large part
on our ability to attract and retain experienced sales,
consulting, research and development, marketing, technical
support and management personnel. The complexity of our products
requires highly trained customer service and technical support
personnel to assist customers with product installation and
deployment. The labor market for these individuals is very
competitive due to the limited number of people available with
the necessary technical skills and understanding and may become
more competitive with general market and economic improvement.
We cannot be certain that our compensation strategies will be
perceived as competitive by current or prospective
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employees. This could impair our ability to recruit and retain
personnel. We have experienced difficulty in recruiting
qualified personnel, especially technical, sales and consulting
personnel, and we may need additional staff to support new
customers
and/or
increased customer needs. We may also recruit skilled technical
professionals from other countries to work in the United States.
Limitations imposed by immigration laws in the United States and
abroad and the availability of visas in the countries where we
do business could hinder our ability to attract necessary
qualified personnel and harm our business and future operating
results. There is a risk that even if we invest significant
resources in attempting to attract, train and retain qualified
personnel, we will not succeed in our efforts, and our business
could be harmed. The failure of the value of our stock to
appreciate may adversely affect our ability to use equity and
equity based incentive plans to attract and retain personnel,
and may require us to use alternative and more expensive forms
of compensation for this purpose.
The
failure to obtain certain forms of model construction data from
our customers or others could harm our business.
We must develop or obtain a reliable source of sufficient
amounts of current and statistically relevant data to analyze
transactions and update our products. In most cases, these data
must be periodically updated and refreshed to enable our
products to continue to work effectively in a changing
environment. We do not own or control much of the data that we
require, most of which is collected privately and maintained in
proprietary databases. Customers and key business alliances
provide us with the data we require to analyze transactions,
report results and build new models. Our DM strategy depends in
part upon our ability to access new forms of data to develop
custom and proprietary analytic tools. If we fail to maintain
sufficient data sourcing relationships with our customers and
business alliances, or if they decline to provide such data due
to legal privacy concerns, competition concerns, prohibitions or
a lack of permission from their customers, we could lose access
to required data and our products, and the development of new
products might become less effective. Third parties have
asserted copyright interests in these data, and these
assertions, if successful, could prevent us from using these
data. Any interruption of our supply of data could seriously
harm our business, financial condition or results of operations.
We
will continue to rely upon proprietary technology rights, and if
we are unable to protect them, our business could be
harmed.
Our success depends, in part, upon our proprietary technology
and other intellectual property rights. To date, we have relied
primarily on a combination of copyright, patent, trade secret,
and trademark laws, and nondisclosure and other contractual
restrictions on copying and distribution to protect our
proprietary technology. This protection of our proprietary
technology is limited, and our proprietary technology could be
used by others without our consent. In addition, patents may not
be issued with respect to our pending or future patent
applications, and our patents may not be upheld as valid or may
not prevent the development of competitive products. Any
disclosure, loss, invalidity of, or failure to protect our
intellectual property could negatively impact our competitive
position, and ultimately, our business. There can be no
assurance that our protection of our intellectual property
rights in the United States or abroad will be adequate or that
others, including our competitors, will not use our proprietary
technology without our consent. Furthermore, litigation may be
necessary to enforce our intellectual property rights, to
protect our trade secrets, or to determine the validity and
scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of resources and could
harm our business, financial condition or results of operations.
Some of our technologies were developed under research projects
conducted under agreements with various U.S. government
agencies or subcontractors. Although we have commercial rights
to these technologies, the U.S. government typically
retains ownership of intellectual property rights and licenses
in the technologies developed by us under these contracts, and
in some cases can terminate our rights in these technologies if
we fail to commercialize them on a timely basis. Under these
contracts with the U.S. government, the results of research
may be made public by the government, limiting our competitive
advantage with respect to future products based on our research.
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If we
are subject to infringement claims, it could harm our
business.
We expect that products in the industry segments in which we
compete, including software products, will increasingly be
subject to claims of patent and other intellectual property
infringement as the number of products and competitors in our
industry segments grow. We may need to defend claims that our
products infringe intellectual property rights, and as a result
we may:
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incur significant defense costs or substantial damages;
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be required to cease the use or sale of infringing products;
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expend significant resources to develop or license a substitute
non-infringing technology;
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discontinue the use of some technology; or
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be required to obtain a license under the intellectual property
rights of the third party claiming infringement, which license
may not be available or might require substantial royalties or
license fees that would reduce our margins.
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Breaches
of security, or the perception that
e-commerce
is not secure, could harm our business.
Our business requires the appropriate and secure utilization of
consumer and other sensitive information. Internet-based
electronic commerce requires the secure transmission of
confidential information over public networks, and several of
our products are accessed through the Internet, including our
consumer services accessible through the www.myfico.com website.
Security breaches in connection with the delivery of our
products and services, including products and services utilizing
the Internet, or well-publicized security breaches, and the
trend toward broad consumer and general public notification of
such incidents, could significantly harm our business, financial
condition or results of operations. We cannot be certain that
advances in criminal capabilities, discovery of new
vulnerabilities, attempts to exploit vulnerabilities in our
systems, data thefts, physical system or network break-ins or
inappropriate access, or other developments will not compromise
or breach the technology protecting the networks that access our
net-sourced products, consumer services and proprietary database
information.
Protection
from system interruptions is important to our business. If we
experience a sustained interruption of our telecommunication
systems, it could harm our business.
Systems or network interruptions could delay and disrupt our
ability to develop, deliver or maintain our products and
services, causing harm to our business and reputation and
resulting in loss of customers or revenue. These interruptions
can include fires, floods, earthquakes, power losses, equipment
failures and other events beyond our control.
Risks
Related to Our Industry
Our
ability to increase our revenues will depend to some extent upon
introducing new products and services. If the marketplace
does not accept these new products and services, our revenues
may decline.
We have a significant share of the available market in portions
of our Scores segment and for certain services in our
Applications segment, specifically, the markets for account
management services at credit card processors and credit card
fraud detection software. To increase our revenues, we must
enhance and improve existing products and continue to introduce
new products and new versions of existing products that keep
pace with technological developments, satisfy increasingly
sophisticated customer requirements and achieve market
acceptance. We believe much of the future growth of our business
and the success of our DM strategy will rest on our ability to
continue to expand into newer markets for our products and
services. Such areas are relatively new to our product
development and sales and marketing personnel. Products that we
plan to market in the future are in various stages of
development. We cannot assure you that the marketplace will
accept these products. If our current or potential customers are
not willing to switch to or adopt our new products and services,
either as a result of the quality of these products and services
or due to other factors, such as economic conditions, our
revenues will decrease.
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If we
fail to keep up with rapidly changing technologies, our products
could become less competitive or obsolete.
In our markets, technology changes rapidly, and there are
continuous improvements in computer hardware, network operating
systems, programming tools, programming languages, operating
systems, database technology and the use of the Internet. If we
fail to enhance our current products and develop new products in
response to changes in technology or industry standards, or if
we fail to bring product enhancements or new product
developments to market quickly enough, our products could
rapidly become less competitive or obsolete. For example, the
rapid growth of the Internet environment creates new
opportunities, risks and uncertainties for businesses, such as
ours, which develop software that must also be designed to
operate in Internet, intranet and other online environments. Our
future success will depend, in part, upon our ability to:
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innovate by internally developing new and competitive
technologies;
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use leading third-party technologies effectively;
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continue to develop our technical expertise;
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anticipate and effectively respond to changing customer needs;
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initiate new product introductions in a way that minimizes the
impact of customers delaying purchases of existing products in
anticipation of new product releases; and
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influence and respond to emerging industry standards and other
technological changes.
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If our
competitors introduce new products and pricing strategies, it
could decrease our product sales and market share, or could
pressure us to reduce our product prices in a manner that
reduces our margins.
We may not be able to compete successfully against our
competitors, and this inability could impair our capacity to
sell our products. The market for business analytics is new,
rapidly evolving and highly competitive, and we expect
competition in this market to persist and intensify. Our
regional and global competitors vary in size and in the scope of
the products and services they offer, and include:
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in-house analytic and systems developers;
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scoring model builders;
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enterprise resource planning (ERP) and customer relationship
management (CRM) packaged solutions providers;
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business intelligence solutions providers;
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credit report and credit score providers;
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business process management solution providers;
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process modeling tools providers;
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automated application processing services providers;
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data vendors;
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neural network developers and artificial intelligence system
builders;
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third-party professional services and consulting organizations;
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account/workflow management software providers; and
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software tools companies supplying modeling, rules, or analytic
development tools.
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We expect to experience additional competition from other
established and emerging companies, as well as from other
technologies. For example, certain of our fraud solutions
products compete against other methods of preventing credit card
fraud, such as credit cards that contain the cardholders
photograph, smart
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cards, cardholder verification and authentication solutions and
other card authorization techniques. Many of our anticipated
competitors have greater financial, technical, marketing,
professional services and other resources than we do, and
industry consolidation is creating even larger competitors in
many of our markets. As a result, our competitors may be able to
respond more quickly to new or emerging technologies and changes
in customer requirements. They may also be able to devote
greater resources than we can to develop, promote and sell their
products. Many of these companies have extensive customer
relationships, including relationships with many of our current
and potential customers. Furthermore, new competitors or
alliances among competitors may emerge and rapidly gain
significant market share. For example, TransUnion, Equifax and
Experian have formed an alliance that has developed a credit
scoring product competitive with our products. If we are unable
to respond as quickly or effectively to changes in customer
requirements as our competition, our ability to expand our
business and sell our products will be negatively affected.
Our competitors may be able to sell products competitive to ours
at lower prices individually or as part of integrated suites of
several related products. This ability may cause our customers
to purchase products that directly compete with our products
from our competitors. Price reductions by our competitors could
negatively impact our margins, and could also harm our ability
to obtain new long-term contracts and renewals of existing
long-term contracts on favorable terms.
Legislation
that is enacted by the U.S. Congress, the states, Canadian
provinces, and other countries, and government regulations that
apply to us or to our customers may expose us to liability,
affect our ability to compete in certain markets, limit the
profitability of or demand for our products, or render our
products obsolete. If these laws and regulations require us to
change our current products and services, it could adversely
affect our business and results of operations.
Legislation and governmental regulation affect how our business
is conducted and, in some cases, subject us to the possibility
of future lawsuits arising from our products and services.
Globally, legislation and governmental regulation also influence
our current and prospective customers activities, as well
as their expectations and needs in relation to our products and
services. Both our core businesses and our newer initiatives are
affected globally by federal, regional, provincial, state and
other jurisdictional regulations, including those in the
following significant regulatory areas:
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Use of data by creditors and consumer reporting agencies.
Examples in the U.S. include the Fair Credit Reporting Act
(FCRA), the Fair and Accurate Credit Transactions
Act (FACTA), which amends FCRA, and certain proposed
regulations and studies mandated by FACTA, under consideration;
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Laws and regulations that limit the use of credit scoring models
such as state mortgage trigger laws, state
inquiries laws, state insurance restrictions on the
use of credit based insurance scores, and the Consumer Credit
Directive in the European Union.
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Fair lending laws, such as the Truth In Lending Act
(TILA) and Regulation Z, and the Equal Credit
Opportunity Act (ECOA) and Regulation B.
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Privacy and security laws and regulations that limit the use and
disclosure of personally identifiable information or require
security procedures, including but not limited to the provisions
of the Financial Services Modernization Act of 1999, also known
as the Gramm Leach Bliley Act (GLBA); FACTA; the
Health Insurance Portability and Accountability Act of 1996
(HIPAA); the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001 (USA Patriot Act); identity
theft, file freezing, security breach notification and similar
state privacy laws;
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Extension of credit to consumers through the Electronic
Fund Transfers Act, as well as nongovernmental VISA and
MasterCard electronic payment standards;
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Regulations applicable to secondary market participants such as
Fannie Mae and Freddie Mac that could have an impact on our
products;
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Insurance laws and regulations applicable to our insurance
clients and their use of our insurance products and services;
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The application or extension of consumer protection laws,
including, laws governing the use of the Internet and
telemarketing, advertising, endorsements and testimonials and
credit repair;
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Laws and regulations applicable to operations in other
countries, for example, the European Unions Privacy
Directive and the Foreign Corrupt Practices Act;
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Sarbanes-Oxley Act (SOX) requirements to maintain
and verify internal process controls, including controls for
material event awareness and notification;
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The implementation of the Emergency Economic Stabilization Act
of 2008 by federal regulators to manage the financial crisis in
the United States;
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Financial regulatory reform stemming from the Dodd-Frank Wall
Street Reform and Consumer Protection Act;
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Laws and regulations regarding export controls as they apply to
FICO products delivered in non-US countries.
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In making credit evaluations of consumers, or in performing
fraud screening or user authentication, our customers are
subject to requirements of multiple jurisdictions, which may
impose onerous and contradictory requirements. Privacy
legislation such as GLBA or the European Unions Privacy
Directive may also affect the nature and extent of the products
or services that we can provide to customers, as well as our
ability to collect, monitor and disseminate information subject
to privacy protection. In addition to existing regulation,
changes in legislative, judicial, regulatory or consumer
environments could harm our business, financial condition or
results of operations. These regulations and amendments to them
could affect the demand for or profitability of some of our
products, including scoring and consumer products. New
regulations pertaining to financial institutions could cause
them to pursue new strategies, reducing the demand for our
products.
In response to recent market disruptions, legislators and
financial regulators implemented a number of mechanisms designed
to add stability to the financial markets, including the
provision of direct and indirect assistance to distressed
financial institutions, assistance by the banking authorities in
arranging acquisitions of weakened banks and broker-dealers, and
implementation of programs by the Federal Reserve to provide
liquidity to the commercial paper markets. The overall effects
of these and other legislative and regulatory efforts on the
financial markets are uncertain, and they may not have the
intended stabilization effects. Should these or other
legislative or regulatory initiatives fail to stabilize and add
liquidity to the financial markets, our business, financial
condition, results of operations and prospects could be
materially and adversely affected. Whether or not legislative or
regulatory initiatives or other efforts designed to address
recent economic conditions successfully stabilize and add
liquidity to the financial markets, we may need to modify our
strategies, businesses or operations, and we may incur
additional costs in order to compete in a changed business
environment.
Our
revenues depend, to a great extent, upon conditions in the
banking (including consumer credit) and insurance industries. If
our clients industries continue to experience a downturn,
it will likely harm our business, financial condition or results
of operations.
During fiscal 2010, 76% of our revenues were derived from sales
of products and services to the banking and insurance
industries. Since mid-2007, global credit and other financial
markets have suffered substantial stress, volatility,
illiquidity and disruption. These forces reached unprecedented
levels in the fall of 2008, resulting in the bankruptcy or
acquisition of, or government assistance to, several major
domestic and international financial institutions. The recent
market developments and the potential for increased and
continuing disruptions present considerable risks to our
businesses and operations. These risks include potential
bankruptcies or credit deterioration of financial institutions,
many of which are our customers. Further deterioration or a
continuation of recent market conditions is likely to lead to a
continued decline in the revenue we receive from financial and
other institutions.
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While the rate of account growth in the U.S. bankcard
industry has been slowing and many of our large institutional
customers have consolidated in recent years, we have generated
most of our revenue growth from our bankcard-related scoring and
account management businesses by selling and cross-selling our
products and services to large banks and other credit issuers.
As the banking industry continues to experience contraction in
the number of participating institutions, we may have fewer
opportunities for revenue growth due to reduced or changing
demand for our products and services that support customer
acquisition programs of our customers. In addition, industry
contraction could affect the base of recurring revenues derived
from contracts in which we are paid on a per-transaction basis
as formerly separate customers combine their operations under
one contract. There can be no assurance that we will be able to
prevent future revenue contraction or effectively promote future
revenue growth in our businesses.
While we are attempting to expand our sales of consumer credit,
banking and insurance products and services into international
markets, the risks are greater as these markets are also
experiencing substantial disruption and we are less well-known
in them.
Risk
Related to External Conditions
Continuing
material adverse developments in global economic conditions, or
the occurrence of certain other world events, could affect
demand for our products and services and harm our
business.
Purchases of technology products and services and decisioning
solutions are subject to adverse economic conditions. When an
economy is struggling, companies in many industries delay or
reduce technology purchases, and we experience softened demand
for our decisioning solutions and other products and services.
Since mid-2007, global credit and other financial markets have
suffered substantial stress, volatility, illiquidity and
disruption. These forces reached unprecedented levels in the
fall of 2008, resulting in the bankruptcy or acquisition of, or
government assistance to, several major domestic and
international financial institutions. The widespread economic
downturn has also negatively affected the businesses and
purchasing decisions of companies in the other industries we
serve. These recent market developments and the potential for
increased and continuing disruptions present considerable risks
to our businesses and operations. If global economic conditions
continue to experience stress and negative volatility, or if
there is an escalation in regional or global conflicts or
terrorism, we will likely experience reductions in the number of
available customers and in capital expenditures by our remaining
customers, longer sales cycles, deferral or delay of purchase
commitments for our products and increased price competition,
which may adversely affect our business, results of operations
and liquidity.
Whether or not legislative or regulatory initiatives or other
efforts successfully stabilize and add liquidity to the
financial markets, we may need to modify our strategies,
businesses or operations, and we may incur additional costs in
order to compete in a changed business environment. Given the
volatile nature of the current economic downturn and the
uncertainties underlying efforts to mitigate or reverse the
downturn, we may not timely anticipate or manage existing, new
or additional risks, as well as contingencies or developments,
which may include regulatory developments and trends in new
products and services. Our failure to do so could materially and
adversely affect our business, financial condition, results of
operations and prospects.
In
operations outside the United States, we are subject to unique
risks that may harm our business, financial condition or results
of operations.
A growing portion of our revenues is derived from international
sales. During fiscal 2010, 35% of our revenues were derived from
business outside the United States. As part of our growth
strategy, we plan to continue to pursue opportunities outside
the United States, including opportunities in countries with
economic systems that are in early stages of development and
that may not mature sufficiently to result in growth for our
business. Accordingly, our future operating results could be
negatively affected by a variety of factors arising out of
international commerce, some of which are beyond our control.
These factors include:
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general economic and political conditions in countries where we
sell our products and services;
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difficulty in staffing and efficiently managing our operations
in multiple geographic locations and in various countries;
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effects of a variety of foreign laws and regulations, including
restrictions on access to personal information;
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import and export licensing requirements;
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longer payment cycles;
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reduced protection for intellectual property rights;
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currency fluctuations;
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changes in tariffs and other trade barriers; and
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difficulties and delays in translating products and related
documentation into foreign languages.
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There can be no assurance that we will be able to successfully
address each of these challenges in the near term. Additionally,
some of our business will be conducted in currencies other than
the U.S. dollar. Foreign currency transaction gains and
losses are not currently material to our cash flows, financial
position or results of operations. However, an increase in our
foreign revenues could subject us to increased foreign currency
transaction risks in the future.
In addition to the risk of depending on international sales, we
have risks incurred in having research and development personnel
located in various international locations. We currently have a
substantial portion of our product development staff in
international locations, some of which have political and
developmental risks. If such risks materialize, our business
could be damaged.
Our
anti-takeover defenses could make it difficult for another
company to acquire control of FICO, thereby limiting the demand
for our securities by certain types of purchasers or the price
investors are willing to pay for our stock.
Certain provisions of our Restated Certificate of Incorporation,
as amended, could make a merger, tender offer or proxy contest
involving us difficult, even if such events would be beneficial
to the interests of our stockholders. These provisions include
adopting a Shareholder Rights Agreement, commonly known as a
poison pill, and giving our board the ability to
issue preferred stock and determine the rights and designations
of the preferred stock at any time without stockholder approval.
The rights of the holders of our common stock will be subject
to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The
issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for
a third party to acquire, or discouraging a third party from
acquiring, a majority of our outstanding voting stock. These
factors and certain provisions of the Delaware General
Corporation Law may have the effect of deterring hostile
takeovers or otherwise delaying or preventing changes in control
or changes in our management, including transactions in which
our stockholders might otherwise receive a premium over the fair
market value of our common stock.
If we
experience changes in tax laws or adverse outcomes resulting
from examination of our income tax returns, it could adversely
affect our results of operations.
We are subject to federal and state income taxes in the United
States and in certain foreign jurisdictions. Significant
judgment is required in determining our worldwide provision for
income taxes. Our future effective tax rates could be adversely
affected by changes in tax laws, by our ability to generate
taxable income in foreign jurisdictions in order to utilize
foreign tax losses, and by the valuation of our deferred tax
assets. In addition, we are subject to the examination of our
income tax returns by the Internal Revenue Service and other tax
authorities. We regularly assess the likelihood of adverse
outcomes resulting from such examinations to determine the
adequacy of our provision for income taxes. There can be no
assurance that the outcomes from such examinations will not have
an adverse effect on our operating results and financial
condition.
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Item 1B.
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Unresolved
Staff Comments
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Not applicable.
Our properties consist primarily of leased office facilities for
sales, data processing, research and development, consulting and
administrative personnel. Our principal office is located in
Minneapolis, Minnesota.
