Fair Isaac Corporation Annual Report 2014

FY2014 Annual Report · Fair Isaac Corporation

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FAIR ISAAC CORPORATION

2014 ANNUAL REPORT

FY2014 CEO Letter

Shareholders:

Fiscal 2014 was a strong year for FICO. Revenue grew six percent to $789 million versus $743 million
in 2013. Net income was $94 million versus $90 million in fiscal 2013, and EPS was $2.72 versus
$2.48 in the previous year.

These results are a tribute to balanced investments in our industry-leading franchises, carefully
considered acquisitions, and our stock repurchase program, along with solid execution across the entire
business.

Among the more important initiatives of the last several years has been our work of SaaS-enabling our
product portfolio — a monumental undertaking that we saw as crucial in order to maintain our
leadership in analytics. I am pleased to report that we completed this work in fiscal 2014, rolling out
several major components of the FICO® Decision Management Platform, including the FICO®
Solution Stack, FICO® Origination Manager 4.5, FICO® Analytic Modeler, and the FICO® Falcon
Platform for enterprise fraud management. And our tremendous progress in these areas did not go
unnoticed: FICO was recognized this year by Gartner, IDC, Forrester, and other independent analyst
firms for our vision, leadership, and product excellence.

We continually seek ways to help our clients leverage Big Data to make better, more precise decisions.
As one example, we acquired Big Data analytics technology from Karmasphere to simplify the
complexity of Hadoop and put the power of Big Data analytics into the hands of all of the people in an
organization who can really use it. We also acquired Infocentricity, giving FICO the industry’s
broadest offering for predictive analytics modeling, available in the cloud and on-premise. And finally,
leveraging technology acquired from our 2013 purchase of Infoglide, we launched FICO® Identity
Resolution Engine 3.6, which combines entity resolution with social network analytics to help banks,
insurance companies, and government agencies uncover criminal rings, expose money laundering
schemes, detect insider fraud, enhance screening processes, uncover terrorist networks, and investigate
crime.

Our Scores business was a source of innovation and growth in fiscal 2014. In fiscal Q1 we introduced
FICO® Score Open Access, making free FICO® Scores available to millions of consumers through
their financial institutions who are FICO customers. This program has changed the landscape of
consumer credit scoring, and was recently recognized by President Obama for its positive impact on
the entire credit system — lenders and consumers alike. In addition, we introduced FICO Score 9, with
innovations that include a sophisticated treatment differentiating medical from non-medical collection
agency accounts. Lenders, regulators, and consumer advocates have all applauded these innovations.

Finally, an important part of our growth strategy has been to expand our sales and distribution channels
through partnerships. Among the more prominent of these was our fiscal Q4 announcement with eBay
Enterprise of the eBay Commerce Marketing Platform, designed and built from the ground up in
partnership with FICO, to drive one-to-one commerce marketing at scale.

As in years past, we created value for our shareholders again this year through ongoing stock
repurchases. We remain confident about the future — it is a great time to be in the predictive analytics
business — and we believe that investing in ourselves represents a good use of our healthy cash flow.
At the same time we continue to look for opportunities to accelerate our growth through carefully
considered acquisitions, always guided by our overriding goal of creating shareholder value.

One of the most exciting opportunities I see before us has to do with the notion of precision
decisioning. Historically, businesses seeking to use data-driven decisioning in their processes often had
to compromise, making some operational decisions on the basis of the limited data that was available,
and making other decisions — when the cost was high or data very limited — based on experience and
seat-of-the-pants judgments. That is all changing. We now live in a world where one can mix and
match data from different sources, apply analytics, and make more precise, fact-based decisions easily.
And increasingly, that is not only true for large, deep-pocketed enterprises; it is true for organizations
of all sizes, in all industries, in countries around the world. Twenty years ago, ERP systems
transformed the way businesses operated; 10 years later, it was CRM systems. Today it is decision
management, and as the pioneer in that field, FICO is ideally suited to lead the next wave of business
transformation.

William Lansing
CEO

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934
For the fiscal year ended September 30, 2014

‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from

to
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)
181 Metro Drive, Suite 700
San Jose, California
(Address of principal executive offices)

94-1499887
(I.R.S. Employer
Identification No.)

95110-1346
(Zip Code)

Registrant’s telephone number, including area code:
408-535-1500
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

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 È No ‘

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. Yes ‘ No È

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 È No ‘

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 È No ‘

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. È

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one)
Large Accelerated Filer È
Non-Accelerated Filer ‘

‘
Accelerated Filer
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 ‘ No È

As of March 31, 2014, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was
$1,170,197,256 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, 2014 was 32,106,155 (excluding 56,750,628 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 24, 2015.

TABLE OF CONTENTS

PART I

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Item 5.

Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.

Item 9B.

Item 10.
Item 11.
Item 12.

Item 13.
Item 14.

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

3
15
27
27
28
28

29
31
32
53
55
90
90
90
90

91
93

93
93
93

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

94
97

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, research and development, and the sufficiency of capital resources;
(iii) statements of assumptions underlying such statements, including those related to economic conditions;
(iv) statements regarding business relationships with vendors, customers or collaborators, including the
proportion of revenues generated from international as opposed to domestic customers; 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 2015.

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 leverage the
use of Big Data and mathematical algorithms to predict consumer behavior and 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 100 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, telecommunications providers, pharmaceutical companies, healthcare
organizations, public agencies and organizations in other industries. We also serve consumers through online
services that enable people to purchase and understand their FICO® Scores, the standard measure in the U.S. of
consumer 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 use analytics to 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 engagement,
including customer acquisition, customer servicing and management, and customer protection. We also help
businesses improve noncustomer decisions such as transaction and claims processing. 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

We categorize our products and services into the following three operating segments:

• Applications. This segment includes pre-configured decision management applications designed for a
specific type of business problem or process — such as marketing, account origination, customer
management, fraud, collections and insurance claims management — as well as associated professional
services. These applications are available to our customers as on-premises software, and many are
available as hosted, software-as-a-service (“SaaS”) applications through the FICO® Analytic Cloud.

•

Scores. This segment includes our business-to-business scoring solutions and services, our myFICO®
solutions for consumers, 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 worldwide, as
well as services through which we provide our scores to clients directly.

•

Tools. This segment is composed of analytic and decision management software tools that clients can
use to create their own custom decision management applications, our new FICO® Decision
Management Platform, as well as associated professional services. These tools are available to our
customers as on-premises software or through the FICO® Analytic Cloud.

Comparative segment revenues, operating income and related financial information for fiscal 2014, 2013

and 2012 are set forth in Note 17 to the accompanying consolidated financial statements.

Our Solutions

Our solutions involve four fundamental disciplines:

•

Analytics, which include predictive analytics that identify the risks and opportunities associated with
individual customers, prospects and transactions, in order to detect patterns such as risk and fraud, as
well as optimization analytics that are used to improve the design of decision logic or “strategies.”

Data management and profiling that bring extensive consumer information to every decision.

Software such as rules management systems that implement business rules, models and decision
strategies, often in a real-time environment, as well as software for managing customer engagement.

Consulting services that help clients make the most of investments in FICO applications, tools and
scores 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. With the new FICO®
Analytic Cloud, FICO® Solution Stack and FICO® Decision Management Platform, we now offer clients an
increasing portfolio of applications, tools and services in the cloud, which they can use to create, customize,
deploy and manage powerful analytic services.

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, retail and public sectors. During fiscal 2014, FICO introduced
a full suite of applications for the FICO® Analytic Cloud, expanding our product offerings to accommodate
small-to-midsize businesses that benefit from the affordability and simplicity of cloud-based solutions. Within
our applications segment our fraud solutions accounted for 23%, 22% and 25% of total revenues in each of fiscal
2014, 2013 and 2012, respectively; our customer management solutions accounted for 10%, 11% and 13% of
total revenues, in each of these periods, respectively; and our collections & recovery solutions accounted for 9%,
9% and 8% for each of these periods, respectively.

Marketing Applications

The chief offerings for marketing are our FICO® Analytic Offer Manager and FICO® Customer Dialogue

Manager. These solutions offer 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 and deliver mathematically optimized offers. Our marketing solutions enable 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 in our marketing solutions 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.

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.

The latest version of our origination application, FICO® Origination Manager, is an application-to-decision
processing solution built on a service-oriented architecture (“SOA”), modularized approach, and is now available
in the cloud. Our other solutions include the web-based FICO® LiquidCredit® service, which is primarily focused
on credit decisions and is offered largely to mid-tier banking institutions. We also offer custom and consortium-
based credit risk and application fraud models.

Customer Management Applications

Our customer strategy management products and services enable businesses to automate and improve risk-
based decisions on their existing customers. These solutions help businesses apply advanced analytics in account
and customer decisions to increase portfolio revenue, decrease risk exposure and losses, while improving
operational efficiencies.

We provide customer strategy management solutions for banking, telecommunications and retail. Our
leading account and customer strategy management product is 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. TRIAD®
Customer Manager is one of the world’s leading credit management systems, and our adaptive control systems
are used by more than 250 banks. The current version enables users to manage risk and communications at both
the account and customer level from a single platform.

We market and sell TRIAD® Customer Manager 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.

We also offer transaction-based models called FICO® Transaction Scores, which help card issuers identify

high-risk behavior more quickly and manage their credit card accounts more profitably.

Fraud Management Applications

Our fraud management products improve our clients’ profitability by predicting the likelihood a given
transaction or customer account is experiencing fraud. Our fraud products analyze 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.

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; e-payment fraud; deposit account fraud; technical fraud
and bad debt; healthcare fraud; Medicaid and Medicare fraud; and property and casualty insurance claims fraud,
including workers’ compensation fraud. FICO fraud solutions protect financial institutions, insurance companies
and government agencies from losses and damaged customer relationships caused by fraud and related criminal
behavior.

Our leading fraud detection solution is FICO® 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, account,
customer, device and merchant data to detect a wide range of payment card fraud quickly and accurately.
Falcon® Fraud Manager analyzes payment transactions in real time, assesses the risk of fraud, and takes the user-
defined steps to prevent fraud while expediting legitimate transactions.

FICO® Fraud Predictor with Merchant Profiles is used in conjunction with Falcon® Fraud Manager on
payment card monitoring for credit and debit to improve fraud detection rates through the inclusion of merchant
profiles. Merchant profiles are built using fraud and transactional data that include characteristics revealing
which merchants have a history of higher fraud volumes, and which purchase types and ticket sizes have most
often been fraudulent at a particular merchant, among others.

In addition to the Falcon products, we offer FICO® Card Alert Service. Card Alert Service is a solution for

fighting ATM debit fraud. The Card Alert Service identifies counterfeit payment cards and reports them to
issuers. The service analyzes daily transactions from participating networks, and uses this data to identify
common points of compromise and suspect cards most likely to incur fraud.

FICO® Insurance Fraud Manager uses advanced unsupervised predictive modeling techniques to detect

health care claims fraud, abuse and errors as soon as aberrant behavior patterns emerge. Insurance Fraud
Manager is used by both public and private health care payers to detect and prevent fraud in both pre- and post-
pay fraud investigation environments.

Collections & Recovery Applications

FICO® Debt Manager™ solution and FICO® PlacementsPlus® service automate 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. PlacementsPlus® facilitates control over the
distribution and management of accounts to agencies, attorneys, debt buyers and internal recovery departments.
Companies using our Debt Manager™ and PlacementsPlus® solutions 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 Active Service Pages (“ASP”) mode. FICO Debt Management Solutions
also include assessments, models and scores, predictive analytics, advanced customer engagement, optimization
and speech analytics capabilities. FICO® Debt Manager™ is now available in the cloud.

Customer Communication Services

FICO® Customer Communication Services provides SaaS-based customer engagement, fraud resolution,

and collections solutions in the cloud. It enables leading financial services institutions, utilities,
telecommunications firms, insurers, and other businesses to engage in automated two-way communications. It
allows businesses to reach customers in real time using short message service (“SMS”), mobile applications,
automated voice, email and other channels; resolve matters such as verification of suspicious credit or debit card
transactions; request missed payments; and resolve customer service issues. FICO® Customer Communication
Services, combined with FICO’s decision management applications, allow businesses to execute and resolve
customer interactions while improving customer outcomes.

Analytics

We perform custom predictive, descriptive and decision modeling and related analytic projects for clients in
multiple industries to address 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.

We offer FICO® Economic Impact Service, which uses time series modeling of the macro economy to allow
lenders to forecast future credit risk performance based on their views of the economy. The resulting insights can
be used to adjust current credit policy as well as provide input into the calculation of regulatory capital
requirements.

Scores

Our FICO® Scores are used in the majority of U.S. credit decisions, by nearly all of the major banks, credit

card organizations, mortgage lenders and auto loan originators. These credit scores, developed based on third-
party data, provide a consistent and objective measure of an individual’s credit risk. Credit grantors use our
FICO® Scores in a variety of ways: to prescreen candidates for marketing programs; evaluate applicants for new
credit; and manage existing customer accounts. FICO® Score is a three-digit score ranging from 300-850. They
are calculated by running data from the three U.S. national credit reporting agencies, TransUnion, Experian and
Equifax, through one of several proprietary scoring models developed by FICO. Lenders generally pay the credit
reporting agencies scoring fees based on usage, and the credit reporting agencies pay an associated fee to us.
FICO® Score 9, the most recent version of the FICO® Score, was released in early fiscal 2015.

While the core FICO® Score is the foundation of our scoring portfolio, we offer a number of other broad
based scores, including FICO® Expansion Score, FICO® Credit Capacity Index™, and the FICO® Economic
Impact Index. We also develop various custom scores for our financial services clients. In Fiscal 2014, we
introduced the FICO® Score Open Access program which allows our participating clients to provide their
customers with a free FICO® Score along with materials to help them understand what affects their score. In
addition, we introduced the FICO® Custom Credit Education program where lenders can license enhanced credit
education tools to include in their consumer financial education programs.

Outside the U.S., we offer the FICO® Score for consumers, as well as for small and medium enterprises
lending through credit reporting agencies in 12 countries worldwide. We have installed client-specific versions of
the FICO® Score in nine countries. Like FICO® Scores in the U.S., these scores help lenders in multiple
countries leverage the FICO® Score’s predictive analysis to assess the risk of marketing prospects and credit
applicants. FICO® Scores are in use or being implemented in 17 different countries across four continents outside
the U.S.

We also have scoring systems for insurance underwriters and marketers. They use the same underlying
statistical technology as our FICO® Scores, but are designed to predict applicant or policyholder insurance loss
ratio for automobile or homeowners’ coverage. Our insurance scores are available in the U.S. and Canada.

We license credit bureau scoring services and related consulting directly to users in banking through the
FICO® PreScore® service for prescreening solicitation candidates and the FICO® Score Delivery Service for
account review.

We also provide FICO® Score based products, education and information on FICO® Scores to consumers.

They are sold directly by us through our myFICO® service and through distribution partners. Consumers can use
the myFICO.com website to purchase their FICO® Scores including credit reports associated with the scores,
explanations of the factors affecting their scores, and customized information on how to manage their scores.
Customers can use products to simulate how taking specific actions would affect their FICO® Score. Consumers
can also purchase Score Watch® subscriptions, which deliver alerts via email and text when the user’s FICO

Scores or other credit report content change. In addition, in fiscal 2014 we introduced identity theft monitoring
products that safeguard consumers against the impact of identity fraud with comprehensive detection, defense,
and identity restoration services.

The myFICO® products and subscription offerings are available online at www.myfico.com and are also

available to consumers through numerous other partners.

Tools

We provide analytic and decision management software products that businesses use to build their own

tailored decision management applications on premise or within the FICO® Analytic Cloud. In contrast to our
packaged applications developed for specific industry applications, our tools support the addition of decision
management capabilities to virtually any application or operational system. These tools are sold as licensed
software, and can be used by themselves or together to advance a 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.

During fiscal 2014, FICO introduced the FICO® Solution Stack, a collection of tools for building,
extending, deploying and scaling applications and solutions. The FICO® Solution Stack includes the FICO®
Decision Management Platform with three new analytic and decision studios, available in the FICO® Analytic
Cloud and as on-premises software. The new studios are: FICO® Decision Studio, for building and customizing
analytic and decision components and services, powered by analytics from any source, including broad support
for Predictive Model Markup Language; FICO® Application Studio, for rapidly developing, orchestrating, and
publishing analytics-powered applications; and FICO® Visual Insights Studio, for visualizing, analyzing and
reporting data trends. The FICO® Solution Stack brings Big Data, predictive analytics and decision execution
together in an easy-to-use development environment. It enables organizations to rapidly create innovative
analytic applications; dramatically increase developer and business user productivity with support for a broad
range of analytic and decision tools; and execute decisions in real time.

During fiscal 2014, FICO acquired InfoCentricity, Inc. (“InfoCentricity”) and the technology from
Karmasphere, Inc. (“Karmasphere”). The acquisitions enhance our FICO® Decision Management Platform by
providing cloud-based analytics modeling technology along with the Big Data analytics for Hadoop technology
capabilities. This aligns with our overall tools/ cloud strategy and is expected to benefit customers of all sizes and
across all industries.

The principal products offered are software tools for:

•

Rules Management. The FICO® Blaze Advisor® business rules management system is used to design,
develop, execute and maintain rules-based business applications. The Blaze Advisor® system enables
business users to propose and preview the impact of changes to decisioning logic, to review and
approve proposed changes, and commit those changes to production decisioning, all without
demanding IT cycles. 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: embeds rules management within existing
applications; supports Web Services and 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.

Predictive Modeling. FICO® Model Central™ Solution is a comprehensive offering to help banks and
other organizations, including insurance, retail and health care companies, maximize the power of their
predictive models and meet stricter regulations for model management. It complements FICO® Model

Builder, which enables the user to develop and deploy sophisticated predictive models for use in
automated decisions as well as complete scoring routines, such as variable generation, segment logic,
scoring, calibration and reason codes. This software is based on the methodology and tools FICO uses
to build both client-level and industry-level predictive models and scorecards, which we have
developed over more than 40 years, and includes additional algorithms for rapidly discovering variable
relationships, predictive interactions and optimal segmentation. 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.

