Fair Isaac Corporation Annual Report 2010

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FY2010 Annual Report · Fair Isaac Corporation

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FAIR ISAAC CORPORATION

2010 ANNUAL REPORT

FY2010 CEO Letter

To our stockholders, clients and employees:

The past year was characterized by dramatic variability in our business environment, yet we remained

committed to our long-term strategy and have emerged from fiscal 2010 firmly on the path to growth.

We entered the year amid an economic downturn of historic severity. This was followed by new,
sweeping regulatory actions, most notably the CARD Act, the Dodd-Frank Wall Street Reform Act,
Basel III and other regulatory reforms around the globe that placed increasing demands on our clients.
Meanwhile, unemployment rates remained high in many markets served by our clients, and consumers
in those markets struggled to meet their financial obligations, leading to severe losses and disruption of
many long-term economic trends.

Our goal amid these conditions was to establish a path to growth, focusing on product delivery and

sales execution, while tightly managing expenses through our ongoing reengineering initiative and
aggressively repurchasing shares. By the end of fiscal 2010, as the economic recovery took hold, we
started seeing clear indications of stabilization and modest growth across parts of our business, offering
us encouragement that we had indeed turned the corner and were firmly on the path to growth.

Importantly, our approach yielded consistent earnings for our stockholders in fiscal 2010. Thanks to

our strong balance sheet, we remain in a position to invest in the development, marketing and sales of
our products — the keys to meaningful revenue growth over the longer term.

(cid:129) In our Scores business, we secured multi-year partnerships with two of our three credit bureau partners.

We also drove market adoption of FICO 8 credit scores, and improved our consumer marketing,
increasing traffic and conversion rates. We saw several consecutive quarters of clear stabilization in our
Scores business, and feel well positioned to grow as the economy recovers.

(cid:129) In our Applications business, we released important updates during the year to our solutions for

account management (FICO» TRIAD» Customer Manager 8.5), collections (FICO» Debt ManagerTM 8),
bank fraud (FICO» Falcon» Fraud Manager 6) and insurance fraud (FICOTM Insurance Fraud Manager
3.1), establishing a solid foundation for growth in fiscal 2011. We capitalized on our strong pipeline for
fraud management solutions, signing over $70 million in new bookings during the year, in part by
expanding our sales and distribution capabilities in Europe and China.

(cid:129) In our Tools business, we delivered updated versions of the FICOTM Blaze Advisor» rules engine,

FICOTM Decision Optimizer, and FICOTM Model Builder products. We successfully strengthened the
Tools business overall, and initiated or expanded reseller relationships in EMEA that we expect to drive
meaningful incremental revenue in the year ahead.

(cid:129) We strengthened our leadership team, particularly in Sales & Marketing with the addition of EVP

Charlie Ill and in Scores with the addition of EVP Jordan Graham.

(cid:129) Finally, we delivered substantial free cash flow, allowing us to repurchase 9 million shares of stock, or

an 18% reduction in shares outstanding from last year.

For fiscal year 2010, revenue from continuing operations totaled $606 million, a decrease of 4% from last
year’s $631 million. Our income from continuing operations was $64.5 million, essentially even with the fiscal
2009 result of $65.1 million. Fully diluted earnings per share from continuing operations was $1.42, a 6%
increase from last year’s $1.34.

Among the many lessons of the past year is that for FICO and for our clients, the world has changed.
What’s more, change is the fundamental characteristic of the condition we’ve come to call the “new normal.”

Yet change presents opportunity, and for FICO, we think that opportunity is exciting. Our superior
predictive analytics solutions are precisely what our clients need today in order to understand consumer

behavior and make smarter decisions based upon that understanding. Around the world, credit grantors turn
to FICO for an analytic advantage in marketing, originations, risk management, collections and fraud
management. FICO gives insurers sharper insight into customer risk and behavior that they then apply to
improve critical operational decisions and profitability. Our retail clients increase sales using FICO analytics
solutions to derive dramatically greater value from each customer interaction. FICO helps healthcare payers
and providers and pharmaceutical companies increase profits and improve patient treatment through predic-
tive analysis of customer behavior patterns. And finally, FICO helps government agencies around the world
increase service efficiencies, dramatically improve results, and avoid costly financial losses from realities that
haunt both the private and public sectors: fraud and payment abuse, finance risk, and tighter regulations.

Looking ahead, I’m encouraged by the effect of the improving economic environment on our clients’
businesses and on our own. I remain confident that demand for superior predictive analytics solutions will
drive our growth. Our goal through fiscal 2011 will be to continue delivering shareholder value and pursuing
our growth strategy. Now, when every decision counts, the time is right for FICO.

Finally, in closing, I’d like to recognize Tom Bradley, who is retiring after serving as our chief financial

officer in fiscal 2009 and 2010. We thank him for his contributions to our business, and wish him much
continued success.

Mark Greene
Chief Executive Officer
Fair Isaac Corporation

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2010
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from

(Mark One)
¥

Commission File Number 1-11689

Fair Isaac Corporation

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
901 Marquette Avenue, Suite 3200
Minneapolis, Minnesota
(Address of principal executive offices)

94-1499887
(I.R.S. Employer
Identification No.)
55402-3232
(Zip Code)

Registrant’s telephone number, including area code:
612-758-5200
Securities registered pursuant to Section 12(b) of the Act:

(Title of Class)

(Name of Each Exchange on Which Registered)

Common Stock, $0.01 par value per share

Preferred Stock Purchase Rights

New York Stock Exchange, Inc.
New York Stock Exchange, Inc.

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 ¥

No n

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 n

No ¥

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 ¥

No n

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 ¥

No n

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 registrant’s 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. ¥

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller

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

Large accelerated filer ¥

Accelerated filer n

Non-accelerated filer n

Smaller reporting company n

(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 n

No ¥

As of March 31, 2010, the aggregate market value of the registrant’s 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.

TABLE OF CONTENTS

PART I

Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Removed and Reserved) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases

of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management’s Report on Internal Control Over Financial Reporting

2
14
26
26
26
27
27

29
31
32
52
55
95
95

Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Item 12.
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14.

95
96

96
96
96

Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

PART IV

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.

Item 1. Business

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.

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:

(cid:129) 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.

(cid:129) 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.

(cid:129) 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.

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.

Key Products and Services by Operating Segment

Operating Segment

Key Products and Services

Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FICO» Precision Marketing Manager

FICO» Retail Action Manager
Originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FICO» LiquidCredit» service

FICO» Capstone» Decision Manager
FICO» Capstone» Decision Accelerator

Customer Management . . . . . . . . . . . . . . . . . . . . . FICO» TRIAD» Customer Manager

FICO» Transaction Scores

Fraud. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FICOTM Falcon» Fraud Manager

FICOTM Insurance Fraud Manager
FICOTM Fraud Predictor with Merchant Profiles
FICOTM Falcon» ID solution
FICOTM Card Alert Service

Collections & Recovery . . . . . . . . . . . . . . . . . . . . FICO» Debt ManagerTM solution

FICOTM Recovery Management SystemTM solution
(“RMSTM)
FICO» Network Services
FICOTM PlacementsPlus» service

Analytics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FICO» Predictive Analytics

FICOTM Custom Decision Optimization

Scores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Business-to-business. . . . . . . . . . . . . . . . . . . . . . . FICO» Scores

FICO» Expansion» Scores
FICO» Revenue Scores
FICO» Bankruptcy Scores
FICO» Insurance Scores Property PredictRTM, a
FICO» Insurance Score
FICO» PreScore» Service

Business-to-consumer . . . . . . . . . . . . . . . . . . . . . . myFICO» service

Score Watch» subscription

Tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FICOTM Blaze Advisor» business rules management

system
FICOTM Model Builder
FICOTM Decision Optimizer
FICOTM Xpress Optimization Suite

Our Solutions

Our solutions involve four fundamental disciplines:

(cid:129) 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”;

(cid:129) Data management and profiling that bring extensive consumer information to every decision;

(cid:129) Software such as rules management systems that implement business rules, models and decision

strategies, often in a real-time environment; and

(cid:129) Consulting services that help clients make the most of investments in FICO applications, tools and

analytics in the shortest possible time.

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 customer’s 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:

(cid:129) 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

rapidly adapt to changing business and internal conditions by designing and testing new strategies in a
“champion/challenger” environment. The TRIAD system is the world’s leading credit account manage-
ment 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.

(cid:129) 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.

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 Manager’s 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

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 business’s 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 world’s 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 individual’s 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 cardholder’s 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. consum-

ers 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 consumer’s ability to pay new debt and is available for use with four credit reporting agencies’ data
in markets worldwide.

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» Score’s 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 Equifax’s Score Watch»
subscriptions, which deliver alerts via email and SMS or text messages when the user’s 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 Corpora-
tion (“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 applica-
tions, 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 client’s 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.

The principal products offered are software tools for:

(cid:129) 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.

(cid:129) 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.

(cid:129) Optimization. FICOTM Xpress Optimization Suite includes Xpress-Mosel, a powerful compiled model-

ing 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.

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:

COMPETITION

(cid:129) in-house analytic and systems developers;

(cid:129) scoring model builders;

(cid:129) enterprise resource planning (“ERP”) and customer relationship management (“CRM”) packaged

solutions providers;

(cid:129) business intelligence solutions providers;

(cid:129) business process management and business rules management providers;

(cid:129) providers of credit reports and credit scores;

(cid:129) providers of automated application processing services;

(cid:129) data vendors;

(cid:129) neural network developers and artificial intelligence system builders;

(cid:129) third-party professional services and consulting organizations;

(cid:129) providers of account/workflow management software; and

(cid:129) software companies supplying modeling, rules, or analytic development tools.

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 advertis-
ing 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

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 world’s top ten
pharmaceuticals companies. Nine of the top ten companies on the 2010 Fortune 500 list use FICO’s 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 FICO’s broad and deep experience in
developing Decision Management applications, the architecture is service-oriented, designed for easy stan-
dards-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

Management architecture contains capabilities from existing FICO products, from new and existing compo-
nents and from third-party providers. We have developed the architecture’s 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 relation-
ships 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 environ-
ment, 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.

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.

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.

Item 1A. Risk Factors

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:

(cid:129) changes in the business analytics industry;

(cid:129) changes in technology;

(cid:129) our inability to obtain or use key data for our products;

(cid:129) saturation or contraction of market demand;

(cid:129) loss of key customers;

(cid:129) industry consolidation;

(cid:129) failure to execute our selling approach; and

(cid:129) inability to successfully sell our products in new vertical markets.

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 enhance-
ments, 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.

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:

(cid:129) failure to achieve the financial and strategic goals for the acquired and combined business;

(cid:129) overpayment for the acquired companies or assets;

(cid:129) difficulty assimilating the operations and personnel of the acquired businesses;

(cid:129) product liability and other exposure associated with acquired businesses or the sale of their products;

(cid:129) disruption of our ongoing business;

(cid:129) dilution of our existing stockholders and earnings per share;

(cid:129) unanticipated liabilities, legal risks and costs;

(cid:129) retention of key personnel;

(cid:129) distraction of management from our ongoing business; and

(cid:129) impairment of relationships with employees and customers as a result of integration of new manage-

ment personnel.

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:

(cid:129) disruption of our ongoing business;

(cid:129) reductions of our revenues or earnings per share;

(cid:129) unanticipated liabilities, legal risks and costs;

(cid:129) the potential loss of key personnel;

(cid:129) distraction of management from our ongoing business; and

(cid:129) impairment of relationships with employees and customers as a result of migrating a business to new

owners.

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:

(cid:129) variability in demand from our existing customers;

(cid:129) failure to meet the expectations of market analysts;

(cid:129) changes in recommendations by market analysts;

(cid:129) 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;

(cid:129) consumer dissatisfaction with, or problems caused by, the performance of our products;

(cid:129) the timing of new product announcements and introductions in comparison with our competitors;

(cid:129) the level of our operating expenses;

(cid:129) changes in competitive and other conditions in the consumer credit, banking and insurance industries;

(cid:129) fluctuations in domestic and international economic conditions, including a continuation of the

substantial disruption currently being experienced by the global financial markets;

(cid:129) our ability to complete large installations on schedule and within budget;

(cid:129) acquisition-related expenses and charges; and

(cid:129) timing of orders for and deliveries of software systems.

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 customer’s 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

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 technolo-
gies, 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. govern-
ment, the results of research may be made public by the government, limiting our competitive advantage with
respect to future products based on our research.

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:

(cid:129) incur significant defense costs or substantial damages;

(cid:129) be required to cease the use or sale of infringing products;

(cid:129) expend significant resources to develop or license a substitute non-infringing technology;

(cid:129) discontinue the use of some technology; or

(cid:129) 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.

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.

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, data-
base 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:

(cid:129) innovate by internally developing new and competitive technologies;

(cid:129) use leading third-party technologies effectively;

(cid:129) continue to develop our technical expertise;

(cid:129) anticipate and effectively respond to changing customer needs;

(cid:129) 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

(cid:129) influence and respond to emerging industry standards and other technological changes.