Our leased properties include:
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approximately 243,000 square feet of office, data center,
and data processing space in Arden Hills and Minneapolis,
Minnesota, in six buildings under leases expiring in 2011 or
later; 33,000 square feet of this space is subleased to a
third party;
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approximately 124,000 square feet of office space in
San Rafael, California in one building under a lease
expiring in 2020;
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approximately 80,000 square feet of office space in
San Diego, California in one building under a lease
expiring in 2019; and
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an aggregate of approximately 312,000 square feet of office
and data center space in; Annandale, VA; Bangalore, India;
Beijing, China; Birmingham, United Kingdom; Chicago, IL; Hong
Kong, China; Gauteng, Malaysia; London, United Kingdom; Madrid,
Spain; Melbourne, Australia; Mumbai, India; Munich, Germany; New
Castle, DE; New York, NY; Norcross, GA; San Jose, CA; Sao
Paulo, Brazil; Seoul, Korea; Shanghai, China; Singapore,
Singapore; Sydney, Australia; Taipei City, Taiwan; Tokyo, Japan;
Toronto, Canada; and Westminster, CO; 43,000 square feet of
this space is subleased to third parties.
|
See Note 21 to the accompanying consolidated financial
statements for information regarding our obligations under
leases. We believe that suitable additional space will be
available to accommodate future needs.
|
|
Item 3.
|
Legal
Proceedings
|
On October 11, 2006, we filed a lawsuit in the
U.S. District Court for the District of Minnesota captioned
Fair Isaac Corporation and myFICO Consumer Services Inc. v.
Equifax Inc., Equifax Information Services LLC, Experian
Information Solutions, Inc., TransUnion LLC, VantageScore
Solutions LLC, and Does I through X. The lawsuit related in part
to the development, marketing, and distribution of VantageScore,
a credit score product developed by VantageScore Solutions LLC,
which is jointly owned by the three national credit reporting
companies. We alleged in the lawsuit violations of antitrust
laws, unfair competitive practices and false advertising,
trademark infringement, and breach of contract. We sought
injunctive relief and compensatory damages. On June 6,
2008, we entered into a settlement agreement with Equifax Inc.
and Equifax Information Services LLC, and on June 13, 2008,
Equifax Inc. and Equifax Information Services LLC were formally
dismissed from this lawsuit. On February 9, 2009, the Court
granted our motions to strike counterclaims the remaining
defendants had attempted to bring against us in the case,
allowing them to assert only a counterclaim for trademark
cancellation. On July 24, 2009, the Court issued a summary
judgment order, which limited the claims to be tried. The Court
dismissed our antitrust, contract, and certain false advertising
claims. The Court allowed our trademark infringement, unfair
competition, and passing off claims to proceed to trial. After a
three-week trial on these claims, the jury ruled in the
defendants favor on November 20, 2009. We filed
post-trial motions to address issues in the trial, and the
defendants filed post-trial motions seeking payment of certain
attorneys fees and costs. On May 10, 2010, the Court
issued a ruling denying our post-trial motions and substantially
denying defendants motions for attorneys fees and
costs (other than an award to TransUnion LLC for certain fees
associated with our contract claims). On May 17, 2010, we
entered into a settlement agreement with TransUnion LLC pursuant
to which, among many other terms, TransUnion LLC released all
claims to the fee award and was dismissed from the lawsuit. On
August 20, 2010, we filed
26
an appeal with the U.S. Court of Appeals for the Eight
Circuit appealing the results from the district court, including
the dismissal of our antitrust claims and certain rulings
fundamental to our trademark and false advertising claims. On
November 4, 2010, the remaining defendants, Experian
Information Solutions, Inc. and VantageScore Solutions LLC,
filed an appeal regarding the denial of their motions for
attorneys fees. Briefing on the appeals is expected to be
complete in January 2011, and rulings are expected in mid-2011.
|
|
Item 4.
|
(Removed
and Reserved)
|
EXECUTIVE
OFFICERS OF THE REGISTRANT
Our current executive officers are as follows:
|
|
|
|
|
Name
|
|
Positions Held
|
|
Age
|
|
Mark N. Greene
|
|
February 2007-present, Chief Executive Officer and member of the
Board of Directors of the Company. 2006-2007, Vice President,
Financial Services Sales and Distribution at IBM
Corporation (IBM), 2001-2006, General Manager,
Global Banking Industry Sales and Distribution at
IBM. 2000-2001, Vice President Financial Services Strategy and
Solutions Sales and Distribution at IBM. 1998-2000,
Vice President, SecureWay Software Group at IBM.
1995-1998, Vice President, Electronic Commerce
Software Group at IBM. 1993-1994, Vice President and Practice
Area Leader at Technology Solutions Company. 1989-1992, Senior
Vice President, Trading Products and Consulting at Berkley
Investment Technologies. 1987-1989, Director, Fixed Income
Products at Citicorp. 1985-1986, Assistant Director, Research at
the Federal Reserve Board. 1984-1985, Chief
Automation and Research Computing at the Federal Reserve Board.
1982-1984, Economist Special Studies at the Federal
Reserve Board.
|
|
56
|
Thomas A. Bradley
|
|
November 2010-present, Vice President, Finance of the Company.
April 2009-November 2010, Executive Vice President and Chief
Financial Officer of the Company. 2008-2009, Head of North
American Operations at Zurich Financial Services
(Zurich). 2005-2008, President and Chief Executive
Officer at Zurich Direct Underwriters. 2004-2005, Executive Vice
President and Chief Financial Officer for North America at
Zurich. 2001-2004, Executive Vice President and Chief Financial
Officer at St. Paul Companies, Inc. 1998-2001, Senior Vice
President, Finance at St. Paul Companies. 1993-1998, Vice
President, Finance and Corporate Controller at USF&G
Corporation. 1989-1993, Vice President and Chief Financial
Officer, Commercial Division at Maryland Casualty Company
(Maryland Casualty), 1984-1989, Vice President and
Controller at Maryland Casualty. 1980-1984, Auditor at Ernst
& Young, LLP.
|
|
53
|
Deborah Kerr
|
|
February 2009-present, Executive Vice Present, Chief Product and
Technology Officer of the Company. 2007-2009, Chief Technology
Officer, at Hewlett-Packard Enterprise Services (HP Services and
EDS). 2005-2007, Vice President, Business Technology
Optimization Products at Hewlett-Packard Software. 1998-2005,
various positions and most recently Senior Vice President,
Product Delivery at Peregrine Systems, Inc. (which filed a
voluntary petition for reorganization under Chapter 11 of the
U.S. Bankruptcy Code is September of 2002). 1988-1998, various
leadership positions at NASA/Jet Propulsion Laboratory (JPL),
including Mission Operations Manager, Space Very Long Baseline
Interferometry.
|
|
38
|
27
|
|
|
|
|
Name
|
|
Positions Held
|
|
Age
|
|
Charles L. Ill
|
|
February 2010-Present, Executive Vice President, Sales and
Marketing of the Company. 2006-2008, Senior Vice President,
Global Sales at Avaya, Inc. (Avaya), 2005-2006, Vice
President, Software at Avaya. 2005, Vice President, Worldwide
Sales Operations and Channels at Avaya. 2003-2004, Vice
President, Worldwide Software Sales at BEA Systems, Inc.
2002-2003, Vice President, Worldwide Software Sales at IBM
Corporation (IBM).
2000-2002,
Vice President, Software Sales and Marketing, Americas at IBM.
1999-2000, Vice President, Worldwide Software Marketing at IBM.
1998-1999,
Vice President, EMEA Software Sales and Marketing at IBM.
1997-1998, General Manager, APAC Software Marketing and Channels
at IBM. 1996-1997, Director, Asia Pacific Software Operations at
IBM.
1994-1996,
PC Software Product Mgmt Director at IBM. 1993-1994, PC Company
M&S PS Brand Manager at IBM. 1991-1992, Manager of the
Opportunity Project Office at IBM. 1989-1991, Executive
Assistant M&S Director, PC and Software Marketing at IBM.
1987-1989,
Customer Executive Instructor, Adv. Business Institute at IBM.
1984-1987, Business Unit Executive at IBM. 1983-1984, Executive
Assistant to Director of Finance and Insurance at IBM.
|
|
56
|
Mark R. Scadina
|
|
February 2009-present, Executive Vice President and General
Counsel and Corporate Secretary of the Company. June
2007-February 2009, Senior Vice President and General Counsel
and Corporate Secretary of the Company. 2003-2007, various
senior positions including Executive Vice President, General
Counsel and Corporate Secretary, Liberate Technologies, Inc.
1999-2003, various leadership positions including Vice President
and General Counsel, Intertrust Technologies Corporation.
1994-1999, Associate, Pennie and Edmonds LLP.
|
|
41
|
Jordan L. Graham
|
|
August 2010-Present, Executive Vice President, Scores, and
President, FICO Consumer Services, of the Company. 2007-2010,
Managing Director and Head of North America Business
Development, Global Transaction Services Division at Citi
Markets and Banking. 2005-2006, Managing Director and Founder at
Quotient Partners. 2000-2004, Vice President, Services
Industries Consulting, Internet Business Group (IBSG) at Cisco
Systems, Inc. (Cisco). 1998-2000, Managing Director,
Financial Services Industry Consulting, IBSG at Cisco.
1997-1998, Managing Director and Founder at Quotient Partners.
1995-1997,
President, CEO and Board Director at Electric Classified
Inc./Match.com. 1992-1995, President, CEO and Board Director at
Tristar Market Data Inc. 1991-1992, Director of Business
Development Eastern Europe, Former Soviet Union,
Middle East & Africa at Sun Microsystems, Inc.
(Sun). 1990-1991, Commercial Industry Marketing
Group Manager at Sun. 1988-1990, Financial Services Market
Development Manager at Sun.
1982-1988,
various sales and sales management positions at AT&T
Information Systems.
|
|
50
|
Richard S. Deal
|
|
August 2007-present, Senior Vice President, Chief Human
Resources Officer of the Company. January 2001-July 2007, Vice
President, Human Resources of the Company. 1998-2001, Vice
President, Human Resources, Arcadia Financial, Ltd. 1993-1998,
managed broad range of human resources corporate and line
consulting functions with U.S. Bancorp.
|
|
43
|
Andrew N. Jennings
|
|
October 2007-present, Senior Vice President, Chief Research
Officer of the Company. May 2007-September 2007, Vice President,
Analytic Research and Development of the Company. May 2006-May
2007, Vice President, EDM Applications of the Company.
2001-2006, Vice President Global Account Management Solutions of
the Company. 2000-2001, Senior Vice President International
Sales of the Company. 1999-2000, Senior Vice President,
International Operations of the Company. 1996-1999, Vice
President European Operations of the Company. 1994-1996,
Director, United Kingdom Operations of the Company.
|
|
55
|
28
|
|
|
|
|
Name
|
|
Positions Held
|
|
Age
|
|
Richard A. Stewart
|
|
November 2010-present, Vice President, Solutions Delivery. April
2007-November 2010, Senior Vice President, Services and Product
Support of the Company. 2000-2006, Senior Vice President and
General Manager, SAP Consulting. 1999-2000, Co-Chief Operating
Partner, Grant Thornton, LLP. 1991-1999, Regional Managing
Partner, Grant Thornton, LLP. 1984-1991, Domestic and
International Client Services Partner, Grant Thornton, LLP.
1974-1984, various consulting positions at Grant Thornton, LLP.
|
|
58
|
Michael J. Pung
|
|
November 2010-present, Senior Vice President and Chief Financial
Officer of the Company. August 2004-November 2010, Vice
President, Finance of the Company. 2000-2004, Vice President and
Controller, Hubbard Media Group, LLC. 1999-2000, Controller,
Capella Education, Inc. 1998-1999, Controller, U.S. Satellite
Broadcasting, Inc. 1992-1998, various financial management
positions with Deluxe Corporation. 1985-1992, various audit
positions, including audit manager, at Deloitte & Touche
LLP.
|
|
47
|
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information
Our common stock trades on the New York Stock Exchange under the
symbol: FICO. According to records of our transfer agent, at
September 30, 2010, we had 623 shareholders of record
of our common stock.
The following table shows the high and low closing prices for
our stock, as listed on the New York Stock Exchange for each
quarter in the last two fiscal years:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Fiscal 2009
|
|
|
|
|
|
|
|
|
October 1 December 31, 2008
|
|
$
|
22.57
|
|
|
$
|
10.94
|
|
January 1 March 31, 2009
|
|
$
|
17.25
|
|
|
$
|
9.90
|
|
April 1 June 30, 2009
|
|
$
|
18.37
|
|
|
$
|
14.15
|
|
July 1 September 30, 2009
|
|
$
|
24.22
|
|
|
$
|
13.88
|
|
Fiscal 2010
|
|
|
|
|
|
|
|
|
October 1 December 31, 2009
|
|
$
|
22.75
|
|
|
$
|
18.07
|
|
January 1 March 31, 2010
|
|
$
|
26.57
|
|
|
$
|
19.95
|
|
April 1 June 30, 2010
|
|
$
|
26.02
|
|
|
$
|
20.97
|
|
July 1 September 30, 2010
|
|
$
|
25.27
|
|
|
$
|
21.97
|
|
Dividends
We paid quarterly dividends of two cents per share, or eight
cents per year, during each quarter of fiscal 2010, 2009 and
2008. Our dividend rate is set by the Board of Directors on a
quarterly basis taking into account a variety of factors,
including among others, our operating results and cash flows,
general economic and industry conditions, our obligations,
changes in applicable tax laws and other factors deemed relevant
by the Board. Although we expect to continue to pay dividends at
the current rate, our dividend rate is subject to change from
time to time based on the Boards business judgment with
respect to these and other relevant factors.
Unregistered
Sales of Equity Securities and Use of Proceeds
Not applicable.
29
Issuer
Purchases of Equity Securities (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Dollar Value of
|
|
|
|
Total
|
|
|
|
|
|
Purchased as
|
|
|
Shares that May
|
|
|
|
Number of
|
|
|
|
|
|
Part of Publicly
|
|
|
Yet Be
|
|
|
|
Shares
|
|
|
Average
|
|
|
Announced
|
|
|
Purchased
|
|
|
|
Purchased
|
|
|
Price Paid
|
|
|
Plans or
|
|
|
Under the Plans
|
|
Period
|
|
(2)
|
|
|
per Share
|
|
|
Programs
|
|
|
or Programs
|
|
|
July 1, 2010 through July 31, 2010
|
|
|
642,032
|
|
|
$
|
23.42
|
|
|
|
616,682
|
|
|
$
|
218,742,102
|
|
August 1, 2010 through August 31, 2010
|
|
|
1,273,851
|
|
|
$
|
23.02
|
|
|
|
1,258,500
|
|
|
$
|
189,764,751
|
|
September 1, 2010 through September 30, 2010
|
|
|
618,205
|
|
|
$
|
24.38
|
|
|
|
616,850
|
|
|
$
|
174,728,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,534,088
|
|
|
$
|
23.45
|
|
|
|
2,492,032
|
|
|
$
|
174,728,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In June 2010, our Board of Directors approved a common stock
repurchase program that allows us to purchase shares of our
common stock up to an aggregate cost of $250.0 million in
the open market or through negotiated transactions. The June
2010 program does not have a fixed expiration date. This program
replaced a similar plan approved in November 2007. |
|
(2) |
|
Includes 42,056 shares delivered in satisfaction of the tax
withholding obligations resulting from the vesting of restricted
stock units held by employees during the quarter ended
September 30, 2010. |
Performance
Graph
The follow graph shows the total stockholder return of an
investment of $100 in cash on September 30, 2005, in
(a) the Companys Common Stock (b) the
Standard & Poors 500 Stock Index and
(c) the Standard & Poors 500 Application
Software Index, in each case with reinvestment of dividends. We
do not believe there are any publicly traded companies that
compete with us across the full spectrum of our product and
service offerings.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among FICO, the S&P 500 Index
and the S&P Application Software Index
30
|
|
|
* |
|
$100 invested on
9/30/05 in
stock or index, including reinvestment of dividends. Fiscal year
ending September 30. |
Copyright©
2010 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
The Company is listed on the New York Stock Exchange
(NYSE). As an NYSE-listed company, our Chief
Executive Officer must certify annually that he is not aware of
any violation by the Company of NYSE corporate governance
listing standards as of the date of that certification. The most
recent Chief Executive Officers certification was filed
with the NYSE on March 4, 2010.
|
|
Item 6.
|
Selected
Financial Data
|
We acquired Dash Optimization (Dash) in January
2008. Results of operations from the acquisition are included
prospectively from the date of each acquisition. As a result of
these acquisitions, the comparability of the data below is
impacted.
In April 2008, we completed the sale of our Insurance Bill
Review business unit. We accounted for this business unit as a
discontinued operation and, accordingly, we have reclassified
the selected financial data for all periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended September 30,
|
|
|
|
2010(1)
|
|
|
2009(1)(2)
|
|
|
2008(1)
|
|
|
2007(1)(2)
|
|
|
2006(1)
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
605,643
|
|
|
$
|
630,735
|
|
|
$
|
744,842
|
|
|
$
|
784,188
|
|
|
$
|
782,995
|
|
Operating income
|
|
|
113,349
|
|
|
|
116,747
|
|
|
|
122,283
|
|
|
|
160,327
|
|
|
|
154,400
|
|
Income from continuing operations
|
|
|
64,457
|
|
|
|
65,465
|
|
|
|
81,186
|
|
|
|
111,851
|
|
|
|
104,505
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
(363
|
)
|
|
|
2,766
|
|
|
|
(7,201
|
)
|
|
|
(1,019
|
)
|
Net income
|
|
|
64,457
|
|
|
|
65,102
|
|
|
|
83,952
|
|
|
|
104,650
|
|
|
|
103,486
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.44
|
|
|
$
|
1.35
|
|
|
$
|
1.66
|
|
|
$
|
2.00
|
|
|
$
|
1.64
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
0.06
|
|
|
|
(0.13
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1.44
|
|
|
$
|
1.34
|
|
|
$
|
1.72
|
|
|
$
|
1.87
|
|
|
$
|
1.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.42
|
|
|
$
|
1.34
|
|
|
$
|
1.64
|
|
|
$
|
1.94
|
|
|
$
|
1.60
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
0.06
|
|
|
|
(0.12
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1.42
|
|
|
$
|
1.33
|
|
|
$
|
1.70
|
|
|
$
|
1.82
|
|
|
$
|
1.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended September 30,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In thousands)
|
|
Working capital (deficit)
|
|
$
|
225,028
|
|
|
$
|
327,970
|
|
|
$
|
229,071
|
|
|
$
|
(103,173
|
)
|
|
$
|
(123,719
|
)
|
Total assets
|
|
|
1,123,716
|
|
|
|
1,303,888
|
|
|
|
1,275,253
|
|
|
|
1,275,771
|
|
|
|
1,321,205
|
|
Senior convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390,963
|
|
|
|
400,000
|
|
Senior Notes
|
|
|
520,000
|
|
|
|
275,000
|
|
|
|
275,000
|
|
|
|
|
|
|
|
|
|
Revolving line of credit
|
|
|
|
|
|
|
295,000
|
|
|
|
295,000
|
|
|
|
170,000
|
|
|
|
|
|
Stockholders equity
|
|
|
474,914
|
|
|
|
600,269
|
|
|
|
561,941
|
|
|
|
566,314
|
|
|
|
770,028
|
|
|
|
|
(1) |
|
Results of operations for fiscal years 2010, 2009, 2008, 2007
and 2006 include pre-tax charges of $1.6 million,
$8.7 million, $10.2 million, $2.5 million and
$19.5 million, respectively, in restructuring expenses. |
|
(2) |
|
Results of operations for fiscal year 2009 and 2007 include a
$3.0 million pre-tax loss and a $1.5 million pre-tax
gain on the sale of product line assets, respectively. |
31
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
OVERVIEW
We are a leader in Decision Management (DM)
solutions that enable businesses to automate, improve and
connect decisions to enhance business performance. Our
predictive analytics, which include the industry standard
FICO®
score, and our Decision Management systems power billions of
customer decisions each year. We help companies acquire
customers more efficiently, increase customer value, reduce
fraud and credit losses, lower operating expenses and enter new
markets more profitably. Most leading banks and credit card
issuers rely on our solutions, as do many insurers, retailers,
healthcare organizations, pharmaceutical companies and
government agencies. We also serve consumers through online
services that enable people to purchase and understand their
FICO®
scores, the standard measure in the United States of credit
risk, empowering them to manage their financial health.
A significant portion of our revenues are derived from the sale
of products and services within the banking (including consumer
credit) and insurance industries, and during the year ended
September 30, 2010, 76% of our revenues were derived from
within these industries. A significant portion of our remaining
revenues are derived from the healthcare and retail industries.