•

Optimization. FICO® Xpress Optimization Suite provides operations research professionals with
world-class solvers and high-productivity tools to quickly design and deliver custom, mathematically
optimal solutions for a wide range of industry problems. Xpress includes a powerful modeling and
programming language, with robust scalability, to quickly model and solve even the largest
optimization problems. Xpress tools are licensed to end users, consultants and independent software
vendors in several industries, and are a core component within FICO® Decision Optimizer. 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 FICO® Blaze Advisor® system or one of our Decision Management applications.

COMPETITION

The market for our advanced solutions is intensely competitive and is constantly changing. Our competitors
vary in size and in the scope of the products and services they offer. We encounter competition from a number of
sources, including:

•

in-house analytic and systems developers;

scoring model builders;

enterprise resource planning (“ERP”) and customer relationship management (“CRM”) packaged
solutions providers;

business intelligence solutions providers;

business process management and business rules management providers;

providers of credit reports and credit scores;

providers of automated application processing services;

data vendors;

neural network developers and artificial intelligence system builders;

third-party professional services and consulting organizations;

providers of account/workflow management software;

software companies supplying modeling, rules, or analytic development tools; collections and recovery
solutions providers; entity resolution and social network analysis solutions providers; and

providers of cloud-based customer engagement and risk management solutions.

We believe our competitors are unable to provide the mix of products, expertise in predictive analytics and

their integration with decision management software, and enhanced customer management capabilities we are
able to deliver. However, certain competitors may have larger shares of particular geographic or product markets
than we do.

Applications

The competition for our Applications varies by both application and industry.

In the marketing services market, we compete with Acxiom, Epsilon, Equifax, Experian, Harte-Hanks,
InfoUSA, KnowledgeBase, Merkle and TargetBase, among others. We also compete with traditional advertising
agencies and companies’ own internal information technology and analytics departments.

In the customer origination market, we compete with Experian, Equifax, and CGI, among others.

In the customer strategy management market, we compete with Experian, among others.

In the fraud management market for banking, we compete primarily with Actimize, a division of NICE
Systems, Experian, Detica, a division of BAE, SAS and ACI Worldwide. In the fraud solutions market for health
care insurance, we compete with Emdeon, Ingenix, ViPS, MedStat, Detica, a division of BAE, SAS, Verisk
Analytics and IBM. Verisk Analytics and SAS also compete in the property and casualty insurance claims fraud
market.

In the collections and recovery market, we compete with both outside suppliers and in-house scoring and
computer systems departments for software and ASP servicing. Major competitors include CGI, Experian, and
various boutique firms, along with the three major U.S. credit reporting agencies and Experian-Scorex for
scoring and optimization projects.

Scores

In this segment, we compete with both outside suppliers and in-house analytics departments for scoring
business. Primary competitors among outside suppliers of scoring models are the three major credit reporting
agencies in the U.S. and Canada, which are also our partners in offering our scoring solutions, Experian,
TransUnion and TransUnion International, Equifax, and VantageScore (a joint venture entity established by the
major U.S. credit reporting agencies). Additional competitors include CRIF and other credit reporting agencies
outside the U.S., 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, Credit Karma and others.

Tools

Our primary competitors in this segment include IBM, SAS, Pegasystems and Angoss.

Competitive Factors

We believe the principal competitive factors affecting our markets include: technical performance; access to

unique proprietary databases; availability in SaaS 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,

healthcare and public agencies. End users of our products include 98 of the 100 largest financial institutions in
the U.S., and two-thirds of the largest 100 banks in the world. Our clients also include more than 700 insurers,
including the top ten U.S. property and casualty insurers; more than 400 retailers and general merchandisers,
including more than one-third of the top 100 U.S. retailers; more than 150 government or public agencies; and
more than 150 healthcare and pharmaceuticals companies, including the world’s top ten pharmaceuticals
companies. All of the top ten companies on the 2014 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 U.S. credit reporting agencies.

In the U.S., 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 U.S. We also market our products through indirect channels, including alliance
partners and other resellers.

Our scores are marketed and sold through credit reporting agencies. During fiscal 2014, 2013 and 2012,
revenues generated from our agreements with Equifax, TransUnion and Experian collectively accounted for 15%,
16% and 18% of our total revenues, respectively.

Outside the U.S., 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 U.S. are the United Kingdom and Canada. In addition, we have

delivered products to users in over 100 countries.

Revenues from international customers, including end users and resellers, amounted to 42%, 40% and 39%
of our total revenues in fiscal 2014, 2013 and 2012, respectively. See Note 17 to the accompanying consolidated
financial statements for a summary of our operating segments and geographic information.

TECHNOLOGY

We specialize in analytics software and decision management technologies that analyze data and drive
decision strategies and customer engagement. 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 a leader

in predictive analytics. 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.

In fiscal 2014, we announced the general availability of the FICO® Analytic Cloud, FICO® Decision
Management Platform and FICO® Solution Stack. The FICO® Decision Management Platform and FICO®
Solution Stack enable clients to use FICO tools, along with rapid application development tools and visualization
tools, to quickly develop their own decision management applications and services. We continue to add

functionality to the platform as well as host additional FICO applications in the cloud. These ongoing initiatives
are driven by enhancing our core technical capabilities listed below, and extending them through partnerships
with other technology providers as well as through employing open source software.

Principal Areas of Expertise

Predictive Modeling. Predictive modeling identifies and mathematically represents underlying relationships

in historical data in order to explain the data and make predictions or classifications about future events. Our
models summarize large quantities of data to amplify its value. Predictive models typically analyze current and
historical data on individuals to produce easily understood metrics such as scores. These scores rank-order
individuals by likely future performance, e.g., their likelihood of making credit payments on time, or of
responding to a particular offer for services. We also include in this category models that detect the likelihood of
a transaction being fraudulent. Our predictive models are frequently operationalized in mission-critical
transactional systems and drive decisions and actions in near real time. A number of analytic methodologies
underlie our products in this area. These include proprietary applications of both linear and nonlinear
mathematical programming algorithms, in which one objective is optimized within a set of constraints, and
advanced neural systems, which learn complex patterns from large data sets to predict the probability that a new
individual will exhibit certain behaviors of business interest. We also apply various related statistical techniques
for analysis and pattern detection within large datasets, and have enhanced our abilities to derive insights and
predictive variables from various forms of so-called Big Data, including unstructured data, such as text. Our
InfoCentricity acquisition during fiscal 2014 added the Xeno® model development software to our predictive
modeling toolkit, and accelerated our development of a predictive modeling platform available on the FICO®
Analytic Cloud.

Decision Analysis and Optimization. Decision analysis refers to the broad quantitative field that deals with

modeling, analyzing and optimizing decisions made by individuals, groups and organizations. Whereas
predictive models analyze multiple aspects of individual behavior to forecast future behavior, decision analysis
analyzes multiple aspects of a given decision to identify the most effective action to take to reach a desired result.
We have developed an integrated approach to decision analysis that incorporates the development of a decision
model that mathematically maps the entire decision structure; proprietary optimization technology that identifies
the most effective strategies, given both the performance objective and constraints; the development of designed
testing required for active, continuous learning; and the robust extrapolation of an optimized strategy to a wider
set of scenarios than historically encountered. Our optimization capabilities also include a proprietary
mathematical modeling and programming language, an easy-to-use development environment, and a state-of-the-
art set of optimization algorithms. Our InfoCentricity acquisition during fiscal 2014 added its Strategy Trees
decision strategy software to our capabilities in this area. 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 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. This data can include structured or
unstructured data. Our Big Data analytics technology acquired from Karmasphere during fiscal 2014 facilitates
the use of data stored in Hadoop data stores.

Decision Management Software. In order to make a decision strategy operational, various steps and rules
need to be programmed or exported into the business’s software infrastructure, where they 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
graphical 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. Our 2014
acquisition of InfoCentricity added its Strategy Trees decision strategy software to our capabilities in this area.

Customer Engagement. We have advanced technology for customer engagement, which enables the

execution of decisions and customer contact through SMS, email, automated voice, mobile applications and other
channels. This technology enables FICO to extend decision management beyond the rendering of the decision to
the final resolution with a customer, using the most effective method of communication for a given event and
customer. Integrating this technology with our decision management systems has proven to decrease costs,
improve staff efficiency, increase customer satisfaction and improve the return from marketing, fraud and
collections activities.

Social Network Analysis. Through our acquisition of Infoglide Software, Inc. (“Infoglide”) in April 2013,

we have advanced technology for identity resolution and social network analysis, which enables users to
understand the relationships between their organization, customers, events, and third-party actors. Businesses can
perform real-time searches across their enterprise data to find, match, and link similar entities and uncover
hidden relationship between people, places and things. This technology complements FICO’s capabilities in the
area of fraud and marketing analytics.

Cyber Security. In fiscal 2014, we began to seek projects in the cyber security and security information and

event management (“SIEM”) space that leverage FICO’s streaming analytics, transaction profiling, and
unsupervised modeling technologies. These technologies include those successfully leveraged by our fraud
management systems, including FICO® Falcon® Fraud Manager, our emerging text analytics and entity
extraction techniques, and new methods that we believe to be unique approaches for detecting certain types of
cyber security threats.

Research and Development Activities

Our research and development expenses were $83.4 million, $67.0 million and $59.5 million in fiscal 2014,

2013 and 2012, 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 157 U.S. and 13 foreign patents with 87 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 U.S.. 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 U.S.

government agencies or their subcontractors. Although we have acquired commercial rights to these
technologies, the U.S. government typically retains ownership of intellectual property rights and licenses in the
technologies that we develop under these contracts. In some cases, the U.S. government can terminate our rights
to these technologies if we fail to commercialize them on a timely basis. In addition, under U.S. 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 36 trademarks registered in the U.S. and select foreign
countries.

PERSONNEL

As of September 30, 2014, we employed 2,646 persons worldwide. Of these, 131 full-time employees were

located in our San Jose, California office, 306 full-time employees were located in our San Diego, California
office, 244 full-time employees were located in our Roseville, Minnesota office, 212 full-time employees were
located in our San Rafael, California office, 135 full-time employees were located in our Fairfax, Virginia office,
491 full-time employees were located in our India-based offices and 256 full-time employees were located in our
United Kingdom-based offices. None of our employees are covered by a collective bargaining agreement, and no
work stoppages have been experienced.

Information regarding our executive officers is included in Item 10 of this report.

Item 1A. Risk Factors

Risks Related to Our Business

We continue to expand 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 continue to expand 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.

We expect that revenues derived from our scoring solutions, fraud solutions, customer management
solutions and tools 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:

•

changes in the business analytics industry;

changes in technology;

our inability to obtain or use key data for our products;

saturation or contraction of market demand;

loss of key customers;

industry consolidation;

failure to execute our selling approach; and

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 enhancements,
primarily due to difficulties developing models, acquiring data and adapting to particular operating
environments. We have also experienced errors or “bugs” in our software products, despite testing prior to
release of the products. Software errors in our products could affect the ability of our products to work with other
hardware or software products, could delay the development or release of new products or new versions of
products and could adversely affect market acceptance of our products. Errors or defects in our products that are
significant, or are perceived to be significant, could result in rejection of our products, damage to our reputation,
loss of revenues, diversion of development resources, an increase in product liability claims, and increases in
service and support costs and warranty claims.

We rely on relatively few customers, as well as our contracts with the three major credit reporting agencies,
for a significant portion of our revenues and profits. The businesses of our largest customers depend, in
large part, on favorable macroeconomic conditions. If these customers are negatively impacted by weak
global economic conditions, global economic volatility or 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, retailers and public agencies. 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, the U.S. and other key international economies have experienced in the past a downturn in
which economic activity was impacted by falling demand for a variety of goods and services, restricted credit,
poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets,
bankruptcies and overall uncertainty with respect to the economy. The European Union continues to face great
economic uncertainty which could impact the overall world economy or various other regional economies. The
potential for economic disruption presents considerable risks to our business, including potential bankruptcies or
credit deterioration of financial institutions with which we have substantial relationships. Such disruption could
result in a 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. The loss of or a significant change in a relationship with one of these 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 major customer, 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.

Our acquisition and divestiture activities may disrupt our ongoing business and may involve increased
expenses, and we may not realize the financial and strategic goals contemplated at the time of a transaction.

We have acquired and expect to continue to acquire companies, businesses, products, services and

technologies. Acquisitions involve significant risks and uncertainties, including:

•

our ongoing business may be disrupted and our management’s attention may be diverted by
acquisition, transition or integration activities;

an acquisition may not further our business strategy as we expected, we may not integrate an acquired
company or technology as successfully as we expected or we may overpay for our investments, or
otherwise not realize the expected return, which could adversely affect our business or operating
results;

we may be unable to retain the key employees, customers and other business partners of the acquired
operation;

we may have difficulties entering new markets where we have no or limited direct prior experience or
where competitors may have stronger market positions;

our operating results or financial condition may be adversely impacted by claims or liabilities we
assume from an acquired company, business, product or technology, including claims from government
agencies, terminated employees, current or former customers, former stockholders or other third
parties; pre-existing contractual relationships of an acquired company we would not have otherwise
entered into; unfavorable revenue recognition or other accounting treatment as a result of an acquired
company’s practices; and intellectual property claims or disputes;

we may fail to identify or assess the magnitude of certain liabilities or other circumstances prior to
acquiring a company, business, product or technology, which could result in unexpected litigation or
regulatory exposure, unfavorable accounting treatment, unexpected increases in taxes due, a loss of
anticipated tax benefits or other adverse effects on our business, operating results or financial
condition;

we may not realize the anticipated increase in our revenues from an acquisition for a number of
reasons, including if a larger than predicted number of customers decline to renew their contracts, if we
are unable to sell the acquired products to our customer base or if contract models of an acquired
company do not allow us to recognize revenues on a timely basis;

we may have difficulty incorporating acquired technologies or products with our existing product lines
and maintaining uniform standards, architecture, controls, procedures and policies;

our use of cash to pay for acquisitions may limit other potential uses of our cash, including stock
repurchases, dividend payments and retirement of outstanding indebtedness;

to the extent we issue a significant amount of equity securities in connection with future acquisitions,
existing stockholders may be diluted and earnings per share may decrease; and

we may experience additional or unexpected changes in how we are required to account for our
acquisitions pursuant to U.S. generally accepted accounting principles, including arrangements we
assume from an acquisition.

We have also divested ourselves of businesses in the past and may do so again in the future. Divestitures

involve significant risks and uncertainties, including:

•

disruption of our ongoing business;

reductions of our revenues or earnings per share;

unanticipated liabilities, legal risks and costs;

the potential loss of key personnel;

•

distraction of management from our ongoing business; and

impairment of relationships with employees and customers as a result of migrating a business to new
owners.

Because acquisitions and divestitures are inherently risky, our transactions may not be successful and may

have a material adverse effect on our business, results of operations, financial condition or cash flows.
Acquisitions of businesses having a significant presence outside the U.S. will increase our exposure to the risks
of conducting operations in international markets.

Charges to earnings resulting from acquisitions may adversely affect our operating results.

Under business combination accounting standards, we recognize the identifiable assets acquired and the

liabilities assumed in acquired companies generally at their acquisition-date fair values and separately from
goodwill. Goodwill is measured as the excess amount of consideration transferred, which is also generally
measured at fair value, and the net of the amounts of the identifiable assets acquired and the liabilities assumed as
of the acquisition date. Our estimates of fair value are based upon assumptions believed to be reasonable but
which are inherently uncertain. After we complete an acquisition, the following factors could result in material
charges and adversely affect our operating results and may adversely affect our cash flows:

•

impairment of goodwill or intangible assets, or a reduction in the useful lives of intangible assets
acquired;

amortization of intangible assets acquired;

identification of, or changes to, assumed contingent liabilities, both income tax and non-income tax
related, after our final determination of the amounts for these contingencies or the conclusion of the
measurement period (generally up to one year from the acquisition date), whichever comes first;

costs incurred to combine the operations of companies we acquire, such as transitional employee
expenses and employee retention, redeployment or relocation expenses;

charges to our operating results to maintain certain duplicative pre-merger activities for an extended
period of time or to maintain these activities for a period of time that is longer than we had anticipated,
charges to eliminate certain duplicative pre-merger activities, and charges to restructure our operations
or to reduce our cost structure; and

•

charges to our operating results resulting from expenses incurred to effect the acquisition.

Substantially all of these costs will be accounted for as expenses that will decrease our net income and
earnings per share for the periods in which those costs are incurred. Charges to our operating results in any given
period could differ substantially from other periods based on the timing and size of our future acquisitions and
the extent of integration activities. A more detailed discussion of our accounting for business combinations and
other items is presented in the “Critical Accounting Policies and Estimates” section of Management’s Discussion
and Analysis of Financial Condition and Results of Operations (Item 7).

Our reengineering initiative may 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. Our
reengineering initiative may not be successful over the long term as a result of our failure to reduce expenses at
the anticipated level, or a lower, or no, positive impact on revenues from strategic resource allocation. If our
reengineering initiative is not successful over the long term, 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:

•

variability in demand from our existing customers;

failure to meet the expectations of market analysts;

changes in recommendations by market analysts;

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;

consumer dissatisfaction with, or problems caused by, the performance of our products;

the timing of new product announcements and introductions in comparison with our competitors;

the level of our operating expenses;

changes in competitive and other conditions in the consumer credit, banking and insurance industries;

fluctuations in domestic and international economic conditions;

our ability to complete large installations on schedule and within budget;

acquisition-related expenses and charges; and

timing of orders for and deliveries of software systems.

In addition, the financial markets have at various times 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
negatively affect our business and 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 as
we look to sell multiple products and 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. 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 U.S. Limitations imposed by immigration laws in the U.S. 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 U.S. or abroad will be adequate or that others, including our competitors, will
not use our proprietary technology without our consent. Furthermore, litigation may be necessary to enforce our
intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary
rights of others. Such litigation could result in substantial costs and diversion of resources and could harm our
business, financial condition or results of operations.