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:

(cid:129) in-house analytic and systems developers;

(cid:129) scoring model builders;

(cid:129) enterprise resource planning (ERP) and customer relationship management (CRM) packaged solutions

providers;

(cid:129) business intelligence solutions providers;

(cid:129) credit report and credit score providers;

(cid:129) business process management solution providers;

(cid:129) process modeling tools providers;

(cid:129) automated application processing services providers;

(cid:129) data vendors;

(cid:129) neural network developers and artificial intelligence system builders;

(cid:129) third-party professional services and consulting organizations;

(cid:129) account/workflow management software providers; and

(cid:129) software tools companies supplying modeling, rules, or analytic development tools.

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 cardholder’s photograph, smart

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:

(cid:129) 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;

(cid:129) 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.

(cid:129) Fair lending laws, such as the Truth In Lending Act (“TILA”) and Regulation Z, and the Equal Credit

Opportunity Act (“ECOA”) and Regulation B.

(cid:129) 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 Strength-
ening 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;

(cid:129) Extension of credit to consumers through the Electronic Fund Transfers Act, as well as nongovernmen-

tal VISA and MasterCard electronic payment standards;

(cid:129) Regulations applicable to secondary market participants such as Fannie Mae and Freddie Mac that

could have an impact on our products;

(cid:129) Insurance laws and regulations applicable to our insurance clients and their use of our insurance

products and services;

(cid:129) 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;

(cid:129) Laws and regulations applicable to operations in other countries, for example, the European Union’s

Privacy Directive and the Foreign Corrupt Practices Act;

(cid:129) Sarbanes-Oxley Act (“SOX”) requirements to maintain and verify internal process controls, including

controls for material event awareness and notification;

(cid:129) The implementation of the Emergency Economic Stabilization Act of 2008 by federal regulators to

manage the financial crisis in the United States;

(cid:129) Financial regulatory reform stemming from the Dodd-Frank Wall Street Reform and Consumer

Protection Act;

(cid:129) Laws and regulations regarding export controls as they apply to FICO products delivered in non-US

countries.

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 Union’s 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.

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:

(cid:129) general economic and political conditions in countries where we sell our products and services;

(cid:129) difficulty in staffing and efficiently managing our operations in multiple geographic locations and in

various countries;

(cid:129) effects of a variety of foreign laws and regulations, including restrictions on access to personal

information;

(cid:129) import and export licensing requirements;

(cid:129) longer payment cycles;

(cid:129) reduced protection for intellectual property rights;

(cid:129) currency fluctuations;

(cid:129) changes in tariffs and other trade barriers; and

(cid:129) difficulties and delays in translating products and related documentation into foreign languages.

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.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

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:

(cid:129) 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;

(cid:129) approximately 124,000 square feet of office space in San Rafael, California in one building under a

lease expiring in 2020;

(cid:129) approximately 80,000 square feet of office space in San Diego, California in one building under a lease

expiring in 2019; and

(cid:129) 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

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

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.

Age

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.
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.

Name

Positions Held

Charles L. Ill . . . . . . . February 2010-Present, Executive Vice President, Sales and Marketing of the

Age

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.

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.

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.

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.
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.

Name

Positions Held

Richard A. Stewart . . November 2010-present, Vice President, Solutions Delivery. April

Age

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.

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.

PART II

Item 5. Market for Registrant’s 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
January 1 — March 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17.25
April 1 — June 30, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18.37
July 1 — September 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24.22
Fiscal 2010
October 1 — December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22.75
January 1 — March 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26.57
April 1 — June 30, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26.02
July 1 — September 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.27

$10.94
$ 9.90
$14.15
$13.88

$18.07
$19.95
$20.97
$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 Board’s business judgment with respect to these and other relevant
factors.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Issuer Purchases of Equity Securities (1)

Period

July 1, 2010 through July 31, 2010 . . . . . . . . . . . .
August 1, 2010 through August 31, 2010. . . . . . . .
September 1, 2010 through September 30, 2010 . .

Total
Number of
Shares
Purchased
(2)

642,032
1,273,851
618,205

2,534,088

Average
Price Paid
per Share

$23.42
$23.02
$24.38

$23.45

Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs

616,682
1,258,500
616,850

Maximum
Dollar Value of
Shares that May
Yet Be
Purchased
Under the Plans
or Programs

$218,742,102
$189,764,751
$174,728,894

2,492,032

$174,728,894

(1) In June 2010, our Board of Directors approved a common stock repurchase program that allows us to pur-
chase 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 vest-

ing 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 Company’s Common Stock (b) the Standard & Poor’s 500 Stock Index and (c) the Standard &
Poor’s 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

$140

$120

$100

$80

$60

$40

$20

9/05

9/06

9/07

9/08

9/09

9/10

FICO

S&P 500

S&P Application Software

* $100 invested on 9/30/05 in stock or index, including reinvestment of dividends. Fiscal year ending

September 30.

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
Officer’s 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.

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . .
Income (loss) from discontinued operations . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings (loss) per share:

Continuing operations . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted earnings (loss) per share:

Continuing operations . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Dividends declared per share . . . . . . . . . . . . . .

2010(1)

$605,643
113,349
64,457
—
64,457

2007(1)(2)

2009(1)(2)

Fiscal Years Ended September 30,
2008(1)
(In thousands, except per share data)
$744,842
122,283
81,186
2,766
83,952

$630,735
116,747
65,465
(363)
65,102

$784,188
160,327
111,851
(7,201)
104,650

2006(1)

$782,995
154,400
104,505
(1,019)
103,486

1.44
—
1.44

1.42
—
1.42

0.08

1.35
(0.01)
1.34

1.34
(0.01)
1.33

0.08

1.66
0.06
1.72

1.64
0.06
1.70

0.08

2.00
(0.13)
1.87

1.94
(0.12)
1.82

0.08

1.64
(0.01)
1.63

1.60
(0.01)
1.59

0.08

2010

Working capital (deficit) . . . . . . . . . . . $ 225,028
1,123,716
Total assets . . . . . . . . . . . . . . . . . . . . .
—
Senior convertible notes . . . . . . . . . . .
520,000
Senior Notes . . . . . . . . . . . . . . . . . . . .
—
Revolving line of credit. . . . . . . . . . . .
474,914
Stockholders’ equity . . . . . . . . . . . . . .

2007

2009

Fiscal Years Ended September 30,
2008
(In thousands)
$ 229,071
1,275,253
—
275,000
295,000
561,941

$ 327,970
1,303,888
—
275,000
295,000
600,269

$ (103,173)
1,275,771
390,963
—
170,000
566,314

2006

$ (123,719)
1,321,205
400,000
—
—
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.

Item 7. Management’s 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.

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:

(cid:129) The health of the economy and economic trends in our customer’s industries;

(cid:129) Individual performance of our customers relative to their competitors; and

(cid:129) 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

Quarter ended September 30, 2010 . . . . . . . . . . . . .
Quarter ended September 30, 2009 . . . . . . . . . . . . .
Year ended September 30, 2010 . . . . . . . . . . . . . . .
Year ended September 30, 2009 . . . . . . . . . . . . . . .

Number of
Bookings
Over $1
Million

Bookings
Yield*

20%
17%
36%
41%

18
12
53
39

Weighted-
Average
Term
(Months)
27
37
N/M
N/M

Bookings
(In millions)
$105.6
$ 85.9
$283.3
$234.2

* 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

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

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.

Segment

2010

Applications . . . . . . . . . . . . . . .
Scores . . . . . . . . . . . . . . . . . . . .
Tools . . . . . . . . . . . . . . . . . . . .

$367,258
172,339
66,046

Period-to-Period
Change

2010
to
2009

2009
to
2008

(In thousands)

2008

Period-to-
Period
Percentage
Change

2010
to
2009

2009
to
2008

$450,450
211,902
82,490

$(15,872)
(7,236)
(1,984)

$ (67,320)
(32,327)
(14,460)

(4)% (15)%
(4)% (15)%
(3)% (18)%

Revenues Fiscal Year
2009
(In thousands)
$383,130
179,575
68,030

Total Revenues . . . . . . . . . . .

$605,643

$630,735

$744,842

(25,092)

(114,107)

(4)% (15)%

Segment

Percentage of
Revenues
Fiscal Year
2009

2010

2008

Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61% 61% 61%
28% 28% 28%
11% 11% 11%

Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100% 100% 100%

Applications

2010

Transactional and

Fiscal Year
2009
(In thousands)

2008

Period-to-Period Change

2010 to
2009

2009 to
2008

(In thousands)

maintenance . . . . . . . . .
Professional services . . . .
License . . . . . . . . . . . . . .

$257,275
86,097
23,886

$274,123
92,000
17,007

$299,569
115,855
35,026

$(16,848)
(5,903)
6,879

$(25,446)
(23,855)
(18,019)

Total . . . . . . . . . . . . . .

$367,258

$383,130

$450,450

(15,872)

(67,320)

Period-to-Period
Percentage Change
2010 to
2009 to
2008
2009

(6)%
(6)%
40%

(4)%

(8)%
(21)%
(51)%

(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. Addition-
ally, 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.

Scores

2010

Transactional and

Fiscal Year
2009
(In thousands)

2008

Period-to-Period
Change

2010 to
2009

2009 to
2008

(In thousands)

Period-to-Period
Percentage Change
2010 to
2009 to
2008
2009

maintenance . . . . . . . . . .
Professional services . . . . .
License . . . . . . . . . . . . . . .

$170,141
2,042
156

$178,048
1,527
—

$210,280
1,622
—

$(7,907)
515
156

$(32,232)
(95)
—

(4)%
34%
—%

(15)%
(6)%
—%

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-busi-
ness 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-con-
sumer 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

2010

Fiscal Year
2009
(In thousands)

2008

Period-to-Period
Change

2010 to
2009

2009 to
2008

(In thousands)

Period-to-Period
Percentage Change
2010 to
2009 to
2008
2009

Transactional and

maintenance . . . . . . . . . . . $28,071
14,739
23,236

Professional services . . . . . . .
License . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . $66,046

$26,531
18,886
22,613

$68,030

$26,106
30,437
25,947

$ 1,540
(4,147)
623

425
(11,551)
(3,334)

2%
(22)% (38)%
(13)%

$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

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.

Fiscal Year
2010
2009
2008
(In thousands, except employees)

$605,643

$630,735

$744,842

Period-to-Period
Change

2009
to
2008

2010
to
2009
(In thousands, except
employees)
$(25,092) $(114,107)

Period-to-
Period
Percentage
Change

2010
to
2009

2009
to
2008

(4)% (15)%

180,932
73,581

206,448
73,626

274,917
77,794

(25,516)
(45)

(68,469)
(4,168) —%

(12)% (25)%
(5)%

225,263
10,901
1,617

209,319
12,891
8,711

245,639
14,043
10,166

15,944
(1,990)
(7,094)

(36,320)
(1,152)
(1,455)

8% (15)%
(15)% (8)%
(81)% (14)%

—

2,993

— (2,993)

2,993 (100)% —

Revenues

Operating expenses:

Cost of revenues . . . . . . . . . . . . . .
Research and development
. . . . . .
Selling, general and

administrative . . . . . . . . . . . . . .
Amortization of intangible assets . .
Restructuring . . . . . . . . . . . . . . . .
Loss on sale of product line

assets . . . . . . . . . . . . . . . . . . . .

Total operating expenses . . . . . . . . . .

492,294

513,988

622,559

(21,694)

(108,571)

(4)% (17)%

Operating income . . . . . . . . . . . . . . .
Inerest income . . . . . . . . . . . . . . . . .
Inerest expense . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . .

113,349
1,688
(24,124)
1,391

116,747
4,717
(25,481)
1,587

122,283
8,802
(20,335)
2,245

(3,398)
(3,029)
1,357
(196)

(5,536)
(4,085)
(5,146)
(658)

(3)% (5)%
(64)% (46)%
(5)% 25%
(12)% (29)%

Income from continuing operations

before income taxes . . . . . . . . . . .
Provision for income taxes . . . . . . . .

Income from continuing operations . .
Income (loss) from discontinued

operations . . . . . . . . . . . . . . . . . . .

92,304
27,847

64,457

97,570
32,105

65,465

112,995
31,809

(5,266)
(4,258)

(15,425)
296

(5)% (14)%
1%
(13)%

81,186

(1,008)

(15,721)

(2)% (19)%

—

(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

(394)

Percentage of
Revenues
Fiscal Year
2009

2010

2008

Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100% 100% 100%

Operating expenses:

30% 33% 37%
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12% 12% 11%
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37% 33% 33%
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2%
2%
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2%
1%
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —%
1%
—% —%
Loss on sale of product line assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

81% 81% 84%

19% 19% 16%
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1%
1%
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —%
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4)% (5)% (2)%
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —% —% —%

Income from continuing operations before income taxes . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15% 15% 15%
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.

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

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:

Severance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 742
875
Lease exit costs and other adjustments . . . . . . . . . . . . . . . . . . . . . . . .

2010

Fiscal Year
2009
(In thousands)
$5,860
2,851

2008

$ 7,353
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.