Our clients utilize our products and services to facilitate a
variety of business processes, including customer marketing and
acquisition, account origination, credit and underwriting risk
management, fraud loss prevention and control, and client
account and policyholder management. A significant portion of
our revenues are derived from transactional or unit-based
software license fees, annual license fees under long-term
software license arrangements, transactional fees derived under
scoring, network service or internal hosted software
arrangements, and annual software maintenance fees. The
recurrence of these revenues is, to a significant degree,
dependent upon our clients continued usage of our products
and services in their business activities. The more significant
activities underlying the use of our products in these areas
include: credit and debit card usage or active account levels;
lending acquisition, origination and customer management
activity; and customer acquisition, cross selling and retention
programs. Approximately 75% of our revenues during fiscal 2010
were derived from arrangements with transactional or unit-based
pricing. We also derive revenues from other sources which
generally do not recur and include, but are not limited to,
perpetual or time-based licenses with upfront payment terms and
non-recurring consulting service arrangements.
Our revenues derived from clients outside the United States have
generally grown, and may in the future grow, more rapidly than
our revenues from domestic clients. International revenues
totaled $209.6 million, $199.8 million and
$246.3 million in fiscal 2010, 2009 and 2008, respectively,
representing 35%, 32% and 33% of total consolidated revenues in
each of these years. We expect that the percentage of our
revenues derived from international clients will increase in the
future, subject to the impact of foreign currency fluctuations.
Bookings
Management uses bookings as an indicator of our business
performance. Bookings represent contracts signed in the current
reporting period that will generate current and future revenue
streams. We consider contract terms, knowledge of the
marketplace and experience with our customers, among other
factors, when determining the estimated value of contract
bookings.
Bookings calculations have varying degrees of certainty
depending on the revenue type and individual contract terms. Our
revenue types are transactional and maintenance, professional
services and license. Our estimate of bookings is as of the end
of the period in which a contract is signed, and we do not
update our initial booking estimates in future periods for
changes between estimated and actual results. Actual revenue and
the timing thereof could differ materially from our initial
estimates. The following paragraphs discuss the key assumptions
used to calculate bookings and the susceptibility of these
assumptions to variability.
32
Transactional
and Maintenance Bookings
We calculate transactional bookings as the total estimated
volume of transactions or number of accounts under contract,
multiplied by a contractual rate. Transactional contracts
generally span multiple years and require us to make estimates
about future transaction volumes or number of active accounts.
We develop estimates from discussions with our customers and
examinations of historical data from similar products and
customer arrangements. Differences between estimated bookings
and actual results occur due to variability in the volume of
transactions or number of active accounts estimated. This
variability is primarily caused by the following:
|
|
|
|
|
The health of the economy and economic trends in our
customers industries;
|
|
|
|
Individual performance of our customers relative to their
competitors; and
|
|
|
|
Regulatory and other factors that affect the business
environment in which our customers operate.
|
We calculate maintenance bookings directly from the terms stated
in the contract.
Professional
Services Bookings
We calculate professional services bookings as the estimated
number of hours to complete a project multiplied by the rate per
hour. We estimate the number of hours based on our understanding
of the project scope, conversations with customer personnel and
our experience in estimating professional services projects.
Estimated bookings may differ from actual results primarily due
to differences in the actual number of hours incurred. These
differences typically result from customer decisions to alter
the mix of FICO and internal services resources used to complete
a project.
License
Bookings
Licenses are sold on a perpetual or term basis and bookings
generally equal the fixed amount stated in the contract.
Bookings
Trend Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Bookings
|
|
Weighted-
|
|
|
|
|
Bookings
|
|
Over $1
|
|
Average
|
|
|
Bookings
|
|
Yield*
|
|
Million
|
|
Term
|
|
|
(In millions)
|
|
|
|
|
|
(Months)
|
|
Quarter ended September 30, 2010
|
|
$
|
105.6
|
|
|
|
20
|
%
|
|
|
18
|
|
|
|
27
|
|
Quarter ended September 30, 2009
|
|
$
|
85.9
|
|
|
|
17
|
%
|
|
|
12
|
|
|
|
37
|
|
Year ended September 30, 2010
|
|
$
|
283.3
|
|
|
|
36
|
%
|
|
|
53
|
|
|
|
N/M
|
|
Year ended September 30, 2009
|
|
$
|
234.2
|
|
|
|
41
|
%
|
|
|
39
|
|
|
|
N/M
|
|
|
|
|
* |
|
Bookings yield represents the percentage of revenue recognized
from bookings for the period indicated. |
N/M Measure is not meaningful
Transactional and maintenance bookings were 52% and 61% of total
bookings for the quarters ended September 30, 2010 and
2009, respectively. Professional services bookings were 32% and
25% of total bookings for the quarters ended September 30,
2010 and 2009, respectively. License bookings were 16% and 14%
of total bookings for the quarters ended September 30, 2010
and 2009, respectively.
Transactional and maintenance bookings were 50% and 48% of total
bookings for the years ended September 30, 2010 and 2009,
respectively. Professional services bookings were 34% and 35% of
total bookings for the years ended September 30, 2010 and
2009, respectively. License bookings were 16% and 17% of total
bookings for the years ended September 30, 2010 and 2009,
respectively.
The weighted-average term of bookings achieved measures the
average term over which the bookings are expected to be
recognized as revenue. As the weighted-average term increases,
the average amount of revenues
33
expected to be realized in a quarter decreases, however, the
revenues are expected to be recognized over a longer period of
time. As the weighted-average term decreases, the average amount
of revenues expected to be realized in a quarter increases,
however, the revenues are expected to be recognized over a
shorter period of time.
Management regards the volume of bookings achieved, among other
factors, as an important indicator of future revenues, but they
are not comparable to, nor should they be substituted for, an
analysis of our revenues, and they are subject to a number of
risks and uncertainties concerning timing and contingencies
affecting product delivery and performance.
Although many of our contracts contain noncancelable terms, most
of our bookings are transactional or service related and are
dependent upon estimates such as volume of transactions, number
of active accounts, or number of hours incurred. Since these
estimates cannot be considered fixed or firm, we do not believe
it is appropriate to characterize bookings as backlog.
Reengineering
Initiative
In fiscal 2008, we announced the details of an ongoing
reengineering initiative designed to grow revenues through
strategic resource allocation and improve profitability through
cost reduction. Key components of the initiative included
rationalizing the business portfolio, simplifying management
hierarchy, eliminating low-priority positions, investing in
high-priority positions, consolidating facilities and managing
fixed and variable costs. In fiscal 2009, we completed
additional actions under our reengineering initiative. These
actions were aimed at reducing costs through headcount
reductions and facility consolidations. With respect to the
headcount reductions, we identified and eliminated 255 positions
throughout the Company. Also in connection with the initiative,
we sold our Insurance Bill Review business unit and our
LiquidCredit®
Service for Telecom (LCT) and
RoamEx®
product line assets, and we fully exited our Cortronics neural
research product line, Fast Panel diagnostics product line and
advertising services group.
Current
Business Environment
General economic conditions stabilized in 2010, however, high
levels of unemployment and a difficult housing market continue
to impact our customers in the United States and the pace of
global recovery is likely to be modest across the geographical
markets we serve. During the latter half of fiscal 2010 our
business stabilized and we currently see signs of gradual
improvement. We will continue to manage our expenses in an
effort to maintain solid earnings and cash flows. We also plan
to continue to invest in our Decision Management solutions as
well as our core business operations to drive revenue growth.
The mixed economic conditions impacted the estimates used in our
July 1, 2010 annual goodwill impairment testing, and in
particular, for our Applications segment, which has
$448.0 million in goodwill. If market conditions decline
more quickly than we can reduce costs, our margins will decrease
and we may experience a decline in the fair value of our
reporting units. Such declines in fair value may require us to
record an impairment charge related to goodwill.
Acquisition
and Divestiture Activity
In June 2009, we signed definitive agreements to sell the assets
associated with our LCT and RoamEx product lines for
$6.2 million in cash. We recognized a combined
$3.0 million pre-tax loss, and a $3.9 million
after-tax loss on the sales, as the goodwill associated with the
sale of these product lines was not deductible for income tax
purposes. LCT and RoamEx solutions were included in our
Applications segment. Revenues attributable to the LCT and
RoamEx product lines were $15.7 million and
$24.9 million during fiscal 2009 and 2008, respectively.
The earnings contribution from the LCT and RoamEx product lines
were not significant to our fiscal 2009 and 2008 results of
operations.
In April 2008, we completed the sale of our Insurance Bill
Review business unit for $16.0 million in cash. We recorded
a $6.9 million pre-tax loss, but a $3.4 million
after-tax gain on the sale as the amount of goodwill disposed of
for income tax purposes exceeded the amount determined for
financial reporting
34
purposes. During fiscal 2009, we recorded an additional
$0.4 million working capital adjustment in favor of the
purchaser. Revenues from the business were $22.9 million in
fiscal 2008. After-tax losses were $0.7 million in fiscal
2008. The Insurance Bill Review business unit is classified as
discontinued operations in our consolidated financial statements
and in the following management discussion and analysis.
In January 2008, we acquired Dash Optimization Ltd., a leading
provider of decision modeling and optimization software, for an
aggregate purchase price of $34.1 million in cash. Results
of operations from this acquisition are included in our results
prospectively from the date of acquisition.
Segment
Information
Effective October 1, 2009, we implemented an organizational
restructuring resulting in a consolidation of our reportable
segment structure from four to three. Our reportable segments
are: Applications, Scores and Tools. Although we sell solutions
and services into a large number of end user product and
industry markets, our reportable business segments reflect the
primary method in which management organizes and evaluates
internal financial information to make operating decisions and
assess performance. Comparative segment revenues, operating
income, and related financial information for the years ended
September 30, 2010, 2009 and 2008 are set forth in
Note 20 to the accompanying consolidated financial
statements. All periods presented have been restated to reflect
the new segment structure.
RESULTS
OF OPERATIONS
Continuing
Operations
Revenues
The following tables set forth certain summary information on a
segment basis related to our revenues for the fiscal years
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-to-Period
|
|
|
|
|
|
|
Period-to-Period
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Revenues Fiscal Year
|
|
|
to
|
|
|
to
|
|
|
to
|
|
|
to
|
|
Segment
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Applications
|
|
$
|
367,258
|
|
|
$
|
383,130
|
|
|
$
|
450,450
|
|
|
$
|
(15,872
|
)
|
|
$
|
(67,320
|
)
|
|
|
(4
|
)%
|
|
|
(15
|
)%
|
Scores
|
|
|
172,339
|
|
|
|
179,575
|
|
|
|
211,902
|
|
|
|
(7,236
|
)
|
|
|
(32,327
|
)
|
|
|
(4
|
)%
|
|
|
(15
|
)%
|
Tools
|
|
|
66,046
|
|
|
|
68,030
|
|
|
|
82,490
|
|
|
|
(1,984
|
)
|
|
|
(14,460
|
)
|
|
|
(3
|
)%
|
|
|
(18
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
605,643
|
|
|
$
|
630,735
|
|
|
$
|
744,842
|
|
|
|
(25,092
|
)
|
|
|
(114,107
|
)
|
|
|
(4
|
)%
|
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Revenues
|
|
|
|
Fiscal Year
|
|
Segment
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Applications
|
|
|
61
|
%
|
|
|
61
|
%
|
|
|
61
|
%
|
Scores
|
|
|
28
|
%
|
|
|
28
|
%
|
|
|
28
|
%
|
Tools
|
|
|
11
|
%
|
|
|
11
|
%
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Applications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-to-Period
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-to-Period Change
|
|
|
Percentage Change
|
|
|
|
Fiscal Year
|
|
|
2010 to
|
|
|
2009 to
|
|
|
2010 to
|
|
|
2009 to
|
|
Applications
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Transactional and maintenance
|
|
$
|
257,275
|
|
|
$
|
274,123
|
|
|
$
|
299,569
|
|
|
$
|
(16,848
|
)
|
|
$
|
(25,446
|
)
|
|
|
(6
|
)%
|
|
|
(8
|
)%
|
Professional services
|
|
|
86,097
|
|
|
|
92,000
|
|
|
|
115,855
|
|
|
|
(5,903
|
)
|
|
|
(23,855
|
)
|
|
|
(6
|
)%
|
|
|
(21
|
)%
|
License
|
|
|
23,886
|
|
|
|
17,007
|
|
|
|
35,026
|
|
|
|
6,879
|
|
|
|
(18,019
|
)
|
|
|
40
|
%
|
|
|
(51
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
367,258
|
|
|
$
|
383,130
|
|
|
$
|
450,450
|
|
|
|
(15,872
|
)
|
|
|
(67,320
|
)
|
|
|
(4
|
)%
|
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applications segment revenues decreased
$15.9 million in fiscal 2010 from fiscal 2009 due to a
$14.5 million decrease in revenues from our originations
solutions, a $10.6 million decrease in our customer
management solutions and a $2.6 million decrease from
our other Applications solutions. These decreases were partially
offset by an $11.8 million increase in revenues from our
marketing solutions.
The decrease in originations solutions was attributable
to a decrease in volumes associated with transactional-based
agreements, a decline in professional services and the June 2009
divestiture of our Liquid Credit Service for Telecom product
line, which accounted for $9.1 million of revenue during
the year ended September 30, 2009. The decrease in
customer management solutions was attributable to a
decrease in volumes associated with transactional-based
agreements and a decline in implementation services. The
increase in our marketing solutions revenues was
attributable to sales of a new product,
FICO®
Retail Action Manager. In addition, although revenues from our
fraud solutions revenues remained consistent from fiscal
2009 to fiscal 2010, revenues were positively impacted by higher
volumes, new sales of
FICOtm
Falcon®
Fraud Manager and sales of a new product,
FICO®
Insurance Fraud Manager. Fraud solutions revenues were
negatively impacted by the June 2009 divestiture of our RoamEx
product line, which accounted for $6.6 million of revenue
during fiscal 2009.
Applications segment revenues decreased
$67.3 million in fiscal 2009 from fiscal 2008 due to a
$20.0 million decrease in revenues from our customer
management solutions, a $19.0 million decrease in
revenues from our collections and recovery solutions, a
$16.1 million decrease in revenues from our fraud
solutions, an $8.3 million decrease in revenues from
our originations solutions and a $3.9 million
decrease in revenues from our other Applications solutions.
The decrease in customer management solutions revenues
was attributable to a decline in license sales, as the prior
year included several large license sales, and a decrease in
customer management implementation services. In addition, there
was a decline in transactional-based revenues. The decrease in
collections and recovery solutions revenues resulted from
a decline in license sales as the prior year included several
large license sales, and the loss of one large customer. In
addition, we experienced a decrease in implementation services
and volumes associated with transactional-based agreements. The
decrease in fraud solutions revenues was attributable
primarily to decreases in volumes associated with
transactional-based agreements. Additionally, the revenue
decline was due partially to the June 2009 divestiture of our
RoamEx product line. Revenues were also adversely impacted by
the restructuring of a large customer contract. The decrease in
originations solutions revenues was attributable
primarily to a decline in sales volumes associated with our LCT
product, which was divested in June 2009. The decrease in
originations revenues was partially offset by a slight increase
in implementation services.
36
Scores
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-to-Period
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-to-Period Change
|
|
|
Percentage Change
|
|
|
|
Fiscal Year
|
|
|
2010 to
|
|
|
2009 to
|
|
|
2010 to
|
|
|
2009 to
|
|
Scores
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Transactional and maintenance
|
|
$
|
170,141
|
|
|
$
|
178,048
|
|
|
$
|
210,280
|
|
|
$
|
(7,907
|
)
|
|
$
|
(32,232
|
)
|
|
|
(4
|
)%
|
|
|
(15
|
)%
|
Professional services
|
|
|
2,042
|
|
|
|
1,527
|
|
|
|
1,622
|
|
|
|
515
|
|
|
|
(95
|
)
|
|
|
34
|
%
|
|
|
(6
|
)%
|
License
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
156
|
|
|
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
172,339
|
|
|
$
|
179,575
|
|
|
$
|
211,902
|
|
|
|
(7,236
|
)
|
|
|
(32,327
|
)
|
|
|
(4
|
)%
|
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scores segment revenues decreased $7.2 million in
fiscal 2010 from 2009 due to a $5.4 million decrease in our
myFICO®
business-to-consumer
services revenues and a $1.8 million decrease in our
business-to-business
scores revenues. The decline in our business- to-consumer
services was primarily attributable to Experian terminating its
relationship with myFICO.com in February 2009.
Business-to-business
scores revenue was impacted by a $3.4 million reduction in
scores used for marketing purposes, partially offset by a
true-up of
royalty fees with one of the reporting agencies. The decrease in
scores used for marketing purposes was due to a decline in
volumes of prescreening initiatives by our customers.
During fiscal 2010 and 2009, revenues generated from our
agreements with Equifax, TransUnion and Experian, collectively
accounted for approximately 20% and 19%, respectively, of our
total revenues, including revenues from these customers that are
recorded in our other segments.
Scores segment revenues decreased $32.3 million in
fiscal 2009 from fiscal 2008 due to a $25.3 million
decrease in our
business-to-business
scores revenues and a $7.0 decrease in our
myFICO®
business-to-consumer
services revenues. The decline in our
business-to-business
scores revenue was primarily attributable to volume declines as
financial institutions have significantly reduced new account
acquisition activities and extension of credit. Revenues were
also impacted by a $4.4 million reduction in scores used
for marketing purposes, which resulted from increased pricing
pressures and a decline in volumes due to a decrease in
prescreening initiatives by our customers. The decline in our
business-to-consumer
services was primarily attributable to Experian terminating its
relationship with myFICO.com in February 2009.
During fiscal 2009 and 2008, revenues generated from our
agreements with Equifax, TransUnion and Experian, collectively
accounted for approximately 19% of our total revenues, including
revenues from these customers that are recorded in our other
segments.
Tools
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-to-Period
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-to-Period Change
|
|
|
Percentage Change
|
|
|
|
Fiscal Year
|
|
|
2010 to
|
|
|
2009 to
|
|
|
2010 to
|
|
|
2009 to
|
|
Tools
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Transactional and maintenance
|
|
$
|
28,071
|
|
|
$
|
26,531
|
|
|
$
|
26,106
|
|
|
$
|
1,540
|
|
|
$
|
425
|
|
|
|
6
|
%
|
|
|
2
|
%
|
Professional services
|
|
|
14,739
|
|
|
|
18,886
|
|
|
|
30,437
|
|
|
|
(4,147
|
)
|
|
|
(11,551
|
)
|
|
|
(22
|
)%
|
|
|
(38
|
)%
|
License
|
|
|
23,236
|
|
|
|
22,613
|
|
|
|
25,947
|
|
|
|
623
|
|
|
|
(3,334
|
)
|
|
|
3
|
%
|
|
|
(13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
66,046
|
|
|
$
|
68,030
|
|
|
$
|
82,490
|
|
|
|
(1,984
|
)
|
|
|
(14,460
|
)
|
|
|
(3
|
)%
|
|
|
(18
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tools segment revenues decreased $2.0 million in
fiscal 2010 from fiscal 2009 primarily due to a decrease of
license and professional services sales related to our
FICOtm
Blaze
Advisor®
product, which was negatively impacted by the current business
environment. Professional services revenue declined due to the
completion of several large installations in prior periods and
fewer implementation services due to a reduction in
FICOtm
37
Blaze
Advisor®
license sales. These decreases were partially offset by an
increase in revenues from our
FICOtm
Model Builder and
FICOtm
Decision Optimizer products.
Tools segment revenues decreased $14.5 million in
fiscal 2009 from fiscal 2008 primarily due to a decrease in
license and professional services related to our
FICOtm
Blaze
Advisor®
and Model Builder products, which were negatively impacted by
the business environment. This decrease was partially offset by
$4.9 million increase from products acquired in our January
2008 acquisition of Dash Optimization Ltd.