Some of our technologies were developed under research projects conducted under agreements with various
U.S. government agencies or subcontractors. Although we have commercial rights to these technologies, the U.S.
government typically retains ownership of intellectual property rights and licenses in the technologies developed
by us under these contracts, and in some cases can terminate our rights in these technologies if we fail to
commercialize them on a timely basis. Under these contracts with the U.S. government, the results of research
may be made public by the government, limiting our competitive advantage with respect to future products based
on our research.

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:

•

incur significant defense costs or substantial damages;

be required to cease the use or sale of infringing products;

expend significant resources to develop or license a substitute non-infringing technology;

discontinue the use of some technology; or

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.

Moreover, in recent years, individuals and groups that are non-practicing entities, commonly referred to as
“patent trolls”, have purchased patents and other intellectual property assets for the purpose of making claims of
infringement in order to extract settlements. From time to time, we may receive threatening letters or notices or
may be the subject of claims that our solutions and underlying technology infringe or violate the intellectual
property rights of others. Responding to such claims, regardless of their merit, can be time consuming, costly to
defend in litigation, divert management’s attention and resources, damage our reputation and brand, and cause us
to incur significant expenses.

If our security measures are compromised or unauthorized access to customer or consumer data is
otherwise obtained, our products and services may be perceived as not being secure, customers may curtail
or cease their use of our products and services, our reputation may be damaged and we could incur
significant liabilities.

Our business requires the storage, transmission and utilization of sensitive consumer and customer

information. Many of our products are provided by us through the Internet. Security breaches could expose us to
a risk of loss, the unauthorized disclosure of consumer or customer information, litigation, indemnity obligations
and other liability. If our security measures are breached as a result of third-party action, employee error,

malfeasance or otherwise, and as a result, someone obtains unauthorized access to our system or to consumer or
customer information, our reputation may be damaged, our business may suffer and we could incur significant
liability. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently
and generally are not recognized until launched against a target, we may be unable to anticipate these techniques
or to implement adequate preventative measures. Malicious third parties may also conduct attacks designed to
temporarily deny customers access to our services. Security compromises experienced by our competitors, by our
customers or by us may lead to public disclosures, which may lead to widespread negative publicity. Any
security compromise in our industry, whether actual or perceived, could harm our reputation, erode customer
confidence in the effectiveness of our security measures, negatively impact our ability to attract new customers,
cause existing customers to curtail or cease their use of our products and services or subject us to third-party
lawsuits, regulatory fines or other action or liability, which could materially and adversely affect our business
and operating results.

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, database technology
and the use of the Internet. If we fail to enhance our current products and develop new products in response to
changes in technology or industry standards, or if we fail to bring product enhancements or new product
developments to market quickly enough, our products could rapidly become less competitive or obsolete. Our
future success will depend, in part, upon our ability to:

•

innovate by internally developing new and competitive technologies;

use leading third-party technologies effectively;

continue to develop our technical expertise;

•

anticipate and effectively respond to changing customer needs;

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

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:

•

in-house analytic and systems developers;

scoring model builders;

enterprise resource planning (“ERP”) and customer relationship management (“CRM”) packaged
solutions providers;

business intelligence solutions providers;

credit report and credit score providers;

business process management solution providers;

process modeling tools providers;

automated application processing services providers;

data vendors;

neural network developers and artificial intelligence system builders;

third-party professional services and consulting organizations;

account/workflow management software providers; and

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, cause us to incur
significant expense, 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 government supervision and 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:

•

Use of data by creditors and consumer reporting agencies. Examples in the U.S. include the Fair Credit
Reporting Act (“FCRA”), as amended by the Fair and Accurate Credit Transactions Act (“FACTA”);

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;

Fair lending laws, such as the Truth In Lending Act (“TILA”) and Regulation Z, as amended by the
Credit Card Accountability Responsibility and Disclosure Act of 2009 (“Credit CARD Act of 2009”),
and the Equal Credit Opportunity Act (“ECOA”) and Regulation B;

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”); the
Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) as amended by the Health
Information Technology for Economic and Clinical Health Act (“HITECH”); the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Act of 2001 (“USA Patriot Act”); identity theft, file freezing, security breach notification and similar
state privacy laws;

Extension of credit to consumers through the Electronic Fund Transfers Act and Regulation E, as well
as nongovernmental VISA and MasterCard electronic payment standards;

Regulations applicable to secondary market participants such as Fannie Mae and Freddie Mac that
could have an impact on our products;

Insurance laws and regulations applicable to our insurance clients and their use of our insurance
products and services;

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;

Laws and regulations applicable to operations in other countries, for example, the European Union’s
Privacy Directive and the Foreign Corrupt Practices Act;

Sarbanes-Oxley Act (“SOX”) requirements to maintain and verify internal process controls, including
controls for material event awareness and notification;

The implementation of the Emergency Economic Stabilization Act of 2008 by federal regulators to
manage the financial crisis in the U.S.;

Financial regulatory reform stemming from the Dodd-Frank Wall Street Reform and Consumer
Protection Act and the many regulations mandated by that Act, including regulations issued by, and the
supervisory and investigative authority of, the Bureau of Consumer Financial Protection (“CFPB”); and

Laws and regulations regarding export controls as they apply to FICO products delivered in non-U.S.
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 market disruptions over the past several years, 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 over the long term, 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 over the long
term, 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 experience uncertainty, it will likely harm our business,
financial condition or results of operations.

During fiscal 2014, 77% of our revenues were derived from sales of products and services to the banking

and insurance industries. Global economic uncertainty experienced in the U.S. and other key international
economies in the past produced substantial stress, volatility, illiquidity and disruption of global credit and other
financial markets, resulting in the bankruptcy or acquisition of, or government assistance to, several major
domestic and international financial institutions. The potential for disruptions presents considerable risks to our
businesses and operations. These risks include potential bankruptcies or credit deterioration of financial
institutions, many of which are our customers. Such disruption would result in a 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

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. Global
economic uncertainty has produced substantial stress, volatility, illiquidity and disruption of global credit and
other financial markets in the past. Any economic uncertainty can negatively affect the businesses and
purchasing decisions of companies in the industries we serve. The potential for disruptions presents considerable
risks to our businesses and operations. If global economic conditions 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 recent or new 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 global economic environment and the uncertainties underlying efforts to stabilize it, 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 U.S., 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 2014, 42% of our
revenues were derived from business outside the U.S. As part of our growth strategy, we plan to continue to
pursue opportunities outside the U.S., 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:

•

general economic and political conditions in countries where we sell our products and services;

difficulty in staffing and efficiently managing our operations in multiple geographic locations and in
various countries;

effects of a variety of foreign laws and regulations, including restrictions on access to personal
information;

import and export licensing requirements;

longer payment cycles;

reduced protection for intellectual property rights;

currency fluctuations;

changes in tariffs and other trade barriers; and

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 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 U.S. 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 locations include:

•

approximately 45,000 square feet of office space in San Jose, California in one building under a lease
expiring in fiscal 2017; this is used for our corporate headquarters and all of our segments;

approximately 124,000 square feet of office space in San Rafael, California in one building under a
lease expiring in fiscal 2020; this is used for all of our segments;

approximately 101,000 square feet of office, data center, and data processing space in Roseville,
Brooklyn Park and Minneapolis, Minnesota, in three buildings under leases expiring in fiscal 2016 or
later; this is used for all of our segments;

approximately 80,000 square feet of office space in San Diego, California in one building under a lease
expiring in fiscal 2020; this is used for Applications and Tools segments.

In addition, we lease an aggregate of approximately 234,000 square feet of office and data center space in a

number of smaller domestic locations and internationally in India, the United Kingdom, China, Singapore, and
several other locations. We believe that suitable additional space will be available to accommodate future needs.
See Note 18 to the accompanying consolidated financial statements for information regarding our obligations
under leases.

Item 3. Legal Proceedings

Not Applicable.

Item 4. Mine Safety Disclosures

Not Applicable.

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, 2014, we had 445 shareholders of record of our common stock.

The following table shows the high and low sales prices for our stock, as listed on the New York Stock

Exchange for each quarter in the last two fiscal years:

Fiscal 2013
October 1 — December 31, 2012
January 1 — March 31, 2013
April 1 — June 30, 2013
July 1 — September 30, 2013

Fiscal 2014
October 1 — December 31, 2013
January 1 — March 31, 2014
April 1 — June 30, 2014
July 1 — September 30, 2014

High

Low

$47.86
$46.32
$50.93
$55.80

$63.48
$62.49
$63.87
$65.62

$40.47
$42.62
$41.33
$45.80

$52.90
$50.26
$50.49
$54.38

Dividends

We paid dividends of two cents per share on a quarterly basis during each of fiscal 2014, 2013 and 2012.
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

Period

July 1, 2014 through July 31, 2014
August 1, 2014 through August 31, 2014
September 1, 2014 through September 30, 2014

Total

Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs (2)

878,808

—
—

Maximum Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans or
Programs (2)

101,647
$
$250,000,000
$250,000,000

878,808

$250,000,000

Total Number
of Shares
Purchased (1)

Average
Price Paid
per Share

894,179
2,362
7,060

903,601

$63.54
$55.54
$60.04

$63.49

(1)

Includes 24,793 shares delivered in satisfaction of the tax withholding obligations resulting from the vesting
of restricted stock units held by employees during the quarter ended September 30, 2014.

(2) On April 22, 2014, our Board of Directors approved an open-ended stock repurchase program to acquire
shares of our common stock up to an aggregate cost of $150.0 million in the open market or through
negotiated transactions. Following the completion of the April 2014 program, our Board of Directors
approved a new stock repurchase program on August 18, 2014. The new program is open-ended and
authorizes repurchases of shares of our common stock up to an aggregate cost of $250.0 million in the open
market or in negotiated transactions.

Performance Graph

The following graph shows the total stockholder return of an investment of $100 in cash on September 30,
2009, 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.

Item 6. Selected Financial Data

We acquired Entiera, Inc. (“Entiera”) in May 2012, Adeptra Ltd. (“Adeptra”) in September 2012, CR
Software, LLC. (“CR Software”) in November 2012, Infoglide Software, Inc. (“Infoglide”) in April 2013, and
InfoCentricity in April 2014. Results of operations from the acquisitions are included prospectively from their
respective acquisition dates and did not materially impact comparability of the data presented below.

Revenues
Operating income
Net income
Basic earnings per share
Diluted earnings per share
Dividends declared per share

Working capital
Total assets
Senior Notes
Revolving line of credit
Stockholders’ equity

Year Ended September 30,

2014

2013

2012

2011

2010

$788,985
161,868
94,879
2.80
2.72
0.08

(In thousands, except per share data)
$619,683
$676,423
$743,444
127,337
168,358
161,593
71,562
92,004
90,095
1.82
2.64
2.55
1.79
2.55
2.48
0.08
0.08
0.08

$605,643
113,349
64,457
1.44
1.42
0.08

September 30,

2014

2013

2012

2011

2010

$ (52,877) $
1,192,298
447,000
99,000
454,614

83,308
1,161,547
455,000
15,000
530,677

(In thousands)
49,720
$
1,158,611
504,000
—
474,406

$ 217,983
1,129,468
512,000
—
465,494

$ 225,028
1,123,716
520,000
—
474,914

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

includes the following: a business overview that provides a high level summary of our operating results and
bookings trends that affect our business; a more detailed analysis of our results of operations; our liquidity and
capital resources, which discusses key aspects of our statements of cash flows, changes in our balance sheets and
our financial commitments; and a summary of our critical accounting policies and estimates we believe are
important to understanding the assumptions and judgments incorporated in our reported financial results. Our
MD&A should be read in conjunction with Item 8, Financial Statements and Supplementary Data, of this Annual
Report on Form 10-K. The following discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results may differ from those referred to herein due to a number of factors, including but not
limited to risks described in the Item 1A, Risk Factors, in this Annual Report on Form 10-K.

Business Overview

Total revenues for fiscal 2014 were $789.0 million, an increase of 6% from $743.4 million in fiscal 2013.

Revenue in each of our segments increased, with Applications, Scores and Tools increasing by 6%, 3% and 14%
in fiscal 2014 compared to fiscal 2013, respectively. Our revenues derived from clients outside the U.S. have
generally grown, and may in the future grow more rapidly than our revenues from domestic clients. International
revenues totaled $331.7 million for fiscal 2014, an increase of 13% from $294.0 million in fiscal 2013,
representing 42% and 40% of total consolidated revenues in each of these years. A significant portion of our
revenues are derived from the sale of products and services within the banking (including consumer credit)
industry, and 74% and 73% of our revenues were derived from within this industry during fiscal 2014 and 2013,
respectively. In addition, we derive a significant share of revenue from transactional or unit-based software
license fees, transactional fees derived under scoring, network service or internal hosted software arrangements,
annual software maintenance fees and annual license fees under long-term software license arrangements.
Arrangements with transactional or unit-based pricing accounted for approximately 67% and 69% of our
revenues during fiscal 2014 and 2013, respectively.

Operating income for fiscal 2014 was 161.9 million, an increase of $0.3 million from $161.6 million in
fiscal 2013. Operating margin decreased to 21% from 22% primarily attributable to our continued investment in
the areas of cloud computing and SaaS, partially offset by a higher percentage of revenues derived from our
higher-margin software products. Net income for fiscal 2014 was $94.9 million, an increase of 5% from $90.1
million in fiscal 2013. Diluted earnings per share for fiscal 2014 was $2.72, an increase of 10% from $2.48 in
fiscal 2013.

We generate significant free cash flow used to enhance shareholder value through investments in long-term

growth initiatives; acquisitions of relevant technologies and products that strengthen our portfolio and
competitive position; and our share repurchase program.

During fiscal 2014, we continued to invest in our growth initiatives that expand our addressable markets.

We introduced a full suite of applications for the FICO® Analytic Cloud, expanding product offerings in our
Applications and Tools segments to accommodate small-to-midsize companies that benefit from the affordability
and simplicity of cloud-based solutions. For our Scores segment, we introduced the FICO® Score Open Access
program which allows our participating clients to provide their customers with a free FICO® Score along with
materials to help them understand what affects their score. We have more than 30 million consumers with access
to their free score through the FICO® Score Open Access program and with the addition of new participants we
expect this to grow to more than 60 million in early 2015. In addition, we introduced the FICO® Custom Credit
Education program where lenders can license enhanced credit education tools to include in their consumer
financial education programs.

We continued to make acquisitions that deliver solutions to the financial services industry and adjacent
vertical industries; our recent acquisitions of InfoCentricity and Karmasphere are expected to benefit customers
of all sizes and across all industries by leveraging cloud-based analytics modeling technology along with the Big
Data analytics for Hadoop technology capabilities.

We also returned significant cash to shareholders through our stock repurchase program. During fiscal 2014,
we repurchased approximately 3.7 million shares for a total cost of $214.9 million. As of September 30, 2014, we
had $250.0 million remaining under our current stock repurchase program.

Bookings

Management uses bookings as an indicator of our business performance. Bookings represent contracts

signed in the current reporting period that 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 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 the contractual rate. Transactional contracts generally span multiple years and
require us to make estimates about future transaction volumes or number of active accounts. We develop
estimates from discussions with our customers and examinations of historical data from similar products and
customer arrangements. Differences between estimated bookings and actual results occur due to variability in the
volume of transactions or number of active accounts estimated. This variability is primarily caused by the
following:

• The health of the economy and economic trends in our customers’ industries;

•

Individual performance of our customers relative to their competitors; and

• Regulatory and other factors that affect the business environment in which our customers operate.

We calculate maintenance bookings directly from the terms stated in the contract.

Professional Services Bookings

We calculate professional services bookings as the estimated number of hours to complete a project

multiplied by the rate per hour. We estimate the number of hours based on our understanding of the project
scope, conversations with customer personnel and our experience in estimating professional services projects.
Estimated bookings may differ from actual results primarily due to differences in the actual number of hours
incurred. These differences typically result from customer decisions to alter the mix of FICO and customer
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, 2014

Quarter ended September 30, 2013

Year ended September 30, 2014

Year ended September 30, 2013

Number of
Bookings
over $1
Million

Bookings
Yield (1)

26%

29%

38%

42%

Weighted-
Average
Term (2)
(months)
22

N/M

Bookings

(in millions)
$ 85.8

$ 91.3

$362.3

$328.2

(1) Bookings yield represents the percentage of revenue recognized from bookings for the periods indicated.
(2) NM — Measure is not meaningful as 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.

Transactional and maintenance bookings were 28% and 40% of total bookings for the quarters ended
September 30, 2014 and 2013, respectively. Professional services bookings were 51% and 41% of total bookings
for the quarters ended September 30, 2014 and 2013, respectively. License bookings were 21% and 19% of total
bookings for the quarters ended September 30, 2014 and 2013, respectively.

Transactional and maintenance bookings were 29% and 37% of total bookings for the years ended

September 30, 2014 and 2013, respectively. Professional services bookings were 47% and 41% of total bookings
for the years ended September 30, 2014 and 2013, respectively. License bookings were 24% and 22% of total
bookings for the years ended September 30, 2014 and 2013, 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 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 non-cancelable 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.

Segment Information

We are organized into the following three reportable segments: 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, 2014, 2013 and 2012 are set forth in
Note 17 to the accompanying consolidated financial statements.

Revenues

RESULTS OF OPERATIONS

The following tables set forth certain summary information on a segment basis related to our revenues for

fiscal 2014, 2013 and 2012:

Revenues
Year Ended September 30,

2014

2013

2012

Period-to-Period Change

2014 to
2013

2013 to
2012

(In thousands)

$504,256
186,469
98,260

(In thousands)
$476,084
180,813
86,547

$424,604
175,623
76,196

$28,172
5,656
11,713

$51,480
5,190
10,351

$788,985

$743,444

$676,423

45,541

67,021

Period-to-Period
Percentage Change

2014 to
2013

2013 to
2012

6%
3%
14%

12%
3%
14%

10%

Percentage of Revenues
Year Ended September 30,

2014

2013

2012

64% 64% 63%
24% 24% 26%
12% 12% 11%

100% 100% 100%

Segment

Applications
Scores
Tools

Total Revenues

Segment

Applications
Scores
Tools

Total Revenues

Applications

Year Ended September 30,

Period-to-Period Change

2014

2013

2012

2014 to
2013

2013 to
2012

(In thousands)

Transactional and maintenance
Professional services
License

$313,316
121,100
69,840

(In thousands)
$306,738
110,081
59,265

$263,726
104,637
56,241

$ 6,578
11,019
10,575

$43,012
5,444
3,024

Total

$504,256

$476,084

$424,604

28,172

51,480

Period-to-Period
Percentage Change

2014 to
2013

2013 to
2012

2%
10%
18%

16%
5%
5%

12%

Applications segment revenues increased $28.2 million in fiscal 2014 from fiscal 2013 primarily due to a

$17.3 million increase in our fraud solutions, a $9.6 million increase in our customer communication solutions, a
$5.0 million increase in our originations solutions, and a $4.8 million increase in our collections & recovery
solutions. The increase was partially offset by a $5.3 million decrease in our marketing solutions and a $3.2
million decrease in our customer management solutions.