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.

Operating Income

The following table sets forth certain summary information on a segment basis related to our operating

income for the fiscal years indicated.

Segment

Period-to-Period
Change

Period-to-
Period
Percentage
Change

Fiscal Year

2010

2009

2008

2010
to
2009

2009
to
2008

2010
to
2009

2009
to
2008

(In thousands)

Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 93,275 $112,589 $120,986 $(19,314) $ (8,397)
(21,436)
Scores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,703
Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,191
Unallocated corporate expenses . . . . . . . . . . . . .

143,638
3,651
(94,059)

122,202
7,354
(80,868)

110,651
8,412
(69,166)

(11,551)
1,058
11,702

(17)% (7)%
(9)% (15)%
14% 101%
(14)% (14)%

Total segment operating income . . . . . . . . . . .
Unallocated share-based compensation . . . . . . . .
Unallocated amortization expense . . . . . . . . . . .
Unallocated restructuring. . . . . . . . . . . . . . . . . .
Unallocated loss on sale of product line assets . .

143,172
(17,305)
(10,901)
(1,617)

161,277
(19,935)
(12,891)
(8,711)
— (2,993)

174,216
(27,724)
(14,043)
(10,166)
—

(18,105)
2,630
1,990
7,094
2,993

(11)% (7)%
(12,939)
(13)% (28)%
7,789
(15)% (8)%
1,152
(81)% (14)%
1,455
(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

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.

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 Board’s 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
Company’s 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.

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
F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $72 million
G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28 million
H . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $85 million

4.72%
5.04%
5.42%
5.59%

July 14, 2016
July 14, 2017
July 14, 2019
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:

Senior Notes(1) . . . . . . . . . . . . . .
Interest due on debt

obligations(2) . . . . . . . . . . . . . .
Operating lease obligations . . . . . .
Purchase obligations(3) . . . . . . . . .
Unrecognized tax benefits(4). . . . .

2011

2012

2013

2014

2015

Thereafter

Total

$ 8,000 $ 8,000 $49,000

$ 8,000 $ 71,000 $376,000

$520,000

31,523
19,759
6,100
—

31,013
16,687
5,100
—

30,503
13,892
4,400
—

27,382
13,758
2,600
—

26,873
11,881
—
—

68,135
40,770
—
—

215,429
116,747
18,200
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.

(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 customer’s 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 product’s
estimated life cycle could materially impact the amount of earned and unearned revenue.

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 Company’s 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
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

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 company’s 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. Management’s 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 expendi-
tures, 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

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 management’s expectations could also have a

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

Cost Basis

Carrying
Amount

Average
Yield

Cost Basis

Carrying
Amount

Average
Yield

(Dollars in thousands)

Cash and cash equivalents. . . . . . . . . . .
Short-term investments . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . .

$146,199
68,554
—

$146,199
68,615
—

0.10% $178,157
139,149
0.94%
57,437
—

$178,157
139,673
57,611

$214,753

$214,814

0.37% $374,743

$375,441

0.12%
1.26%
1.44%

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
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources

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:

Principal

September 30, 2010
Carrying
Amounts
(In thousands)

Fair Value

Principal

September 30, 2009
Carrying
Amounts
(In thousands)

Fair Value

May 2008 $275 million

Senior Notes. . . . . . . . . . . $275,000

$275,000

$315,019

$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
Currency

US$

Fair Value
US$

(In thousands)

Sell foreign currency:

Canadian dollar (CAD) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CAD 1,300
Euro (EUR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EUR 5,460

$1,258
$7,446

$—
—

Buy foreign currency:

British pound (GBP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GBP 3,672

$5,800

—

September 30, 2009

Contract Amount
Foreign
Currency

US$

Fair Value
US$

(In thousands)

Sell foreign currency:

Canadian dollar (CAD) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CAD 1,100
Euro (EUR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EUR 6,100
JPY 61,000
Japanese yen (JPY) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,022
$8,908
$ 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.

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 Company’s 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 Company’s 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 Management’s Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements
and an opinion on the Company’s 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 company’s internal control over financial reporting is a process designed by, or under the supervision of,

the company’s principal executive and principal financial officers, or persons performing similar functions, and
effected by the company’s 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 company’s 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 company’s
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

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.

Minneapolis, MN
November 23, 2010

/s/ DELOITTE & TOUCHE LLP

FAIR ISAAC CORPORATION

CONSOLIDATED BALANCE SHEETS

September 30,
2010

September 30,
2009

(In thousands, except
par value data)

Assets

Current assets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities available for sale, current portion . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

146,199
68,615
113,187
19,174

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities available for sale, less current portion . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

347,175
4,367
11,074
30,975
665,953
27,244
27,774
9,154
$ 1,123,716

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8,765
33,697
28,732
42,953
8,000

122,147

—
512,000
14,655

648,802

Commitments and contingencies
Stockholders’ equity:

178,157
139,673
101,742
22,986

442,558
61,371
11,074
34,340
667,640
38,255
38,100
10,550
$ 1,303,888

8,593
28,139
38,183
39,673
—

114,588

295,000
275,000
19,031

703,619

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). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost (48,975 and 40,701 shares at September 30, 2010 and
2009, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

399
1,103,244

482
1,106,292

(1,556,253)
947,202
(19,678)

(1,375,400)
886,324
(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.

FAIR ISAAC CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

Years Ended September 30,
2009
(In thousands, except per share data)

2008

2010

Revenues:

Transactional and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$455,487
102,878
47,278

$478,702
112,413
39,620

$535,955
147,914
60,973

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

605,643

630,735

744,842

Operating expenses:

Cost of revenues(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of product line assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

180,932
73,581
225,263
10,901
1,617
—

206,448
73,626
209,319
12,891
8,711
2,993

274,917
77,794
245,639
14,043
10,166
—

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

492,294

513,988

622,559

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income from continuing operations before income taxes . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . .

113,349
1,688
(24,124)
1,391

92,304
27,847

64,457
—

116,747
4,717
(25,481)
1,587

97,570
32,105

65,465
(363)

122,283
8,802
(20,335)
2,245

112,995
31,809

81,186
2,766

Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 64,457

$ 65,102

$ 83,952

Basic earnings (loss) per share:

Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted earnings (loss) per share:

Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.44
—

1.44

1.42
—

1.42

1.35
(0.01)

1.34

1.34
(0.01)

1.33

1.66
0.06

1.72

1.64
0.06

1.70

Shares used in computing earnings (loss) per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

44,903

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45,308

48,658

48,776

48,940

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.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
Years Ended September 30, 2010, 2009 and 2008

FAIR ISAAC CORPORATION

Common Stock
Par
Value

Paid-in-
Capital

Treasury
Stock

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders’
Equity

Comprehensive
Income

Balance at September 30, 2007 . . 51,064
Share-based compensation . . . . . . .
Exercise of stock options . . . . . . .
Tax effect from share based

511
— —
5
523

(In thousands)

1,097,327
27,981
(5,594)

(1,290,393) 745,054
—
—

—
17,878

13,815
—
—

Balance at September 30, 2008 . . 48,473

payment arrangements . . . . . . . .
Forfeitures of restricted stock . . . . .
Repurchases of common stock . . . .
Issuance of ESPP shares from

treasury . . . . . . . . . . . . . . . . .

Issuance of restricted stock to

employees from treasury . . . . . .
Dividends paid ($0.08 per share) . .
Net income . . . . . . . . . . . . . . . . .
Unrealized gains on investments,

net of tax of $25 . . . . . . . . . . .

Cumulative translation

adjustments . . . . . . . . . . . . . . .

Share-based compensation . . . . . . .
Exercise of stock options . . . . . . .
Tax effect from share based

payment arrangements . . . . . . . .
Forfeitures of restricted stock . . . . .
Repurchases of common stock . . . .
Issuance of ESPP shares from

treasury . . . . . . . . . . . . . . . . .

Issuance of restricted stock to

employees from treasury . . . . . .
Dividends paid ($0.08 per share) . .
Net income . . . . . . . . . . . . . . . . .
Unrealized gains on investments,

net of tax of $232 . . . . . . . . . . .

Cumulative translation

adjustments . . . . . . . . . . . . . . .

Share-based compensation . . . . . . .
Exercise of stock options . . . . . . .
Tax effect from share based

payment arrangements . . . . . . . .
Repurchases of common stock . . . .
Issuance of ESPP shares from

treasury . . . . . . . . . . . . . . . . .

Issuance of restricted stock to

employees from treasury . . . . . .
Dividends paid ($0.08 per share) . .
Net income . . . . . . . . . . . . . . . . .
Unrealized losses on investments,

net of tax benefit of $250. . . . . .

Cumulative translation

— —
(35) —
(35)

(3,540)

(2,375)
1,114

—
(1,114)
— (116,607)

384

(4,691)

13,142

—
—
—

—

77
1
— —
— —

— —

(3,597)
—
—

2,639

—
— (3,897)
— 83,952

—

—
—
—

—

—
—
—

— —
485

—
1,110,165

—

—
(1,374,455) 825,109

(13,216)
637

— —
1
148

— —
(2) —
(8)

(832)

19,935
(3,197)

(9,545)
64
—

—
5,027

—
(64)
(18,492)

195

(3,848)

6,646

—
—

—
—
—

—

174
2
— —
— —

(7,282)
—
—

5,938

—
— (3,887)
— 65,102

—
—

—
—
—

—

—
—
—

— —
3
288

17,305
(5,539)

—
9,528

— —
(88)

(8,790)

(4,717)

—
— (197,894)

2 —

(18)

—
—

—

226
2
— —
— —

(10,079)
—
—

7,458

—
— (3,579)
— 64,457

—
—

—

—
—
—

Balance at September 30, 2009 . . 48,156

— —
482

—
1,106,292

—

—
(1,375,400) 886,324

(18,425)
(17,429)

— —

—

359

566,314
27,981
12,289

(2,375)
—
(116,642)

8,454

(957)
(3,897)
83,952

$ 83,952

(13,216)
561,941

19,935
1,831

(9,545)
—
(18,500)

2,800

(1,342)
(3,887)
65,102

(13,216)
$ 70,774

$ 65,102

(18,425)
600,269

17,305
3,992

(4,717)
(197,982)

(2,619)
(3,579)
64,457

(18,425)
$ 47,036

64,457

— —

—

(387)

adjustments . . . . . . . . . . . . . . .

—
Balance at September 30, 2010 . . 39,882 $399 $1,103,244 $(1,556,253) $947,202

— —

—

(1,862)
$(19,678)

(1,862)
$ 474,914

(1,862)
$ 62,208

See accompanying notes to consolidated financial statements.

FAIR ISAAC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

2010

Years Ended September 30,
2009
(In thousands)

2008

Cash flows from operating activities:

Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,457
Adjustments to reconcile net income to net cash provided by operating activities:

$ 65,102

$ 83,952

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect from share-based payment arrangements . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based payment arrangements . . . . . . . . . . . . . . . .
Gain on repurchase of senior convertible notes . . . . . . . . . . . . . . . . . . . . . . . . .
Net amortization of premium on marketable securities . . . . . . . . . . . . . . . . . . . .
(Benefit from) Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of business unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of product line assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss on sales of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in operating assets and liabilities, net of acquisition and

disposition effects:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and employee benefits . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . .

Cash flows from investing activities:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment
. . . . . . . . . . . . . . . . . . . . . . . .
Cash proceeds from sales of property and equipment
Cash proceeds from sales of product line assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for acquisition, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash proceeds from sale of business unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution from cost method investees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . .

Cash flows from financing activities:
Proceeds from revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for repurchases of senior convertible notes. . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuances of common stock under employee stock option and purchase

30,918
17,305
6,761
(4,717)
(1,158)
—
2,174
(118)
—
—
694

(11,561)
315
(317)
5,413
(3,290)
(1,096)
105,780

(17,453)
50
2,182
—
—
(71,749)
10,014
187,593
—
110,637

—
(295,000)
245,000
—
(1,343)

38,419
19,935
(5,031)
(9,545)
(280)
—
1,057
499
—
2,993
115

31,316
36
(2,519)
(976)
3,214
7,298
151,633

(13,958)
—
4,000
—
—
(197,274)
7,400
116,585
1,300
(81,947)

39,494
27,981
(23,095)
(2,375)
(1,342)
(896)
579
3,414
6,952
—
39

20,153
1,766
(1,569)
(13,363)
14,033
3,427
159,150

(22,780)
1,527
—
(33,336)
15,581
(161,803)
2,008
167,684
—
(31,119)

— 300,000
— (175,000)
— 275,000
— (390,067)
(1,477)
—

1,410
plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,579)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(196,119)
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,158
Excess tax benefits from share-based payment arrangements . . . . . . . . . . . . . . . . . . .
(248,473)
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
(31,958)
Increase (Decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
178,157
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 146,199

3,289
(3,887)
(18,500)
280
(18,818)
(2,389)
48,479
129,678
$ 178,157

19,786
(3,897)
(116,642)
1,342
(90,955)
(2,682)
34,394
95,284
$ 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
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,048

$ 28,364
$ 26,189

$ 20,074
$ 13,009

See accompanying notes to consolidated financial statements.