Operating
Expenses and Other Income (Expense)
The following tables set forth certain summary information
related to our consolidated statements of income for the fiscal
years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-to-Period
|
|
|
Period-to-Period
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Percentage Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Fiscal Year
|
|
|
to
|
|
|
to
|
|
|
to
|
|
|
to
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except employees)
|
|
|
(In thousands, except employees)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
605,643
|
|
|
$
|
630,735
|
|
|
$
|
744,842
|
|
|
$
|
(25,092
|
)
|
|
$
|
(114,107
|
)
|
|
|
(4
|
)%
|
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
180,932
|
|
|
|
206,448
|
|
|
|
274,917
|
|
|
|
(25,516
|
)
|
|
|
(68,469
|
)
|
|
|
(12
|
)%
|
|
|
(25
|
)%
|
Research and development
|
|
|
73,581
|
|
|
|
73,626
|
|
|
|
77,794
|
|
|
|
(45
|
)
|
|
|
(4,168
|
)
|
|
|
|
%
|
|
|
(5
|
)%
|
Selling, general and administrative
|
|
|
225,263
|
|
|
|
209,319
|
|
|
|
245,639
|
|
|
|
15,944
|
|
|
|
(36,320
|
)
|
|
|
8
|
%
|
|
|
(15
|
)%
|
Amortization of intangible assets
|
|
|
10,901
|
|
|
|
12,891
|
|
|
|
14,043
|
|
|
|
(1,990
|
)
|
|
|
(1,152
|
)
|
|
|
(15
|
)%
|
|
|
(8
|
)%
|
Restructuring
|
|
|
1,617
|
|
|
|
8,711
|
|
|
|
10,166
|
|
|
|
(7,094
|
)
|
|
|
(1,455
|
)
|
|
|
(81
|
)%
|
|
|
(14
|
)%
|
Loss on sale of product line assets
|
|
|
|
|
|
|
2,993
|
|
|
|
|
|
|
|
(2,993
|
)
|
|
|
2,993
|
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
492,294
|
|
|
|
513,988
|
|
|
|
622,559
|
|
|
|
(21,694
|
)
|
|
|
(108,571
|
)
|
|
|
(4
|
)%
|
|
|
(17
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
113,349
|
|
|
|
116,747
|
|
|
|
122,283
|
|
|
|
(3,398
|
)
|
|
|
(5,536
|
)
|
|
|
(3
|
)%
|
|
|
(5
|
)%
|
Inerest income
|
|
|
1,688
|
|
|
|
4,717
|
|
|
|
8,802
|
|
|
|
(3,029
|
)
|
|
|
(4,085
|
)
|
|
|
(64
|
)%
|
|
|
(46
|
)%
|
Inerest expense
|
|
|
(24,124
|
)
|
|
|
(25,481
|
)
|
|
|
(20,335
|
)
|
|
|
1,357
|
|
|
|
(5,146
|
)
|
|
|
(5
|
)%
|
|
|
25
|
%
|
Other income, net
|
|
|
1,391
|
|
|
|
1,587
|
|
|
|
2,245
|
|
|
|
(196
|
)
|
|
|
(658
|
)
|
|
|
(12
|
)%
|
|
|
(29
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
92,304
|
|
|
|
97,570
|
|
|
|
112,995
|
|
|
|
(5,266
|
)
|
|
|
(15,425
|
)
|
|
|
(5
|
)%
|
|
|
(14
|
)%
|
Provision for income taxes
|
|
|
27,847
|
|
|
|
32,105
|
|
|
|
31,809
|
|
|
|
(4,258
|
)
|
|
|
296
|
|
|
|
(13
|
)%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
64,457
|
|
|
|
65,465
|
|
|
|
81,186
|
|
|
|
(1,008
|
)
|
|
|
(15,721
|
)
|
|
|
(2
|
)%
|
|
|
(19
|
)%
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
(363
|
)
|
|
|
2,766
|
|
|
|
363
|
|
|
|
(3,129
|
)
|
|
|
(100
|
)%
|
|
|
(113
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
64,457
|
|
|
$
|
65,102
|
|
|
$
|
83,952
|
|
|
|
(645
|
)
|
|
|
(18,850
|
)
|
|
|
(1
|
)%
|
|
|
(22
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees at fiscal
year-end
|
|
|
2,157
|
|
|
|
2,086
|
|
|
|
2,480
|
|
|
|
71
|
|
|
|
(394
|
)
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Revenues
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
30
|
%
|
|
|
33
|
%
|
|
|
37
|
%
|
Research and development
|
|
|
12
|
%
|
|
|
12
|
%
|
|
|
11
|
%
|
Selling, general and administrative
|
|
|
37
|
%
|
|
|
33
|
%
|
|
|
33
|
%
|
Amortization of intangible assets
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
Restructuring
|
|
|
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
Loss on sale of product line assets
|
|
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
81
|
%
|
|
|
81
|
%
|
|
|
84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
19
|
%
|
|
|
19
|
%
|
|
|
16
|
%
|
Interest income
|
|
|
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
Interest expense
|
|
|
(4
|
)%
|
|
|
(5
|
)%
|
|
|
(2
|
)%
|
Other income, net
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
15
|
%
|
|
|
15
|
%
|
|
|
15
|
%
|
Provision for income taxes
|
|
|
4
|
%
|
|
|
5
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
11
|
%
|
|
|
10
|
%
|
|
|
11
|
%
|
Income (loss) from discontinued operations
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
11
|
%
|
|
|
10
|
%
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Revenues
Cost of revenues consists primarily of employee salaries and
benefits for personnel directly involved in developing,
installing and supporting revenue products; travel costs;
overhead costs; costs of computer service bureaus; internal
network hosting costs; amounts payable to credit reporting
agencies for scores; software costs; and expenses related to our
consumer score services through myFICO.com.
Cost of revenues as a percentage of revenues was 30% in fiscal
2010, as compared to 33% in fiscal 2009. The decrease of
$25.5 million in cost of revenues resulted from a
$12.2 million decrease in personnel and other labor-related
costs, an $11.8 million decrease in facilities and
infrastructure costs and a $1.5 million decrease in other
costs. The decrease in personnel and other labor-related costs
was attributable primarily to a decline in salary and related
benefit costs resulting from staff reductions and from the
decline in consulting services activities. The decrease in
facilities and infrastructure costs was attributable primarily
to a decline in allocated costs resulting from overhead
reductions and exiting certain facilities.
Cost of revenues as a percentage of revenues was 33% in fiscal
2009, as compared to 37% for fiscal 2008. The decrease was
driven by a decline in costs associated with lower margin
professional services projects and myFICO consumer data costs.
The decrease of $68.5 million resulted from a
$43.6 million decrease in personnel and other labor-related
costs, a $9.8 million decrease in facilities and
infrastructure costs, an $8.2 million decrease in third
party software and data, a $4.9 million decrease in
billable travel costs, and a $2.0 million decrease in other
costs. The decrease in personnel and other labor-related costs
was attributable primarily to a decline in salary and related
benefit costs resulting from staff reductions and from the
decline in professional services activities. The decrease in
facilities and infrastructure costs was attributable primarily
to a decline in allocated costs resulting from staff reductions
and exiting certain facilities. The decrease in third party
software and data costs was due to decreased sales in our
consumer solutions that required data acquisition. The decrease
in travel costs was from the overall reduction in consulting
services activities.
39
In fiscal 2011, we expect that cost of revenues as a percentage
of revenues will be consistent with or slightly higher than
those incurred during fiscal 2010.
Research
and Development
Research and development expenses include the personnel and
related overhead costs incurred in the development of new
products and services, including the research of mathematical
and statistical models and the development of new versions of
our products.
Research and development expenditures for fiscal 2010 were
consistent with expenditures for fiscal 2009.
The fiscal 2009 over 2008 decrease of $4.2 million in
research and development expenditures was attributable primarily
to a decrease of $5.2 million in personnel and
$1.5 million in other expenses, partially offset by a
$2.5 million increase in data related expenses. The
decrease in personnel and related costs was driven by reductions
associated with our reengineering program. The increase in data
expenses was due to higher costs for data that is used for
product development initiatives.
In fiscal 2011, we expect that research and development
expenditures as a percentage of revenues will be consistent with
or slightly higher than those incurred during fiscal 2010 as we
continue to invest in our Decision Management solutions.
Selling,
General and Administrative
Selling, general and administrative expenses consist principally
of employee salaries and benefits, travel, overhead, advertising
and other promotional expenses, corporate facilities expenses,
legal expenses, business development expenses and the cost of
operating computer systems.
The fiscal 2010 over 2009 increase of $15.9 million in
selling, general and administrative expenses was attributable to
an $18.6 million increase in personnel and related costs, a
$2.8 million increase in travel expenses and a
$1.6 million increase in marketing expenses, partially
offset by a $3.9 million decrease in professional fees and
a $3.2 million decrease in other costs, which includes bad
debt expense, taxes and licenses and other miscellaneous
expenses. The increase in personnel and related costs was
primarily due to increased commissions and salaries and benefits
for the year ended September 30, 2010. The increase in
travel expenses was due to increased travel to support sales
efforts. The increase in marketing expense was attributable to
an increase in marketing campaigns and related activities. The
decline in professional fees was primarily due to decreased
legal fees.
The fiscal 2009 over 2008 decrease of $36.3 million in
selling, general and administrative expenses was attributable to
a decrease of $23.6 million in personnel and other
labor-related costs, a $4.4 million decrease in
professional fees, a $4.4 million decrease in travel costs,
a $2.9 million decrease in bad debt expense and a
$1.8 million decrease in facilities and infrastructure
costs, partially offset by a $0.8 million increase in other
expenses. The decrease in personnel and labor-related costs
related primarily to a decrease in salary and benefits costs
resulting from staff reductions associated with our
reengineering program. The decrease in professional fees was
primarily due to decreased legal expenses. The decrease in
travel expenses was due to management programs focused on
reducing expenses. The decrease in bad debt expense was due to
successful collection efforts and a decrease in revenues. The
decrease in facilities and infrastructure costs was attributable
primarily to a decline in allocated costs resulting from staff
reductions and exiting certain facilities.
In fiscal 2011, we expect that selling, general and
administrative expenses as a percentage of revenues will be
slightly higher than those incurred during fiscal 2010.
Amortization
of Intangible Assets
Amortization of intangible assets consists of amortization
expense related to intangible assets recorded in connection with
acquisitions accounted for by the purchase method of accounting.
Our definite-lived intangible assets, consisting primarily of
completed technology and customer contracts and relationships,
are being
40
amortized using the straight-line method or based on forecasted
cash flows associated with the assets over periods ranging from
two to fifteen years.
The fiscal 2010 over 2009 decline of $2.0 million in
amortization expense was attributable mainly to certain
intangible assets associated with our London Bridge acquisition
becoming fully amortized.
The fiscal 2009 over 2008 decline of $1.2 million in
amortization expense was attributable mainly to certain
intangible assets becoming fully amortized.
In fiscal 2011, we expect amortization expense will be slightly
lower than the amortization expense incurred in 2010 due to
certain intangible assets related to our London Bridge
acquisition that became fully amortized during fiscal 2010.
Restructuring
Expense
The following table sets forth certain summary information on
restructuring expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Severance costs
|
|
$
|
742
|
|
|
$
|
5,860
|
|
|
$
|
7,353
|
|
Lease exit costs and other adjustments
|
|
|
875
|
|
|
|
2,851
|
|
|
|
2,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring expense
|
|
$
|
1,617
|
|
|
$
|
8,711
|
|
|
$
|
10,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2010 we incurred restructuring expenses of
$1.6 million. The expenses include a $0.9 million
charge related to lease exit activities and $0.7 million
for severance costs, which will be paid in fiscal 2011.
In fiscal 2009, we incurred restructuring charges of
$8.7 million. The charges include $5.9 million for
severance costs associated with the reduction of 255 positions
throughout the Company, which were paid in fiscal 2009. We also
recognized a $2.8 million, net charge associated with lease
exit activities and a reversal of accrued expenses as a result
of favorable adjustments.
In fiscal 2008, we eliminated 280 positions across the company
and incurred charges of $7.4 million for severance costs.
Cash payments for the majority of the severance costs were paid
in fiscal 2008. We also recognized charges of $2.8 million
associated with lease exit activities.
Loss
on Sale of Product Line Assets
In June 2009, we signed definitive agreements to sell the assets
associated with our LCT and RoamEx product lines for
$6.2 million in cash. We recognized a $3.0 million
pre-tax loss, and a $3.9 million after-tax loss on the
sales, as the goodwill associated with the sale of these product
lines was not deductible for income tax purposes.
Interest
Income
Interest income is derived primarily from the investment of
funds in excess of our immediate operating requirements.
The fiscal 2010 over 2009 decrease of $3.0 million in
interest income was due mainly to a decline in interest rates
and investment yields due to market conditions and a decrease in
total investment balances outstanding.
The fiscal 2009 over 2008 decrease of $4.1 million in
interest income was attributable to a decline in interest rates
and investment income yields due to market conditions, partially
offset by an increase in average cash and investment balances.
41
Interest
Expense
In fiscal 2010, interest expense included interest on the Senior
Notes issued in May 2008 and July 2010 and borrowings under our
revolving credit facility. In fiscal 2009, interest expense
included interest on the Senior Notes issued in May 2008 and
borrowings under our revolving credit facility. In fiscal 2008,
interest expense included interest on our Senior Notes issued in
May 2008, interest related to our 1.5% Senior Convertible
Notes and interest associated with borrowings under our
revolving credit facility. All of our Senior Convertible Notes
were repurchased during 2008.
The decrease in interest expense of $1.4 million in fiscal
2010 compared to fiscal 2009 was the result of lower average
interest rates on our revolving line of credit in fiscal 2010
partially offset by interest expense recorded on our
$245 million Senior Notes issued in July 2010.
The increase in interest expense of $5.1 million in fiscal
2009 compared to fiscal 2008 was the result of higher average
interest rates on outstanding borrowings. The increase in the
average interest rate was due to incurring a full year of
interest expense on the Senior Notes we issued in May of 2008,
which had an average interest rate of 6.8%. In fiscal 2008 we
had our Senior Convertible Notes that had an interest rate of
1.5%. The increase was partially offset by a lower average
interest rate on our revolving credit facility.
In fiscal 2011, we expect that interest expense will be higher
than what we incurred during fiscal 2010 due the higher average
interest on our July 2010 Senior Notes as compared to our
revolving credit facility.
Other
Income, Net
Other income, net consists primarily of realized investment
gains/losses, exchange rate gains/losses resulting from
re-measurement of foreign-denominated receivable and cash
balances held by our foreign reporting entities into their
respective functional currency at period-end market rates, net
of the impact of offsetting forward exchange contracts, and
other non-operating items.
Other income in fiscal 2010 was consistent with other income,
net in fiscal 2009.
Other income, net was $1.6 million in fiscal 2009, compared
to $2.2 million in 2008. The change in other income, net
was primarily due to a $0.9 million gain recognized in
fiscal 2008 on the redemption of $123.7 million of Senior
Convertible Notes.
Provision
for Income Taxes
Our effective tax rates were 30.2%, 32.9% and 28.2% in fiscal
2010, 2009 and 2008, respectively.
The decrease in our effective tax rate in fiscal 2010 compared
with fiscal 2009 was due to benefits recognized from the
completion of a research and development credit study and an
adjustment in tax reserves. This decrease was partially offset
by the effect from the expiration of the U.S federal research
and development tax credit. We were unable to recognize this tax
credit during fiscal 2010 as legislation providing for
reinstatement of this credit has not yet been enacted. The
decrease in our effective tax rate in fiscal 2010 was also due
to a higher tax rate in fiscal 2009 from the sale of our RoamEx
and LCT product lines. These product line sales included a
write-off of goodwill that was not deductible for income tax
purposes.
The increase in our effective tax rate in fiscal 2009 compared
with fiscal 2008 was due to adjustments to our tax reserves
associated with a proposed settlement of the IRS audit for
fiscals 2002 through 2006, and a change in mix between domestic
and foreign income.
42
Operating
Income
The following table sets forth certain summary information on a
segment basis related to our operating income for the fiscal
years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-to-Period
|
|
|
Period-to-Period
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Percentage Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Fiscal Year
|
|
|
to
|
|
|
to
|
|
|
to
|
|
|
to
|
|
Segment
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Applications
|
|
$
|
93,275
|
|
|
$
|
112,589
|
|
|
$
|
120,986
|
|
|
$
|
(19,314
|
)
|
|
$
|
(8,397
|
)
|
|
|
(17
|
)%
|
|
|
(7
|
)%
|
Scores
|
|
|
110,651
|
|
|
|
122,202
|
|
|
|
143,638
|
|
|
|
(11,551
|
)
|
|
|
(21,436
|
)
|
|
|
(9
|
)%
|
|
|
(15
|
)%
|
Tools
|
|
|
8,412
|
|
|
|
7,354
|
|
|
|
3,651
|
|
|
|
1,058
|
|
|
|
3,703
|
|
|
|
14
|
%
|
|
|
101
|
%
|
Unallocated corporate expenses
|
|
|
(69,166
|
)
|
|
|
(80,868
|
)
|
|
|
(94,059
|
)
|
|
|
11,702
|
|
|
|
13,191
|
|
|
|
(14
|
)%
|
|
|
(14
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
|
143,172
|
|
|
|
161,277
|
|
|
|
174,216
|
|
|
|
(18,105
|
)
|
|
|
(12,939
|
)
|
|
|
(11
|
)%
|
|
|
(7
|
)%
|
Unallocated share-based compensation
|
|
|
(17,305
|
)
|
|
|
(19,935
|
)
|
|
|
(27,724
|
)
|
|
|
2,630
|
|
|
|
7,789
|
|
|
|
(13
|
)%
|
|
|
(28
|
)%
|
Unallocated amortization expense
|
|
|
(10,901
|
)
|
|
|
(12,891
|
)
|
|
|
(14,043
|
)
|
|
|
1,990
|
|
|
|
1,152
|
|
|
|
(15
|
)%
|
|
|
(8
|
)%
|
Unallocated restructuring
|
|
|
(1,617
|
)
|
|
|
(8,711
|
)
|
|
|
(10,166
|
)
|
|
|
7,094
|
|
|
|
1,455
|
|
|
|
(81
|
)%
|
|
|
(14
|
)%
|
Unallocated loss on sale of product line assets
|
|
|
|
|
|
|
(2,993
|
)
|
|
|
|
|
|
|
2,993
|
|
|
|
(2,993
|
)
|
|
|
(100
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
113,349
|
|
|
$
|
116,747
|
|
|
$
|
122,283
|
|
|
|
(3,398
|
)
|
|
|
(5,536
|
)
|
|
|
(3
|
)%
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in operating income between fiscal 2010 and 2009 of
$3.4 million was attributable to a decrease in segment
revenues, partially offset by a reduction in segment and
corporate operating expenses, which was driven by our
reengineering initiative, a decrease in restructuring expenses,
a decrease in loss on sale of product line assets, a decrease in
share-based compensation expense and a decrease in amortization
expenses. Under the reengineering initiative, we have reduced
operating costs through staff reductions, facility
consolidations and restriction of discretionary expenditures. At
the segment level, our segment operating income was negatively
impacted by a $19.3 million decrease in our Applications
segment, and an $11.6 million decrease in our Scores
segment partially offset by a $1.1 million increase in our
Tools segment.
The decrease in our Applications segment operating income was
attributable to a decrease in revenue and an increase in
operating expenses as we continue to invest in our Decision
Management solutions.
The decrease in our Scores segment operating income was
attributable primarily to a decline in revenues from scores used
for marketing purposes, revenues derived from
business-to-consumer
services and an increase in operating expenses due to increased
marketing activities.
In our Tools segment, the increase in segment operating income
was primarily attributed to an increase in FICO Model Builder
and FICO Decision Optimizer revenues and lower operating
expenses, which was driven by our reengineering initiative,
partially offset by a decrease in Blaze Advisor revenues.
The decrease in corporate expenses was due to staff reductions
and facility consolidations, driven by our reengineering
initiative, and a decrease in legal fees.
The decrease in operating income between fiscal 2009 and 2008 of
$5.5 million was attributable mainly to a reduction in
segment revenues and an increase in loss on sale of product line
assets, partially offset by a reduction in segment and corporate
operating expenses, which was driven by our reengineering
initiative, and a reduction in our share-based compensation
expense. At the segment level, our segment operating income was
negatively impacted by a $21.4 million decrease in our
Scores segment and an $8.4 million decrease in our
Applications segment, partially offset by a $3.7 million
increase in our Tools segment.
The decrease in Applications segment operating income was
attributable to a reduction of revenues, which were adversely
impacted by difficult global economic conditions that caused our
customers to restrict
43
investments in large technology projects, offset by a
significant decline in operating expenses, which was driven by
our reengineering initiative.
The decrease in our Scores segment operating income was
attributable primarily to a decline in transactional volumes
from the credit reporting agencies, revenues from scores used
for marketing purposes and revenues derived from
business-to-consumer
services.
The increase in Tools segment operating income was due mainly to
a reduction in operating expenses partially offset by a
reduction in revenues. The reduction in operating expenses was
driven mainly by our reengineering initiative.
The decrease in unallocated corporate expenses was also due to
our reengineering initiative, which resulted in staff reductions
and facility consolidations.
Discontinued
Operations
On April 30, 2008, we completed the sale of our Insurance
Bill Review business unit for $16.0 million in cash. We
recorded a $6.9 million pre-tax loss, but a
$3.4 million after-tax gain on the sale as the amount of
goodwill disposed of for income tax purposes exceeded the amount
determined for financial reporting purposes. During fiscal 2009,
we recorded an additional $0.4 million working capital
adjustment in favor of the purchaser. Revenues from discontinued
operations were $22.9 million in fiscal 2008. After-tax
losses from discontinued operations were $0.7 million in
fiscal 2008.
Capital
Resources and Liquidity
Cash
Flows from Operating Activities
Our primary method for funding operations and growth has been
through cash flows generated from operating activities. Net cash
provided by operating activities totaled $105.8 million in
fiscal 2010 compared to $151.6 million in fiscal 2009.
Operating cash flows were negatively impacted by an
$11.6 million increase in accounts receivable (compared to
a $31.3 million decrease in fiscal 2009), which resulted
from the timing of cash receipts, a $3.3 million decrease
in other liabilities and a $1.1 million decrease in
deferred revenue. Operating cash flows were positively impacted
by a $5.4 million increase in accrued compensation and
employee benefits, which resulted from the timing of cash
payments.