The increase in fraud solutions was primarily attributable to two large multi-year license transactions during

fiscal 2014. The increase in customer communication solutions was primarily attributable to an increase in
transactional revenues as a result of our growth in the mobile communication market. The increase in
originations solutions was primarily attributable to an increase in license and services revenues. The increase in
collections & recovery solutions was primarily attributable to an increase in services revenues. The decrease in
marketing solutions was primarily attributable to the early termination of a large customer in fiscal 2013,
partially offset by a large deal entered into in fiscal 2014 to develop customized software solutions for a new
customer. The decrease in customer management solutions was primarily attributable to a decrease in license
revenue.

Applications segment revenues increased $51.5 million in fiscal 2013 from fiscal 2012 primarily due to a

$51.1 million increase in our customer communications solutions and an $11.1 million increase in our
collections & recovery solutions, partially offset by a $6.5 million decrease in our customer management
solutions and a $3.5 million decrease in our marketing solutions.

The increase in customer communication solutions was attributable to our Adeptra acquisition in September
2012. The increase in collections & recovery solutions was primarily attributable to our CR Software acquisition
in November 2012, partially offset by a decrease in revenues generated from our FICO® Debt Manager™
product. The decrease in customer management solutions was primarily attributable to a decrease in software
revenue driven by a large license transaction in fiscal 2012. The decrease in marketing solutions was primarily
attributable to the early termination of a large customer in December 2012.

Scores

Year Ended September 30,

Period-to-Period Change

2014

2013

2012

2014 to
2013

2013 to
2012

(In thousands)

Transactional and maintenance
Professional services
License

$178,023
2,784
5,662

(In thousands)
$175,281
4,012
1,520

$172,218
2,382
1,023

$ 2,742
(1,228)
4,142

Total

$186,469

$180,813

$175,623

5,656

$3,063
1,630
497

5,190

2%
(31)%
273%

2%
68%
49%

Period-to-Period
Percentage Change

2014 to
2013

2013 to
2012

Scores segment revenues increased $5.7 million in fiscal 2014 from 2013 due to a $3.5 million increase in
our myFICO® business-to-consumer services revenues and a $2.2 million increase in our business-to-business
scores revenues. The increase in our myFICO business-to-consumer services was attributable to a $4.2 million
increase in direct sales generated from the myFICO.com website, partially offset by a $0.7 million decrease in
royalties derived from scores sold indirectly to consumers through credit reporting agencies. The increase in our
business-to-business scores revenues was primarily attributable to increased software revenue related to our
Global FICO® Score.

Scores segment revenues increased $5.2 million in fiscal 2013 from 2012 due to a $5.8 million increase in

our myFICO® business-to-consumer services revenues partially offset by a $0.6 million decrease in our business-
to-business scores revenues. The increase in our myFICO business-to-consumer services was attributable to a
$6.8 million increase in direct sales generated from the myFICO.com website, partly driven by the availability of
FICO® scores generated using the consumer data of one credit reporting agency following an agreement with the
credit reporting agency in May 2013. The increase was partially offset by a $1.0 million decrease in royalties
derived from scores sold indirectly to consumers through credit reporting agencies.

During fiscal 2014, 2013 and 2012, revenues generated from our agreements with Equifax, TransUnion and

Experian, collectively accounted for approximately 15%, 16% and 18%, respectively, of our total revenues,
including revenues from these customers recorded in our other segments.

Tools

Transactional and maintenance
Professional services
License

Year Ended September 30,

Period-to-Period Change

2014

2013

2012

$36,224
25,950
36,086

(In thousands)
$32,285
21,101
33,161

$30,231
17,952
28,013

2014 to
2013

2013 to
2012

(In thousands)

$ 3,939
4,849
2,925

$ 2,054
3,149
5,148

Total

$98,260

$86,547

$76,196

11,713

10,351

Period-to-Period
Percentage Change
2013 to
2014 to
2012
2013

12%
23%
9%

14%

7%
18%
18%

14%

Tools segment revenues increased $11.7 million primarily due to an $8.5 million increase in our

optimization tools and a $2.2 million increase in our predictive modeling tools. The increase in optimization tools
was primarily attributable to increased license sales on our FICO® Decision Optimizer and FICO® Xpress
Optimization products. The increase in predictive modeling tools was primarily attributable to increased services
revenue related to our FICO® Model Central™ product.

Tools segment revenues increased $10.4 million primarily due to a $4.8 million increase in our rules

management tools and a $4.0 million increase in our predictive modeling tools. The increase in rules
management tools was primarily attributable to increased services revenue related to our FICO® Blaze Advisor®
and third-party products. The increase in predictive modeling tools was primarily attributable to increased license
sales in our FICO® Model Central™ product.

Operating Expenses and Other Income (Expense), Net

The following tables set forth certain summary information related to our consolidated statements of income

and comprehensive income for the fiscal 2014, 2013 and 2012:

Period-to-Period Change

Period-to-Period
Percentage Change

Year Ended September 30,

2014

2013

2012

2014 to
2013

2013 to
2012

2014 to
2013

2013 to
2012

Revenues

Operating expenses:

(In thousands, except employees)
$788,985 $743,444 $676,423 $45,541

(In thousands, except
employees)

$67,021

10%

Cost of revenues
Research and development
Selling, general and administrative
Amortization of intangible assets
Restructuring and acquisition-related

249,281 229,468 197,947
83,435
59,527
66,967
278,203 268,395 238,522
6,944
13,535
5,125
3,486

11,917
4,281

19,813
16,468
9,808
(1,618)
795

31,521
7,440
29,873
6,591
(1,639)

9%
25%
4%

16%
12%
13%
(12)% 95%
23% (32)%

Total operating expenses

627,117 581,851 508,065

45,266

73,786

15%

Operating income
Interest expense, net
Other income (expense), net

Income before income taxes
Provision for income taxes

161,868 161,593 168,358
(31,417)
(30,227)
(28,550)
(698)
618
(187)

133,131 131,984 136,243
44,239
41,889

38,252

275
1,677
(805)

1,147
(3,637)

Net income

$ 94,879 $ 90,095 $ 92,004

4,784

Number of employees at fiscal year-end

2,646

2,482

2,315

164

167

(6,765) — %
1,190
(6)%
1,316

(4)%
(4)%
(130)% (189)%

(4,259)
(2,350)

(1,909)

(9)%
(9)%

(3)%
(5)%

(2)%

Revenues

Operating expenses:

Cost of revenues
Research and development
Selling, general and administrative
Amortization of intangible assets
Restructuring and acquisition-related

Total operating expenses

Operating income
Interest expense, net
Income before income taxes
Provision for income taxes

Net income

Percentage of Revenues
Year Ended September 30,

2014

2013

2012

100% 100% 100%

31%
31%
9%
11%
36%
35%
2%
1%
1% — %

79%

21%
(4)%
17%
5%

12%

78%

22%
(4)%
18%
6%

12%

29%
9%
35%
1%
1%

75%

25%
(5)%
20%
6%

14%

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.

The fiscal year 2014 over 2013 increase of $19.8 million was primarily due to an $11.2 million increase in

personnel and labor costs, a $5.3 million increase in outside services cost, and a $2.7 million increase in allocated
facilities cost, partially offset by a $3.2 million decrease in direct materials. The increase in personnel and labor
costs was primarily attributable to an increase in incentive cost, as well as an increase in salaries and benefits cost
as a result of our increased headcount. The increase in outside services cost was primarily attributable to an
increase in our billable consulting projects utilizing temporary resources. The increase in allocated facilities cost
was primarily attributable to leased office space assumed from our acquisitions of CR Software and Infoglide in
fiscal 2013, and InfoCentricity in fiscal 2014. The decrease in direct materials was primarily attributable to a
decrease in software license sales that incur royalties cost. Cost of revenues as a percentage of revenues was
31%, consistent with those incurred during fiscal 2013.

Cost of revenues as a percentage of revenues increased to 31% during fiscal 2013 from 29% during fiscal
2012. The $31.5 million increase was primarily due to a $14.9 million increase in third-party software and data
costs, an $11.2 million increase in personnel and labor costs, a $2.3 million increase in travel cost and a $1.8
million increase in outside services cost. The increase in third-party software and data costs was mainly related to
integration of lower-margin products from our Adeptra and CR Software acquisitions in September and
November 2012, respectively, as well as an increase in sales of our other products that require data acquisition.
The increase in personnel and labor costs was primarily attributable to the increased headcount as a result of our
recent acquisitions. The increase in travel cost was primarily attributable to an increase in services revenue
requiring travel to client locations. The increase in outside services cost was due to an increase in use of external
contractors as a result of increased services revenue.

In fiscal 2015, we expect cost of revenues as a percentage of revenues will be consistent with those incurred

during fiscal 2014.

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 expenses as a percentage of revenues increased to 11% during fiscal 2014 from
9% during fiscal 2013. The $16.5 million increase was attributable to an $11.5 million increase in personnel and
labor costs, a $3.0 million increase in outside services cost, and a $2.0 million increase in allocated facilities cost,
all driven by our continued investment in the areas of cloud computing and SaaS.

The fiscal year 2013 over 2012 increase of $7.4 million in research and development expenses was

primarily attributable to an $8.5 million increase in personnel and labor costs, attributable to the increased
headcount as a result of our recent acquisitions. Research and development expenses as a percentage of revenues
was 9% during the year ended September 30, 2013, consistent with those incurred during the year ended
September 30, 2012.

In fiscal 2015, we expect that research and development expenditures as a percentage of revenues will be
consistent with those incurred during fiscal 2014 as we continue to invest in the areas of cloud computing and
SaaS.

Selling, General and Administrative

Selling, general and administrative expenses consist principally of employee salaries and benefits; travel
costs; overhead costs; advertising and other promotional expenses; corporate facilities expenses; legal expenses;
business development expenses and the cost of operating computer systems.

The fiscal year 2014 over 2013 increase of $9.8 million in selling, general and administrative expenses was

primarily attributable to a $7.9 million increase in labor and personnel costs and a $2.3 million increase in
marketing cost. The increase in labor and personnel costs was primarily due to an increase in stock-based
compensation cost driven by the increase in our stock price, as well as an increase in incentive cost. The increase
in marketing cost was primarily attributable to several new marketing programs implemented in fiscal 2014.
Selling, general and administrative expenses as a percentage of revenues decreased to 35% for the year ended
September 30, 2014 from 36% for the year ended September 30, 2013 primarily attributable to FICO shifting
resources to research and development efforts in the areas of cloud computing and SaaS.

Selling, general and administrative expenses as a percentage of revenues was 36% for the year ended
September 30, 2013 as compared to 35% for the year ended September 30, 2012. The $29.9 million increase was
primarily attributable to a $15.7 million increase in labor and personnel costs, a $4.4 million increase in
equipment and software depreciation cost, a $3.3 million increase in travel cost and a $2.9 million increase in
allocated facilities and infrastructure costs. The increase in labor and personnel costs was primarily due to the
increased headcount as a result of our recent acquisitions. The increase in equipment and software depreciation
cost was due to timing of fixed assets placed in service. The increase in travel cost was primarily due to increased
non-revenue producing travel activities as a result of our recent acquisitions. The increase in allocated facilities
and infrastructure costs was primarily due to increased resource requirement as a result of our recent acquisitions.

In fiscal 2015, we expect that selling, general and administrative expenses as a percentage of revenues will

be consistent with those incurred during fiscal 2014.

Amortization of Intangible Assets

Amortization of intangible assets consists of amortization expense related to intangible assets recorded in
connection with our acquisitions. Our finite-lived intangible assets consist primarily of completed technology and
customer contracts and relationships, which are being amortized using the straight-line method over periods
ranging from five to fifteen years.

The fiscal 2014 over fiscal 2013 decrease in amortization expense of $1.6 million was primarily attributable

to certain intangible assets associated with our Dash and London Bridge acquisitions becoming fully amortized
in fiscal 2013, partially offset by the addition of intangible assets associated with our Infoglide acquisition in
fiscal 2013 and InfoCentricity acquisition in fiscal 2014.

The fiscal 2013 over fiscal 2012 increase in amortization expense of $6.6 million was attributable to the

addition of intangible assets associated with our recent acquisitions of Entiera, Adeptra, CR Software and
Infoglide, partially offset by certain intangible assets associated with our Dash and London Bridge acquisitions
becoming fully amortized in January 2012 and May 2013, respectively.

In fiscal 2015, we expect amortization expense will be consistent with the amortization expense incurred in

2014 .

Restructuring and Acquisition-related

In fiscal 2014, we incurred net charges totaling $4.1 million consisting of $0.2 million in facilities charges

and $3.9 million in severance charges due to the elimination of 88 positions throughout the company. Cash
payments for all the restructuring charges will be paid by the end of the second quarter of our fiscal 2015. We
also incurred $0.2 million in acquisition-related cost primarily associated with our InfoCentricity acquisition.

In fiscal 2013, we incurred $1.0 million in acquisition-related cost mainly associated with our CR Software
and Infoglide acquisitions. We also incurred net charges totaling $2.5 million consisting of severance costs and
costs for vacating excess leased space. Cash payments for all the severance costs were paid during fiscal 2013.
Cash payments for all the facilities charges have been paid by the end of fiscal 2014.

In fiscal 2012, we incurred $1.1 million in acquisition-related cost in association with the Adeptra and
Entiera acquisitions. We also eliminated 85 positions mainly within the product and technology organization of
the Company and incurred $4.0 million for severance costs. Cash payments for all the severance costs had been
paid by the end of fiscal 2013.

The following table sets forth certain summary information on restructuring expenses for the fiscal 2014,

2013 and 2012:

Severance costs
Lease exit costs and other adjustments

Total restructuring expense

Interest Expense, Net

Year Ended September 30,

2014

2013

2012

(In thousands)
$ 842
1,624

$3,978
—

$3,963
167

$4,130

$2,466

$3,978

Interest expense included primarily interest on the senior notes issued in May 2008 and July 2010, as well as

interest and credit facility fees on the revolving line of credit. Interest expense is netted with interest income,
which is derived primarily from the investment of funds in excess of our immediate operating requirements, on
our consolidated statements of income and comprehensive income.

The fiscal 2014 over 2013 decrease in net interest expense of $1.7 million was primarily attributable to the
$8.0 million and $49.0 million principal payment in May 2014 and 2013, respectively, on the senior notes issued
in May 2008 resulting in lower average debt balance for fiscal 2014.

The fiscal 2013 over 2012 decrease in net interest expense of $1.2 million was primarily attributable to the
$49.0 million and $8.0 million principal payment in May 2013 and 2012, respectively, on the senior notes issued
in May 2008 resulting in lower average debt balance for fiscal 2013, partially offset by lower average investment
balances during fiscal 2013.

In fiscal 2015, we expect that net interest expense will be lower than what we incurred during fiscal 2014

due to the $71.0 million principal payment expected in May 2015 on the senior notes issued in May 2008.

Other Income (Expense), Net

Other income (expense), net consists primarily of realized investment gains/losses, exchange rate gains/
losses resulting from re-measurement of foreign-currency-denominated receivable and cash balances held by our
various reporting entities into their respective functional currencies at period-end market rates, net of the impact
of offsetting foreign currency forward contracts, and other non-operating items.

Net other expense was $0.2 million in fiscal 2014, compared to net other income of 0.6 million in 2013. The

change was primarily attributable to a nonrecurring charge related to our fixed assets balance as well as an
increase in foreign currency exchange losses during fiscal 2014.

Net other income was $0.6 million in fiscal 2013, compared to net other expense of $0.7 million in 2012.

The change was primarily attributable to a decrease in foreign exchange losses, as well as a one-time vendor
termination fee during fiscal 2012.

Provision for Income Taxes

Our effective tax rates were 28.7%, 31.7% and 32.5% in fiscal 2014, 2013 and 2012, respectively.

The decrease in our effective tax rate in fiscal 2013 compared to fiscal 2012 was primarily due to the
reenactment of the U.S. Federal Research and Development Credit in 2013, as well as the expiration of the U.S.
Federal Research and Development credit and a one-time tax impact of a legal entity restructuring charge in
2012.

As of September 30, 2014 the Company has reported $49.9 million of unremitted earnings of the

international subsidiaries in our consolidated income. U.S. income taxes have not been provided on undistributed
earnings of international subsidiaries. It is our intention to reinvest these earnings permanently or to repatriate the
earnings only when it is tax efficient to do so. The amount of the unrecognized deferred tax liability depends on
judgment required to analyze the withholding tax due, the applicable tax law and related tax treaties, and factual
circumstances in effect at the time of any such distribution, therefore, we believe it is not practicable at this time
to reliably determine the amount of the unrecognized deferred tax liability related to the Company’s
undistributed earnings. If circumstances change and it becomes apparent that some or all of the undistributed
earnings of a subsidiary will be remitted in the next twelve months and income taxes have not been recognized
by the parent entity, the parent entity shall accrue as an expense of the current period income taxes attributable to
that remittance.