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 manage-
ment 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

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 . . . . . . . . . .
Office furniture and equipment . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . Shorter of estimated useful life or lease term

2 to 3 years
3 to 7 years

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

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer contracts and relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4 to 6 years
2 to 15 years
5 years

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

We use the residual method to recognize revenue when an arrangement includes one or more elements to

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.

Transactional-based Revenues

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

Hosting Services

We are an application service provider (“ASP”), where we provide hosting services that allow customers

Non-Software Multiple-Deliverable Arrangements

Each deliverable within a multiple-deliverable revenue arrangement is accounted for as a separate unit of

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

Allowance for Doubtful Accounts

We make estimates regarding the collectability of our accounts receivable. When we evaluate the

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.

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.

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 product’s 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

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

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

2. Acquisition

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 management’s 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

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

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

2009

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Amortized
Cost

(In thousands)

Cash and Cash Equivalents:
Cash . . . . . . . . . . . . . . . . . . $ 63,654
82,545
Money market funds . . . . . . .

$146,199

Short-term Marketable

Securities:

U.S. government obligations . . $ 48,325
U.S. corporate debt . . . . . . . .
2,972
17,257
Non U.S. corporate debt . . . . .

$ 68,554

Long-term Marketable

Securities:

U.S. government obligations . . $
U.S. corporate debt . . . . . . . .
Non U.S. corporate debt . . . . .
Marketable equity securities . .

—
—
—
4,847

$ 4,847

$—
—

$—

$42
9
13

$64

$—
—
—
—

$—

$ — $ 63,654 $ 64,689
113,468
82,545

—

$ — $146,199 $178,157

$ — $ 48,367 $102,575
8,735
2,981
27,839
17,267

—
(3)

(3)

$ 68,615 $139,149

$ — $
—
—
(480)

— $ 43,423
—
2,928
— 11,086
4,580

4,367

$(480)

4,367 $ 62,017

$ —
—

$ —

$460
31
33

$524

$174
3
19
—

$196

$ — $ 64,689
113,468

—

$ — $178,157

$ — $103,035
8,766
27,872

—
—

$ — $139,673

$ (22)
—
—
(820)

$ 43,575
2,931
11,105
3,760

$(842)

$ 61,371

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:

Description of Securities:
U.S. government obligations . . . . . . . . . . . .
Non U.S. corporate debt . . . . . . . . . . . . . . .

Less Than 12 Months
Unrealized
Losses

Fair
Value

2010
12 Months or
Greater

Fair
Value

Unrealized
Losses
(In thousands)

Total

Fair
Value

Unrealized
Losses

$ —
2,255

$2,255

$—
(3)

$ (3)

$—
—

$—

$—
—

$—

$ —
2,255

$2,255

$—
(3)

$ (3)

Less Than 12 Months
Unrealized
Losses

Fair
Value

2009
12 Months or
Greater

Fair
Value

Unrealized
Losses
(In thousands)

Total

Fair
Value

Unrealized
Losses

$1,253
2,076

$3,329

$(21)
(1)

$(22)

$—
—

$—

$—
—

$—

$1,253
2,076

$3,329

$(21)
(1)

$(22)

6. Derivative Financial Instruments

We use derivative instruments to manage risks caused by fluctuations in foreign exchange rates. The

primary objective of our derivative instruments is to protect the value of foreign currency denominated
accounts receivable and cash balances from the effects of volatility in foreign exchange rates that might occur
prior to conversion to their functional currency. We principally utilize foreign currency forward contracts,
which enable us to buy and sell foreign currencies in the future at fixed exchange rates and economically
offset changes in foreign currency exchange rates. We routinely enter into contracts to offset exposures
denominated in the British pound, Euro and Canadian dollar.

Foreign currency denominated accounts receivable, liabilities and cash balances are re-measured at
foreign currency rates in effect on the balance sheet date with the effects of changes in foreign currency rates
reported in other income, net. The forward contracts are not designated as hedges and are marked to market
through other income, net. Fair value changes in the forward contracts help mitigate the changes in the value
of the re-measured accounts receivable and cash balances attributable to changes in foreign currency exchange

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

rates. The forward contracts are short-term in nature and typically have average maturities at inception of less
than three months.

The following table summarizes the fair value of our derivative instruments and their location in the

consolidated balance sheet:

Derivatives not Designated as Hedging
Instruments

Assets

Balance Sheet Location

Amount

Liabilities
Balance Sheet Location

Amount

September 30, 2010

(In thousands)

Foreign currency forward contracts. . . . . Other current assets

$—

Other current liabilities

$—

The following table summarizes our outstanding forward foreign currency contracts, by currency at

September 30, 2010 and 2009:

September 30, 2010

Contract Amount
Foreign
Currency

US$

(In thousands)

Sell foreign currency:

Canadian dollar (CAD) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CAD 1,300
Euro (EUR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EUR 5,460

$1,258
$7,446

Buy foreign currency:

Fair Value

US$

$—
—

British pound (GBP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GBP 3,672

$5,800

—

September 30, 2009

Contract Amount
Foreign
Currency

US$

(In thousands)

Sell foreign currency:

$1,022
$8,908
$ 679

Buy foreign currency:

Fair Value

US$

$—
—

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.

Gains (losses) on derivative financial instruments are recorded in our consolidated statements of income

as a component of other income, net. These amounts are shown for the years ended September 30, 2010, 2009
and 2009:

Year Ended September 30,
2008

2009

2010

Foreign currency forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . $319

(In thousands)
$(2,064)

$(1,556)

7. Fair Value Measurements

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

transaction between market participants on the measurement date. The accounting guidance establishes a
three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair
value of assets and liabilities.

(cid:129) Level 1 — uses unadjusted quoted prices that are available in active markets for identical assets or

liabilities. Our Level 1 securities are comprised of money market funds and certain equity securities.

(cid:129) Level 2 — uses inputs other than quoted prices included in Level 1 that are either directly or indirectly

observable through correlation with market data. These include quoted prices for similar assets or
liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are
not active; and inputs to valuation models or other pricing methodologies that do not require significant
judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated
by readily observable market data. Our Level 2 securities are comprised of U.S. government and
corporate debt obligations that are generally held to maturity.

(cid:129) Level 3 — uses one or more significant inputs that are unobservable and supported by little or no
market activity, and that reflect the use of significant management judgment. Level 3 assets and
liabilities include those whose fair value measurements are determined using pricing models, discounted
cash flow methodologies or similar valuation techniques, and significant management judgment or
estimation. We do not have any assets or liabilities that are valued using inputs identified under a
Level 3 hierarchy.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table represents financial assets that we measured at fair value on a recurring basis at

September 30, 2010 and 2009, respectively:

September 30, 2010

Assets:
Cash equivalents(1) . . . . . . . . . . . . . . . .
U.S. corporate debt(2) . . . . . . . . . . . . . .
Non U.S. corporate debt(2). . . . . . . . . . .
U.S. government obligations(2). . . . . . . .
U.S. municipal obligations(2) . . . . . . . . .
Marketable securities(3) . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

September 30, 2009

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

Active Markets for
Identical Instruments
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Fair Value as of
September 30, 2010

$82,545
—
—
—
—
4,367

$86,912

$ —
2,981
17,267
39,452
8,915
—

$68,615

$ 82,545
2,981
17,267
39,452
8,915
4,367

$155,527

Active Markets for
Identical Instruments
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Fair Value as of
September 30, 2009

—
11,697
38,977
119,031
27,579
—

$197,284

$113,468
11,697
38,977
119,031
27,579
3,760

$314,512

$113,468
—
—
—
—
3,760

$117,228

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(1) Included in cash and cash equivalents on our balance sheet at September 30, 2010 and September 30,
2009. Not included in this table are cash deposits of $63.7 million and $64.7 million at September 30,
2010 and September 30, 2009, respectively.

(2) Included in marketable securities (current and non-current) on our balance sheet at September 30, 2010

and 2009.

(3) Represents 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. Included
in long-term marketable securities on our balance sheet at September 30, 2010 and 2009.

Where applicable, we use quoted prices in active markets for identical assets or liabilities to determine
fair value. This pricing applies to our Level 1 investments. To the extent quoted prices in active markets for
assets or liabilities are not available, the valuation techniques used to measure the fair values of our financial
assets incorporate market inputs, which include reported trades, broker/dealer quotes, benchmark yields, issuer
spreads, benchmark securities and other inputs derived from or corroborated by observable market data. This
methodology applies to our Level 2 investments. The Company has not changed its valuation techniques in
measuring the fair value of any financial assets and liabilities during the period.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We adopted the remaining provisions of the fair value measurement accounting and disclosure guidance

related to non-financial assets and liabilities recognized or disclosed at fair value on a nonrecurring basis as of
October 1, 2009. Assets and liabilities subject to this new guidance primarily includes goodwill and indefinite-
lived intangible assets measured at fair value for the purposes of our annual impairment assessment.

8. Receivables

Receivables at September 30, 2010 and 2009 consisted of the following:

Billed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,305
26,863
Unbilled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 81,835
26,808

Less: allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

119,168
(5,981)

108,643
(6,901)

Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $113,187

$101,742

2010

2009

(In thousands)

Unbilled receivables represent revenue recorded in excess of amounts billable pursuant to contract

provisions and generally become billable at contractually specified dates or upon the attainment of milestones.
Unbilled amounts are expected to be realized within one year. During fiscal 2010, 2009 and 2008, we
increased (decreased) our allowance for the provision for doubtful accounts by ($0.1) million, $0.5 million and
$3.4 million, respectively, and wrote off receivables (net of recoveries) of $0.9 million, $1.4 million and
$2.8 million, respectively. The remaining change to the allowance for doubtful accounts in fiscal 2010 of
$0.1 million was due to an unfavorable change in foreign exchange rates.

9. Goodwill and Intangible Assets

Goodwill and intangible assets with indefinite lives are tested for impairment at least annually or more

frequently if impairment indicators arise. Our other intangible assets have definite lives and are being
amortized using the straight-line method or based on the forecasted cash flows associated with the assets over
their estimated useful lives.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We have determined that our reporting units are the same as our reportable segments (see Note 20). We
performed our annual goodwill impairment test, and determined that goodwill was not impaired as of July 1,
2010 and 2009.

Intangible assets that are subject to amortization consisted of the following at September 30, 2010 and

2009:

2010

Gross
Carrying
Amount

Accumulated
Amortization

Net

Completed technology . . . . . . $ 66,037 $ (63,344) $ 2,693
Customer contracts and

relationships . . . . . . . . . . . .
Trade names . . . . . . . . . . . . .

60,756
9,291

(36,463) 24,293
319
(8,972)

$136,084 $(108,779) 27,305

Gross
Carrying
Amount

Average
Life
(In thousands)

2009

Accumulated
Amortization

Net

Average
Life

$ 75,287 $ (67,179) $ 8,108

12
5

63,956
9,291

(34,315) 29,641
457
(8,834)

$148,534 $(110,328) 38,206

12
5

Foreign currency translation

adjustments . . . . . . . . . . . .

Intangible assets, net . . . . . . .

(61)

$27,244

$38,255

Amortization expense associated with our intangible assets, which has been reflected as a separate
operating expense caption within the accompanying consolidated statements of income, consisted of the
following during fiscal 2010, 2009 and 2008:

Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . .

$ 5,415
5,486

2010

2009
(In thousands)
$ 6,827
6,064

2008

$ 7,358
6,685

$10,901

$12,891

$14,043

In the table above, cost of revenues reflects our amortization of completed technology, and selling,

general and administrative expenses reflect our amortization of other intangible assets.

Estimated future intangible asset amortization expense associated with intangible assets existing at

September 30, 2010, was as follows (in thousands):

Fiscal year

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 7,721
6,143
4,136
2,407
2,407
4,430

$27,244

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes changes to goodwill during fiscal 2010 and 2009, both in total and as

allocated to our operating segments.

Applications
(Previously
Strategy
Machines)

Scores
(Previously
Scoring)

Balance at September 30, 2008 . . . . . . . . . . . . .
Disposition of product lines . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . .

$516,785
(4,145)
(10,785)

$ 88,192
(1,084)
—

Tools
(Previously
Analytic
Software
Tools)
(In thousands)
$68,240
(139)
(2,289)

Professional
Services

Total

$686,082
$ 12,865
—
(5,368)
— (13,074)

Balance at September 30, 2009 . . . . . . . . . . . . .
Segment reorganization (see Note 20) . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . .

$501,855
(48,215)
(1,392)

$ 87,108
59,540
—

$65,812
1,540
(295)

$ 12,865
(12,865)
—

$667,640
—
(1,687)

Balance at September 30, 2010 . . . . . . . . . . . . .

$452,248

$146,648

$67,057

— $665,953

During fiscal 2009 we sold our LCT and RoamEx» product lines, which included goodwill of $3.0 million

and $2.4 million, respectively (See Note 4).