Net cash provided by operating activities totaled
$151.6 million in fiscal 2009 compared to
$159.2 million in fiscal 2008. Operating cash flows were
negatively impacted by a decline in earnings in fiscal 2009 and
a $10.8 million decrease in other liabilities. Operating
cash flows were positively impacted by an increase in accrued
compensation and employee benefits of $12.4 million, which
was due to the timing of payments, and a decrease in accounts
receivable of $11.2 million, which resulted from the timing
of cash receipts and improvements made to our collections
process.
Cash
Flows from Investing Activities
Net cash provided by investing activities totaled
$110.6 million in fiscal 2010 compared to net cash used of
$81.9 million in fiscal 2009. The change was driven by
$125.9 million in proceeds from maturities and sales of
marketable securities, net of purchases, during the year ended
September 30, 2010 compared to $73.3 million of cash
used for purchases of marketable securities, net of sales and
proceeds from maturities, during the year ended
September 30, 2009.
Net cash used in investing activities totaled $81.9 million
in fiscal 2009 compared to $31.1 million in fiscal 2008.
The change in cash flows was due to an $81.2 million
decrease in proceeds from sales and maturities of marketable
securities, net of purchases, and an $8.8 million decrease
in capital expenditures. In addition, the change in cash flows
was due to $33.3 million paid for the acquisition of Dash
Optimization Ltd. in January 2008 and $15.6 million of cash
received in April 2008 from the sale of our Insurance Bill
Review business unit.
44
Cash
Flows from Financing Activities
Net cash used in financing activities totaled
$248.5 million in 2010, compared to $18.8 million in
fiscal 2009. The increase in cash used in financing activities
was primarily due to the $196.1 million of cash paid to
repurchase of common stock during the year ended
September 30, 2010 and the repayment of $295 million
of debt outstanding on our revolving line of credit, partially
offset by cash provided from the issuance of $245 million
of Senior Notes on July 14, 2010.
Net cash used in financing activities totaled $18.8 million
in 2009, compared to $91.0 million in 2008. The decrease in
cash used in financing activities was primarily due to a
$98.1 million decrease in common stock repurchased, a
$16.5 million decrease in proceeds from the issuance of
common stock under employee stock plans and a $9.9 million
decrease in cash proceeds from net borrowings under our
revolving credit facility, senior notes and senior convertible
notes.
Repurchases
of Common Stock
From time to time, we repurchase our common stock in the open
market. During fiscal 2010, 2009 and 2008, we expended $198.0
million, $18.5 million and $116.6 million,
respectively, in connection with our repurchase of common stock.
In June 2010, our Board of Directors approved a common stock
repurchase program that allows us to purchase shares of our
common stock up to an aggregate cost of $250.0 million. As
of September 30, 2010, we had $174.7 million remaining
under this authorization.
Dividends
We paid quarterly dividends of two cents per share, or eight
cents per year, during each of fiscal 2010, 2009 and 2008. Our
dividend rate is set by the Board of Directors on a quarterly
basis taking into account a variety of factors, including among
others, our operating results and cash flows, general economic
and industry conditions, our obligations, changes in applicable
tax laws and other factors deemed relevant by the Board.
Although we expect to continue to pay dividends at the current
rate, our dividend rate is subject to change from time to time
based on the Boards business judgment with respect to
these and other relevant factors.
Revolving
Line of Credit
We have a $600 million unsecured revolving line of credit
with a syndicate of banks that expires in October 2011. Proceeds
from the revolving line of credit can be used for working
capital and general corporate purposes and may also be used for
the refinancing of existing debt, acquisitions, and the
repurchase of the Companys common stock. Interest on
amounts borrowed under the revolving line of credit is based on
(i) a base rate, which is the greater of (a) the prime
rate and (b) the Federal Funds rate plus 0.50% or
(ii) LIBOR plus an applicable margin. The margin on LIBOR
borrowings ranges from 0.30% to 0.55% and is determined based on
our consolidated leverage ratio. In addition, we must pay
utilization fees if borrowings and commitments under the
revolving line of credit exceed 50% of the total commitment, as
well as facility fees. The revolving line of credit contains
certain restrictive covenants, including maintenance of
consolidated leverage and fixed charge coverage ratios. The
revolving line of credit also contains covenants typical of
unsecured facilities. On April 14, 2010, we used
$50 million of cash to reduce our outstanding obligation on
our revolving line of credit to $245 million. On
July 14, 2010, we repaid the remaining outstanding
obligations under the revolving line of credit using proceeds
from the issuance of $245 million of Senior Notes in a
private placement to a group of institutional investors. These
Senior Notes have a weighted-average interest rate of 5.2% and a
weighted-average maturity of 8 years.
Senior
Notes
In May 2008, we issued $275 million of Senior Notes in a
private placement to a group of institutional investors. These
Senior Notes were issued in four series with maturities ranging
from 5 to 10 years. These Senior Notes weighted
average interest rate is 6.8% and the weighted average maturity
is 7.9 years.
45
In addition, on July 14, 2010, we issued $245 million
of Senior Notes in a private placement to a group of
institutional investors. These Senior Notes have a weighted
average interest rate of 5.20% and a weighted average maturity
of 8 years. Proceeds from these Senior Notes were used to
repay the entire balance outstanding on our revolving line of
credit. These Senior Notes were issued in four series as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
|
|
Amount
|
|
Interest Rate
|
|
Maturity Date
|
|
E
|
|
$
|
60 million
|
|
|
|
4.72
|
%
|
|
|
July 14, 2016
|
|
F
|
|
$
|
72 million
|
|
|
|
5.04
|
%
|
|
|
July 14, 2017
|
|
G
|
|
$
|
28 million
|
|
|
|
5.42
|
%
|
|
|
July 14, 2019
|
|
H
|
|
$
|
85 million
|
|
|
|
5.59
|
%
|
|
|
July 14, 2020
|
|
All of the Senior Notes are subject to certain restrictive
covenants that are substantially similar to those in the credit
agreement for the revolving credit facility, including
maintenance of consolidated leverage and fixed charge coverage
ratios. The purchase agreements for the Senior Notes also
include covenants typical of unsecured facilities.
Capital
Resources and Liquidity Outlook
As of September 30, 2010, we had $219.2 million in
cash, cash equivalents and marketable security investments. We
believe that these balances, as well as available borrowings
from our $600 million revolving line of credit and
anticipated cash flows from operating activities, will be
sufficient to fund our working and other capital requirements
and any scheduled repayments of existing debt over the course of
the next twelve months. Under our current financing arrangements
we have no significant debt obligations maturing until May 2013.
In the normal course of business, we evaluate the merits of
acquiring technology or businesses, or establishing strategic
relationships with or investing in these businesses. We may
elect to use available cash and cash equivalents and marketable
security investments to fund such activities in the future. In
the event additional needs for cash arise, or if we refinance
our existing debt, we may raise additional funds from a
combination of sources, including the potential issuance of debt
or equity securities. Additional financing might not be
available on terms favorable to us, or at all. If adequate funds
were not available or were not available on acceptable terms,
our ability to take advantage of unanticipated opportunities or
respond to competitive pressures could be limited.
Contractual
Obligations
The following is a summary of our contractual obligations at
September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Total
|
|
|
Senior Notes(1)
|
|
$
|
8,000
|
|
|
$
|
8,000
|
|
|
$
|
49,000
|
|
|
$
|
8,000
|
|
|
$
|
71,000
|
|
|
$
|
376,000
|
|
|
$
|
520,000
|
|
Interest due on debt obligations(2)
|
|
|
31,523
|
|
|
|
31,013
|
|
|
|
30,503
|
|
|
|
27,382
|
|
|
|
26,873
|
|
|
|
68,135
|
|
|
|
215,429
|
|
Operating lease obligations
|
|
|
19,759
|
|
|
|
16,687
|
|
|
|
13,892
|
|
|
|
13,758
|
|
|
|
11,881
|
|
|
|
40,770
|
|
|
|
116,747
|
|
Purchase obligations(3)
|
|
|
6,100
|
|
|
|
5,100
|
|
|
|
4,400
|
|
|
|
2,600
|
|
|
|
|
|
|
|
|
|
|
|
18,200
|
|
Unrecognized tax benefits(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments
|
|
$
|
65,382
|
|
|
$
|
60,800
|
|
|
$
|
97,795
|
|
|
$
|
51,740
|
|
|
$
|
109,754
|
|
|
$
|
484,905
|
|
|
$
|
882,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the unpaid principal amount of our $275 million
Senior Notes issued in May 2008 and the $245 million Senior
Notes issued in July 2010. |
|
(2) |
|
Interest due on debt obligations represents interest payments on
our Senior Notes. |
|
(3) |
|
Represents amounts associated with agreements that are
enforceable, legally binding and specify terms, including: fixed
or minimum quantities to be purchased; fixed, minimum or
variable price provisions; and the approximate timing of the
payments. |
46
|
|
|
(4) |
|
Unrecognized tax benefits related to uncertain tax positions. As
we are not able to reasonably estimate the timing of the
payments or the amount by which the liability will increase or
decrease over time, the related balances have not been reflected
in the section of the table showing payment by fiscal year. |
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future material
effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations,
liquidity, capital expenditures, or capital resources.
Critical
Accounting Policies and Estimates
We prepare our consolidated financial statements in conformity
with U.S. generally accepted accounting principles. These
accounting principles require management to make certain
judgments and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities as of the date of the financial statements, and
the reported amounts of revenues and expenses during the
reporting period. We periodically evaluate our estimates
including those relating to revenue recognition, the allowance
for doubtful accounts, goodwill and other intangible assets
resulting from business acquisitions, share-based compensation,
income taxes and contingencies and litigation. We base our
estimates on historical experience and various other assumptions
that we believe to be reasonable based on the specific
circumstances, the results of which form the basis for making
judgments about the carrying value of certain assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
We believe the following critical accounting policies involve
the most significant judgments and estimates used in the
preparation of our consolidated financial statements:
Revenue
Recognition
Software
Licenses
Software license fee revenue is recognized when persuasive
evidence of an arrangement exists, software is made available to
our customers, the fee is fixed or determinable and collection
is probable. The determination of whether fees are fixed or
determinable and collection is probable involves the use of
assumptions. If at the outset of an arrangement we determine
that the arrangement fee is not fixed or determinable, revenue
is deferred until the arrangement fee becomes fixed or
determinable, assuming all other revenue recognition criteria
have been met. If at the outset of an arrangement we determine
that collectability is not probable, revenue is deferred until
the earlier of when collectability becomes probable or the
receipt of payment. If there is uncertainty as to the
customers acceptance of our deliverables, revenue is not
recognized until the earlier of receipt of customer acceptance,
expiration of the acceptance period, or when we can demonstrate
we meet the acceptance criteria. We evaluate contract terms and
customer information to ensure that these criteria are met prior
to our recognition of license fee revenue.
We use the residual method to recognize revenue when an
arrangement includes one or more elements to be delivered at a
future date and vendor-specific objective evidence
(VSOE) of the fair value of all undelivered elements
exists. VSOE of fair value is based on the normal pricing
practices for those products and services when sold separately
by us and customer renewal rates for post-contract customer
support services. Under the residual method, the fair value of
the undelivered elements is deferred and the remaining portion
of the arrangement fee is recognized as revenue. If evidence of
the fair value of one or more undelivered elements does not
exist, the revenue is deferred and recognized when delivery of
those elements occurs or when fair value can be established.
Changes to the elements in a software arrangement, the ability
to identify VSOE for those elements, the fair value of the
respective elements, and change to a products estimated
life cycle could materially impact the amount of earned and
unearned revenue.
When software licenses are sold together with implementation or
consulting services, license fees are recognized upon delivery
provided that the above criteria are met, payment of the license
fees is not dependent upon the performance of the services, and
the services do not provide significant customization or
modification
47
of the software products and are not essential to the
functionality of the software that was delivered. For
arrangements with services that are essential to the
functionality of the software, the license and related service
revenues are recognized using contract accounting as described
below.
Revenues from post-contract customer support services, such as
software maintenance, are recognized on a straight-line basis
over the term of the support period. The majority of our
software maintenance agreements provide technical support as
well as unspecified software product upgrades and releases when
and if made available by us during the term of the support
period.
Transactional-based
Revenues
Transactional-based revenue is recognized when persuasive
evidence of an arrangement exists, fees are fixed or
determinable, and collection is reasonably assured. Revenues
from our credit scoring, data processing, data management and
internet delivery services are recognized as these services are
performed. Revenues from transactional or unit-based license
fees under software license arrangements, network service and
internally-hosted software agreements are recognized based on
minimum contractual amounts or on system usage that exceeds
minimum contractual amounts. Certain of our transactional-based
revenues are based on transaction or active account volumes as
reported by our clients. In instances where volumes are reported
to us in arrears, we estimate volumes based on preliminary
customer transaction information or average actual reported
volumes for an immediate trailing period. Differences between
our estimates and actual final volumes reported are recorded in
the period in which actual volumes are reported. We have not
experienced significant variances between our estimates and
actual reported volumes in the past and anticipate that we will
be able to continue to make reasonable estimates in the future.
If for some reason we were unable to reasonably estimate
transaction volumes in the future, revenue may be deferred until
actual customer data is received, and this could have a material
impact on our consolidated results of operations.
Consulting
Services
We provide consulting, training, model development and software
integration services under both hourly-based time and materials
and fixed-priced contracts. Revenues from these services are
generally recognized as the services are performed. For
fixed-price service contracts, we apply the
percentage-of-completion
method of contract accounting to determine progress towards
completion, which requires the use of estimates. In such
instances, management is required to estimate the input
measures, generally based on hours incurred to date compared to
total estimated hours of the project, with consideration also
given to output measures, such as contract milestones, when
applicable. Adjustments to estimates are made in the period in
which the facts requiring such revisions become known and,
accordingly, recognized revenues and profits are subject to
revisions as the contract progresses to completion. Estimated
losses, if any, are recorded in the period in which current
estimates of total contract revenue and contract costs indicate
a loss. If substantive uncertainty related to customer
acceptance of services exists, we apply the completed contract
method of accounting and defer the associated revenue until the
contract is completed. If we are unable to accurately estimate
the input measures used for
percentage-of-completion
accounting, revenue would be deferred until the contract is
complete, and this could have a material impact on our
consolidated results of operations.
Hosting
Services
We are an application service provider (ASP), where
we provide hosting services that allow customers access to
software that resides on our servers. The ASP model typically
includes an up-front fee and a monthly commitment from the
customer that commences upon completion of the implementation
through the remainder of the contractual term. The up-front fee
is the initial setup fee, or the implementation fee. The monthly
commitment includes, but is not limited to, a fixed monthly fee
or a transactional fee based on system usage that exceeds
monthly minimums. Revenue is recognized from ASP when there is
persuasive evidence of an arrangement, the service has been
provided to the customer, the amount of fees is fixed or
determinable and the collection of the Companys fees is
probable. We do not view the activities of signing the contract
or providing initial setup services as discrete earnings events.
Revenue is deferred until the date the customer
48
commences use of our services at which point the up-front fees
are recognized ratably over the contractual term of the customer
arrangement. ASP transactional fees are recorded monthly as
earned.
Non-Software
Multiple-Deliverable Arrangements
Each deliverable within a multiple-deliverable revenue
arrangement is accounted for as a separate unit of accounting if
the following criteria are met: (i) the delivered item or
items have value to the customer on a standalone basis and
(ii) for an arrangement that includes a general right of
return relative to the delivered item(s), delivery or
performance of the undelivered item(s) is considered probable
and substantially in our control. We consider a deliverable to
have standalone value if we sell this item separately or if the
item is sold by another vendor or could be resold by the
customer. Further, our revenue arrangements generally do not
include a general right of return relative to delivered
products. Revenue for multiple element arrangements is allocated
to the software and non-software deliverables based on a
relative selling price. We use VSOE in our allocation of
arrangement consideration when it is available. We define VSOE
as a median price of recent standalone transactions that are
priced within a narrow range, as defined by us. If a product or
service is seldom sold separately, it is unlikely that we can
determine VSOE. In circumstances when VSOE does not exist, we
then assess whether we can obtain third-party evidence
(TPE) of the selling price. It may be difficult for
us to obtain sufficient information on competitor pricing to
substantiate TPE and therefore we may not always be able to use
TPE. When we are unable to establish selling price using VSOE or
TPE, we use estimated selling price (ESP) in its
allocation of arrangement consideration. The objective of ESP is
to determine the price at which we would transact if the product
or service were sold by us on a standalone basis. Our
determination of ESP involves weighting several factors based on
the specific facts and circumstances of each arrangement. The
factors include, but are not limited to, geographies, market
conditions, gross margin objectives, pricing practices and
controls and customer segment pricing strategies and the product
lifecycle. We analyze selling prices used in our allocation of
arrangement consideration on an annual basis, or more frequently
if necessary. Selling prices will be analyzed more frequently if
a significant change in our business necessitates a more timely
analysis or if we experience significant variances in our
selling prices.
Gross vs.
Net Revenue Reporting
We apply accounting guidance to determine whether we report
revenue for certain transactions based upon the gross amount
billed to the customer, or the net amount retained by us. In
accordance with the guidance we record revenue on a gross basis
for sales in which we have acted as the principal and on a net
basis for those sales in which we have in substance acted as an
agent or broker in the transaction.
Allowance
for Doubtful Accounts
We make estimates regarding the collectability of our accounts
receivable. When we evaluate the adequacy of our allowance for
doubtful accounts, we analyze specific accounts receivable
balances, historical bad debts, customer creditworthiness,
current economic trends and changes in our customer payment
cycles. Material differences may result in the amount and timing
of expense for any period if we were to make different judgments
or utilize different estimates. If the financial condition of
our customers deteriorates resulting in an impairment of their
ability to make payments, additional allowances might be
required.
Business
Acquisitions; Valuation of Goodwill and Other Intangible
Assets
Our business acquisitions typically result in the recognition of
goodwill and other intangible assets, which affect the amount of
current and future period charges and amortization expense.
Goodwill represents the excess of the purchase price over the
fair value of net assets acquired, including identified
intangible assets, in connection with our business combinations
accounted for by the purchase method of accounting. We amortize
our definite-lived intangible assets based on forecasted cash
flows associated with the assets over the estimated useful
lives. Goodwill is not amortized, but is assessed at least
annually for impairment.
The determination of the value of these components of a business
combination, as well as associated asset useful lives, requires
management to make various estimates and assumptions. Critical
estimates in valuing
49
certain of the intangible assets include but are not limited to:
future expected cash flows from product sales and services,
maintenance agreements, consulting contracts, customer
contracts, and acquired developed technologies and patents or
trademarks; the acquired companys brand awareness and
market position, as well as assumptions about the period of time
the acquired products and services will continue to be used in
our product portfolio; and discount rates. Managements
estimates of fair value and useful lives are based upon
assumptions believed to be reasonable, but which are inherently
uncertain and unpredictable. Unanticipated events and
circumstances may occur and assumptions may change. Estimates
using different assumptions could also produce significantly
different results.
We continually review the events and circumstances related to
our financial performance and economic environment for factors
that would provide evidence of the impairment of our intangible
assets. When impairment indicators are identified with respect
to our previously recorded intangible assets with finite useful
lives, we test for impairment using undiscounted cash flows. If
such tests indicate impairment, then we measure the impairment
as the difference between the carrying value of the asset and
the fair value of the asset, which is measured using discounted
cash flows. Indefinite-lived intangible assets are assessed
annually for impairment by comparing the fair value of such
intangible assets, measured using discounted cash flows, to the
respective fair value. To the extent the fair value is less than
the associated carrying value, impairment is recorded.
Significant management judgment is required in forecasting
future operating results, which are used in the preparation of
the projected discounted cash flows and should different
conditions prevail, material write downs of net intangible
assets and other long-lived assets could occur. We periodically
review the estimated remaining useful lives of our acquired
intangible assets. A reduction in our estimate of remaining
useful lives, if any, could result in increased amortization
expense in future periods.
We test goodwill for impairment at the reporting unit level at
least annually during the fourth quarter of each fiscal year and
more frequently if impairment indicators are identified. We have
determined that our reporting units are the same as our
reportable segments. The first step of the goodwill impairment
test is a comparison of the fair value of a reporting unit to
its carrying value. We estimate the fair values of our reporting
units using the discounted cash flow valuation model and by
comparing our reporting units to guideline publicly-traded
companies. The two valuation methodologies are generally
weighted equally in our final fair value calculation. These
methods require estimates of our future revenues, profits,
capital expenditures, working capital, costs of capital and
other relevant factors, as well as selecting appropriate
guideline publicly-traded companies for each reporting unit. We
estimate these amounts by evaluating historical trends, current
budgets, operating plans, industry data, and other relevant
factors. In addition, we compare the aggregate reporting unit
fair values to our market capitalization.
The estimated fair value of each of our reporting units exceeded
its respective carrying value in fiscal 2010, indicating the
underlying goodwill of each reporting unit was not impaired as
of our most recent testing date. Accordingly, we were not
required to complete the second step of the goodwill impairment
test. As of July 1, 2010, the estimated fair value of our
Applications reporting unit was 110% of carrying value. Total
goodwill allocated to the reporting unit was $448.0 million
as of September 30, 2010.