Operating Income

The following tables set forth certain summary information on a segment basis related to our operating

income for the fiscal 2014, 2013 and 2012:

Segment

2014

2013

2012

Year Ended September 30,

Period-to-Period
Change

Period-to-Period
Percentage Change

2014 to
2013

2013 to
2012

2014 to
2013

2013 to
2012

(In thousands)

Applications
Scores
Tools
Unallocated corporate expenses

$ 169,494 $141,131 $139,116 $ 28,363 $ 2,015
6,642
233
(6,082)

142,282
4,203
(101,551)

130,267
19,469
(86,403)

123,625
19,236
(80,321)

12,015
(15,266)
(15,148)

20%
9%
(78)%
18%

Total segment operating income

214,428

204,464

201,656

9,964

2,808

1%
5%
1%
8%

Unallocated share-based

compensation

Unallocated amortization expense
Unallocated restructuring and

acquisition-related

Operating income

Applications

Segment revenues
Segment operating expenses

Segment operating income

Scores

Segment revenues
Segment operating expenses

Segment operating income

Tools

Segment revenues
Segment operating expenses

Segment operating income

(36,362)
(11,917)

(25,850)
(13,535)

(21,229)
(6,944)

(10,512)
1,618

(4,621)
(6,591)

41%
22%
(12)% 95%

(4,281)

(3,486)

(5,125)

(795)

1,639

23% (32)%

$ 161,868 $161,593 $168,358

275

(6,765) — %

(4)%

Year Ended September 30,

Percentage of Revenues

2014

2013

2012

2014

2013

2012

$ 504,256
(334,762)

(In thousands)
$ 476,084
(334,953)

$ 424,604 100% 100% 100%
(66)% (70)% (67)%

(285,488)

$ 169,494

$ 141,131

$ 139,116

34% 30% 33%

Year Ended September 30,

Percentage of Revenues

2014

2013

2012

2014

2013

2012

$186,469
(44,187)

(In thousands)
$180,813
(50,546)

$175,623
(51,998)

100% 100% 100%
(24)% (28)% (30)%

$142,282

$130,267

$123,625

76% 72% 70%

Year Ended September 30,

Percentage of Revenues

2014

2013

2012

2014

2013

2012

$ 98,260
(94,057)

(In thousands)
$ 86,547
(67,078)

$ 76,196
(56,960)

100% 100% 100%
(96)% (78)% (75)%

$ 4,203

$ 19,469

$ 19,236

4% 22% 25%

The increase in operating income between fiscal 2014 and 2013 of $0.3 million was primarily attributable to
a $45.5 million increase in segment revenues and a $1.6 million decrease in amortization expense, partially offset

by a $20.4 million increase in segment operating expenses, a $15.1 million increase in unallocated corporate
expenses, a $10.5 million increase in share-based compensation expense and a $0.8 million increase in
restructuring and acquisition-related expenses.

At the segment level, the $10.0 million increase in segment operating income was driven by a $28.4 million

increase in our Applications segment and a $12.0 million increase in our Scores segment, partially offset by a
$15.1 million increase in unallocated corporate expenses and a $15.3 million decrease in our Tools segment.

The $28.4 million increase in Applications segment operating income was attributable to a $28.2 million

increase in segment revenues and a $0.2 million decrease in segment operating expenses. The increase in
segment revenues was primarily attributable to two large multi-year license transactions in fraud solutions and
increased transactional and services revenues in customer communication solutions. Segment operating income
as a percentage of segment revenues for Applications increased to 34% from 30% primarily due to FICO shifting
resources to cloud computing mainly in the Tools segment, a reduction in sales workforce as part of our
restructuring during the first quarter of our fiscal 2014, as well as increased sales of higher-margin software
products.

The $12.0 million increase in Scores segment operating income was attributable to a $6.4 million decrease
in segment operating expenses and a $5.6 million increase in segment revenues. Segment operating income as a
percentage of segment revenues for Scores was increased to 76% from 72% mainly due to an increase in sales of
our higher-margin software products, as well as decreased third-party data cost as a result of favorable terms in a
renewed agreement with one credit reporting agency in May 2013.

The $15.3 million decrease in Tools segment operating income was attributable primarily to a $27.0 million

increase in segment operating expenses, partially offset by an $11.7 million increase in segment revenues.
Segment operating income as a percentage of segment revenues for Tools decreased to 4% from 22% mainly due
to an increase in the research and development efforts related to our cloud-based FICO® Decision Management
Platform as well as our FICO® Model Central™ Solution.

The $15.1 million increase in unallocated corporate expenses was primarily attributable to an increase in

incentive cost.

The decrease in operating income between fiscal 2013 and 2012 of $6.8 million was primarily attributable to

a $58.1 million increase in segment operating expenses, a $6.6 million increase in amortization expense, a $6.1
million increase in unallocated corporate expenses and a $4.6 million increase in share-based compensation
expense, partially offset by a $67.0 million increase in segment revenues and a $1.6 million decrease in
restructuring and acquisition-related expenses.

At the segment level, the $2.8 million increase in segment operating income was driven by a $6.7 million
increase in our Scores segment, a $2.0 million increase in our Applications segment and a $0.2 million increase
in our Tools segment, partially offset by a $6.1 million increase in unallocated corporate expenses.

The $2.0 million increase in Applications segment operating income was attributable to a $51.5 million
increase in segment revenues, partially offset by a $49.5 million increase in segment operating expenses. The
increases in both segment revenues and segment operating expenses were primarily related to our Adeptra and
CR Software acquisitions. Segment operating income as a percentage of segment revenues for Applications
decreased to 30% from 33% mainly due to increased sales of lower-margin products from our Adeptra and CR
Software acquisitions.

The $6.7 million increase in Scores segment operating income was attributable to a $5.2 million increase in

segment revenues, primarily due to increased revenues generated from our myFICO® business-to-consumer
services and a $1.5 million decrease in segment operating expenses. Segment operating income as a percentage
of segment revenues for Scores was 72% for fiscal 2013, materially consistent with fiscal 2012.

The $0.2 million increase in Tools segment operating income was attributable primarily to a $10.3 million

increase in segment revenues, partially offset by a $10.1 million increase in segment operating expenses. The
increase in segment revenues was primarily due to an increase of services and software revenues related to our
FICO® Blaze Advisor® and FICO® Model Central™ products. Segment operating income as a percentage of
segment revenues for Tools decreased to 22% from 25% mainly due to an increase in our lower-margin services
revenues and third-party software product sales.

Outlook

CAPITAL RESOURCES AND LIQUIDITY

As of September 30, 2014, we had $105.1 million in cash and cash equivalents which included $83.8
million held off-shore by our foreign subsidiaries. We believe these balances, as well as available borrowings
from our $200 million revolving line of credit and anticipated cash flows from operating activities, will be
sufficient to fund our working and other capital requirements as well as the $71.0 million principal payment due
in May 2015 on our senior notes issued in May 2008. Under our current financing arrangements we have no
other significant debt obligations maturing over the next twelve months. Additionally, we do not anticipate the
need to repatriate any undistributed earnings from our foreign subsidiaries for the foreseeable future.

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 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.

Summary of Cash Flows

Cash provided by (used in):
Operating activities
Investing activities
Financing activities

Effect of exchange rate changes on cash

Year Ended September 30,

2014

2013

2012

(In thousands)

$ 175,034
(19,843)
(130,391)
(2,903)

$136,120
(34,971)
(86,634)
(2,946)

$ 129,746
(65,670)
(128,453)
234

Increase (decrease) in cash and cash equivalents

$ 21,897

$ 11,569

$ (64,143)

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 $175.0 million in fiscal 2014 compared to
$136.1 million in fiscal 2013. The $38.9 million increase was mainly attributable to a $40.4 million increase
caused by the timing of receipts and payments in our ordinary course of business, including a $29.2 million
increase caused by timing of payment on accrued compensation and employee benefits.

Net cash provided by operating activities totaled $136.1 million in fiscal 2013 compared to $129.7 million
in fiscal 2012. The $6.4 million increase, despite $1.9 million decrease in net income, was mainly attributable to
an increase in non-cash charges to depreciation and amortization, deferred income taxes and share-based
compensation, partially offset by a decrease caused by the timing of receipts and payments in our ordinary course
of business.

Cash Flows from Investing Activities

Net cash used in investing activities totaled $19.8 million in fiscal 2014 compared to $35.0 million in fiscal

2013. The $15.2 million decrease was primarily attributable to a $25.6 million decrease in net cash used for
acquisitions and an $11.6 million decrease in net cash used for purchases of property and equipment, partially
offset by a $22.0 million decrease in proceeds from maturities of marketable securities.

Net cash used in investing activities totaled $35.0 million in fiscal 2013 compared to $65.7 million in fiscal

2012. The $30.7 million decrease was primarily attributable to a $90.8 million decrease in net cash used for
acquisitions, partially offset by a $61.6 million decrease in proceeds from sales and maturities of marketable
securities, net of purchases.

Cash Flows from Financing Activities

Net cash used in financing activities totaled $130.4 million in fiscal 2014 compared to $86.6 million in

fiscal 2013. The $43.8 million increase was primarily due to a $134.3 million increase in common stock
repurchased and a $23.7 million decrease in cash generated from stock option exercises, partially offset by a
$72.7 million increase in proceeds, net of payments from our revolving line of credit and a $41.0 million
decrease in payment on our senior notes.

Net cash used in financing activities totaled $86.6 million in fiscal 2013 compared to $128.5 million in

fiscal 2012. The $41.9 million decrease was primarily due to a $108.3 million decrease in common stock
repurchased, partially offset by a $40.5 million decrease in cash generated from stock option exercises. In
addition, there was a $26.0 million increase in payment on our senior notes and revolving line of credit, net of
proceeds from revolving line of credit.

Repurchases of Common Stock

From time to time, we repurchase our common stock in the open market. During fiscal 2014, 2013 and
2012, we expended $214.9 million , $84.9 million and $184.3 million, respectively, in connection with our
repurchase of common stock. In August 2012, our Board of Directors approved an open-ended stock repurchase
program to acquire shares of our common stock up to an aggregate cost of $150.0 million in the open market or
through negotiated transactions. Following the completion of the August 2012 program, our Board of Directors
approved another open-ended stock repurchase program in April 2014 to acquire shares of our common stock up
to an aggregate cost of $150.0 million in the open market or through negotiated transactions. Following the
completion of the April 2014 program, our Board of Directors approved a new stock repurchase program in
August 2014. The new program is open-ended and authorizes repurchases of shares of our common stock up to
an aggregate cost of $250.0 million in the open market or in negotiated transactions. As of September 30, 2014,
we had $250.0 million remaining under this authorization.

Dividends

We paid quarterly dividends of two cents per share during each of fiscal 2014, 2013 and 2012. 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

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 1.000% to 1.625% 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 facility fees. The credit facility
contains certain restrictive covenants including maintaining a maximum consolidated leverage ratio of 3.0 and a
minimum fixed charge ratio of 2.5, and also contains other covenants typical of unsecured facilities. As of
September 30, 2014, we had $99.0 million in borrowings outstanding at a weighted average interest rate of
1.285% and were in compliance with all financial covenants under this credit facility.

Senior Notes

In May 2008, we issued $275 million of Senior Notes in a private placement to a group of institutional
investors (the “2008 Senior Notes”). The 2008 Senior Notes were issued in four series with maturities ranging
from 5 to 10 years. The remaining 2008 Senior Notes’ weighted average interest rate is 7.0% and the weighted
average maturity is 9.0 years. In addition, in July 2010, we issued $245 million of Senior Notes in a private
placement to a group of institutional investors (the “2010 Senior Notes” and, with the 2008 Senior Notes, the
“Senior Notes”). The 2010 Senior Notes were issued in four series with maturities ranging from 6 to 10 years.
The 2010 Senior Notes’ weighted average interest rate is 5.2% and the weighted average maturity is 8.0 years.
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. As of September 30, 2014 we were in compliance with all financial covenants under these purchase
agreements.

Contractual Obligations

The following table presents a summary of our contractual obligations at September 30, 2014:

Year Ended September 30,

2015

2016

2017

2018

2019

Thereafter

Total

Senior Notes (1)
Interest due on debt obligations (2)
Operating lease obligations
Unrecognized tax benefits (3)

(In thousands)
$ 71,000 $ 60,000 $ 72,000 $131,000 $28,000 $ 85,000 $447,000
95,008
91,594
4,554

22,136
18,544
—

15,675
13,427
—

19,303
15,158
—

26,873
21,666
—

4,752
11,097
—

6,269
11,702
—

Total commitments

$119,539 $100,680 $106,461 $160,102 $45,971 $100,849 $638,156

(1) Represents the unpaid principal amount of the Senior Notes.
(2) Represents interest payments on the Senior Notes.
(3) Represents 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, 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 a software arrangement includes one or more
elements to be delivered at a future date provided the following criteria are met: (i) vendor-specific objective
evidence (“VSOE”) of the fair value does not exist for one or more of the delivered items but exists for all
undelivered elements, (ii) all other applicable revenue recognition criteria are met and (iii) the fair value of all of
the undelivered elements is less than the arrangement fee. 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.

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

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 use a proportionate performance model with
hours as the input method of attribution to determine progress towards completion, with consideration also given
to output measures, such as contract milestones, when applicable. In such instances, management is required to
estimate the total estimated hours of the project. 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 defer the associated revenue until the contract is completed. We have
not experienced significant variances between our estimates and actual hours in the past and anticipate that we
will be able to continue to make reasonable estimates in the future. If for some reason we are unable to accurately
estimate the input measures, revenue would be deferred until the contract is complete, and this could have a
material impact on our consolidated results of operations.

Services that are sold in connection with software license arrangements generally qualify for separate

accounting from the license element because they do not involve significant production, modification or
customization of our products and are not otherwise considered to be essential to the functionality of our
software. In arrangements where the professional services do not qualify for separate accounting from the license
element, the combined software license and professional services revenue are recognized based on contract
accounting using either the percentage-of-completion or completed-contract method.

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 customer life. 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 transactions 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 typically deferred until the date the customer
commences use of our services, at which point the up-front fees are recognized ratably over the expected life of
the customer relationship. ASP transactional fees are recorded monthly as earned.

Multiple-Deliverable Arrangements including Non-Software

When we enter into a multiple-deliverable arrangement that includes non-software, each deliverable 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; for example, we conclude
professional services offered along with our SaaS subscription services typically have standalone value using this
criteria. 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 our 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, customer segment pricing strategies and the
product lifecycle.

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.

Business Combinations

Accounting for our acquisitions requires us to recognize, separately from goodwill, the assets acquired and
the liabilities assumed at their acquisition-date fair values. Goodwill as of the acquisition date is measured as the
excess of consideration transferred and the net of the acquisition-date fair values of the assets acquired and the
liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and
liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a
result, during the measurement period, which may be up to one year from the acquisition date, we record
adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the
conclusion of the measurement period or final determination of the values of assets acquired or liabilities
assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of
income and comprehensive income.

Accounting for business combinations requires our management to make significant estimates and
assumptions, especially at the acquisition date, including our estimates for intangible assets, contractual
obligations assumed, pre-acquisition contingencies and contingent consideration, where applicable. If we cannot
reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the
measurement period, we will recognize an asset or a liability for such pre-acquisition contingency if: (i) it is
probable that an asset existed or a liability had been incurred at the acquisition date and (ii) the amount of the
asset or liability can be reasonably estimated. Although we believe the assumptions and estimates we have made
in the past have been reasonable and appropriate, they are based in part on historical experience and information
obtained from the management of the acquired companies and are inherently uncertain. Subsequent to the
measurement period, changes in our estimates of such contingencies will affect earnings and could have a
material effect on our results of operations and financial position.

Examples of critical estimates in valuing certain of the intangible assets we have acquired include but are

not limited to: (i) future expected cash flows from software license sales, support agreements, consulting
contracts, other customer contracts and acquired developed technologies and patents; (ii) expected costs to
develop the in-process research and development into commercially viable products and estimated cash flows
from the projects when completed, and; (iii) the acquired company’s brand and competitive position, as well as
assumptions about the period of time the acquired brand will continue to be used in the combined company’s
product portfolio. Unanticipated events and circumstances may occur that may affect the accuracy or validity of
such assumptions, estimates or actual results.

In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a
business combination are initially estimated as of the acquisition date. We reevaluate these items quarterly based
upon facts and circumstances that existed as of the acquisition date with any adjustments to our preliminary
estimates being recorded to goodwill provided that we are within the measurement period. Subsequent to the
measurement period or our final determination of the tax allowance’s or contingency’s estimated value,
whichever comes first, changes to these uncertain tax positions and tax-related valuation allowances will affect
our provision for income taxes in our consolidated statements of income and comprehensive income and could
have a material impact on our results of operations and financial position.

Valuation of Goodwill and Other Intangible Assets — Impairment Assessment

Our business acquisitions typically result in the recognition of goodwill and other intangible assets, which

affects 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. We amortize our finite-lived intangible 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. Estimates using different assumptions, or unanticipated events and circumstances could produce
significantly different results.

We assess potential impairments of our intangible assets when there is evidence that events and

circumstances related to our financial performance and economic environment indicate the carrying amount of
the assets may not be recoverable. 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 and record the impairment as the difference between the carrying
value of the asset and the fair value of the asset. Significant management judgment is required in forecasting
future operating results used in the preparation of the projected cash flows. Should different conditions prevail,
material write downs of net intangible 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 annual amortization expense in future periods.

We test goodwill for impairment at the reporting unit levels, which we have determined are the same as our
reportable segments, at least annually during the fourth quarter of each fiscal year. 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, with the fair value below its carrying value. 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 a weighted combination of discounted cash flow valuation
model (known as the income approach) and a comparison of our reporting units to guideline publicly-traded
companies (known as the market approach). These methods require estimates of our future revenues, profits,
capital expenditures, working capital, costs of capital and other relevant factors, as well as selecting appropriate
guideline publicly-traded companies for each reporting unit. We evaluate historical trends, current budgets,
operating plans, industry data, and other relevant factors when estimating these amounts. Using assumptions that
are different from those used in our estimates, but in each case reasonable, 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 economic environment impacts our forecasts beyond what we have anticipated, it could cause
the fair value of a reporting unit to fall below its respective carrying value.

The key assumptions that require significant management judgment for the income approach 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 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.

In the fourth quarter of fiscal 2014 we performed our annual goodwill impairment test. In step one of that

test we compared the estimated fair value of each reporting unit to its carrying value. The estimated fair value of
each of our reporting units substantially exceeded its respective carrying value in fiscal 2014, 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 and recorded no goodwill
impairment charges for the twelve months ended September 30, 2014.