10. Composition of Certain Financial Statement Captions

2010

2009

(In thousands)

Property and equipment:

Data processing equipment and software . . . . . . . . . . . . . . . . . . . . . . . .
Office furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation and amortization . . . . . . . . . . . . . . . . . .

$ 175,590
19,685
22,850
(187,150)

$ 161,515
19,608
24,945
(171,728)

$ 30,975

$ 34,340

Other accrued liabilities:

Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 10,152
3,797
14,783

7,539
18,695
11,949

$ 28,732

$ 38,183

11. Revolving Line of Credit

In October 2006, we entered into a five-year unsecured revolving credit facility with a syndicate of banks.

The principal amount outstanding will be due and payable in full at maturity, on October 20, 2011. In July
2007, we entered into an amended and restated credit agreement that increased the revolving credit facility
from $300 million to $600 million. Proceeds from the credit facility can be used for working capital and
general corporate purposes and may also be used for the refinancing of existing debt, acquisitions, and the
repurchase of the Company’s common stock. Interest on amounts borrowed under the credit facility is based
on (i) a base rate, which is the greater of (a) the prime rate and (b) the Federal Funds rate plus 0.50% or
(ii) LIBOR plus an applicable margin. The margin on LIBOR borrowings ranges from 0.30% to 0.55% and is
determined based on our consolidated leverage ratio. In addition, we must pay utilization fees if borrowings
and commitments under the credit facility exceed 50% of the total credit facility commitment, as well as

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

facility fees. The credit facility contains certain restrictive covenants, including maintenance of consolidated
leverage and fixed charge coverage ratios. The credit facility also contains covenants typical of unsecured
facilities. 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 $245.0 million of Senior Notes in a private placement to a group of institutional investors. As of
September 30, 2010, we had no borrowings outstanding under the credit facility.

12. Senior Notes

On May 7, 2008, we issued $275 million of Senior Notes in a private placement to a group of

institutional investors. The Senior Notes were issued in four series as follows:

Series

Amount

Interest Rate

Maturity Date

A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41 million
B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40 million
C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63 million
D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $131 million

6.37%
6.37%
6.71%
7.18%

May 7, 2013
May 7, 2015
May 7, 2015
May 7, 2018

We are required to pay the entire unpaid principal balances of each note series on its maturity date except
for Series B notes, which requires five annual principal payments of $8.0 million starting on May 7, 2011 and
ending on May 7, 2015.

On July 14, 2010, we issued $245 million of Senior Notes in a private placement to a group of

institutional investors. The Senior Notes were issued in four series as follows:

Series

Amount

Interest Rate

Maturity Date

4.72%
5.04%
5.42%
5.59%

July 14, 2016
July 14, 2017
July 14, 2019
July 14, 2020

Interest is paid on the Senior Notes semi-annually and each of the Notes are subject to certain restrictive

covenants including the maintenance of consolidated net debt to consolidated EBITDA and a fixed charge
coverage ratio. The issuance of the Senior Notes also required us to make certain covenants typical of
unsecured facilities. The fair value of the $275 million Senior Notes and the $245 million Senior Notes was
$315.0 million and $258.7 million at September 30, 2010, respectively. We determined fair value based on
quoted market prices and interest rate spreads of similar securities.

Future principal payments for the Senior Notes are as follows (in thousands):

Fiscal Year

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8,000
8,000
49,000
8,000
71,000
376,000

$520,000

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13. Employee Benefit Plans

Defined Contribution Plans

We sponsor the Fair Isaac Corporation 401(k) plan for eligible employees. Under this plan, eligible
employees may contribute up to 25% of compensation, not to exceed statutory limits. We also provide a
company matching contribution. Investment in FICO common stock is not an option under this plan. Our
contributions into all 401(k) plans, including former acquired company sponsored plans that have since merged
into the Fair Isaac Corporation 401(k) plan or have been frozen, totaled $5.4 million, $5.7 million and
$7.1 million during fiscal 2010, 2009 and 2008, respectively.

Employee Incentive Plans

We maintain various employee incentive plans for the benefit of eligible employees, including officers.

The awards generally are based on the achievement of certain financial and performance objectives subject to
the discretion of management. Total expenses under our employee incentive plans were $5.4 million,
$5.5 million and $2.1 million during fiscal 2010, 2009 and 2008, respectively.

14. Restructuring Expenses

During fiscal 2010, we incurred charges totaling $1.6 million as a result of $0.9 million in facilities
charges from adjusting two lease exit accruals due to a reduction in estimated sublease income and $0.7 million
in severance charges due to the elimination of 35 positions in the U.S., U.K. and India.

During fiscal 2009, we incurred net charges totaling $8.7 million consisting mainly of $5.9 million for

severance costs associated with the reduction of 255 positions throughout the company and $2.6 million
associated with vacating excess leased space. We also recognized a $1.2 million charge due to unfavorable
sublease arrangements we entered into for lease space previously vacated. In addition, we reversed $0.6 million
of accrued expenses as a result of a favorable lease termination agreement that we entered into for office space
that was previously vacated and $0.4 million of previously recognized severance costs due to favorable
adjustments. Cash payments for the severance costs were paid during fiscal 2009.

During 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 $2.7 million associated with vacating excess leased space. The charge represents future
cash lease payments, net of sublease income, which will be paid out over the next four years. In addition, we
recognized a net charge of $0.1 million as a result of unfavorable sublease arrangements associated with office
space we vacated in prior years.

The following table summarizes our restructuring accruals associated with the above actions. The current

portion and non-current portion was recorded in other accrued current liabilities and other liabilities,
respectively, within the accompanying consolidated balance sheets.

Accrual at
September 30,
2007

Facilities charges. . . . . . . . . . . . . .
Employee separation . . . . . . . . . . .

$10,294
1,012

Expense
Additions

$ 3,258
7,353

Cash
Payments
(In thousands)
$ (3,419)
(7,435)

$(445)
—

Expense
Reversals

Accrual at
September 30,
2008

11,306

$10,611

$(10,854)

$(445)

Less: current portion . . . . . . . . . . .

(4,051)

Non-current

. . . . . . . . . . . . . . . . .

$ 7,255

$ 9,688
930

10,618

(4,224)

$ 6,394

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Facilities charges . . . . . . . . . . . . .
Employee separation . . . . . . . . . . .

Accrual at
September 30,
2008
(In thousands)
$ 9,688
930

Expense
Additions

Cash
Payments

Expense
Reversals

Accrual at
September 30,
2009

$3,876
5,860

$ (9,143)
(6,415)

$ (650)
(375)

Less: current portion . . . . . . . . . . .

(4,224)

Non-current . . . . . . . . . . . . . . . . .

$ 6,394

10,618

$9,736

$(15,558)

$(1,025)

$ 3,771
—

3,771

(1,361)

$ 2,410

Accrual at
September 30,
2009

Expense
Additions

Facilities charges . . . . . . . . . . . . . .
Employee separation . . . . . . . . . . .

$ 3,771
—

$ 875
742

Cash
Payments
(In thousands)
$(1,810)
—

Less: current portion . . . . . . . . . . .

(1,361)

Non-current . . . . . . . . . . . . . . . . . .

$ 2,410

3,771

$1,617

$(1,810)

Expense
Reversals

Accrual at
September 30,
2010

$—
—

$—

$ 2,836
742

3,578

(1,474)

$ 2,104

15.

Income Taxes

The provision for income taxes was as follows during fiscal 2010, 2009 and 2008:

Current:
Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred:
Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2010

2009
(In thousands)

2008

$10,190
4,406
6,490

21,086

16,704
4,979
15,453

37,136

$ 42,070
6,816
6,018

54,904

7,761
(644)
(356)

6,761

(2,317)
(2,018)
(696)

(26,203)
(2,032)
5,140

(5,031)

(23,095)

Total provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$27,847

$32,105

$ 31,809

The foreign provision was based on foreign pretax earnings of $25.3 million, $30.8 million and

$25.3 million in fiscal 2010, 2009 and 2008, respectively. Current foreign tax expense related to foreign tax
withholdings was $2.3 million, $5.0 million and $4.8 million in fiscal year 2010, 2009 and 2008, respectively.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred tax assets and liabilities at September 30, 2010 and 2009 were as follows:

2010

2009

(In thousands)

Deferred tax assets:

Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,004
1,028
Research credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
134
Capital loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,260
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,176
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,531
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,345
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,611
Accrued lease costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,890
Property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
323
Capitalized R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,356
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax liabilities:

Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

59,658
(3,540)
56,118

(19,732)
(4,534)
(2,865)
(27,131)

$ 10,449
4,333
8,482
1,138
2,221
25,673
3,677
1,909
6,323
1,593
15,094

80,892
(11,558)
69,334

(19,515)
(2,966)
(2,865)
(25,346)

Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,987

$ 43,988

Based upon the level of historical taxable income and projections for future taxable income over the
periods that the deferred tax assets will reverse, management believes it is more likely than not that we will
realize the benefits of the deferred tax asset, net of the existing valuation allowance at September 30, 2010.

For fiscal 2010, the decrease in the valuation allowance was largely due to the expiration of a significant
portion of the U.S. capital loss carryforward. The remaining valuation allowance is associated with operations
where the company has capital loss carryforwards where realization remains uncertain.

During fiscal 2010, the change in our net operating loss carryforwards were due to utilization of federal

net operating loss that was partially offset by an increase to the foreign net operating loss. The decrease in the
research credit carryforward was due to fiscal 2010 utilization. We acquired NOL and research credit
carryforwards in connection with our acquisitions of Braun, London Bridge and HNC in fiscal 2005, 2004 and
2002, respectively. As of September 30, 2010, we had available U.S. federal, state and foreign NOL
carryforwards of approximately $16.3 million, $4.9 million and $13.6 million, respectively. We also have
available excess CA state research credit of approximately $1.0 million. The U.S. federal NOL carryforwards
will expire at various dates beginning in fiscal 2021 through fiscal 2024, if not utilized. The state NOL
carryforwards will begin to expire in fiscal 2021 through fiscal 2024, if not utilized. The U.S. federal research
credit carryforwards will begin to expire in fiscal 2019 through 2022, if not utilized. Utilization of the
U.S. federal and state NOL are subject to an annual limitation due to the “change in ownership” provisions of
the Internal Revenue Code of 1986 (the “Code”), as amended, and similar state provisions.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The reconciliation between the U.S. federal statutory income tax rate of 35% and our effective tax rate is

shown below for fiscal 2010, 2009 and 2008:

Income tax provision at U.S. federal statutory rate . . . . . . . . . . . . .
State income taxes, net of U.S. federal benefit . . . . . . . . . . . . . . . .
Foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic production deduction . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduction in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2010

$32,306
2,452
(4,721)
(353)
(1,204)
—
(633)

2009
(In thousands)
$34,150
1,383
(3,469)
(1,950)
(1,421)
(148)
3,560

2008

$39,549
2,723
(4,205)
(2,365)
(2,202)
(2,604)
913

Recorded income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . .

$27,847

$32,105

$31,809

The decrease in our effective tax rate in fiscal 2010 compared with fiscal 2009 was largely due to a
positive adjustment in our tax reserves and a benefit from the completion of a research and development credit
study related to the acquisition of HNC Software. These benefits were partially offset by an adverse effect
from the expiration of the US federal research credit. In addition, there were two large one-time adverse
adjustments during fiscal 2009 associated with the finalization of UK statutory audits from prior years and the
sale of our Roamex and Liquid Credit Telecom product lines.

Unrecognized Tax Benefit for Uncertain Tax Positions

We conduct business globally and, as a result, file income tax returns in the U.S. federal jurisdiction and

various state and foreign jurisdictions. In the normal course of business, we are subject to examination by
taxing authorities. With few exceptions, we are no longer subject to U.S. federal, state, local, or foreign
income tax examinations for fiscal years prior to 2007. We are currently under audit by the IRS for tax returns
filed for fiscal 2008 and by California Franchise Tax Board for fiscal 2003 through 2005. We do not anticipate
any adjustments related to those audits that will result in a material change to our financial position.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Gross unrecognized tax benefits upon adoption on October 1 . . . . .
Gross increases for tax positions in prior periods . . . . . . . . . . . . . .
Gross decreases for tax positions in prior periods . . . . . . . . . . . . .
Gross increases based on tax positions related to the current year. .
Decreases for settlements and payments . . . . . . . . . . . . . . . . . . . .
Decreases due to statute expiration . . . . . . . . . . . . . . . . . . . . . . . .

2010

2009
(In thousands)
$ 26,265
$18,587
3,566
—
(2,141)
(7,025)
724
1,802
— (10,905)
—
—

2008

$26,465
754
(990)
2,099
(2,063)
—

Gross unrecognized tax benefits at September 30 . . . . . . . . . . . . .

$12,286

$ 18,587

$26,265

We had $12.3 million of total unrecognized tax benefits as of September 30, 2010 of which we expect to
recognize $8.9 million in fiscal 2011. Included in the $12.3 million of total gross unrecognized tax benefits as
of September 30, 2010 was $9.6 million of tax benefits that, if recognized, would impact the effective tax rate.