In a discounted cash flow valuation analysis, key assumptions
that require significant management judgment include revenue
growth rates and weighted average cost of capital. In our
analysis, revenue growth rates were primarily based on third
party studies of industry growth rates for each of our reporting
units. Within each reporting unit, management refined these
estimates based on their knowledge of the product, the needs of
our customers and expected market opportunity. The key
uncertainty for revenue growth in the Applications reporting
unit is the recovery of the consumer credit industry over the
next several years. The weighted average cost of capital was
determined based on publicly available data such as the
long-term yield on U.S. treasury bonds, the expected rate
of return on high quality bonds and the returns and betas of
various equity instruments. As it relates to the market
approach, there is less management judgment in determining the
fair value of our reporting units other than selecting which
guideline publicly-traded companies are included in our peer
group.
For the fiscal 2010 impairment assessment our Applications
reporting unit revenue terminal growth rate was 3% and our
weighted average cost of capital was 11%. A decline in cash flow
of 13.5% due to a
50
reduction in revenues, or margins achieved, as compared to our
forecast would have caused the Applications reporting unit to
fail step one of our annual impairment test. In addition, a
1.3 percentage point increase in our weighted average cost
of capital would have caused the Applications reporting unit to
fail step one of our annual impairment test.
The timing and frequency of our goodwill impairment test is
based on an ongoing assessment of events and circumstances that
would be an indicator of potential impairment of a reporting
unit below its carrying value. There are various assumptions and
estimates underlying the determination of an impairment loss,
and estimates using different but, in each case, reasonable
assumptions could produce significantly different results and
materially affect the determination of fair value
and/or
goodwill impairment for each reporting unit. For example, if the
expected recovery of the economy is delayed significantly beyond
what we have anticipated in our forecasts, it could cause the
fair value of our Applications reporting unit to fall below its
respective carrying value. We believe that the assumptions and
estimates utilized were appropriate based on the information
available to management. The timing and recognition of
impairment losses by us in the future, if any, may be highly
dependent upon our estimates and assumptions.
Share-Based
Compensation
We account for share-based compensation using the fair value
recognition provisions as required in the accounting literature.
We estimate the fair value of options granted using the
Black-Scholes option valuation model. We estimate the volatility
of our common stock at the date of grant based on a combination
of the implied volatility of publicly traded options on our
common stock and our historical volatility rate. Our decision to
use implied volatility was based upon the availability of
actively traded options on our common stock and our assessment
that implied volatility is more representative of future stock
price trends than historical volatility. We estimate the
expected term of options granted based on historical exercise
patterns. The dividend yield assumption is based on historical
dividend payouts. The risk-free interest rate assumption is
based on observed interest rates appropriate for the term of our
employee options. We use historical data to estimate pre-vesting
option forfeitures and record share-based compensation expense
only for those awards that are expected to vest. For options
granted, we amortize the fair value on a straight-line basis.
All options are amortized over the requisite service periods of
the awards, which are generally the vesting periods. If factors
change we may decide to use different assumptions under the
Black-Scholes option valuation model in the future, which could
materially affect our share-based compensation expense, net
income and earnings per share.
Income
Taxes
We use the asset and liability approach to account for income
taxes. This methodology recognizes deferred tax assets and
liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax
base of assets and liabilities and operating loss and tax credit
carryforwards. We then record a valuation allowance to reduce
deferred tax assets to an amount that more likely than not will
be realized. We consider future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the
need for the valuation allowance, which requires the use of
estimates. If we determine during any period that we could
realize a larger net deferred tax asset than the recorded
amount, we would adjust the deferred tax asset to increase
income for the period or reduce goodwill if such deferred tax
asset relates to an acquisition. Conversely, if we determine
that we would be unable to realize a portion of our recorded
deferred tax asset, we would adjust the deferred tax asset to
record a charge to income. To the extent an adjustment in our
deferred tax assets relates to a business combination the
adjustment is recorded either in income from continuing
operations in the period of the combination or directly in
contributed capital, depending on the circumstances. Although we
believe that our estimates are reasonable, there is no assurance
that our valuation allowance will not need to be increased to
cover additional deferred tax assets that may not be realizable,
and such an increase could have a material adverse impact on our
income tax provision and results of operations in the period in
which such determination is made. In addition, the calculation
of tax liabilities also involves significant judgment in
estimating the impact of uncertainties in the application of
complex tax laws. Resolution of these uncertainties in a manner
inconsistent with managements expectations could also have
a
51
material impact on our income tax provision and consolidated
results of operations in the period in which such determination
is made.
Contingencies
and Litigation
We are subject to various proceedings, lawsuits and claims
relating to products and services, technology, labor,
shareholder and other matters. We are required to assess the
likelihood of any adverse outcomes and the potential range of
probable losses in these matters. If the potential loss is
considered probable and the amount can be reasonably estimated,
we accrue a liability for the estimated loss. If the potential
loss is considered less than probable or the amount cannot be
reasonably estimated, disclosure of the matter is considered.
The amount of loss accrual or disclosure, if any, is determined
after analysis of each matter, and is subject to adjustment if
warranted by new developments or revised strategies. Due to
uncertainties related to these matters, accruals or disclosures
are based on the best information available at the time.
Significant judgment is required in both the assessment of
likelihood and in the determination of a range of potential
losses. Revisions in the estimates of the potential liabilities
could have a material impact on our consolidated financial
position or consolidated results of operations.
New
Accounting Pronouncements Not Yet Adopted
In June 2009, the FASB issued new accounting guidance related to
the consolidation of variable interest entities. The guidance
requires revised evaluations of whether entities represent
variable interest entities, ongoing assessments of control over
such entities, and additional disclosures for variable
interests. We do not believe the adoption of this guidance will
have a material impact on our consolidated financial statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Market
Risk Disclosures
We are exposed to market risk related to changes in interest
rates, equity market prices, and foreign currency exchange
rates. We do not use derivative financial instruments for
speculative or trading purposes.
Interest
Rate Risk
We maintain an investment portfolio consisting mainly of income
securities with an average maturity of two years or less. These
available-for-sale
securities are subject to interest rate risk and will fall in
value if market interest rates increase. We have the ability to
hold our fixed income investments until maturity, and therefore
we would not expect our operating results or cash flows to be
affected to any significant degree by the effect of a sudden
change in market interest rates on our securities portfolio. The
following table presents the principal amounts and related
weighted-average yields for our investments with interest rate
risk at September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
|
|
|
Carrying
|
|
|
Average
|
|
|
|
|
|
Carrying
|
|
|
Average
|
|
|
|
Cost Basis
|
|
|
Amount
|
|
|
Yield
|
|
|
Cost Basis
|
|
|
Amount
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
146,199
|
|
|
$
|
146,199
|
|
|
|
0.10
|
%
|
|
$
|
178,157
|
|
|
$
|
178,157
|
|
|
|
0.12
|
%
|
Short-term investments
|
|
|
68,554
|
|
|
|
68,615
|
|
|
|
0.94
|
%
|
|
|
139,149
|
|
|
|
139,673
|
|
|
|
1.26
|
%
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,437
|
|
|
|
57,611
|
|
|
|
1.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
214,753
|
|
|
$
|
214,814
|
|
|
|
0.37
|
%
|
|
$
|
374,743
|
|
|
$
|
375,441
|
|
|
|
0.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In May 2008, we issued $275 million of Senior Notes to a
group of institutional investors in a private placement. In July
2010 we issued an additional $245 million of Senior Notes
to a group of institutional investors in a private placement.
The fair value of our Senior Notes may increase or decrease due
to various factors, including fluctuations in market interest
rates and fluctuations in general economic conditions. See
Managements Discussion and Analysis of Financial Condition
and Results of Operations Capital Resources
52
and Liquidity, above, for additional information on the Senior
Notes. The following table presents the principal amounts,
carrying amounts, and fair values for our Senior Notes at
September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Principal
|
|
|
Amounts
|
|
|
Fair Value
|
|
|
Principal
|
|
|
Amounts
|
|
|
Fair Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
May 2008 $275 million Senior Notes
|
|
$
|
275,000
|
|
|
$
|
275,000
|
|
|
$
|
315,019
|
|
|
$
|
275,000
|
|
|
$
|
275,000
|
|
|
$
|
301,295
|
|
July 2010 $245 million Senior Notes
|
|
$
|
245,000
|
|
|
$
|
245,000
|
|
|
$
|
258,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have interest rate risk with respect to our five-year
$600 million unsecured revolving line of credit. Interest
on amounts borrowed under the line of credit is based on
(i) a base rate, which is the greater of (a) the prime
rate and (b) the Federal Funds rate plus 0.50% or
(ii) LIBOR plus an applicable margin. The margin on LIBOR
borrowings ranges from 0.30% to 0.55% and is determined based on
our consolidated leverage ratio. A change in interest rates on
this variable rate debt impacts the interest incurred and cash
flows, but does not impact the fair value of the instrument. We
had $295.0 million of borrowings outstanding on this
facility as of September 30, 2009. On July 14, 2010,
we repaid all outstanding obligations under the revolving line
of credit using proceeds from the issuance of $245 million
of Senior Notes, and as of September 30, 2010 we had no
outstanding borrowings on this facility.
Forward
Foreign Currency Contracts
We maintain a program to manage our foreign currency exchange
rate risk on existing foreign currency receivable and cash
balances by entering into forward contracts to sell or buy
foreign currency. At period end, foreign-denominated receivables
and cash balances held by our U.S. reporting entities are
remeasured into the U.S. dollar functional currency at
current market rates. The change in value from this
remeasurement is then reported as a foreign exchange gain or
loss for that period in our accompanying consolidated statements
of income and the resulting gain or loss on the forward contract
mitigates the exchange rate risk of the associated assets. All
of our forward foreign currency contracts have maturity periods
of less than three months. Such derivative financial instruments
are subject to market risk.
The following table summarizes our outstanding forward foreign
currency contracts, by currency at September 30, 2010 and
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
Contract Amount
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
Fair Value
|
|
|
|
Currency
|
|
|
US$
|
|
|
US$
|
|
|
|
(In thousands)
|
|
|
Sell foreign currency:
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian dollar (CAD)
|
|
|
CAD 1,300
|
|
|
$
|
1,258
|
|
|
$
|
|
|
Euro (EUR)
|
|
|
EUR 5,460
|
|
|
$
|
7,446
|
|
|
|
|
|
Buy foreign currency:
|
|
|
|
|
|
|
|
|
|
|
|
|
British pound (GBP)
|
|
|
GBP 3,672
|
|
|
$
|
5,800
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
Contract Amount
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
Fair Value
|
|
|
|
Currency
|
|
|
US$
|
|
|
US$
|
|
|
|
(In thousands)
|
|
|
Sell foreign currency:
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian dollar (CAD)
|
|
|
CAD 1,100
|
|
|
$
|
1,022
|
|
|
$
|
|
|
Euro (EUR)
|
|
|
EUR 6,100
|
|
|
$
|
8,908
|
|
|
|
|
|
Japanese yen (JPY)
|
|
|
JPY 61,000
|
|
|
$
|
679
|
|
|
|
|
|
Buy foreign currency:
|
|
|
|
|
|
|
|
|
|
|
|
|
British pound (GBP)
|
|
|
GBP 2,866
|
|
|
$
|
4,600
|
|
|
|
|
|
The forward foreign currency contracts were all entered into on
September 30, 2010; therefore, the fair value was $0 on
that date.
54
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Fair Isaac Corporation
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of
Fair Isaac Corporation and subsidiaries (the
Company) as of September 30, 2010 and 2009, and
the related consolidated statements of income,
stockholders equity, and cash flows for each of the three
years in the period ended September 30, 2010. We also have
audited the Companys internal control over financial
reporting as of September 30, 2010, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for these financial statements, for
maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on these
consolidated financial statements and an opinion on the
Companys internal control over financial reporting based
on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement and whether
effective internal control over financial reporting was
maintained in all material respects. Our audits of the
consolidated financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting
principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included
obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Company as of September 30, 2010 and 2009,
and the results of its operations and its cash flows for each of
the three years in the period ended September 30, 2010, in
55
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the Company
maintained, in all material respects, effective internal control
over financial reporting as of September 30, 2010, based on
the criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
As discussed in Note 1 to the consolidated financial
statements, effective October 1, 2009, the Company adopted
a new accounting standard concerning accounting for revenue
recognition for non-software deliverables in multiple element
arrangements.
/s/ Deloitte &
Touche LLP
Minneapolis, MN
November 23, 2010
56
FAIR
ISAAC CORPORATION
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except
|
|
|
|
par value data)
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
146,199
|
|
|
$
|
178,157
|
|
Marketable securities available for sale, current portion
|
|
|
68,615
|
|
|
|
139,673
|
|
Accounts receivable, net
|
|
|
113,187
|
|
|
|
101,742
|
|
Prepaid expenses and other current assets
|
|
|
19,174
|
|
|
|
22,986
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
347,175
|
|
|
|
442,558
|
|
Marketable securities available for sale, less current portion
|
|
|
4,367
|
|
|
|
61,371
|
|
Other investments
|
|
|
11,074
|
|
|
|
11,074
|
|
Property and equipment, net
|
|
|
30,975
|
|
|
|
34,340
|
|
Goodwill
|
|
|
665,953
|
|
|
|
667,640
|
|
Intangible assets, net
|
|
|
27,244
|
|
|
|
38,255
|
|
Deferred income taxes
|
|
|
27,774
|
|
|
|
38,100
|
|
Other assets
|
|
|
9,154
|
|
|
|
10,550
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,123,716
|
|
|
$
|
1,303,888
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
8,765
|
|
|
$
|
8,593
|
|
Accrued compensation and employee benefits
|
|
|
33,697
|
|
|
|
28,139
|
|
Other accrued liabilities
|
|
|
28,732
|
|
|
|
38,183
|
|
Deferred revenue
|
|
|
42,953
|
|
|
|
39,673
|
|
Current maturities on long-term debt
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
122,147
|
|
|
|
114,588
|
|
|
|
|
|
|
|
|
|
|
Revolving line of credit
|
|
|
|
|
|
|
295,000
|
|
Senior notes
|
|
|
512,000
|
|
|
|
275,000
|
|
Other liabilities
|
|
|
14,655
|
|
|
|
19,031
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
648,802
|
|
|
|
703,619
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock ($0.01 par value; 1,000 shares
authorized; none issued and outstanding)
|
|
|
|
|
|
|
|
|
Common stock ($0.01 par value; 200,000 shares
authorized, 88,857 shares issued and 39,882 and
48,156 shares outstanding at September 30, 2010 and
2009, respectively)
|
|
|
399
|
|
|
|
482
|
|
Paid-in-capital
|
|
|
1,103,244
|
|
|
|
1,106,292
|
|
Treasury stock, at cost (48,975 and 40,701 shares at
September 30, 2010 and 2009, respectively)
|
|
|
(1,556,253
|
)
|
|
|
(1,375,400
|
)
|
Retained earnings
|
|
|
947,202
|
|
|
|
886,324
|
|
Accumulated other comprehensive loss
|
|
|
(19,678
|
)
|
|
|
(17,429
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
474,914
|
|
|
|
600,269
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,123,716
|
|
|
$
|
1,303,888
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
57
FAIR
ISAAC CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactional and maintenance
|
|
$
|
455,487
|
|
|
$
|
478,702
|
|
|
$
|
535,955
|
|
Professional services
|
|
|
102,878
|
|
|
|
112,413
|
|
|
|
147,914
|
|
License
|
|
|
47,278
|
|
|
|
39,620
|
|
|
|
60,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
605,643
|
|
|
|
630,735
|
|
|
|
744,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues(1)
|
|
|
180,932
|
|
|
|
206,448
|
|
|
|
274,917
|
|
Research and development
|
|
|
73,581
|
|
|
|
73,626
|
|
|
|
77,794
|
|
Selling, general and administrative(1)
|
|
|
225,263
|
|
|
|
209,319
|
|
|
|
245,639
|
|
Amortization of intangible assets(1)
|
|
|
10,901
|
|
|
|
12,891
|
|
|
|
14,043
|
|
Restructuring
|
|
|
1,617
|
|
|
|
8,711
|
|
|
|
10,166
|
|
Loss on sale of product line assets
|
|
|
|
|
|
|
2,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
492,294
|
|
|
|
513,988
|
|
|
|
622,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
113,349
|
|
|
|
116,747
|
|
|
|
122,283
|
|
Interest income
|
|
|
1,688
|
|
|
|
4,717
|
|
|
|
8,802
|
|
Interest expense
|
|
|
(24,124
|
)
|
|
|
(25,481
|
)
|
|
|
(20,335
|
)
|
Other income, net
|
|
|
1,391
|
|
|
|
1,587
|
|
|
|
2,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
92,304
|
|
|
|
97,570
|
|
|
|
112,995
|
|
Provision for income taxes
|
|
|
27,847
|
|
|
|
32,105
|
|
|
|
31,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
64,457
|
|
|
|
65,465
|
|
|
|
81,186
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
(363
|
)
|
|
|
2,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
64,457
|
|
|
$
|
65,102
|
|
|
$
|
83,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.44
|
|
|
$
|
1.35
|
|
|
$
|
1.66
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1.44
|
|
|
$
|
1.34
|
|
|
$
|
1.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.42
|
|
|
$
|
1.34
|
|
|
$
|
1.64
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1.42
|
|
|
$
|
1.33
|
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
44,903
|
|
|
|
48,658
|
|
|
|
48,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
45,308
|
|
|
|
48,776
|
|
|
|
49,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Cost of revenues and selling, general and administrative
expenses exclude the amortization of intangible assets. See
Note 9 to consolidated financial statements. |
See accompanying notes to consolidated financial statements.