As discussed above, estimates of fair value for all of our reporting units can be affected by a variety of
external and internal factors. 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 measure stock-based compensation cost at the grant date based on the fair value of the award and
recognize it as expense, net of estimated forfeitures, over the vesting or service period, as applicable, of the stock
award (generally three to four years). See Note 14 for further discussion of our share-based employee benefit
plans.

Income Taxes

We estimate our income taxes based on the various jurisdictions where we conduct business, which involves

significant judgment in determining our income tax provision. We estimate our current tax liability using
currently enacted tax rates and laws and assess temporary differences that result from differing treatments of
certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities
recorded on our balance sheet using the currently enacted tax rates and laws that will apply to taxable income for
the years in which those tax assets are expected to be realized or settled. We then assess the likelihood our
deferred tax assets will be realized and to the extent we believe realization is not likely, we establish a valuation
allowance. When we establish a valuation allowance or increase this allowance in an accounting period, we
record a corresponding income tax expense in our consolidated statements of income and comprehensive income.
In assessing the need for the valuation allowance, we consider future taxable income in the jurisdictions we

operate; an analysis of our deferred tax assets and the periods over which they will be realizable; and ongoing
prudent and feasible tax planning strategies. An increase in the valuation allowance would have an adverse
impact, which could be material, on our income tax provision and net income in the period in which we record
the increase.

We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to
evaluate the tax position taken or expected to be taken in a tax return by determining if the technical merits of the
tax position indicate it is more likely than not that the tax position will be sustained upon audit, including
resolution of any related appeals or litigation processes. For tax positions more likely than not of being sustained
upon audit, the second step is to measure the tax benefit as the largest amount more than 50% likely of being
realized upon settlement. Significant judgment is required to evaluate uncertain tax positions and they are
evaluated on a quarterly basis. Our evaluations are based upon a number of factors, including changes in facts or
circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective
settlement of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in
material increases or decreases in our income tax expense in the period in which we make the change, which
could have a material impact on our effective tax rate and operating results.

A description of our accounting policies associated with tax-related contingencies and valuation allowances

assumed as part of a business combination is provided under “Business Combinations” above.

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 Recently Issued or Adopted

In July 2013, the Financial Accounting Standards Board (FASB) issued ASU No. 2013-11, “Presentation of

an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit
Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 provides guidance for presentation of an unrecognized
tax benefit, or a portion of an unrecognized tax benefit. ASU 2013-11 provides that a benefit should be presented
in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar
tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar
tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable
jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the
tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the
deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements
as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective for fiscal years and
interim periods within those years, beginning on or after December 15, 2013, which means it will be effective for
our fiscal year beginning October 1, 2014. We do not believe that adoption of ASU 2013-11 will have a
significant impact on our consolidated financial statements.

entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing
revenue recognition guidance in U.S. Generally Accepted Accounting Principles when it becomes effective and
permits the use of either the retrospective or cumulative effect transition method. The guidance also requires
additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from
customer contracts. Early adoption is not permitted. ASU 2014-09 is effective for fiscal years and interim periods
within those years, beginning on or after December 15, 2016, which means it will be effective for our fiscal year
beginning October 1, 2017. We have not yet selected a transition method and we are currently evaluating the
impact that the updated standard will have 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 and foreign exchange rates. We do not use

derivative financial instruments for speculative or trading purposes.

Interest Rate

We maintain an investment portfolio consisting of bank deposits and money market funds. The funds
provide daily liquidity and may be subject to interest rate risk and fall in value if market interest rates increase.
We do not expect our operating results or cash flows to be affected to any significant degree by a sudden change
in market interest rates. The following table presents the principal amounts and related weighted-average yields
for our investments with interest rate risk at September 30, 2014 and 2013:

Cash and cash equivalents

September 30, 2014

September 30, 2013

Cost Basis

Carrying
Amount

Average
Yield

Cost Basis

Carrying
Amount

Average
Yield

$105,075

(Dollars in thousands)
0.03% $83,178

$83,178

0.00%

In May 2008, we issued $275 million of senior notes to a group of institutional investors in a private
placement (the “2008 Senior Notes”). In July 2010 we issued an additional $245 million of senior notes to a
group of institutional investors in a private placement (the “2010 Senior Notes” and, with the 2008 Senior Notes,
the “Senior Notes”). The fair value of the 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 the Senior Notes at September 30, 2014 and 2013:

The 2008 Senior Notes
The 2010 Senior Notes

September 30, 2014

September 30, 2013

Principal

$202,000
$245,000

Carrying
Amounts

(In thousands)
$202,000
$245,000

Fair Value

Principal

$214,170 $210,000
$248,557 $245,000

Carrying
Amounts

(In thousands)
$210,000
$245,000

Fair Value

$221,393
$241,035

We have interest rate risk with respect to our five-year $200 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 1.000% to 1.625% 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 $99.0 million in borrowings outstanding at a weighted average interest
of 1.285% under the credit facility as of September 30, 2014.

Foreign Currency Forward Contracts

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
receivable and cash balances from the effects of volatility in foreign exchange rates that might occur prior to
conversion to their functional currencies. 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 exchange rates. We routinely enter into contracts to offset exposures denominated in the British pound,
Euro and Canadian dollar.

Foreign-currency-denominated receivable and cash balances are remeasured at foreign exchange rates in
effect on the balance sheet date with the effects of changes in foreign exchange rates reported in other income
(expense), net. The forward contracts are not designated as hedges and are marked to market through other
income (expense), net. Fair value changes in the forward contracts help mitigate the changes in the value of the
remeasured receivable and cash balances attributable to changes in foreign exchange rates. The forward contracts
are short-term in nature and typically have average maturities at inception of less than three months.

The following tables summarize our outstanding foreign currency forward contracts, by currency at

September 30, 2014 and 2013:

Sell foreign currency:

Canadian dollar (CAD)
Euro (EUR)

Buy foreign currency:

British pound (GBP)

Sell foreign currency:

Canadian dollar (CAD)
Euro (EUR)

Buy foreign currency:

British pound (GBP)

September 30, 2014

Contract Amount

Fair Value

Foreign
Currency

US$

(In thousands)

CAD 3,300
EUR 3,800

$ 2,960
$ 4,790

$—
—

GBP 6,795

$11,000

—

September 30, 2013

Contract Amount

Fair Value

Foreign
Currency

US$

(In thousands)

CAD 4,700
EUR 5,400

$ 4,542
$ 7,307

$—
—

GBP 6,513

$10,500

—

The foreign currency forward contracts were entered into on September 30 of each fiscal year; therefore, the

fair value was $0 on September 30, 2014 and 2013.

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
San Jose, California

We have audited the accompanying consolidated balance sheets of Fair Isaac Corporation and subsidiaries (the
“Company”) as of September 30, 2014 and 2013, and the related consolidated statements of income and
comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended
September 30, 2014. We also have audited the Company’s internal control over financial reporting as of September 30,
2014 based on the criteria established in Internal Control — Integrated Framework (1992) 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 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 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 financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the 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, 2014 and 2013, and the results of their operations and
their cash flows for each of the three years in the period ended September 30, 2014, 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, 2014,
based on the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.

/s/ Deloitte & Touche LLP
San Diego, CA
November 10, 2014

FAIR ISAAC CORPORATION
CONSOLIDATED BALANCE SHEETS

Assets

Current assets:

Cash and cash equivalents
Accounts receivable, net
Prepaid expenses and other current assets

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

Current liabilities:

Liabilities and Stockholders’ Equity

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

Total current liabilities

Senior notes
Other liabilities

Total liabilities

Commitments and contingencies
Stockholders’ equity:

September 30,

2014

2013

(In thousands, except par value
data)

105,075
155,295
28,157

288,527

8,751
11,033
36,677
779,928
47,914
13,061
6,407

83,178
143,733
22,277

249,188

7,107
11,033
45,155
773,931
57,361
11,132
6,640

$ 1,192,298

$ 1,161,547

22,000
56,650
36,235
56,519
170,000

341,404

376,000
20,280

737,684

19,216
39,281
35,202
49,181
23,000

165,880

447,000
17,990

630,870

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 32,047 and 34,786 shares outstanding at September 30, 2014 and
September 30, 2013, respectively]

Paid-in-capital
Treasury stock, at cost [56,810 and 54,071 shares at September 30, 2014 and

September 30, 2013, respectively]

Retained earnings
Accumulated other comprehensive loss

Total stockholders’ equity

Total liabilities and stockholders’ equity

320
1,129,317

348
1,110,198

(1,936,095)
1,284,261
(23,189)

(1,751,057)
1,192,096
(20,908)

454,614

530,677

$ 1,192,298

$ 1,161,547

See accompanying notes to consolidated financial statements.

FAIR ISAAC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Revenues:

Transactional and maintenance
Professional services
License

Total revenues

Operating expenses:

Cost of revenues (1)
Research and development
Selling, general and administrative (1)
Amortization of intangible assets (1)
Restructuring and acquisition-related

Total operating expenses

Operating income
Interest expense, net
Other income (expense), net

Income before income taxes
Provision for income taxes

Net income

Other comprehensive income (loss):

Unrealized losses on investments, net of tax benefit of $3 for the years

ended September 30, 2012

Foreign currency translation adjustments

Comprehensive income

Basic earnings per share

Shares used in computing basic earnings per share

Diluted earnings per share

Shares used in computing diluted earnings per share

Year Ended September 30,

2014

2013

2012

(In thousands, except per share data)

$527,563
149,834
111,588

$514,304
135,194
93,946

$466,175
124,971
85,277

788,985

743,444

676,423

249,281
83,435
278,203
11,917
4,281

229,468
66,967
268,395
13,535
3,486

197,947
59,527
238,522
6,944
5,125

627,117

581,851

508,065

161,868
(28,550)
(187)

133,131
38,252

161,593
(30,227)
618

131,984
41,889

168,358
(31,417)
(698)

136,243
44,239

94,879

90,095

92,004

—
(2,281)

—
(5,100)

(4)
5,905

$ 92,598

$ 84,995

$ 97,905

2.80

2.55

2.64

33,870

35,332

34,909

2.72

2.48

2.55

34,864

36,292

36,063

(1) Cost of revenues and selling, general and administrative expenses exclude the amortization of intangible

assets. See Note 7 to the consolidated financial statements.

See accompanying notes to consolidated financial statements.

FAIR ISAAC CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended September 30, 2014, 2013 and 2012
(In thousands, except per share data)

Common
Stock

Par
Value

Paid-in-
Capital

Treasury
Stock

Retained
Earnings

Balance at September 30, 2011 37,084 $371 $1,098,388 $(1,627,180) $1,015,624
Share-based compensation
— —
Issuance of treasury stock under

21,229

—

employee stock plans
Tax effect from share-based
payment arrangements

Repurchases of common stock
Dividends paid
Net income
Unrealized losses on

investments, net of tax benefit
of $3

Foreign currency translation

adjustments

2,942

(22,085)

92,849

—

— —

(5,187)

(52)

— —
— —

— —

6,079
—
—
—

—

(184,239)

—
—

—

—
—
(2,803)
92,004

—

Balance at September 30, 2012 34,839 348
Share-based compensation
— —
Issuance of treasury stock under

1,103,611
25,850

(1,718,570) 1,104,825

—

1,642

(22,150)

52,389

—

— —

(1,695)

(17)

— —
— —

2,887
—
—
—

—
(84,876)
—
—

—
—
(2,824)
90,095

employee stock plans
Tax effect from share-based
payment arrangements

Repurchases of common stock
Dividends paid
Net income
Foreign currency translation

employee stock plans
Tax effect from share-based
payment arrangements

Repurchases of common stock
Dividends paid
Net income
Foreign currency translation

adjustments

— —

—

Balance at September 30, 2013 34,786 348
Share-based compensation
— —
Issuance of treasury stock under

1,110,198
36,362

(1,751,057) 1,192,096

—

911

(23,278)

29,823

—

—
—
(2,714)
94,879

— —

(3,650)

(37)

— —
— —

6,035
—
—
—

—

(214,861)

—
—

—

Accumulated
Other
Comprehensive
Income
(Loss)

$(21,709)

—

—
—
—
—

Total
Stockholders’
Equity

$ 465,494
21,229

70,793

6,079
(184,291)
(2,803)
92,004

(4)

5,905

(15,808)
—

—

—
—
—
—

(5,100)

(20,908)
—

—

—
—
—
—

5,905

474,406
25,850

30,256

2,887
(84,893)
(2,824)
90,095

(5,100)

530,677
36,362

6,554

6,035
(214,898)
(2,714)
94,879

adjustments

— —

—

(2,281)

Balance at September 30, 2014 32,047 $320 $1,129,317 $(1,936,095) $1,284,261

$(23,189)

$ 454,614

See accompanying notes to consolidated financial statements.

FAIR ISAAC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation and amortization
Share-based compensation
Deferred income taxes
Tax effect from share-based payment arrangements
Excess tax benefits from share-based payment arrangements
Net amortization of premium on marketable securities
Provision of (benefit from) doubtful accounts
Net (gain) loss on sales of property and equipment
Changes in operating assets and liabilities:

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
Purchases of marketable securities
Proceeds from maturities of marketable securities
Cash paid for acquisitions, net of cash acquired
Distribution from (purchase of) cost method investees

Net cash used in investing activities

Cash flows from financing activities:
Proceeds from revolving line of credit
Payments on revolving line of credit and other short-term loans
Payments on senior notes
Proceeds from issuance of treasury stock under employee stock plans
Dividends paid
Repurchases of common stock
Excess tax benefits from share-based payment arrangements

Net cash used in financing activities

Effect of exchange rate changes on cash
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year

Year Ended September 30,

2014

2013

2012

(In thousands)

$ 94,879

$ 90,095

$ 92,004

32,632
36,362
(16,026)
6,035
(6,808)
—
1,485
(10)

(13,649)
(1,754)
3,174
17,450
15,566
5,698
175,034

(12,590)
—
—
(7,253)
—
(19,843)

33,214
25,850
3,671
2,887
(6,362)
8
327
351

1,286
(822)
(590)
(11,729)
1,823
(3,889)
136,120

(24,147)
—
22,000
(32,874)
50
(34,971)

21,549
21,229
(7,121)
6,079
(8,079)
221
(122)
63

(26,490)
802
6,810
11,314
1,455
10,032
129,746

(25,483)
(48,067)
131,659
(123,631)
(148)
(65,670)

145,000
(61,000)
(8,000)
6,554
(2,714)
(217,039)
6,808
(130,391)
(2,903)
21,897
83,178
$ 105,075

30,000
(18,676)
(49,000)
30,256
(2,824)
(82,752)
6,362
(86,634)
(2,946)
11,569
71,609
$ 83,178

—
(5,466)
(8,000)
70,793
(2,803)
(191,056)
8,079
(128,453)
234
(64,143)
135,752
$ 71,609

Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds of $3,424, $2,471 and $584

during the years ended September 30, 2014, 2013 and 2012, respectively

Cash paid for interest
Supplemental disclosures of non-cash investing and financing activities:
Unsettled repurchases of common stock
Purchase of property and equipment included in accounts payable

$ 22,367
$ 28,209

$ 24,141
$ 31,011

$ 36,852
$ 31,421

$
$

— $
$
363

2,141
681

$
$

—
641

See accompanying notes to consolidated financial statements.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

1. Nature of Business and Summary of Significant Accounting Policies

Fair Isaac Corporation

Incorporated under the laws of the State of Delaware, Fair Isaac Corporation (“FICO”) is a provider of
analytic, software and data management products and services that enable businesses to automate, improve and
connect decisions. FICO provides a range of analytical solutions, credit scoring and credit account management
products and services to banks, credit reporting agencies, credit card processing agencies, insurers, retailers,
healthcare organizations and public agencies.

In these consolidated financial statements, FICO is referred to as “we,” “us,” “our,” or “the Company.”

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

We make estimates and assumptions that affect the amounts reported in the financial statements and the
disclosures made in the accompanying notes. For example, we use estimates in determining the collectibility of
accounts receivable; the appropriate levels of various accruals; labor hours in connection with fixed-fee service
contracts; the amount of our tax provision and the realizability of deferred tax assets. We also use estimates in
determining the remaining economic lives and carrying values of acquired intangible assets, property and
equipment, and other long-lived assets. In addition, we use assumptions to estimate the fair value of reporting
units and share-based compensation. Actual results may differ from our estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash in banks and investments with an original 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 4. The fair value of our derivative instruments is disclosed in Note 5. The fair
value of our Senior Notes is disclosed in Note 10.

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 accumulated other

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

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 (expense), net on the
consolidated statements of income and comprehensive 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. The investment is originally recorded at cost and adjusted for additional
contributions or distributions. Management periodically reviews 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. We currently do not have investments in which we own
20% to 50% and exercise significant influence over operating and financial policies, therefore we do not account
for any investment under the equity method.

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 and banking 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:

Data processing equipment and software
Office furniture and equipment
Leasehold improvements

Estimated Useful Life

3 years
3 to 7 years
Shorter of estimated
useful life or lease term

The cost and accumulated depreciation for property and equipment sold, retired or otherwise disposed of are
removed from the applicable accounts and resulting gains or losses are recorded in our consolidated statements of
income and comprehensive income. Depreciation and amortization on property and equipment totaled $20.7
million, $19.7 million and $14.6 million during fiscal 2014, 2013 and 2012, respectively.

Internal-use Software

Costs incurred to develop internal-use software during the application development stage are capitalized and

reported at cost. Application development stage costs generally include costs associated with internal-use

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

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. Software development costs required to be capitalized for internal-use software have not been
material to date.

Capitalized Software and Research and Development Costs

Software development costs relating to products to be sold in the normal course of business are expensed as
incurred as research and development costs until technological feasibility is established. 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 consolidated statements of income and comprehensive income.

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. 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. We performed our annual goodwill
impairment tests as of July 1, 2014 and 2013, and determined our goodwill was not impaired.