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. We recognize interest earned related to income tax
matters as interest income in our consolidated statements of income. As of September 30, 2010, we have
accrued interest of $1.4 million related to the unrecognized tax benefits.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16. Stockholders’ Equity

Common Stock

From time to time, we repurchase our common stock in the open market pursuant to programs approved

by our Board of Directors. 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 under such programs.

We paid quarterly dividends on common stock of two cents per share, or eight cents per year, during each

of fiscal 2010, 2009 and 2008.

Stockholder Rights Plan

We maintain a stockholder rights plan pursuant to which one right to purchase preferred stock was

distributed for each outstanding share of common stock held of record on August 21, 2001. Since this
distribution, all newly issued shares of common stock have been accompanied by a preferred stock purchase
right. In general, the rights will become exercisable and trade independently from the common stock if a
person or group acquires or obtains the right to acquire 15 percent or more of the outstanding shares of
common stock or commences a tender or exchange offer that would result in that person or group acquiring
15 percent or more of the outstanding shares of common stock, either event occurring without the consent of
the Board of Directors. Each right represents a right to purchase Series A Participating Preferred Stock in an
amount and at an exercise price that are subject to adjustment. The person or group who acquired 15 percent
or more of the outstanding shares of common stock would not be entitled to make this purchase. The rights
will expire in August 2011, or they may be redeemed by the Company at a price of $0.001 per right prior to
that date.

17. Stock-Based Employee Benefit Plans

Description of Stock Option and Share Plans

We maintain the 1992 Long-term Incentive Plan (the “1992 Plan”) under which we may grant stock

options, stock appreciation rights, restricted stock, restricted stock units and common stock to officers, key
employees and non-employee directors. As of September 30, 2010, 5,756,253 shares remained available for
grants under this plan. The 1992 Plan will terminate in February 2012. In November 2003, our Board of
Directors approved the adoption of the 2003 Employment Inducement Award Plan (the “2003 Plan”). The
2003 Plan reserves 2,250,000 shares of common stock solely for the granting of inducement stock options and
other awards, as defined, that meet the “employment inducement award” exception to the New York Stock
Exchange’s listing standards requiring shareholder approval of equity-based inducement incentive plans.
Except for the employment inducement award criteria, awards under the 2003 Plan will be generally consistent
with those made under our 1992 Plan. As of September 30, 2010, 1,784,181 shares remained available for
grants under this plan. The 2003 Plan shall remain in effect until terminated by the Board of Directors. Stock
option awards typically had a maximum term of seven years and vested ratably over four years. Stock option
awards granted prior to October 1, 2005, typically had a maximum term of ten years and vested ratably over
four years.

We assumed all outstanding stock options held by former employees and non-employee directors of HNC

Software, Inc. (“HNC”), who as of our acquisition date in fiscal 2002, held unexpired and unexercised stock
option grants under the various HNC stock option plans. As of September 30, 2010, 827,723 shares remained
available for future grant under these option plans.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Description of Employee Stock Purchase Plan

Under our Employee Stock Purchase Plan (“Purchase Plan”), we are authorized to issue up to

5,062,500 shares of common stock to eligible employees. Employees may have up to 10% of their base salary
withheld through payroll deductions to purchase FICO common stock during semi-annual offering periods.
The purchase price of the stock is 85% of the fair market value on the exercise date (the last day of each
offering period). Offering period means approximately six-month periods commencing (a) on the first trading
day on or after January 1 and terminating on the last trading day in the following June, and (b) on the first
trading day on or after July 1 and terminating on the last trading day in the following December. The Purchase
Plan was suspended effective January 1, 2009 and employees cannot contribute to the Purchase Plan until the
suspension is repealed.

A total of approximately 192,000 and 384,000 shares of our common stock with a weighted average

purchase price of $14.33 and $21.98 per share were issued under the Purchase Plan during fiscal 2009 and
2008, respectively. At September 30, 2010, 2,707,966 shares remained available for issuance.

Share-Based Compensation Expense

We recorded $17.3 million, $19.9 million and $27.7 million of share-based compensation expense for

stock options, restricted stock units, non-vested shares and purchases under the Purchase Plan in fiscal years
2010, 2009 and 2008, respectively. The total tax benefit related to this share-based compensation expense was
$6.6 million, $7.5 million and $10.3 million in fiscal 2010, 2009 and 2008, respectively. As of September 30,
2010, there was $29.7 million of total unrecognized compensation cost related to non-vested share-based
compensation arrangements granted under all equity compensation plans. Total unrecognized compensation
cost will be adjusted for future changes in estimated forfeitures. We expect to recognize that cost over a
weighted average period of 2.7 years.

Determining Fair Value

We estimate the fair value of stock options granted using the Black-Scholes option valuation model and

we amortize the fair value on a straight-line basis over the vesting period. We used the following assumptions
to estimate the fair value of our stock options during fiscal 2010, 2009 and 2008:

2010

2009

2008

Stock Options:

4.31
Average expected term (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35-42% 45-48% 32-44%
Expected volatility (range) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34%
Risk-free interest rate (range) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2-3.1% 1.1-2.3% 2.5-4.4%
0.2%
0.4%
0.4%
Average expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.4% 0.2-0.3%
Expected dividend yield (range) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4-0.5%

41%

47%

4.89

4.22

The fair value of restricted stock units and non-vested shares granted is the fair value of our common

stock on the date of grant adjusted for the expected dividend yield. We amortize the fair value on a straight-
line basis over the vesting period.

Expected Volatility. 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.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Expected Term. The expected term represents the period that our stock options are expected to be

outstanding. We estimate the expected term based on historical experience of similar awards, giving
consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future
employee behavior.

Dividends. The dividend yield assumption is based on historical dividend payouts.

Risk-Free Interest Rate. The risk-free interest rate assumption is based on observed interest rates

appropriate for the term of our employee options.

Forfeitures. 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.

Stock-Based Activity

The following table summarizes option activity during fiscal 2010:

Outstanding at October 1, 2009 . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at September 30, 2010 . . . . . . .

Options exercisable at September 30, 2010 . .

Weighted-
average
Exercise
Price

$31.60
21.76
13.87
24.53
35.86

$30.25

$33.66

Shares
(In thousands)
7,354
1,035
(288)
(241)
(1,287)

6,573

4,685

Weighted-
average
Remaining
Contractual
Term
(In years)

Aggregate
Intrinsic
Value
(In thousands)

4.00

3.31

$13,147

$ 3,847

The weighted average fair value of options granted during fiscal 2010, 2009 and 2008 were $7.58, $5.40

and $10.72, respectively. The aggregate intrinsic value of options outstanding at September 30, 2010 was
calculated as the difference between the exercise price of the underlying options and the market price of our
common stock for the 2.0 million shares that had exercise prices that were lower than the $24.66 market price
of our common stock at September 30, 2010. The total intrinsic value of options exercised during fiscal 2010,
2009 and 2008 was $2.7 million, $0.8 million and $5.1 million, respectively, determined as of the date of
exercise.

The following table summarizes restricted stock unit activity during fiscal 2010:

Outstanding at October 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares
(In thousands)
1,113
624
(347)
(179)

Outstanding at September 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,211

Weighted-
average
Price

$23.83
22.42
25.24
23.36

22.78

The weighted average fair value of restricted stock units and non-vested shares granted during fiscal
2010, 2009 and 2008 were $22.05, $17.80 and $26.32, respectively. The total intrinsic value of restricted stock

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

units and non-vested shares that vested during fiscal 2010, 2009 and 2008 was $7.7 million, $4.1 million and
$4.1 million, respectively, determined as of the date of exercise.

We received $1.4 million in cash from stock option exercises and the issuance of stock under the

Purchase Plan in fiscal 2010. The actual tax benefit that we realized for the tax deductions from option
exercises totaled $1.1 million for that period.

Due primarily to our ongoing program of repurchasing shares on the open market; we had approximately
49.0 million treasury shares at September 30, 2010. We satisfy stock option exercises, Purchase Plan issuances
and vesting of restricted stock units from this pool of treasury shares.

18. Earnings Per Share

The following reconciles the numerators and denominators of basic and diluted earnings per share

(“EPS”) from continuing operations during fiscal 2010, 2009 and 2008:

2010

2009
(In thousands, except per share data)

2008

Numerator for basic earnings per share: income from continuing

operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense on senior convertible notes, net of tax . . . . . . . . . .

$64,457
—

$65,465
—

$81,186
3

Numerator for diluted earnings per share from continuing

operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$64,457

$65,465

$81,189

Denominator — share:

Basic weighted-average shares . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of dilutive securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

44,903
405

Diluted weighted-average shares . . . . . . . . . . . . . . . . . . . . . . . . .

45,308

48,658
118

48,776

48,940
433

49,373

Earnings per share from continuing operations:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1.44

$ 1.35

$ 1.66

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1.42

$ 1.34

$ 1.64

The computation of diluted EPS for fiscal 2010, 2009 and 2008 excludes options to purchase

approximately 4,939,000, 7,189,000 and 7,769,000 shares of common stock, respectively, because the options’
exercise prices exceeded the average market price of our common stock in these fiscal years and their
inclusion would be antidilutive.

19. Related Party Transactions

We have a $10 million investment in convertible preferred stock in a private company. The company is

developing a range of products focused on revenue cycle activities for hospitals and healthcare providers.
Related party revenues for the year ended September 30, 2010 included $0.1 million in transactional revenue
and $0.3 million in professional services revenue. Related party revenues for the year ended September 30,
2009 included $0.3 million in maintenance revenue and $0.3 million in professional services revenue. Related
party revenues for the year ended September 30, 2008 included $2.5 million in software license revenue,
$0.1 million in maintenance revenue and $2.4 million in professional services revenue. The accounts receivable
balance from this company was not significant as of September 30, 2010.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

20. Segment Information

Effective October 1, 2009, we implemented an organizational restructuring resulting in a consolidation of

our current operating segment structure from four segments to three. Also, in fiscal 2010, we changed our
segment operating income reporting measure to exclude certain corporate general and administrative expenses.
Previously, corporate expenses, which mainly include finance, legal and human resource related expenses,
were allocated to the segments. In addition, amortization expense is no longer allocated to the individual
segments. All periods presented have been restated to reflect these changes. The new segments are as follows:

(cid:129) 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.

(cid:129) Scores. This segment includes our business-to-business scoring solutions, our myFICO» solutions for
consumers (previously included in the Strategy MachineTM Solutions segment) and associated profes-
sional 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.

(cid:129) 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.

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.

Our Chief Executive Officer evaluates segment financial performance based on segment revenues and
segment operating income. Segment operating expenses consist of direct and indirect costs principally related
to personnel, facilities, consulting, travel and depreciation. Indirect costs are allocated to the segments
generally based on relative segment revenues, fixed rates established by management based upon estimated
expense contribution levels and other assumptions that management considers reasonable. We do not allocate
share-based compensation expense, restructuring expense, amortization expense, various corporate charges and
certain other income and expense measures to our segments. These income and expense items are not allocated
because they are not considered in evaluating the segment’s operating performance. Our Chief Executive
Officer does not evaluate the financial performance of each segment based on its respective assets or capital
expenditures; rather, depreciation amounts are allocated to the segments from their internal cost centers as
described above.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following tables summarize segment information for fiscal 2010, 2009 and 2008:

Applications

Scores

2010

Tools
(In thousands)

Unallocated
Corporate
Expenses

Total

Segment revenues:

Transactional and maintenance . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . .
License . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 257,275
86,097
23,886

$170,141
2,042
156

$ 28,071
14,739
23,236

— $ 455,487
102,878
—
47,278
—

Total segment revenues . . . . . . . . . . . . .
Segment operating expense . . . . . . . . . . . . . .

367,258
(273,983)

172,339
(61,688)

66,046
(57,634)

—
(69,166)

605,643
(462,471)

Segment operating income . . . . . . . . . . .

$ 93,275

$110,651

$ 8,412

$(69,166)

143,172

Unallocated share-based compensation

expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated amortization expense . . . . . . . . .
Unallocated restructuring expense . . . . . . . . .

Operating income . . . . . . . . . . . . . . . . . . . . .
Unallocated interest income . . . . . . . . . . . . .
Unallocated interest expense . . . . . . . . . . . . .
Unallocated other income, net . . . . . . . . . . . .

Income before income taxes . . . . . . . . . . . . .

(17,305)
(10,901)
(1,617)

113.349
1,688
(24,124)
1,391

$ 92,304

Depreciation expense . . . . . . . . . . . . . . . . . .

$ 14,998

1,339

$ 2,147

$ 1,533

$ 20,017

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Applications

Scores

2009

Tools
(In thousands)

Unallocated
Corporate
Expenses

Total

Segment revenues:

Transactional and maintenance . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . .
License . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 274,123
92,000
17,007

$178,048
1,527
—

$ 26,531
18,886
22,613

— $ 478,702
112,413
—
39,620
—

Total segment revenues . . . . . . . . . . . . .
Segment operating expense . . . . . . . . . . . . . .