58
FAIR
ISAAC CORPORATION
Years
Ended September 30, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
Paid-in-
|
|
|
Treasury
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Stock
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Income
|
|
|
|
(In thousands)
|
|
|
Balance at September 30, 2007
|
|
|
51,064
|
|
|
|
511
|
|
|
|
1,097,327
|
|
|
|
(1,290,393
|
)
|
|
|
745,054
|
|
|
|
13,815
|
|
|
|
566,314
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
27,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,981
|
|
|
|
|
|
Exercise of stock options
|
|
|
523
|
|
|
|
5
|
|
|
|
(5,594
|
)
|
|
|
17,878
|
|
|
|
|
|
|
|
|
|
|
|
12,289
|
|
|
|
|
|
Tax effect from share based payment arrangements
|
|
|
|
|
|
|
|
|
|
|
(2,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,375
|
)
|
|
|
|
|
Forfeitures of restricted stock
|
|
|
(35
|
)
|
|
|
|
|
|
|
1,114
|
|
|
|
(1,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
(3,540
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
(116,607
|
)
|
|
|
|
|
|
|
|
|
|
|
(116,642
|
)
|
|
|
|
|
Issuance of ESPP shares from treasury
|
|
|
384
|
|
|
|
3
|
|
|
|
(4,691
|
)
|
|
|
13,142
|
|
|
|
|
|
|
|
|
|
|
|
8,454
|
|
|
|
|
|
Issuance of restricted stock to employees from treasury
|
|
|
77
|
|
|
|
1
|
|
|
|
(3,597
|
)
|
|
|
2,639
|
|
|
|
|
|
|
|
|
|
|
|
(957
|
)
|
|
|
|
|
Dividends paid ($0.08 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,897
|
)
|
|
|
|
|
|
|
(3,897
|
)
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,952
|
|
|
|
|
|
|
|
83,952
|
|
|
$
|
83,952
|
|
Unrealized gains on investments, net of tax of $25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
38
|
|
|
|
38
|
|
Cumulative translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,216
|
)
|
|
|
(13,216
|
)
|
|
|
(13,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
|
48,473
|
|
|
|
485
|
|
|
|
1,110,165
|
|
|
|
(1,374,455
|
)
|
|
|
825,109
|
|
|
|
637
|
|
|
|
561,941
|
|
|
$
|
70,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
19,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,935
|
|
|
|
|
|
Exercise of stock options
|
|
|
148
|
|
|
|
1
|
|
|
|
(3,197
|
)
|
|
|
5,027
|
|
|
|
|
|
|
|
|
|
|
|
1,831
|
|
|
|
|
|
Tax effect from share based payment arrangements
|
|
|
|
|
|
|
|
|
|
|
(9,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,545
|
)
|
|
|
|
|
Forfeitures of restricted stock
|
|
|
(2
|
)
|
|
|
|
|
|
|
64
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
(832
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
(18,492
|
)
|
|
|
|
|
|
|
|
|
|
|
(18,500
|
)
|
|
|
|
|
Issuance of ESPP shares from treasury
|
|
|
195
|
|
|
|
2
|
|
|
|
(3,848
|
)
|
|
|
6,646
|
|
|
|
|
|
|
|
|
|
|
|
2,800
|
|
|
|
|
|
Issuance of restricted stock to employees from treasury
|
|
|
174
|
|
|
|
2
|
|
|
|
(7,282
|
)
|
|
|
5,938
|
|
|
|
|
|
|
|
|
|
|
|
(1,342
|
)
|
|
|
|
|
Dividends paid ($0.08 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,887
|
)
|
|
|
|
|
|
|
(3,887
|
)
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,102
|
|
|
|
|
|
|
|
65,102
|
|
|
$
|
65,102
|
|
Unrealized gains on investments, net of tax of $232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
359
|
|
|
|
359
|
|
|
|
359
|
|
Cumulative translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,425
|
)
|
|
|
(18,425
|
)
|
|
|
(18,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
|
48,156
|
|
|
|
482
|
|
|
|
1,106,292
|
|
|
|
(1,375,400
|
)
|
|
|
886,324
|
|
|
|
(17,429
|
)
|
|
|
600,269
|
|
|
$
|
47,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
17,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,305
|
|
|
|
|
|
Exercise of stock options
|
|
|
288
|
|
|
|
3
|
|
|
|
(5,539
|
)
|
|
|
9,528
|
|
|
|
|
|
|
|
|
|
|
|
3,992
|
|
|
|
|
|
Tax effect from share based payment arrangements
|
|
|
|
|
|
|
|
|
|
|
(4,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,717
|
)
|
|
|
|
|
Repurchases of common stock
|
|
|
(8,790
|
)
|
|
|
(88
|
)
|
|
|
|
|
|
|
(197,894
|
)
|
|
|
|
|
|
|
|
|
|
|
(197,982
|
)
|
|
|
|
|
Issuance of ESPP shares from treasury
|
|
|
2
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
Issuance of restricted stock to employees from treasury
|
|
|
226
|
|
|
|
2
|
|
|
|
(10,079
|
)
|
|
|
7,458
|
|
|
|
|
|
|
|
|
|
|
|
(2,619
|
)
|
|
|
|
|
Dividends paid ($0.08 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,579
|
)
|
|
|
|
|
|
|
(3,579
|
)
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,457
|
|
|
|
|
|
|
|
64,457
|
|
|
|
64,457
|
|
Unrealized losses on investments, net of tax benefit of $250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(387
|
)
|
|
|
(387
|
)
|
|
|
(387
|
)
|
Cumulative translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,862
|
)
|
|
|
(1,862
|
)
|
|
|
(1,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
|
39,882
|
|
|
$
|
399
|
|
|
$
|
1,103,244
|
|
|
$
|
(1,556,253
|
)
|
|
$
|
947,202
|
|
|
$
|
(19,678
|
)
|
|
$
|
474,914
|
|
|
$
|
62,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
59
FAIR
ISAAC CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
64,457
|
|
|
$
|
65,102
|
|
|
$
|
83,952
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
30,918
|
|
|
|
38,419
|
|
|
|
39,494
|
|
Share-based compensation
|
|
|
17,305
|
|
|
|
19,935
|
|
|
|
27,981
|
|
Deferred income taxes
|
|
|
6,761
|
|
|
|
(5,031
|
)
|
|
|
(23,095
|
)
|
Tax effect from share-based payment arrangements
|
|
|
(4,717
|
)
|
|
|
(9,545
|
)
|
|
|
(2,375
|
)
|
Excess tax benefits from share-based payment arrangements
|
|
|
(1,158
|
)
|
|
|
(280
|
)
|
|
|
(1,342
|
)
|
Gain on repurchase of senior convertible notes
|
|
|
|
|
|
|
|
|
|
|
(896
|
)
|
Net amortization of premium on marketable securities
|
|
|
2,174
|
|
|
|
1,057
|
|
|
|
579
|
|
(Benefit from) Provision for doubtful accounts
|
|
|
(118
|
)
|
|
|
499
|
|
|
|
3,414
|
|
Loss on sale of business unit
|
|
|
|
|
|
|
|
|
|
|
6,952
|
|
Loss on sale of product line assets
|
|
|
|
|
|
|
2,993
|
|
|
|
|
|
Net loss on sales of property and equipment
|
|
|
694
|
|
|
|
115
|
|
|
|
39
|
|
Changes in operating assets and liabilities, net of acquisition
and
disposition effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(11,561
|
)
|
|
|
31,316
|
|
|
|
20,153
|
|
Prepaid expenses and other assets
|
|
|
315
|
|
|
|
36
|
|
|
|
1,766
|
|
Accounts payable
|
|
|
(317
|
)
|
|
|
(2,519
|
)
|
|
|
(1,569
|
)
|
Accrued compensation and employee benefits
|
|
|
5,413
|
|
|
|
(976
|
)
|
|
|
(13,363
|
)
|
Other liabilities
|
|
|
(3,290
|
)
|
|
|
3,214
|
|
|
|
14,033
|
|
Deferred revenue
|
|
|
(1,096
|
)
|
|
|
7,298
|
|
|
|
3,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
105,780
|
|
|
|
151,633
|
|
|
|
159,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(17,453
|
)
|
|
|
(13,958
|
)
|
|
|
(22,780
|
)
|
Cash proceeds from sales of property and equipment
|
|
|
50
|
|
|
|
|
|
|
|
1,527
|
|
Cash proceeds from sales of product line assets
|
|
|
2,182
|
|
|
|
4,000
|
|
|
|
|
|
Cash paid for acquisition, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(33,336
|
)
|
Cash proceeds from sale of business unit
|
|
|
|
|
|
|
|
|
|
|
15,581
|
|
Purchases of marketable securities
|
|
|
(71,749
|
)
|
|
|
(197,274
|
)
|
|
|
(161,803
|
)
|
Proceeds from sale of marketable securities
|
|
|
10,014
|
|
|
|
7,400
|
|
|
|
2,008
|
|
Proceeds from maturities of marketable securities
|
|
|
187,593
|
|
|
|
116,585
|
|
|
|
167,684
|
|
Distribution from cost method investees
|
|
|
|
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
110,637
|
|
|
|
(81,947
|
)
|
|
|
(31,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving line of credit
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
Payments on revolving line of credit
|
|
|
(295,000
|
)
|
|
|
|
|
|
|
(175,000
|
)
|
Proceeds from issuance of senior notes
|
|
|
245,000
|
|
|
|
|
|
|
|
275,000
|
|
Payments for repurchases of senior convertible notes
|
|
|
|
|
|
|
|
|
|
|
(390,067
|
)
|
Debt issuance costs
|
|
|
(1,343
|
)
|
|
|
|
|
|
|
(1,477
|
)
|
Proceeds from issuances of common stock under employee stock
option and purchase plans
|
|
|
1,410
|
|
|
|
3,289
|
|
|
|
19,786
|
|
Dividends paid
|
|
|
(3,579
|
)
|
|
|
(3,887
|
)
|
|
|
(3,897
|
)
|
Repurchases of common stock
|
|
|
(196,119
|
)
|
|
|
(18,500
|
)
|
|
|
(116,642
|
)
|
Excess tax benefits from share-based payment arrangements
|
|
|
1,158
|
|
|
|
280
|
|
|
|
1,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(248,473
|
)
|
|
|
(18,818
|
)
|
|
|
(90,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
98
|
|
|
|
(2,389
|
)
|
|
|
(2,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in cash and cash equivalents
|
|
|
(31,958
|
)
|
|
|
48,479
|
|
|
|
34,394
|
|
Cash and cash equivalents, beginning of year
|
|
|
178,157
|
|
|
|
129,678
|
|
|
|
95,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
146,199
|
|
|
$
|
178,157
|
|
|
$
|
129,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, net of refunds of $457, $2,742 and
$1,447 during the years ended September 30, 2010, 2009 and
2008, respectively
|
|
$
|
26,885
|
|
|
$
|
28,364
|
|
|
$
|
20,074
|
|
Cash paid for interest
|
|
$
|
21,048
|
|
|
$
|
26,189
|
|
|
$
|
13,009
|
|
See accompanying notes to consolidated financial statements.
60
FAIR
ISAAC CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Years
Ended September 30, 2010, 2009 and 2008
|
|
1.
|
Nature of
Business and Summary of Significant Accounting
Policies
|
Fair
Isaac Corporation
Incorporated under the laws of the State of Delaware, Fair Isaac
Corporation (FICO) is a provider of analytic,
software and data management products and services that enable
businesses to automate, improve and connect decisions. FICO
provides a range of analytical solutions, credit scoring and
credit account management products and services to banks, credit
reporting agencies, credit card processing agencies, insurers,
retailers and healthcare organizations.
In these consolidated financial statements, FICO is referred to
as we, us, our, or
FICO.
Principles
of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of
FICO and its subsidiaries. All intercompany accounts and
transactions have been eliminated.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from
those estimates. These estimates and assumptions include, but
are not limited to, assessing the following: the recoverability
of accounts receivable, goodwill and other intangible assets,
software development costs, deferred tax assets, the benefits
related to uncertain tax positions, the determination of the
fair value of
stock-based
compensation, the ability to estimate hours in connection with
fixed-fee service contracts, the ability to estimate
transactional-based revenues for which actual transaction
volumes have not yet been received, and the determination of
whether fees are fixed or determinable and collection is
probable or reasonably assured.
Cash
and Cash Equivalents
Cash and cash equivalents consist of cash in banks and
investments with a maturity of 90 days or less at time of
purchase.
Fair
Value of Financial Instruments
The fair value of certain of our financial instruments,
including cash and cash equivalents, receivables, other current
assets, accounts payable, accrued compensation and employee
benefits, other accrued liabilities and amounts outstanding
under our revolving line of credit, approximate their carrying
amounts because of the short-term maturity of these instruments.
The fair values of our cash and cash equivalents and marketable
security investments are disclosed in Note 5. The fair
value of our Senior Notes is disclosed in Note 12.
Investments
Management determines the appropriate classification of our
investments in marketable debt and equity securities at the time
of purchase, and re-evaluates this designation at each balance
sheet date. While it is our intent to hold debt securities to
maturity, our investments in U.S. government obligations
and marketable equity and debt securities that have readily
determinable fair values are classified as
available-for-sale,
as the sale of such securities may be required prior to maturity
to implement management strategies. Therefore, such securities
are carried at fair value with unrealized gains or losses
related to these securities included in
61
FAIR
ISAAC CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
accumulated other comprehensive income (loss). The fair value of
marketable securities is based upon inputs including quoted
prices for identical or similar assets. Realized gains and
losses are included in other income, net on the consolidated
statements of income. The cost of investments sold is based on
the specific identification method. Losses resulting from other
than temporary declines in fair value are charged to operations.
Investments with remaining maturities over one year are
classified as long-term investments.
Our investments in equity securities of companies over which we
do not have significant influence are accounted for under the
cost method. Investments in which we own 20% to 50% and exercise
significant influence over operating and financial policies are
accounted for using the equity method. Under the equity method,
the investment is originally recorded at cost and adjusted to
recognize our share of net earnings or losses of the investee,
limited to the extent of our investment in, advances to, and
financial guarantees for the investee. Under the cost method,
the investment is originally recorded at cost and adjusted for
additional contributions or distributions. Management
periodically reviews equity-method and cost-method investments
for instances where fair value is less than the carrying amount
and the decline in value is determined to be other than
temporary. If the decline in value is judged to be other than
temporary, the carrying amount of the security is written down
to fair value and the resulting loss is charged to operations.
Concentration
of Risk
Financial instruments that potentially expose us to
concentrations of risk consist primarily of cash and cash
equivalents, marketable securities and accounts receivable,
which are generally not collateralized. Our policy is to place
our cash, cash equivalents, and marketable securities with high
quality financial institutions, commercial corporations and
government agencies in order to limit the amount of credit
exposure. We have established guidelines relative to
diversification and maturities for maintaining safety and
liquidity. We generally do not require collateral from our
customers, but our credit extension and collection policies
include analyzing the financial condition of potential
customers, establishing credit limits, monitoring payments, and
aggressively pursuing delinquent accounts. We maintain
allowances for potential credit losses.
A significant portion of our revenues are derived from the sales
of products and services to the consumer credit, banking and
insurance industries.
Property
and Equipment
Property and equipment are recorded at cost less accumulated
depreciation and amortization. Major renewals and improvements
are capitalized, while repair and maintenance costs are expensed
as incurred. Depreciation and amortization charges are
calculated using the straight-line method over the following
estimated useful lives:
|
|
|
|
|
Estimated Useful Life
|
|
Data processing equipment and software
|
|
2 to 3 years
|
Office furniture and equipment
|
|
3 to 7 years
|
Leasehold improvements
|
|
Shorter of estimated useful life or lease term
|
The cost and accumulated depreciation for property and equipment
sold, retired or otherwise disposed of are removed from the
applicable accounts and resulting gains or losses are recorded
in our consolidated statement of operations. Depreciation and
amortization on property and equipment totaled
$20.0 million, $25.5 million and $24.1 million
during fiscal 2010, 2009 and 2008, respectively.
Internal-use
Software
Costs incurred to develop internal-use software during the
application development stage are capitalized and reported at
cost, subject to an impairment test as described below.
Application development stage costs
62
FAIR
ISAAC CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
generally include costs associated with internal-use software
configuration, coding, installation and testing. Costs of
significant upgrades and enhancements that result in additional
functionality are also capitalized whereas costs incurred for
maintenance and minor upgrades and enhancements are expensed as
incurred. Capitalized costs are amortized using the
straight-line method over two to three years.
We assess potential impairment of capitalized internal-use
software whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset group to the
future undiscounted net cash flows that are expected to be
generated by the asset group. If such assets are considered to
be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to
sell. During fiscal 2010, we impaired $0.6 million of
previously capitalized internal-use software. We did not
capitalize any internal use software in fiscal 2010 while
capitalizing $0.3 million in fiscal 2009 and 2008. We did
not amortize any internal-use software in fiscal 2010 while
amortizing $0.3 million and $0.6 million in fiscal
2009 and 2008, respectively.
Capitalized
Software and Research and Development Costs
All costs incurred prior to the resolution of unproven
functionality and features, including new technologies, are
expensed as research and development costs. Software development
costs incurred between completion of a working prototype and
general availability of the related products have not been
significant and have been expensed as incurred. Technological
feasibility for our products occurs approximately concurrently
with the general release of our products, accordingly, we have
not capitalized any development or production costs. Costs we
incur to maintain and support our existing products after the
general release of the product are expensed in the period they
are incurred and included in research and development costs in
our statements of operations. Research and development costs
totaled $73.6 million, $73.6 million and
$77.8 million in fiscal 2010, 2009 and 2008, respectively.
Goodwill
and Intangible Assets
Goodwill represents the excess of the purchase price over the
fair value of net assets acquired in connection with our
business combinations accounted for by the purchase method of
accounting (see Note 9). We test goodwill for impairment at
the reporting unit level at least annually during the fourth
quarter of each fiscal year and more frequently if impairment
indicators are identified. We have determined that our reporting
units are the same as our reportable segments. The first step of
the goodwill impairment test is a comparison of the fair value
of a reporting unit to its carrying value. We estimate the fair
values of our reporting units using discounted cash flow
valuation models and by comparing our reporting units to
guideline publicly-traded companies. These methods require
estimates of our future revenues, profits, capital expenditures,
working capital, and other relevant factors, as well as
selecting appropriate guideline publicly-traded companies for
each reporting unit. We estimate these amounts by evaluating
historical trends, current budgets, operating plans, industry
data, and other relevant factors.
Definite-lived intangible assets are tested for impairment if
impairment indicators arise. We amortize our definite-lived
intangible assets, which result from our acquisitions accounted
for under the purchase method of accounting, using the
straight-line method or based on the forecasted cash flows
associated with the assets over the following estimated useful
lives:
|
|
|
|
|
Estimated Useful Life
|
|
Completed technology
|
|
4 to 6 years
|
Customer contracts and relationships
|
|
2 to 15 years
|
Trade names
|
|
5 years
|
63
FAIR
ISAAC CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue
Recognition
Software
Licenses
Software license fee revenue is recognized when persuasive
evidence of an arrangement exists, software is made available to
our customers, the fee is fixed or determinable and collection
is probable. The determination of whether fees are fixed or
determinable and collection is probable involves the use of
assumptions. If at the outset of an arrangement we determine
that the arrangement fee is not fixed or determinable, revenue
is deferred until the arrangement fee becomes fixed or
determinable, assuming all other revenue recognition criteria
have been met. If at the outset of an arrangement we determine
that collectability is not probable, revenue is deferred until
the earlier of when collectability becomes probable or the
receipt of payment. If there is uncertainty as to the
customers acceptance of our deliverables, revenue is not
recognized until the earlier of receipt of customer acceptance,
expiration of the acceptance period, or when we can demonstrate
we meet the acceptance criteria. We evaluate contract terms and
customer information to ensure that these criteria are met prior
to our recognition of license fee revenue.
We use the residual method to recognize revenue when an
arrangement includes one or more elements to be delivered at a
future date and vendor-specific objective evidence
(VSOE) of the fair value of all undelivered elements
exists. VSOE of fair value is based on the normal pricing
practices for those products and services when sold separately
by us and customer renewal rates for post-contract customer
support services. Under the residual method, the fair value of
the undelivered elements is deferred and the remaining portion
of the arrangement fee is recognized as revenue. If evidence of
the fair value of one or more undelivered elements does not
exist, the revenue is deferred and recognized when delivery of
those elements occurs or when fair value can be established.
Changes to the elements in a software arrangement, the ability
to identify VSOE for those elements, the fair value of the
respective elements, and change to a products estimated
life cycle could materially impact the amount of earned and
unearned revenue.
When software licenses are sold together with implementation or
consulting services, license fees are recognized upon delivery
provided that the above criteria are met, payment of the license
fees is not dependent upon the performance of the services, and
the services do not provide significant customization or
modification of the software products and are not essential to
the functionality of the software that was delivered. For
arrangements with services that are essential to the
functionality of the software, the license and related service
revenues are recognized using contract accounting as described
below.
Revenues from post-contract customer support services, such as
software maintenance, are recognized on a straight-line basis
over the term of the support period. The majority of our
software maintenance agreements provide technical support as
well as unspecified software product upgrades and releases when
and if made available by us during the term of the support
period.
Transactional-based
Revenues
Transactional-based revenue is recognized when persuasive
evidence of an arrangement exists, fees are fixed or
determinable, and collection is reasonably assured. Revenues
from our credit scoring, data processing, data management and
internet delivery services are recognized as these services are
performed. Revenues from transactional or unit-based license
fees under software license arrangements, network service and
internally-hosted software agreements are recognized based on
minimum contractual amounts or on system usage that exceeds
minimum contractual amounts. Certain of our transactional-based
revenues are based on transaction or active account volumes as
reported by our clients. In instances where volumes are reported
to us in arrears, we estimate volumes based on preliminary
customer transaction information or average actual reported
volumes for an immediate trailing period. Differences between
our estimates and actual final volumes reported are recorded in
the period in which actual volumes are reported. We have not
experienced significant variances between our estimates and
actual reported volumes in the past and anticipate that we will
be able to continue
64
FAIR
ISAAC CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to make reasonable estimates in the future. If for some reason
we were unable to reasonably estimate transaction volumes in the
future, revenue may be deferred until actual customer data is
received, and this could have a material impact on our
consolidated results of operations.
Consulting
Services
We provide consulting, training, model development and software
integration services under both hourly-based time and materials
and fixed-priced contracts. Revenues from these services are
generally recognized as the services are performed. For
fixed-price service contracts, we apply the
percentage-of-completion
method of contract accounting to determine progress towards
completion, which requires the use of estimates. In such
instances, management is required to estimate the input
measures, generally based on hours incurred to date compared to
total estimated hours of the project, with consideration also
given to output measures, such as contract milestones, when
applicable. Adjustments to estimates are made in the period in
which the facts requiring such revisions become known and,
accordingly, recognized revenues and profits are subject to
revisions as the contract progresses to completion. Estimated
losses, if any, are recorded in the period in which current
estimates of total contract revenue and contract costs indicate
a loss. If substantive uncertainty related to customer
acceptance of services exists, we apply the completed contract
method of accounting and defer the associated revenue until the
contract is completed. If we are unable to accurately estimate
the input measures used for
percentage-of-completion
accounting, revenue would be deferred until the contract is
complete, and this could have a material impact on our
consolidated results of operations.
Hosting
Services
We are an application service provider (ASP), where
we provide hosting services that allow customers access to
software that resides on our servers. The ASP model typically
includes an up-front fee and a monthly commitment from the
customer that commences upon completion of the implementation
through the remainder of the contractual term. The up-front fee
is the initial setup fee, or the implementation fee. The monthly
commitment includes, but is not limited to, a fixed monthly fee
or a transactional fee based on system usage that exceeds
monthly minimums. Revenue is recognized from ASP when there is
persuasive evidence of an arrangement, the service has been
provided to the customer, the amount of fees is fixed or
determinable and the collection of the Companys fees is
probable. We do not view the activities of signing the contract
or providing initial setup services as discrete earnings events.
Revenue is deferred until the date the customer commences use of
our services at which point the up-front fees are recognized
ratably over the contractual term of the customer arrangement.
ASP transactional fees are recorded monthly as earned.