Finite-lived intangible assets are tested for impairment if impairment indicators arise. We amortize our

finite-lived intangible assets which result from our acquisitions over the following estimated useful lives:

Completed technology
Customer contracts and relationships
Trade names

Estimated Useful Life

4 to 10 years
5 to 15 years
1 to 5 years

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 judgment. 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

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

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.

Revenues from post-contract customer support services, such as software maintenance, are recognized on a

Transactional-based Revenues

Transactional-based revenue is recognized when persuasive evidence of an arrangement exists, fees are

fixed or determinable, and collection is probable. 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 material 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

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

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 defer the associated revenue until the contract is completed. We have
not experienced material variances between our estimates and actual hours in the past and anticipate that we will
be able to continue to make reasonable estimates in the future. If for some reason we are unable to accurately
estimate the input measures, revenue would be deferred until the contract is complete, and this could have a
material impact on our consolidated results of operations.

Services that are sold in connection with software license arrangements generally qualify for separate

Hosting Services

Multiple-Deliverable Arrangements including Non-Software

When we enter into a multiple-deliverable arrangement that includes non-software, each deliverable 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; for example, we conclude
professional services offered along with our SaaS subscription services typically have standalone value using this
criteria. 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 our 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

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

and circumstances of each arrangement. The factors include, but are not limited to, geographies, market
conditions, gross margin objectives, pricing practices and controls, customer segment pricing strategies and the
product lifecycle.

Gross vs. Net Revenue Reporting

We apply accounting guidance to determine whether we report revenue for certain transactions based upon

Business Combinations

Accounting for business combinations requires our management to make significant estimates and
assumptions, especially at the acquisition date including our estimates for intangible assets, contractual
obligations assumed, pre-acquisition contingencies and contingent consideration, where applicable. If we cannot
reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the
measurement period, we will recognize an asset or a liability for such pre-acquisition contingency if: (i) it is
probable that an asset existed or a liability had been incurred at the acquisition date and (ii) the amount of the
asset or liability can be reasonably estimated. Although we believe the assumptions and estimates we have made
in the past have been reasonable and appropriate, they are based in part on historical experience and information
obtained from the management of the acquired companies and are inherently uncertain. Subsequent to the
measurement period, changes in our estimates of such contingencies will affect earnings and could have a
material effect on our results of operations and financial position.

Examples of critical estimates in valuing certain of the intangible assets we have acquired include but are

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

measurement period or our final determination of the tax allowance’s or contingency’s estimated value,
whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect
our provision for income taxes in our consolidated statements of income and comprehensive income and could
have a material impact on our results of operations and financial position.

Income Taxes

We estimate our income taxes based on the various jurisdictions where we conduct business, which involves

A description of our accounting policies associated with tax-related contingencies and valuation allowances

assumed as part of a business combination is provided under “Business Combinations” above.

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.

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 on our investments in marketable securities, net of tax.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

Foreign Currency and Derivative Financial Instruments

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. Foreign currency translation adjustments are accumulated as a separate component of consolidated
stockholders’ equity.

We utilize derivative 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. We principally utilize foreign currency forward contracts 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 foreign currency forward contracts have maturity periods of less than three
months.

At the end of the reporting period, foreign-currency-denominated assets and liabilities are remeasured into

the functional currencies 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 (expense), net in the
accompanying consolidated statements of income and comprehensive income.

We recorded transactional foreign exchange losses of $1.0 million, $0.8 million and $1.5 million during

fiscal 2014, 2013 and 2012, respectively.

Share-Based Compensation

Impairment of Long-Lived Assets

We assess potential impairment of 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 as 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, 2014 and 2013.

Advertising and Promotion Costs

Advertising and promotion costs are expensed as incurred and are included in selling, general and
administrative expenses in the accompanying consolidated statements of income and comprehensive income.
Advertising and promotion costs totaled $3.8 million, $2.5 million and $1.8 million in fiscal 2014, 2013 and
2012, respectively.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

New Accounting Pronouncements Recently Issued or Adopted

In July 2013, the Financial Accounting Standards Board (FASB) issued ASU No. 2013-11, “Presentation of

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”
(“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be
entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing
revenue recognition guidance in U.S. Generally Accepted Accounting Principles when it becomes effective and
permits the use of either the retrospective or cumulative effect transition method. The guidance also requires
additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from
customer contracts. Early adoption is not permitted. ASU 2014-09 is effective for fiscal years and interim periods
within those years, beginning on or after December 15, 2016, which means it will be effective for our fiscal year
beginning October 1, 2017. We have not yet selected a transition method and we are currently evaluating the
impact that the updated standard will have on our consolidated financial statements.

2. Business Combinations

On April 1, 2014, we acquired 100% of the common stock of InfoCentricity, Inc. (“InfoCentricity”) for $8.2

million in cash. InfoCentricity is a SaaS-based predictive analytics software company that allows FICO to
immediately broaden its offering for predictive analytics modeling and decision strategies. The primary objective
of the acquisition was to leverage the InfoCentricity products through availability to the FICO® Analytic Cloud
as well as an on premise offering for organizations across all industries. InfoCentricity has been included in our
operating results since the acquisition date. The pro forma impact of this acquisition was not deemed material to
our results of operations.

In fiscal 2013, we acquired 100% of the ownership interest of CR Software, LLC (“CR Software”) for $29.6
million in cash. We recorded $16.5 million of intangible assets, which are being amortized using the straight-line
method over a weighted average useful life of approximately 8.8 years. The goodwill of $13.7 million was
allocated to our Applications segment and was not deductible for tax purposes. We also acquired 100% of the
common stock of Infoglide Software, Inc. (“Infoglide”) for $4.4 million in cash.

In fiscal 2012, we acquired 100% of the common stock of Adeptra Ltd. (“Adeptra”) for $113.0 million in
cash. We recorded $36.7 million of intangible assets, which are being amortized using the straight-line method
over a weighted average useful life of approximately 6.6 years. The goodwill of $72.2 million was allocated to
our Applications segment and was not deductible for tax purposes. We also acquired 100% of the common stock
of Entiera, Inc. (“Entiera”) for $18.4 million in cash. We recorded $2.5 million of intangible assets, which are

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

being amortized using the straight-line method over a weighted average useful life of approximately 4.1 years.
The goodwill of $15.0 million was allocated to our Applications segment and was not deductible for tax
purposes.

3. 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, 2014 and 2013:

September 30, 2014

September 30, 2013

Amortized
Cost

Gross
Unrealized
Gains

Fair Value

Amortized
Cost

(In thousands)

Gross
Unrealized
Gains

Fair Value

Cash and Cash Equivalents:
Cash
Money market funds
Non-U.S. money market funds

Total

Long-term Marketable Securities:
Marketable equity securities

$ 94,749 $ — $ 94,749 $82,493
439
246

439
9,887

—
—

$ — $82,493
439
246

—
—

$105,075 $ — $105,075 $83,178

$ — $83,178

7,220 $1,531 $

8,751 $ 6,006

$1,101

$ 7,107

The long-term marketable equity securities represent securities held under a supplemental retirement and

savings plan for senior management employees, which are distributed upon termination or retirement of the
employees.

4. 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
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.

•

Level 1 — uses unadjusted quoted prices that are available in active markets for identical assets or
liabilities. Our Level 1 assets are comprised of money market funds and certain equity securities.

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. We do not have any assets that are valued using inputs identified
under a Level 2 hierarchy as of September 30, 2014 and 2013.

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 as of September 30, 2014 and 2013.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

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

September 30, 2014 and 2013:

September 30, 2014

Assets:
Cash equivalents (1)
Marketable securities (2)

Total

September 30, 2013

Assets:
Cash equivalents (1)
Marketable securities (2)

Total

Active Markets for
Identical Instruments
(Level 1)

Fair Value as of
September 30, 2014

$10,326
8,751

$19,077

$10,326
8,751

$19,077

Active Markets for
Identical Instruments
(Level 1)

Fair Value as of
September 30, 2013

$ 685
7,107

$7,792

$ 685
7,107

$7,792

(1)

Included in cash and cash equivalents on our balance sheet at September 30, 2014 and 2013. Not included in
this table are cash deposits of $94.7 million and $82.5 million at September 30, 2014 and 2013, respectively.

(2) 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, 2014 and 2013.

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 would apply to our Level 2 investments. The Company has not changed our valuation techniques in
measuring the fair value of any financial assets and liabilities during the period.

For the fair value of our derivative instruments and senior notes, see Note 5 and Note 10 to the consolidated

financial statements, respectively.

5. Derivative Financial Instruments

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

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

(expense), net. The forward contracts are not designated as hedges and are marked to market through other
income (expense), net. Fair value changes in the forward contracts help mitigate the changes in the value of the
remeasured receivable and cash balances attributable to changes in foreign exchange rates. The forward contracts
are short-term in nature and typically have average maturities at inception of less than three months.

The following tables summarize our outstanding foreign currency forward contracts, by currency at

September 30, 2014 and 2013:

Sell foreign currency:

Canadian dollar (CAD)
Euro (EUR)
Buy foreign currency:

British pound (GBP)

Sell foreign currency:

Canadian dollar (CAD)
Euro (EUR)
Buy foreign currency:

British pound (GBP)

September 30, 2014

Contract Amount

Fair Value

Foreign
Currency

US$

(In thousands)

CAD3,300
EUR3,800

$ 2,960
$ 4,790

GBP6,795

$11,000

$—
—

—

September 30, 2013

Contract Amount

Fair Value

Foreign
Currency

US$

(In thousands)

CAD4,700
EUR5,400

$ 4,542
$ 7,307

GBP6,513

$10,500

$—
—

—

The foreign currency forward contracts were entered into on September 30 of each fiscal year; therefore,

their fair value was $0 at September 30, 2014 and 2013.

Gains on derivative financial instruments are recorded in our consolidated statements of income and
comprehensive income as a component of other income (expense), net. These amounts are shown below for the
years ended September 30, 2014, 2013 and 2012:

Gain on foreign currency forward contracts

Year Ended September 30,

2014

2013

2012

(In thousands)
$25

$453

$256

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

6. Receivables

Receivables at September 30, 2014 and 2013 consisted of the following:

Billed
Unbilled (1)

Less: allowance for doubtful accounts

Receivables, net

September 30,

2014

2013

(In thousands)

$123,083
35,139

$115,640
31,250

158,222
(2,927)

146,890
(3,157)

$155,295

$143,733

(1) Represents 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.

Activity in the allowance for doubtful accounts was as follows:

Balance, beginning of year

Add: expense
Less: write-offs (net of recoveries)

Balance, end of year

Year Ended September 30,

2014

2013

(In thousands)

$ 3,157
1,485
(1,715)

$ 2,927

$3,406
327
(576)

$3,157

7. Goodwill and Intangible Assets

Intangible assets that are subject to amortization consisted of the following at September 30, 2014 and 2013:

Completed technology
Customer contracts and

relationships

Trade names

Foreign currency translation

adjustments

Intangible assets, net

September 30, 2014

September 30, 2013

Gross
Carrying
Amount

Accumulated
Amortization

Net

Average
Life

Gross
Carrying
Amount

Accumulated
Amortization

Net

Average
Life

(In thousands, except average life)

$ 86,397 $(60,933) $25,464

$ 84,604 $(53,347) $31,257

54,990
—

(33,068)
—

21,922
—

56,321
230

(30,422)
(182)

25,899
48

$141,387 $(94,001)

47,386

$141,155 $(83,951)

57,204

13
1

157

$57,361

528

$47,914

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

Amortization expense associated with our intangible assets, which has been reflected as a separate operating

expense caption within the accompanying consolidated statements of income and comprehensive income,
consisted of the following during fiscal 2014, 2013 and 2012:

Cost of revenues
Selling, general and administrative expenses

Total

Year Ended September 30,

2014

2013

2012

$ 7,371
4,546

(In thousands)
$ 6,630
6,905

$1,332
5,612

$11,917

$13,535

$6,944

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, 2014, was as follows (in thousands):

Year Ended September 30,

2015
2016
2017
2018
2019
Thereafter

Total

$11,853
11,624
10,485
3,269
2,807
7,876

$47,914

The following table summarizes changes to goodwill during fiscal 2014 and 2013, both in total and as

allocated to our operating segments. We have not recognized any goodwill impairment losses to date.

Balance at September 30, 2012
Addition from acquisitions
Foreign currency translation adjustment

Balance at September 30, 2013
Addition from acquisitions
Adjustment related to prior acquisitions
Foreign currency translation adjustment

Applications

Scores

Tools

Total

(In thousands)

$542,943
17,457
(862)

559,538
—
298
459

$146,648
—
—

146,648
—
—
—

$67,913
—
(168)

$757,504
17,457
(1,030)

67,745
5,129
—
111

773,931
5,129
298
570

Balance at September 30, 2014

$560,295

$146,648

$72,985

$779,928

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

8. Composition of Certain Financial Statement Captions

The following table presents the composition of property and equipment and other accrued liabilities at

September 30, 2014 and 2013:

Property and equipment:

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

Total

Other accrued liabilities:
Interest payable
Other

Total

September 30,

2014

2013

(In thousands)

$ 124,699
14,346
25,503
(127,871)

$ 139,035
11,670
24,117
(129,667)

$ 36,677

$ 45,155

8,392
27,843

8,519
26,683

$ 36,235

$ 35,202

9. Revolving Line of Credit

We have a $200 million unsecured revolving line of credit with a syndicate of banks that expires on
September 28, 2016. 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 our
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 1.000% to 1.625% 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 facility fees. The credit facility contains certain
restrictive covenants including maintaining a maximum consolidated leverage ratio of 3.0 and a minimum fixed
charge ratio of 2.5, and also contains other covenants typical of unsecured facilities. As of September 30, 2014,
we had $99.0 million in borrowings outstanding at a weighted average interest rate of 1.285% and were in
compliance with all financial covenants under this credit facility.

10. Senior Notes

On May 7, 2008, we issued $275 million of senior notes in a private placement to a group of institutional

investors (the “2008 Senior Notes”). The 2008 Senior Notes were issued in four series as follows:

Series

A
B
C
D

Amount

Interest Rate

Maturity Date

$41 million
$40 million
$63 million
$131 million

6.37%
6.37%
6.71%
7.18%

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

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

On July 14, 2010, we issued $245 million of senior notes in a private placement to a group of institutional

investors (the “2010 Senior Notes” and, with the 2008 Senior Notes, the “Senior Notes”). The 2010 Senior Notes
were issued in four series as follows:

Series

Amount

Interest Rate

Maturity Date

E
F
G
H

$60 million
$72 million
$28 million
$85 million

4.72%
5.04%
5.42%
5.59%

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

We are required to pay the entire unpaid principal balances of each note series on its maturity date except
for Series B notes, which required annual principal payments of $8.0 million starting on May 7, 2011 and ending
on May 7, 2015. The Senior Notes require interest payments semi-annually and also include certain restrictive
covenants. As of September 30, 2014, we were in compliance with all financial covenants which include the
maintenance of consolidated net debt to consolidated EBITDA ratio and a fixed charge coverage ratio. The
issuance of the Senior Notes also required us to make certain covenants typical of unsecured facilities.

The following table presents the principal amounts, carrying amounts and fair values for the Senior Notes at

September 30, 2014 and 2013:

The 2008 Senior Notes
The 2010 Senior Notes

September 30, 2014

September 30, 2013

Principal

$202,000
$245,000

Carrying
Amounts

(In thousands)
$202,000
$245,000

Fair Value

Principal

$214,170 $210,000
$248,557 $245,000

Carrying
Amounts

(In thousands)
$210,000
$245,000

Fair Value

$221,393
$241,035

We measure the fair value of the Senior Notes based on Level 2 inputs, which include quoted market prices

and interest rate spreads of similar securities.

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

Year Ended September 30,

2015
2016
2017
2018
2019
Thereafter

Total

11. Employee Benefit Plans

Defined Contribution Plans

$ 71,000
60,000
72,000
131,000
28,000
85,000

$447,000

We sponsor the Fair Isaac Corporation 401(k) plan for eligible employees in the U.S. 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 $6.3 million, $6.3 million and $5.5
million during fiscal 2014, 2013 and 2012, respectively.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

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 $25.0 million, $10.5 million
and $17.4 million during fiscal 2014, 2013 and 2012, respectively.

12. Restructuring Expenses

During fiscal 2014 , we incurred net charges totaling $4.1 million consisting of $0.2 million in facilities

charges and $3.9 million in severance charges due to the elimination of 88 positions primarily in the U.S. Cash
payments for all the restructuring charges will be paid by the end of the second quarter of our fiscal 2015.

During fiscal 2013 , we incurred net charges totaling $2.5 million consisting of $1.6 million in facilities
charges associated with vacating excess leased space in Minnesota, $1.1 million in severance charges due to the
elimination of 52 positions primarily in the U.S., and a reversal of $0.2 million of previously recognized
severance costs due to favorable adjustments. Cash payments for all the severance costs were paid during fiscal
2013. Cash payments for all the facilities charges were paid by the end of our fiscal 2014.

During fiscal 2012, we incurred $4.0 million in severance charges due to the elimination of 85 positions
mainly within the product and technology organization of the Company. Cash payments for all the severance
costs were paid by the end of our fiscal 2013.

The following tables summarize 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.

Facilities charges
Employee separation

Less: current portion

Non-current

Facilities charges
Employee separation

Less: current portion

Non-current

Accrual at
September 30,
2012

$ 3,333
2,471

Expense
Additions

Cash
Payments

Expense
Reversals

$1,624
1,095

(In thousands)
$(3,225)
(3,313)

$ —

(253)

5,804

$2,719

$(6,538)

$(253)

(4,944)

860

Accrual at
September 30,
2013

$ 1,732
—

Expense
Additions

Cash
Payments

Expense
Reversals

$ 167
3,963

(In thousands)
$(1,807)

$—
(3,793) —

1,732

$4,130

$(5,600)

$—

(1,732)

$ —

Accrual at
September 30,
2013

$ 1,732
—

1,732

(1,732)

$ —

Accrual at
September 30,
2014

$ 92
170

262

(262)

$ —

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

13. Income Taxes

The provision for income taxes was as follows during fiscal 2014, 2013 and 2012:

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

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

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

Year ended September 30,

2014

2013

2012

(In thousands)

$ 42,570
4,221
7,487
54,278

$31,469
2,755
3,994
38,218

$42,502
4,899
3,959
51,360

(15,401)
(1,093)
468
(16,026)
$ 38,252

(468)
2,069
2,070
3,671
$41,889

(6,843)
(925)
647
(7,121)
$44,239

The foreign provision was based on foreign pretax earnings of $43.3 million, $24.3 million and $26.9

million in fiscal 2014, 2013 and 2012, respectively. Current foreign tax expense related to foreign tax
withholdings was $7.7 million, $4.8 million and $6.3 million in fiscal 2014, 2013 and 2012, respectively. Foreign
withholding tax and related foreign tax credits are included in federal current tax expense above.