383,130
(270,541)

179,575
(57,373)

68,030
(60,676)

—
(80,868)

630,735
(469,458)

Segment operating income . . . . . . . . . . .

$ 112,589

$122,202

$ 7,354

$(80,868)

161,277

Unallocated share-based compensation

expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated amortization expense . . . . . . . . .
Unallocated restructuring expense . . . . . . . . .
Unallocated loss on sale of product line

assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before income taxes . . . . . . . . . . . . .

(19,935)
(12,891)
(8,711)

(2,993)

116,747
4,717
(25,481)
1,587

$ 97,570

Depreciation expense . . . . . . . . . . . . . . . . . .

$ 19,569

1,827

$ 2,248

$ 1,884

$ 25,528

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Applications

Scores

2008

Tools
(In thousands)

Unallocated
Corporate
Expenses

Total

Segment revenues:

Transactional and maintenance . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . .
License . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 299,569
115,855
35,026

$210,280
1,622
—

$ 26,106
30,437
25,947

— $ 535,955
147,914
—
60,973
—

Total segment revenues . . . . . . . . . . . . .
Segment operating expense . . . . . . . . . . . . . .

450,450
(329,464)

211,902
(68,264)

82,490
(78,839)

—
(94,059)

744,842
(570,626)

Segment operating income . . . . . . . . . . .

$ 120,986

$143,638

$ 3,651

$(94,059)

174,216

Unallocated share-based compensation

expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated amortization expense . . . . . . . . .
Unallocated restructuring expense . . . . . . . . .

Income before income taxes . . . . . . . . . . . . .

(27,724)
(14,043)
(10,166)

122,283
8,802
(20,335)
2,245

$ 112,995

Depreciation expense . . . . . . . . . . . . . . . . . .

$ 18,636

1,282

$ 2,042

$ 2,138

$ 24,098

Our revenues and percentage of revenues by reportable market segments were as follows for fiscal 2010,
2009 and 2008, the majority of which were derived from the sale of products and services within the banking
and insurance industries:

2010

2009
(Dollars in thousands)

2008

Applications . . . . . . . . . . . . . . . . . . . . . .
Scores . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tools . . . . . . . . . . . . . . . . . . . . . . . . . . .

$367,258
172,339
66,046

61% $383,130
28% 179,575
11% 68,030

61% $450,450
28% 211,902
82,490
11%

61%
28%
11%

$605,643

100% $630,735

100% $744,842

100%

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.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Our revenues and percentage of revenues on a geographical basis are summarized below for fiscal 2010,
2009 and 2008. No individual country outside of the United States accounted for 10% or more of revenue in
any of these years.

United States . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Other International

$396,036
209,607

65% $430,958
35% 199,777

68% $498,526
32% 246,316

67%
33%

$605,643

100% $630,735

100% $744,842

100%

2010

2009
(Dollars in thousands)

2008

During fiscal 2010, 2009 and 2008, no individual customer accounted for 10% or more of our total
revenues; however, we derive a substantial portion of our revenues from our contracts with the three major
credit reporting agencies, TransUnion, Equifax and Experian. Revenues collectively generated by agreements
with these customers accounted for 20% of our total revenues in fiscal 2010. At September 30, 2010 and
2009, no individual customer accounted for 10% or more of total consolidated receivables.

Our property and equipment, net, on a geographical basis are summarized below at September 30, 2010
and 2009. At September 30, 2010 and 2009, no individual country outside of the United States accounted for
10% or more of total consolidated net property and equipment.

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,452
3,523
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(Dollars in thousands)
89% $31,183
3,157
11%

91%
9%

2010

2009

$30,975

100% $34,340

100%

21. Commitments

Minimum future commitments under non-cancelable operating leases and other obligations were as

follows at September 30, 2010:

Fiscal Year

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Future
Minimum
Lease
Commitments

Other
Commitments

(In thousands)

$ 19,759
16,687
13,892
13,758
11,881
40,770

$116,747

$ 6,100
5,100
4,400
2,600
—
—

$18,200

Lease Commitments

The above amounts have been reduced by contractual sublease commitments totaling $0.9 million,
$0.5 million, $0.2 million and $0.1 million, in fiscal 2011 through 2014, respectively. We occupy the majority
of our facilities under non-cancelable operating leases with lease terms in excess of one year. Such facility
leases generally provide for annual increases based upon the Consumer Price Index or fixed increments. Rent

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

expense under operating leases, including month-to-month leases, totaled $22.6 million, $24.4 million and
$28.6 million during fiscal 2010, 2009 and 2008, respectively.

Other Commitments

In the ordinary course of business, we enter into contractual purchase obligations and other agreements

that are legally binding and specify certain minimum payment terms.

We are also a party to a management agreement with 23 of our executives providing for certain payments

and other benefits in the event of a qualified change in control of FICO, coupled with a termination of the
officer during the following year.

22. Contingencies

We are in disputes with certain customers regarding amounts owed in connection with the sale of certain
of our products and services. We also have had claims asserted by former employees relating to compensation
and other employment matters. We are also involved in various other claims and legal actions arising in the
ordinary course of business. We believe that none of these aforementioned claims or actions will result in a
material adverse impact to our consolidated results of operations, liquidity or financial condition. However, the
amount or range of any potential liabilities associated with these claims and actions, if any, cannot be
determined with certainty. Set forth below are additional details concerning certain ongoing litigation.

Braun Consulting, Inc.

Braun (which we acquired in November 2004) was a defendant in a lawsuit filed on November 26, 2001,
in the United States District Court for the Southern District of New York (Case No. 01 CV 10629) that alleges
violations of federal securities laws in connection with Braun’s initial public offering in August 1999. This
lawsuit is among approximately 300 coordinated putative class actions against certain issuers, their officers
and directors, and underwriters with respect to such issuers’ initial public offerings. As successor-in-interest to
Braun, we entered into a Stipulation and Agreement of Settlement along with most of the other defendant
issuers in this coordinated litigation, where such issuers and their officers and directors would be dismissed
with prejudice, subject to the satisfaction of certain conditions, including approval of the Court. Under the
terms of this Agreement, we would not pay any amount of the settlement. However, since December 2006,
certain procedural matters concerning the class status have been decided in the district and appellate courts of
the Second Circuit, ultimately determining that no class status exists for the plaintiffs. Since there is no class
status, there could be no agreement, thus the District Court entered an order formally denying the motion for
final approval of the settlement agreement.

On April 2, 2009, a stipulation and agreement of settlement between the plaintiffs, issuer defendants and

underwriter defendants was submitted to the United States District Court for the Southern District of New York
for preliminary approval. This settlement requires no financial contribution from us. The Court granted the
plaintiffs’ motion for preliminary approval and preliminarily certified the settlement classes on June 10, 2009.
The settlement “fairness” hearing was held on September 10, 2009. The Court granted the plaintiffs’ motion
for final approval of the settlement and certified the settlement classes on October 5, 2009. The Court
determined that the settlement is fair to the class members, approved the settlement and dismissed, with
prejudice, the case against the Company and its individual defendants. Notices of appeal of the opinion
granting final approval have been filed. Due to the inherent uncertainties of litigation and because the
settlement remains subject to appeal, the ultimate outcome of the matter is uncertain.

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

23. Guarantees

In the ordinary course of business, we are not subject to potential obligations under guarantees, except for

standard indemnification and warranty provisions that are contained within many of our customer license and
service agreements and certain supplier agreements, including underwriter agreements, as well as standard
indemnification agreements that we have executed with certain of our officers and directors, and give rise only
to the disclosure in the consolidated financial statements. In addition, we continue to monitor the conditions
that are subject to the guarantees and indemnifications to identify whether it is probable that a loss has
occurred, and would recognize any such losses under the guarantees and indemnifications when those losses
are estimable.

Indemnification and warranty provisions contained within our customer license and service agreements
and certain supplier agreements are generally consistent with those prevalent in our industry. The duration of
our product warranties generally does not exceed 90 days following delivery of our products. We have not
incurred significant obligations under customer indemnification or warranty provisions historically and do not
expect to incur significant obligations in the future. Accordingly, we do not maintain accruals for potential
customer indemnification or warranty-related obligations. The indemnification agreements that we have
executed with certain of our officers and directors would require us to indemnify such officers and directors in
certain instances. We have not incurred obligations under these indemnification agreements historically and do
not expect to incur significant obligations in the future. Accordingly, we do not maintain accruals for potential
officer or director indemnification obligations. The maximum potential amount of future payments that we
could be required to make under the indemnification provisions in our customer license and service
agreements, and officer and director agreements is unlimited.

24. Supplementary Financial Data (Unaudited)

The following table presents selected unaudited consolidated financial results for each of the eight

quarters in the two-year period ended September 30, 2010. In the opinion of management, this unaudited
information has been prepared on the same basis as the audited information and includes all adjustments
(consisting of only normal recurring adjustments, except as noted below) necessary for a fair statement of the
consolidated financial information for the period presented.

December 31,
2009

March 31,
2010

June 30,
2010

September 30,
2010

(In thousands, except per share data)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues(2) . . . . . . . . . . . . . . . . . . . .

$151,496
42,519

$143,720
44,641

$155,329
45,316

$155,098
48,456

Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . .

108,977

99,079

110,013

106,642

Net income(3) . . . . . . . . . . . . . . . . . . . . . . . .

17,686

12,992

17,938

15,841

Earnings per share(1):

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.37

0.28

0.40

0.39

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.37

0.28

0.40

0.38

Shares used in computing earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .

47,606
47,915

46,447
46,870

44,446
44,885

41,141
41,590

FAIR ISAAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31,
2008

March 31,
2009

June 30,
2009

September 30,
2009

(In thousands, except per share data)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues(2) . . . . . . . . . . . . . . . . . . . .

$163,460
59,019

$159,335
53,476

$156,018
48,160

$151,922
45,793

Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . .

104,441

105,859

107,858

106,129

Income from continuing operations . . . . . . . .
Loss from discontinued operations . . . . . . . . .

12,110
—

18,108
(363)

18,139
—

17,108
—

Net income(3) . . . . . . . . . . . . . . . . . . . . . . . .

$ 12,110

$ 17,745

$ 18,139

$ 17,108

Basic earnings (loss) per share(1):

Continuing operations . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted earnings (loss) per share(1):

Continuing operations . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares used in computing earnings (loss) per

share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.25
—

0.25

0.25
—

0.25

0.37
(0.01)

0.36

0.37
(0.01)

0.36

0.37
—

0.37

0.37
—

0.37

0.35
—

0.35

0.35
—

0.35

48,478
48,522

48,813
48,828

48,835
48,986

48,513
48,772

(1) Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of

the quarterly per share amounts may not equal the totals for the respective years.

(2) Cost of revenues excludes amortization expense for the quarters ended December 31, 2008, March 31,
2009, June 30, 2009, September, 30, 2009, December 31, 2009, March 31, 2010, June 30, 2010 and
September 30, 2010 of $1.7 million, $1.7 million, $1.7 million, $1.7 million, $1.7 million, $1.7 million,
$1.3 million and $0.7 million, respectively.

(3) Net income includes restructuring expenses (income) for the quarters ended December 31, 2008, March 31,
2009, June 30, 2009 and September 30, 2010 of $8.1 million, $0.9 million, ($0.2) million and $1.6 million,
respectively.

25. Subsequent Events

For the year ended September 30, 2010, we have evaluated subsequent events for potential recognition

and disclosure through the date of this filing.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

An evaluation was carried out under the supervision and with the participation of FICO’s management,
including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of
the design and operation of FICO’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by
this annual report. Based on that evaluation, the CEO and CFO have concluded that FICO’s disclosure controls
and procedures are effective to ensure that information required to be disclosed by FICO in reports that it files
or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms. In addition, the disclosure controls and procedures ensure that information
required to be disclosed is accumulated and communicated to management, including the chief executive
officer and chief financial officer, allowing timely decisions regarding required disclosure.

No change in FICO’s internal control over financial reporting was identified in connection with the

evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the quarter ended
September 30, 2010, that has materially affected, or is reasonably likely to materially affect, FICO’s internal
control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial

reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the
participation of management, including our CEO and CFO, we conducted an evaluation of the effectiveness of
our internal controls over financial reporting based on the framework in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Based on this evaluation management has concluded that our internal control over financial reporting was
effective as of September 30, 2010.

Deloitte & Touche LLP, the independent registered public accounting firm that audited the consolidated
financial statements included in this Annual Report on Form 10-K, has also audited the effectiveness of our
internal control over financial reporting as of September 30, 2010, as stated in their attestation report included
in Part II, Item 8 of this Annual Report on Form 10-K.

Item 9B. Other Information

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The required information regarding our Directors is incorporated by reference from the information under
the caption “Director Nominees” in our definitive proxy statement for the Annual Meeting of Stockholders to
be held on February 1, 2011.

The required information regarding our Executive Officers is contained in Part I of this Annual Report on

Form 10-K.