Non-Software
Multiple-Deliverable Arrangements
Each deliverable within a multiple-deliverable revenue
arrangement is accounted for as a separate unit of accounting if
the following criteria are met: (i) the delivered item or
items have value to the customer on a standalone basis and
(ii) for an arrangement that includes a general right of
return relative to the delivered item(s), delivery or
performance of the undelivered item(s) is considered probable
and substantially in our control. We consider a deliverable to
have standalone value if we sell this item separately or if the
item is sold by another vendor or could be resold by the
customer. Further, our revenue arrangements generally do not
include a general right of return relative to delivered
products. Revenue for multiple element arrangements is allocated
to the software and non-software deliverables based on a
relative selling price. We use VSOE in our allocation of
arrangement consideration when it is available. We define VSOE
as a median price of recent standalone transactions that are
priced within a narrow range, as defined by us. If a product or
service is seldom sold separately, it is unlikely that we can
determine VSOE. In circumstances when VSOE does not exist, we
then assess whether we can obtain third-party evidence
(TPE) of the selling price. It may be difficult for
us to obtain sufficient information on competitor pricing to
substantiate TPE and therefore we may not always be able to use
TPE. When we are unable to establish selling price using VSOE or
TPE, we
65
FAIR
ISAAC CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
use estimated selling price (ESP) in its allocation
of arrangement consideration. The objective of ESP is to
determine the price at which we would transact if the product or
service were sold by us on a standalone basis. Our determination
of ESP involves weighting several factors based on the specific
facts and circumstances of each arrangement. The factors
include, but are not limited to, geographies, market conditions,
gross margin objectives, pricing practices and controls and
customer segment pricing strategies and the product lifecycle.
We analyze selling prices used in our allocation of arrangement
consideration on an annual basis, or more frequently if
necessary. Selling prices will be analyzed more frequently if a
significant change in our business necessitates a more timely
analysis or if we experience significant variances in our
selling prices.
Gross vs.
Net Revenue Reporting
We apply accounting guidance to determine whether we report
revenue for certain transactions based upon the gross amount
billed to the customer, or the net amount retained by us. In
accordance with the guidance we record revenue on a gross basis
for sales in which we have acted as the principal and on a net
basis for those sales in which we have in substance acted as an
agent or broker in the transaction.
Allowance
for Doubtful Accounts
We make estimates regarding the collectability of our accounts
receivable. When we evaluate the adequacy of our allowance for
doubtful accounts, we analyze specific accounts receivable
balances, historical bad debts, customer creditworthiness,
current economic trends and changes in our customer payment
cycles. Material differences may result in the amount and timing
of expense for any period if we were to make different judgments
or utilize different estimates. If the financial condition of
our customers deteriorates resulting in an impairment of their
ability to make payments, additional allowances might be
required.
Income
Taxes
Income taxes are recognized during the year in which
transactions enter into the determination of financial statement
income, with deferred taxes being provided for temporary
differences between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax
laws. A deferred income tax asset or liability is computed for
the expected future impact of differences between the financial
reporting and tax bases of assets and liabilities as well as the
expected future tax benefit to be derived from tax loss and tax
credit carryforwards. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount
more likely than not to be realized in future tax
returns. Tax rate changes are reflected in income during the
period the changes are enacted. We recognize interest expense
related to unrecognized tax benefits and penalties as part of
the provision for income taxes in our consolidated statements of
income.
Earnings
per Share
Basic earnings per share are computed on the basis of the
weighted-average number of common shares outstanding during the
period under measurement. Diluted earnings per share are based
on the
weighted-average
number of common shares outstanding and potential common shares.
Potential common shares result from the assumed exercise of
outstanding stock options or other potentially dilutive equity
instruments, when they are dilutive under the treasury stock
method or the if-converted method.
Comprehensive
Income
Comprehensive income is the change in our equity (net assets)
during each period from transactions and other events and
circumstances from non-owner sources. It includes net income,
foreign currency translation adjustments and unrealized gains
and losses, net of tax, on our investments in marketable
securities.
66
FAIR
ISAAC CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Foreign
Currency
We have determined that the functional currency of each foreign
operation is the local currency. Assets and liabilities
denominated in their local foreign currencies are translated
into U.S. dollars at the exchange rate on the balance sheet
date. Revenues and expenses are translated at average rates of
exchange prevailing during the period. Translation adjustments
are accumulated as a separate component of consolidated
stockholders equity.
At the end of the reporting period, foreign currency denominated
receivables and liabilities are remeasured into the functional
currency of the reporting entities at current market rates. The
change in value from this remeasurement is reported as a foreign
exchange gain or loss for that period in other income, net in
the accompanying consolidated statements of income. We recorded
($1.2) million, $2.5 million and $2.0 million of
transactional foreign currency exchange gains (losses) during
2010, 2009 and 2008, respectively.
Derivative
Financial Instruments
From time to time, we utilize forward contract instruments to
manage market risks associated with fluctuations in certain
foreign currency exchange rates as they relate to specific
balances of accounts receivable and cash denominated in foreign
currencies. It is our policy to use derivative financial
instruments to protect against market risks arising in the
normal course of business. Our policies prohibit the use of
derivative instruments for the sole purpose of trading for
profit on price fluctuations or to enter into contracts that
intentionally increase our underlying exposure. All of our
forward foreign currency contracts have maturity periods of less
than three months. Gains or losses from forward foreign currency
contracts are included in other income, net.
Share-Based
Compensation Expense
We amortize share-based compensation expense based upon the fair
value of share-based awards on a straight-line basis over the
requisite vesting period as defined in the applicable plan
documents. Corporate income tax benefits realized upon exercise
or vesting of an award in excess of that previously recognized
in earnings, referred to as an excess tax benefit, is presented
in the consolidated statements of cash flow as a financing
activity. Realized excess tax benefits are credited to paid-in
capital in the consolidated balance sheets. Realized shortfall
tax benefits, amounts which are less than that previously
recognized in earnings, are first offset against the cumulative
balance of excess tax benefits, if any, and then charged
directly to income tax expense. See Note 17 for further
discussion of our share-based employee benefit plans.
Impairment
of Long-Lived Assets
We assess potential impairment to long-lived assets and certain
identifiable intangible assets with finite lives whenever events
or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount
of an asset to the future undiscounted net cash flows that are
expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. We determined that
our long-lived assets were not impaired at September 30,
2010, 2009 and 2008. Assets to be disposed are reported at the
lower of the carrying amount or fair value less costs to sell.
67
FAIR
ISAAC CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Advertising
and Promotion Costs
Advertising and promotion costs are expensed as incurred.
Advertising and promotion costs totaled $3.0 million,
$6.8 million and $1.9 million in fiscal 2010, 2009 and
2008, respectively, and are included in selling, general and
administrative expenses in the accompanying consolidated
statements of income.
Recently
Issued Accounting Standards
Recently
Adopted Accounting Standards
In January 2010, the Financial Accounting Standards Board
(FASB) issued guidance to amend the disclosure
requirements related to recurring and nonrecurring fair value
measurements. The guidance requires new disclosures on the
transfers of assets and liabilities between Level 1 (quoted
prices in an active market for identical assets or liabilities)
and Level 2 (significant other observable inputs) of the
fair value measurement hierarchy, including the reasons and the
timing of the transfers. Additionally, the guidance requires a
roll forward of activities on purchases, sales, issuances, and
settlements of the assets and liabilities measured using
significant unobservable inputs (Level 3 fair value
measurements). We adopted this guidance on January 1, 2010,
except for the disclosure on the roll forward activities for
Level 3 fair value measurements, which will become
effective for us with the reporting period beginning
October 1, 2011. Other than requiring additional
disclosures, adoption of this new guidance does not have a
material impact on our consolidated financial statements.
In October 2009, the FASB issued two new accounting standards
that removed certain tangible products from the scope of
software revenue recognition guidance and altered the accounting
for revenue arrangements with non-software multiple
deliverables. The new guidance narrows the definition of
products subject to software accounting rules to exclude certain
tangible products that contain software and non-software
elements that function together to deliver the combined
products essential functionality. As such, certain
products that were previously accounted for under the scope of
software revenue recognition guidance will no longer be
accounted for as software. In addition, the guidance amended the
accounting standards for non-software multiple deliverable
revenue arrangements to: (i) provide updated guidance on
whether multiple deliverables exist, how the deliverables in an
arrangement should be separated, and how the consideration
should be allocated; (ii) require an entity to allocate
revenue in an arrangement using estimated selling prices
(ESP) of deliverables if a vendor does not have
vendor-specific objective evidence of selling price
(VSOE) or
third-party
evidence of selling price (TPE); and
(iii) eliminate the use of the residual method and require
an entity to allocate revenue using the relative selling price
method.
We elected to early adopt this accounting guidance and we have
applied these standards to all applicable revenue arrangements
entered into or materially modified beginning October 1,
2009. The adoption of these standards had an immaterial effect
on our revenues, pre-tax income, net income and earnings per
share during the year ended September 30, 2010.
When a sales arrangement contains multiple deliverables we
allocate revenue to each deliverable based on a selling price
hierarchy. The selling price for a deliverable is based on its
VSOE if available, TPE if VSOE is not available, or ESP if
neither VSOE nor TPE is available. VSOE is generally limited to
the price charged when the same or similar product is sold
separately. If a product or service is seldom sold separately,
it is unlikely that we can determine VSOE for the product or
service. We define VSOE as a median price of recent standalone
transactions that are priced within a narrow range, as defined
by us. TPE is determined based on the prices charged by our
competitors for a similar deliverable when sold separately. It
may be difficult for us to obtain sufficient information on
competitor pricing to substantiate TPE and therefore we may not
always be able to use TPE.
When we are unable to establish selling price using VSOE or TPE,
we use ESP in its allocation of arrangement consideration. The
objective of ESP is to determine the price at which we would
transact if the
68
FAIR
ISAAC CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
product or service were sold by us on a standalone basis. Our
determination of ESP involves weighting several factors based on
the specific facts and circumstances of each arrangement. The
factors include, but are not limited to, geographies, market
conditions, gross margin objectives, pricing practices and
controls and customer segment pricing strategies and the product
lifecycle. We analyze selling prices used in our allocation of
arrangement consideration on an annual basis, or more frequently
if necessary. Selling prices will be analyzed more frequently if
a significant change in our business necessitates a more timely
analysis or if we experience significant variances in our
selling prices.
Each deliverable within a multiple-deliverable revenue
arrangement is accounted for as a separate unit of accounting
under the guidance if both of the following criteria are met:
(i) the delivered item or items have value to the customer
on a standalone basis and (ii) for an arrangement that
includes a general right of return relative to the delivered
item(s), delivery or performance of the undelivered item(s) is
considered probable and substantially in our control. We
consider a deliverable to have standalone value if we sell this
item separately or if the item is sold by another vendor or
could be resold by the customer. Further, our revenue
arrangements generally do not include a general right of return
relative to delivered products. Revenue from multiple element
arrangements is allocated to the software and non-software
deliverables based on the relative selling prices of all of the
deliverables in the arrangement using the hierarchy in the new
revenue accounting guidance. In circumstances where we cannot
determine VSOE or TPE of the selling price for all of the
deliverables in the arrangement, including the software
deliverable, ESP is used for the purposes of performing this
allocation.
The adoption of this guidance did not result in a material
change in our units of accounting or in how we allocate
arrangement consideration to our units of accounting. In
addition, we do not anticipate material changes in the pattern
and timing of revenue recognition nor do we expect a material
effect on our condensed financial statements in periods
subsequent to adoption. However, the new guidance may facilitate
our efforts to optimize our offerings due to better alignment
between the economics of an arrangement and the accounting. This
may lead to engaging in new
go-to-market
practices in the future. In particular, we expect that the new
accounting standards will enable us to better integrate products
and services without VSOE into existing offerings and solutions.
As these
go-to-market
strategies evolve, we may modify pricing practices in the future
which could result in changes in selling prices, including both
VSOE and ESP.
On October 1, 2009 we adopted new guidance on the
accounting for business combinations. The guidance states that
business combinations will result in all assets and liabilities
of an acquired business being recorded at their fair values
including contingent assets and liabilities. It also requires
the capitalization of in-process research and development at
fair value and requires the expensing of acquisition-related
costs as incurred. This guidance has been applied to all
acquisitions contemplated subsequent to October 1, 2009.
In December 2007, the FASB issued new accounting guidance on
non-controlling interests in consolidated financial statements.
The guidance clarifies that a non-controlling or minority
interest in a subsidiary is considered an ownership interest
and, accordingly, requires all entities to report such interests
in subsidiaries as equity in the consolidated financial
statements. We adopted this guidance on October 1, 2009.
The adoption of this guidance had an immaterial effect on our
consolidated financial statements.
On October 1, 2009, we adopted the authoritative guidance
on fair value measurement for nonfinancial assets and
liabilities, except for items that are recognized or disclosed
at fair value in the financial statements on a recurring basis
(at least annually). Adoption of the new guidance did not impact
our consolidated financial statements.
On October 1, 2009, we adopted new accounting guidance for
measuring liabilities at fair value. This guidance clarifies
that the quoted price for an identical liability is a
Level 1 measurement when no adjustments to the quoted price
are necessary. If quoted prices for identical liabilities are
not available, the guidance
69
FAIR
ISAAC CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provides valuation techniques to be used in determining the fair
value of the liability. The adoption of this standard did not
impact our consolidated financial statements during the year
ended September 30, 2010.
In May 2008, the FASB issued new guidance on the accounting for
convertible instruments that may be settled in cash upon
conversion. The guidance requires that proceeds from the
issuance of convertible debt instruments be allocated between
debt (at a discount) and an equity component. The debt discount
is amortized over the period the convertible debt is expected to
be outstanding as additional non-cash interest expense. We
adopted this guidance on October 1, 2009. The guidance
changed the accounting treatment for our Senior Convertible
Notes, which were issued in August 2003; however, the only
retrospective adjustment to our financial statements is a
reclassification between equity accounts. The guidance does not
require retrospective adoption if the instruments were not
outstanding during any of the periods presented in the annual
financial statements for the period of adoption, or if
restatement would only lead to a reclassification between its
opening equity accounts for periods presented in the annual
financial statements. As a result, the adoption of this guidance
did not impact our consolidated financial statements.
On October 1, 2009, we adopted new guidance to be used in
determining the useful life of intangible assets. The guidance
amended the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset. This new guidance is
intended to improve the consistency between the useful life of a
recognized intangible asset and the period of expected cash
flows used to measure the fair value of the asset. The adoption
of this guidance did not affect our consolidated financial
statements.
Accounting
Standards not yet Adopted
In June 2009, the FASB issued new accounting guidance related to
the consolidation of variable interest entities. The guidance
requires revised evaluations of whether entities represent
variable interest entities, ongoing assessments of control over
such entities, and additional disclosures for variable
interests. We do not believe the adoption of this guidance will
have a material impact on our consolidated financial statements.
In January 2008, we acquired Dash Optimization
(Dash), a leading provider of decision modeling and
optimization software, for an aggregate cash purchase price of
approximately $34.1 million. The acquisition of Dash was
consummated principally to augment our decision management
analytic tools. We accounted for this transaction using the
purchase method of accounting and allocated the associated
goodwill to our Tools segment. The results of Dash have been
included in our operating results since the date of acquisition.
The pro forma effects of this acquisition on our Consolidated
Financial Statements were not material.
|
|
3.
|
Discontinued
Operations
|
In April 2008, we completed the sale of our Insurance Bill
Review business unit for $16.0 million in cash. At the time
of the disposition, we recorded a $6.9 million pre-tax
loss, but a $3.4 million after-tax gain on the sale as the
amount of goodwill disposed of for income tax purposes exceeded
the amount determined for financial reporting purposes. During
fiscal 2009, we recorded an additional charge of
$0.4 million, net of tax, as a result of an unfavorable
final working capital adjustment.
The decision to sell the Insurance Bill Review business was the
result of managements decision to divest non-strategic
businesses and focus resources on our core products and
services. Insurance Bill Review was primarily associated with
the Applications segment.
We determined that the Insurance Bill Review business was a
discontinued operation and as a result we have segregated the
net assets, net liabilities and operating results from
continuing operations in our consolidated balance sheets and
statements of income for all periods prior to the sale. Revenues
from
70
FAIR
ISAAC CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
discontinued operations were $22.9 million for the year
ended September 30, 2008. Pre-tax losses from discontinued
operations were $1.1 million for the year ended
September 30, 2008.
|
|
4.
|
Sales of
Product Line Assets
|
In June 2009, we sold the assets associated with our
LiquidCredit®
for Telecom (LCT) and
RoamEx®
product lines. LCT and RoamEx solutions were included in our
Applications segment. The LCT sale, which was for
$3.5 million, included a $0.5 million receivable for
post-closing working capital adjustments. All post-closing
working capital amounts were received in fiscal 2010. The
primary assets sold included accounts receivable and goodwill.
Included in the results of operations for fiscal 2009 were a
$1.5 million pre-tax loss and a $2.1 million after-tax
loss on the sale as the goodwill associated with the LCT
solution product line was not deductible for income tax
purposes. Revenues attributable to the LCT solutions product
line were $9.1 million and $13.4 million during fiscal
2009 and 2008, respectively. The RoamEx sale, which was for
$2.7 million, included a $1.4 million escrow balance
and a $0.3 million receivable for post-closing working
capital adjustments. All amounts included in escrow and
applicable post-closing working capital adjustments were
received in fiscal 2010. The primary assets sold included
accounts receivable and goodwill. We recognized a
$1.5 million pre-tax loss, and a $1.8 million
after-tax loss on the sale as the goodwill associated with the
RoamEx product line was not deductible for income tax purposes.
Revenues attributable to the RoamEx product line were
$6.6 million and $11.5 million in fiscal 2009 and
2008, respectively.
|
|
5.
|
Cash,
Cash Equivalents and Marketable Securities Available for
Sale
|
The following is a summary of cash, cash equivalents and
marketable securities available for sale at September 30,
2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Cash and Cash Equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
63,654
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
63,654
|
|
|
$
|
64,689
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
64,689
|
|
Money market funds
|
|
|
82,545
|
|
|
|
|
|
|
|
|
|
|
|
82,545
|
|
|
|
113,468
|
|
|
|
|
|
|
|
|
|
|
|
113,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
146,199
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
146,199
|
|
|
$
|
178,157
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
178,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Marketable Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations
|
|
$
|
48,325
|
|
|
$
|
42
|
|
|
$
|
|
|
|
$
|
48,367
|
|
|
$
|
102,575
|
|
|
$
|
460
|
|
|
$
|
|
|
|
$
|
103,035
|
|
U.S. corporate debt
|
|
|
2,972
|
|
|
|
9
|
|
|
|
|
|
|
|
2,981
|
|
|
|
8,735
|
|
|
|
31
|
|
|
|
|
|
|
|
8,766
|
|
Non U.S. corporate debt
|
|
|
17,257
|
|
|
|
13
|
|
|
|
(3
|
)
|
|
|
17,267
|
|
|
|
27,839
|
|
|
|
33
|
|
|
|
|
|
|
|
27,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
68,554
|
|
|
$
|
64
|
|
|
$
|
(3
|
)
|
|
$
|
68,615
|
|
|
$
|
139,149
|
|
|
$
|
524
|
|
|
$
|
|
|
|
$
|
139,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Marketable Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
43,423
|
|
|
$
|
174
|
|
|
$
|
(22
|
)
|
|
$
|
43,575
|
|
U.S. corporate debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,928
|
|
|
|
3
|
|
|
|
|
|
|
|
2,931
|
|
Non U.S. corporate debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,086
|
|
|
|
19
|
|
|
|
|
|
|
|
11,105
|
|
Marketable equity securities
|
|
|
4,847
|
|
|
|
|
|
|
|
(480
|
)
|
|
|
4,367
|
|
|
|
4,580
|
|
|
|
|
|
|
|
(820
|
)
|
|
|
3,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,847
|
|
|
$
|
|
|
|
$
|
(480
|
)
|
|
$
|
4,367
|
|
|
$
|
62,017
|
|
|
$
|
196
|
|
|
$
|
(842
|
)
|
|
$
|
61,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
FAIR
ISAAC CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Short-term marketable securities mature at various dates over
the course of the next twelve months. Typically, our long-term
U.S. government obligations and corporate debt investments
have matured at various dates over a one to three year period.
During fiscal 2010, 2009 and 2008, we did not recognize any
material realized gains or losses on investments.
The long-term marketable equity securities represent securities
held under a supplemental retirement and savings plan for
certain officers and senior management employees, which are
distributed upon termination or retirement of the employees.
The following table shows the gross unrealized losses and fair
value of our investments with unrealized losses that are not
deemed to be
other-than-temporarily
impaired, aggregated by investment category and length of time
that individual securities have been in a continuous unrealized
loss position, at September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In thousands)
|
|
|
Description of Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Non U.S. corporate debt
|
|
|
2,255
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
2,255
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,255
|
|
|
$
|
(3
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,255
|
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In thousands)
|
|
|
Description of Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations
|
|
$
|
1,253
|
|
|
$
|
(21
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,253
|
|
|
$
|
(21
|
)
|
Non U.S. corporate debt
|
|
|
2,076
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
2,076
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,329
|
|
|
$
|
(22
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,329
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$
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(22
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