The required information regarding compliance with Section 16(a) of the Securities Exchange Act is

incorporated by reference from the information under the caption “Section 16(a) Beneficial Ownership
Reporting Compliance” in our definitive proxy statement for the Annual Meeting of Stockholders to be held
on February 1, 2011.

FICO has adopted a Code of Ethics for Senior Financial Management that applies to the Company’s
Chief Executive Officer, Chief Financial Officer, Controller and other employees performing similar functions
who have been identified by the Chief Executive Officer. We have posted the Code of Ethics on our web site
located at www.fico.com. FICO intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K
regarding an amendment to, or a waiver from, this Code of Ethics by posting such information on its web site.
FICO also has a Code of Conduct and Business Ethics applicable to all directors, officers and employees,
which is also available at the web site cited above. The required information regarding the Company’s
corporate governance guidelines and committee charters is incorporated by reference from the information
under the caption “Board Meetings, Committees and Attendance” in our definitive proxy statement for the
Annual Meeting of Shareholders to be held on February 1, 2011.

Item 11. Executive Compensation

The information required by this Item is incorporated by reference from the information under the
captions “Director Compensation,” “Executive Compensation,” and “Compensation Committee Interlocks and
Insider Participation” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on
February 1, 2011.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

The information required by this Item is incorporated by reference from the information under the caption

“Security Ownership Of Certain Beneficial Owners and Management” and “Executive Compensation” in our
definitive proxy statement for the Annual Meeting of Stockholders to be held on February 1, 2011.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated by reference from the information under the caption

“Certain Relationships and Related Transactions” in our definitive proxy statement for the Annual Meeting of
Stockholders to be held on February 1, 2011.

Item 14. Principal Accountant Fees and Services

The information required by this Item is incorporated by reference from the information under the caption

“Audit and Non-Audit Fees” in our definitive proxy statement for the Annual Meeting of Stockholders to be
held on February 1, 2011.

PART IV

Item 15. Exhibits and Financial Statement Schedules

1. Consolidated Financial Statements:

Reference Page
Form 10-K

Reports of independent registered public accounting firm . . . . . . . . . . . . . . . . . . . . . .
Consolidated balance sheets as of September 30, 2010 and 2009 . . . . . . . . . . . . . . . .
Consolidated statements of income for the years ended September 30, 2010, 2009

and 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated statements of stockholders’ equity and comprehensive income for the

years ended September 30, 2010, 2009 and 2008 . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated statements of cash flows for the years ended September 30, 2010, 2009
and 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

55
57

60
61

2. Financial Statement Schedules

All financial statement schedules are omitted as the required information is not applicable or as the

information required is included in the consolidated financial statements and related notes.

3. Exhibits:

Exhibit
Number

Description

3.1

3.2

4.1

4.2

4.3
10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

Bylaws of Fair Isaac Corporation. (Incorporated by reference to Exhibit 3.1 to the Company’s
Form 10-Q filed on February 8, 2010.)
Composite Restated Certificate of Incorporation of Fair Isaac Corporation. (Incorporated by reference
to Exhibit 3.2 to the Company’s Form 10-Q filed on February 8, 2010.)
Rights Agreement dated as of August 8, 2001, between Fair, Isaac and Company, Incorporated and
Mellon Investor Services LLC, which includes as Exhibit B the form of Rights Certificate and as
Exhibit C the Summary of Rights. (Incorporated by reference to Exhibit 4.1 of the Company’s
Registration Statement on Form 8-A relating to the Series A Participating Preferred Stock Purchase
Rights filed August 10, 2001.)
Amendment Number 1, dated May 21, 2009, to the Rights Agreement between Fair, Isaac and
Company, Incorporated and Mellon Investor Services LLC. (Incorporated by reference to Exhibit 4.1
to the Company’s Form 8-K filed on May 26, 2009.)
Form of Rights Certificate. (Included in Exhibit 4.1.)
Amended and Restated Credit Agreement among Fair Isaac, Wells Fargo Bank, N.A., U.S. Bank
N.A., Bank of America, N.A., JPMorgan Chase Bank, N.A. and Deutsche Bank AG, NY Branch,
dated July 23, 2007 (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed
with the SEC on July 25, 2007).
Form of Note Purchase Agreement, dated May 7, 2008, between Fair Isaac Corporation and the
Purchasers listed on Schedule A thereto, which includes as Exhibits 1-4 the form of Senior Note for
each of Series A, B, C and D (excluding certain schedules and exhibits thereto, which Fair Isaac
Corporation agrees to furnish to the Securities and Exchange Commission upon request).
(Incorporated by reference to Exhibit 10.1 to Fair Isaac’s Form 10-Q for the fiscal quarter ended
June 30, 2008.)
Form of Note Purchase Agreement, dated July 14, 2010, between Fair Isaac Corporation and the
Purchasers listed on Schedule A thereto, which includes as Exhibits 1-4 the form of Senior Note for
each of Series E, F, G and H (excluding certain schedules and exhibits thereto, which Fair Isaac
Corporation agrees to furnish to the Securities and Exchange Commission upon request).
(Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 19, 2010.)
Voting Agreement dated May 21, 2009 by and between Fair Isaac Corporation and Southeastern
Asset Management, Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed
on May 26, 2009.)
Amended and Restated Agreement dated December 4, 2008, between the Company and the Sandell
Group. (Incorporated by reference to Exhibit 10.1 to Fair Isaac’s Form 8-K filed on December 9,
2008.)
Amendment Number 1, dated July 29, 2009, to the Amended and Restated Agreement between the
Company and the Sandell Group. (Incorporated by reference to Exhibit 10.1 to the Company’s
Form 8-K filed on July 30, 2009.)
Fair Isaac Corporation 1992 Long-Term Incentive Plan, as amended effective May 4, 2010.
(Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on August 6, 2010.)(1)
Form of Non-Qualified Stock Option Agreement under 1992 Long-term Incentive Plan, as amended
effective July 18, 2007. (Incorporated by reference to Exhibit 10.42 to Fair Isaac’s Form 10-Q for the
fiscal quarter ended December 31, 2007.)(1)
Form of Nonstatutory Stock Option Agreement for Initial Grants to Non-Employee Directors under
1992 Long-term Incentive Plan. (Incorporated by reference to Exhibit 10.3 to the Company’s
Form 10-Q for the fiscal quarter ended December 31, 2008.)(1)

Exhibit
Number

10.10

10.11

10.12

10.13

10.14

10.15

Description

Form of Restricted Stock Unit Agreement under 1992 Long-term Incentive Plan, as amended
effective July 18, 2007. (Incorporated by reference to Exhibit 10.49 to Fair Isaac’s Form 10-Q for the
fiscal quarter ended December 31, 2007.)(1)
Form of Restricted Stock Agreement under 1992 Long-Term Incentive Plan. (Incorporated by
reference to Exhibit 10.43 to the Company’s Annual Report of Form 10-K for the period ended
September 30, 2006.)(1)
HNC’s 1995 Directors Stock Option Plan, as amended through April 30, 2000. (Incorporated by
reference to Exhibit 4.05 to HNC’s Form S-8 Registration Statement, File No. 333-40344, filed
June 28, 2000.)(1)
HNC’s Form of 1995 Directors Stock Option Plan Option Agreement and Stock Option Exercise
Agreement. (Incorporated by reference to Exhibit 10.01 to HNC’s Form 10-Q for the quarter ended
June 30, 1999.)(1)
Fair, Isaac Supplemental Retirement and Savings Plan, as amended and restated effective January 1,
2009. (Incorporated by reference to Exhibit 10.10 of the Company’s Form 10-K for the fiscal year
ended September 30, 2008.)(1)
Stock Option Agreement with A. George Battle entered into as of February 5, 2002. (Incorporated by
reference to Exhibit 10.58 to the Company’s report on Form 10-K for the fiscal year ended
September 30, 2002.)(1)

10.16* Management Incentive Plan, Fiscal 2011.(1)
10.17

10.18

Form of Indemnity Agreement entered into by the Company with the Company’s directors and
executive officers. (Incorporated by reference to Exhibit 10.49 to the Company’s report on
Form 10-K for the fiscal year ended September 30, 2002.)(1)
Form of Management Agreement entered into with each of the Company’s executive officers (except
Dr. Mark N. Greene, Mark R. Scadina and Laurent F. Pacalin). (Incorporated by reference to
Exhibit 10.18 of the Company’s Form 10-K for the fiscal year ended September 30, 2008.)(1)
10.19 Management Agreement entered into with Dr. Mark N. Greene. (Incorporated by reference to
Exhibit 10.51 to the Company’s Form 10-K for the fiscal year ended September 30, 2008.)(1)

10.20 Management Agreement entered into with Mark R. Scadina. (Incorporated by reference to

Exhibit 10.55 to the Company’s Form 10-K for the fiscal year ended September 30, 2008.)(1)

10.21 Management Agreement entered into with Laurent F. Pacalin. (Incorporated by reference to

10.23

10.22

Exhibit 10.56 to the Company’s Form 10-K for the fiscal year ended September 30, 2008.)(1)
Employment Agreement dated February 13, 2007, by and between Fair Isaac and Dr. Mark Greene
(Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with
the SEC on February 14, 2007).(1)
Letter Agreement entered into on June 30, 2008 by and between Fair Isaac Corporation and
Dr. Mark N. Greene. (Incorporated by reference to Exhibit 10.59 to the Company’s Form 10-K for
the fiscal year ended September 30, 2008.)(1)
Offer Letter entered into on May 29, 2007 with Mark R. Scadina. (Incorporated by reference to
Exhibit 10.61 to the Company’s Form 10-K for the fiscal year ended September 30, 2008.)(1)
10.25* Letter Agreement dated January 12, 2009 by and between the Company and Deborah Kerr.(1)
10.26

Letter Agreement dated January 15, 2010 by and between the Company and Charles Ill.
(Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 20, 2010.)(1)

10.24

10.27* Letter Agreement dated July 28, 2010 by and between the Company and Jordan Graham.(1)
10.28

Letter Agreement entered into on March 11, 2009 by and between Fair Isaac Corporation and
Thomas Bradley. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on
March 16, 2009.)(1)
Letter providing terms of offer of employment by the Company to Michael H. Campbell dated
April 15, 2005. (Incorporated by reference to Exhibit 10.01 to Fair Isaac’s Form 8-K filed on
April 21, 2005.)(1)

10.29

Exhibit
Number

10.30

10.31

10.32

10.33

12.1*
21.1*
23.1*
31.1*
31.2*
32.1*
32.2*

Description

Letter Agreement entered into on October 18, 2007 by and between Fair Isaac Corporation and
Michael H. Campbell (Incorporated by reference to Exhibit 10 to the Company’s Form 8-K filed
with the SEC on October 22, 2007).(1)
Letter Agreement entered into on June 30, 2008 by and between Fair Isaac Corporation and
Michael H. Campbell. (Incorporated by reference to Exhibit 10.58 to the Company’s Form 10-K for
the fiscal year ended September 30, 2008.)(1)
Transition Agreement dated November 16, 2009 by and between Fair Isaac Corporation and
Michael H. Campbell. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed
on November 17, 2009.)(1)
2003 Employment Inducement Award Plan as amended effective May 15, 2005. (Incorporated by
reference to Exhibit 10.2 to Fair Isaac’s Form 10-Q for the fiscal quarter ended June 30, 2005.)(1)
Computations of ratios of earnings to fixed charges.
List of Company’s subsidiaries.
Consent of Deloitte & Touche LLP, independent registered public accounting firm.
Rule 13a-14(a)/15d-14(a) Certifications of CEO.
Rule 13a-14(a)/15d-14(a) Certifications of CFO.
Section 1350 Certification of CEO.
Section 1350 Certification of CFO.

(1) Management contract or compensatory plan or arrangement.
* Filed herewith.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended,

the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

SIGNATURES

FAIR ISAAC CORPORATION

/s/ MICHAEL J. PUNG

Michael J. Pung
Senior Vice President
and Chief Financial Officer

DATE: November 23, 2010

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Michael J. Pung his attorney-in-fact, with full power of substitution, for him in any
and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with
exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause
to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been

signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.

/s/ DR. MARK N. GREENE

Dr. Mark N. Greene

/s/ MICHAEL J. PUNG

Michael J. Pung

/s/ A. GEORGE BATTLE

A. George Battle

/s/ NICHOLAS F. GRAZIANO

Nicholas F. Graziano

/s/ ALEX W. HART

Alex W. Hart

/s/

JAMES D. KIRSNER
James D. Kirsner

/s/ WILLIAM J. LANSING

William J. Lansing

Chief Executive Officer
(Principal Executive Officer)
and Director

Senior Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)

November 23, 2010

Director

November 23, 2010

Director

November 23, 2010

Director

November 23, 2010

Director

November 23, 2010

Director

November 23, 2010

100

/s/ RAHUL N. MERCHANT

Rahul N. Merchant

/s/ MARGARET L. TAYLOR

Margaret L. Taylor

/s/ DUANE E. WHITE

Duane E. White

Director

November 23, 2010

Director

November 23, 2010

Director

November 23, 2010

101