Deferred tax assets and liabilities at September 30, 2014 and 2013 were as follows:

Deferred tax assets:

Net operating loss carryforward . . . . . . . . . . . . . . . . .
Research credit carryforward . . . . . . . . . . . . . . . . . . .
Accrued Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital loss carryforward . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued lease costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment
. . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax liabilities:

Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .

September 30,

2014

2013

(In thousands)

$ 18,618
5,018
8,484
519
1,059
1,381
20,238
629
1,007
2,837
4,212
64,002
(12,078)
51,924

(27,391)
(3,966)
(993)
(32,350)
$ 19,574

$ 21,529
4,074
3,591
165
1,101
1,662
16,443
2,139
1,127
2,155
3,502
57,488
(8,712)
48,776

(29,912)
(3,526)
(1,515)
(34,953)
$ 13,823

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

We believe, based upon the level of historical taxable income and projections for future taxable income over

the periods deferred tax assets will reverse, that it is more likely than not we will realize the benefits of deferred
tax assets, net of the existing valuation allowance, at September 30, 2014. The increase in our valuation
allowance for fiscal 2014 was due to the addition of Luxembourg Net Operating Loss (“NOL”), UK Capital
Allowances, as well as California Research & Development Credits. The remaining valuation allowance is
associated with operations where we have an NOL carryforward where realization remains uncertain.

As of September 30, 2014, we had available U.S. federal, state and foreign NOL carryforwards of
approximately $29.0 million, $0.3 million, and $36.3 million, respectively. The NOLs were acquired in
connection with our acquisitions of Braun in fiscal 2005, Adeptra and Entiera in fiscal 2012, Infoglide in fiscal
2013 and InfoCentricity in fiscal 2014. The change in NOL during fiscal 2014 was due to utilization of the UK
NOL and the inclusion of the Luxembourg entity’s NOL. The U.S. federal NOL carryforward will expire at
various dates beginning in fiscal 2024, if not utilized. The state NOL carryforward will begin to expire at various
dates beginning in fiscal 2021, if not utilized. The UK and Luxembourg NOL carryforwards do not have an
expiration date. 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, as amended, and similar state
provisions. We also have available excess California state research credit of approximately $5.0 million. The
California state research credit does not have an expiration date; however, based on enacted law and expected
future cash taxes, we have recorded a valuation allowance of $5.0 million.

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

shown below for fiscal 2014, 2013 and 2012:

Income tax provision at U.S. federal statutory rate . . . . . .
State income taxes, net of U.S. federal benefit
. . . . . . . . .
Foreign Tax Rate Differential
. . . . . . . . . . . . . . . . . . . . . .
Intercompany Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic production deduction . . . . . . . . . . . . . . . . . . . . .
Federal and State Audit Settlements . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended September 30,

2014

2013

2012

$46,595
2,832
(4,592)
(1,246)
(302)
(3,141)
(5,886)
(1,654)
3,888
150
1,608

(In thousands)
$46,194
2,689
(2,855)
—
(2,412)
(2,168)
—
—
2,310
(32)
(1,837)

$47,685
3,663
(3,616)
—
(375)
(3,054)
(1,203)
—
—
2,692
(1,553)

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

$38,252

$41,889

$44,239

The decrease in our effective tax rate in fiscal 2014 compared to fiscal 2013 was due primarily to the
favorable settlement of the fiscal 2010 — 2012 Federal IRS audits and secondly, due to a higher percentage of
revenue in lower taxing jurisdictions. The 2013 effective tax rate was positively impacted by the reenactment of
the U.S. Federal Research and Development Credit.

In fiscal 2014 and 2013, the foreign taxes consist of tax rate differentials, local country permanent items,

and prior years’ true ups.

In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S.

subsidiaries in those operations. As of September 30, 2014, the Company has not made a provision for U.S. or

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

additional foreign withholding taxes on approximately $49.9 million of the excess of the amount for financial
reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration.
Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain
other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in
these foreign subsidiaries.

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 a few exceptions, we are no longer subject to U.S. federal, state, local, or foreign income tax
examinations for fiscal years prior to 2012. We are currently under audit by the California Franchise Tax Board
for fiscal 2010 and 2011. We do not anticipate any adjustments related to those audits that will result in a
material change to our consolidated financial statements.

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

Gross unrecognized tax benefits at beginning of year . . . . . . . . . . . . . .
Gross increases for tax positions in prior years . . . . . . . . . . . . . . . . . . .
Gross decreases for tax positions in prior years . . . . . . . . . . . . . . . . . .
Gross increases based on tax positions related to the current year . . . .
Decreases for settlements and payments . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended September 30,

2014

2013

2012

$ 9,009
2,468
(967)
923
(6,879)

(In thousands)
$7,501
508
—
1,000
—

$ 9,539
64
(2,035)
681
(748)

Gross unrecognized tax benefits at end of year . . . . . . . . . . . . . . . . . . .

$ 4,554

$9,009

$ 7,501

We had $4.6 million of total unrecognized tax benefits as of September 30, 2014, including $3.9 million of

tax benefits that, if recognized, would impact the effective tax rate. Although the timing and outcome of audit
settlements are uncertain, it is reasonably possible that a $1.2 million reduction of the uncertain tax benefits will
occur in the next 12 months.

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 and comprehensive income. We recognize interest earned
related to income tax matters as interest income in our consolidated statements of income and comprehensive
income. As of September 30, 2014, we have accrued interest of $0.5 million related to the unrecognized tax
benefits.

14. Stock-Based Employee Benefit Plans

Description of Stock Option and Share Plans

We maintain the 2012 Long-Term Incentive Plan (the “2012 Plan”) under which we are authorized to issue
equity awards, including stock options, stock appreciation rights, restricted stock awards, stock unit awards and
other stock-based awards. All employees, consultants and advisors of FICO or any subsidiary, as well as all non-
employee directors are eligible to receive awards under the 2012 Plan. We also have two other long-term
incentive plans under which awards are currently outstanding: the 1992 Long-term Incentive Plan, which was
adopted in February 1992 and expired in February 2012, and the 2003 Employment Inducement Award Plan,
which was adopted in November 2003 and terminated in February 2012. Stock option awards granted after

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

September 30, 2005 have a maximum term of seven years, and stock option awards granted prior to October 1,
2005 had a maximum term of ten years. Stock option awards and restricted stock unit awards not subject to
market conditions vest ratably over three or four years. Restricted stock unit awards subject to market conditions
vest annually over a period of three years based on achievement of specified criteria. At September 30, 2014,
there were 4,124,273 shares available for issuance under the 2012 Plan.

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.
At September 30, 2014, there were 2,707,966 shares available for issuance.

We satisfy stock option exercises, vesting of restricted stock units and Purchase Plan issuances from

treasury shares.

Share-Based Compensation Expense and related income tax benefits

We recorded share-based compensation expense of $36.4 million, $25.9 million and $21.2 million in fiscal
years 2014, 2013 and 2012, respectively. The total tax benefit related to this share-based compensation expense
was $13.0 million, $9.2 million and $7.8 million in fiscal 2014, 2013 and 2012, respectively. As of
September 30, 2014, there was $65.1 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 2.32 years.

In fiscal 2014 we received $18.8 million in cash from stock option exercises, with the tax benefit realized

for the tax deductions from these exercises of $4.7 million.

Stock-Based Activity

Stock Options

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 2014, 2013 and 2012:

Year Ended September 30,

2014

2013

2012

Stock Options:

Average expected term (years)
Expected volatility (range)
Weighted average volatility
Risk-free interest rate (range)
Average expected dividend yield
Expected dividend yield (range)

4.04

4.31

35%

4.10
35-36% 35-37% 38-41%
40%
0.8-1.2% 0.5-1.1% 0.5-1.5%
0.3%
0.2%
0.2% 0.2-0.3%

0.2%
0.2%

37%

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

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.

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.

The following table summarizes option activity during fiscal 2014:

Outstanding at October 1, 2013
Granted
Exercised
Forfeited
Expired

Outstanding at September 30, 2014

Options exercisable at September 30, 2014

Vested and expected to vest at September 30, 2014

Weighted-
average
Exercise
Price

Weighted-
average
Remaining
Contractual
Term

Aggregate
Intrinsic Value

(In years)

(In thousands)

$35.48
53.82
33.91
41.30
35.37

$36.24

$33.28

$35.97

4.31

3.85

4.28

$39,436

$21,787

$38,090

(In thousands)
2,687
58
(583)
(68)
(5)

2,089

998

1,990

The weighted average fair value of options granted were $15.50, $12.53 and $12.32 during fiscal 2014,
2013 and 2012, respectively. The aggregate intrinsic value of options outstanding at September 30, 2014 was
calculated as the difference between the exercise price of the underlying options and the market price of our
common stock for the 2.1 million outstanding shares, which had exercise prices lower than the $55.10 market
price of our common stock at September 30, 2014. The total intrinsic value of options exercised was $13.8
million, $19.8 million and $31.2 million during fiscal 2014, 2013 and 2012, respectively, determined as of the
date of exercise.

Restricted Stock Units

The fair value of restricted stock units (“RSUs”) granted is the closing market price 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.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

The following table summarizes the RSUs activity during fiscal 2014:

Outstanding at October 1, 2013
Granted
Released
Forfeited

Outstanding at September 30, 2014

(In thousands)
1,424
640
(480)
(144)

1,440

Weighted-average
Grant-date Fair Value

$38.02
56.23
35.56
40.54

$46.68

The weighted average fair value of the RSUs granted were $56.23, $42.41 and $38.13 during fiscal 2014,
2013 and 2012, respectively. The total intrinsic value of the RSUs that vested was $27.6 million, $24.1 million
and $15.5 million during fiscal 2014, 2013 and 2012, respectively, determined as of the date of vesting.

Performance Stock Units

Performance share units (“PSUs”) are granted to our senior officers and earned based on pre-established
performance goals approved by the Leadership Development and Compensation Committee of our Board of
Directors for any given performance period. The range of payout is zero to 200% of the number of granted PSUs,
based on the outcome of the performance conditions. The fair value of the PSUs is the closing market price 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, based on the performance condition that is probable of achievement
that would result in the vesting of the most shares. The Company reassesses the probability at each reporting
period and recognizes the cumulative effect of the change in estimate in the period of change. As of
September 30, 2014, the performance condition of the PSUs granted during fiscal year 2014, as determined by
the Leadership Development and Compensation Committee, had been achieved at 200% of target value.

The following table summarizes the PSUs activity during fiscal 2014:

Outstanding at October 1, 2013
Granted
Released

Outstanding at September 30, 2014

(In thousands)
292
176
(87)

381

Weighted-average
Grant-date Fair Value

$38.96
56.63
38.64

$47.19

The weighted average fair value of the PSUs granted were $56.63, $41.56 and $36.66 during fiscal 2014,

2013 and 2012, respectively. The total intrinsic value of the PSUs that vested was $4.9 million and $2.6 million
during fiscal 2014 and 2013, respectively, determined as of the date of vesting.

Market Stock Units

In November 2013, the Leadership Development and Compensation Committee of our Board of Directors

granted 88,000 market share units (“MSUs”), a new performance based equity award, to our senior officers. The
MSUs will be earned based on our total shareholder return relative to the Russell 3000 Index over performance
periods of one, two and three years. The MSUs had a grant date fair value of $68.47 that was estimated using a
Monte Carlo valuation model and the following assumptions: expected volatility of 33.9% and 17.3%,

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

respectively, in FICO’s stock price and the Russell 3000 Index; a correlation of 68% between FICO and the
Russell 3000 Index; a dividend yield of 0.16% and a risk-free interest of 0.68%. The expected volatility was
determined based on daily historical movements in our stock price and the Russell 3000 index for the three years
preceding the grant date. The correlation between FICO and the Russell 3000 Index was determined based on
historical daily stock price movements for the three years preceding the grant date. The dividend yield was
determined using the historical dividend payout and a trailing twelve month closing stock price on the grant date.
The risk-free rate was determined based on U.S. Treasury zero-coupon yields over the three-year performance
period. We attribute the cost separately for each vesting tranche of the award. In addition, we do not reverse the
compensation cost solely because the market condition is not satisfied, and the award is therefore not exercisable
or retained by the employee, provided the requisite service is rendered. All 88,000 units were outstanding at
September 30, 2014.

15. Earnings Per Share

The following table presents reconciliations for the numerators and denominators of basic and diluted

earnings per share (“EPS”) during fiscal 2014, 2013 and 2012:

Numerator for basic and diluted earnings per share — net income

Denominator — share:

Basic weighted-average shares
Effect of dilutive securities

Diluted weighted-average shares

Earnings per share:

Basic

Diluted

Year Ended September 30,

2014

2013

2012

(In thousands, except per share data)
$92,004
$90,095
$94,879

33,870
994

34,864

35,332
960

36,292

34,909
1,154

36,063

2.80

2.72

2.55

2.48

2.64

2.55

The computation of diluted EPS excludes options to purchase approximately 11,000, 111,000, and
1,420,000 shares of common stock for fiscal 2014, 2013 and 2012, 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.

16. Related Party Transactions

We have a $10 million investment in convertible preferred stock of a private company. The company is
developing a range of products focused on revenue cycle activities for hospitals and healthcare providers. Related
party revenue was immaterial for the years ended September 30, 2014, 2013 and 2012. The accounts receivable
balance from this company was not significant as of September 30, 2014 and 2013.

17. Segment Information

We are organized into the following three reportable segments to align with internal management of our

worldwide business operations based on product offerings.

•

Applications. Our Applications products are pre-configured decision management applications and
associated professional services, designed for a specific type of business problem or process, such as
marketing, account origination, customer management, fraud and insurance claims management.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

•

Scores. This segment includes our business-to-business scoring solutions, our myFICO® solutions for
consumers 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.

Tools. The Tools segment is composed of software tools and associated professional services that
clients can use to create their own custom decision management applications.

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 broad-based
incentive expense, share-based compensation expense, restructuring and acquisition-related 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. We have recast certain prior period amounts within this note
to conform to the way we internally managed and monitored segment performance during the current fiscal year,
reflecting immaterial movements of business activities between segments and changes in cost allocations.

The following tables summarize segment information for fiscal 2014, 2013 and 2012:

Segment revenues:

Transactional and maintenance
Professional services
License

Total segment revenues

Segment operating expense

Year Ended September 30, 2014

Applications

Scores

Tools

(In thousands)

Unallocated
Corporate
Expenses

Total

$ 313,316
121,100
69,840

$178,023
2,784
5,662

$ 36,224
25,950
36,086

— $ 527,563
149,834
—
111,588
—

504,256
(334,762)

186,469
(44,187)

98,260
(94,057)

—

(101,551)

788,985
(574,557)

Segment operating income

$ 169,494

$142,282

$ 4,203

$(101,551) $ 214,428

Unallocated share-based compensation expense
Unallocated amortization expense
Unallocated restructuring and acquisition-related

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

Income before income taxes

(36,362)
(11,917)
(4,281)

161,868
(28,550)
(187)

$ 133,131

Depreciation expense

$ 14,451

851

$ 2,752

2,661

$ 20,715

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

Segment revenues:

Transactional and maintenance
Professional services
License

Total segment revenues

Segment operating expense

Year Ended September 30, 2013

Applications

Scores

Tools

(In thousands)

Unallocated
Corporate
Expenses

Total

$ 306,738
110,081
59,265

$175,281
4,012
1,520

$ 32,285
21,101
33,161

$ — $ 514,304
135,194
93,946

—
—

476,084
(334,953)

180,813
(50,546)

86,547
(67,078)

—
(86,403)

743,444
(538,980)

Segment operating income

$ 141,131

$130,267

$ 19,469

$(86,403)

204,464

Unallocated share-based compensation expense
Unallocated amortization expense
Unallocated restructuring and acquisition-related

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

Income before income taxes

(25,850)
(13,535)
(3,486)

161,593
(30,227)
618

$ 131,984

Depreciation expense

$ 14,171

867

$ 1,998

$ 2,643

$ 19,679

Segment revenues:

Transactional and maintenance
Professional services
License

Total segment revenues

Segment operating expense

Year Ended September 30, 2012

Applications

Scores

Tools

(In thousands)

Unallocated
Corporate
Expenses

Total

$ 263,726
104,637
56,241

$172,218
2,382
1,023

$ 30,231
17,952
28,013

$ — $ 466,175
124,971
85,277

—
—

424,604
(285,488)

175,623
(51,998)

76,196
(56,960)

—
(80,321)

676,423
(474,767)

Segment operating income

$ 139,116

$123,625

$ 19,236

$(80,321)

201,656

Unallocated share-based compensation expense
Unallocated amortization expense
Unallocated restructuring and acquisition-related

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

Income before income taxes

(21,229)
(6,944)
(5,125)

168,358
(31,417)
(698)

$ 136,243

Depreciation expense

$ 11,321

724

$ 1,258

$ 1,302

$ 14,605

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

Our revenues and percentage of revenues by reportable market segments were as follows for fiscal 2014,
2013 and 2012, the majority of which were derived from the sale of products and services within the banking
(including consumer credit) industry:

Applications
Scores
Tools

Total

Year Ended September 30,

2014

2013

2012

(Dollars in thousands)

$504,256
186,469
98,260

64% $476,084
24% 180,813
86,547
12%

64% $424,604
24% 175,623
76,196
12%

63%
26%
11%

$788,985

100% $743,444

100% $676,423

100%

Within our Applications segment our fraud solutions accounted for 23%, 22% and 25% of total revenues in
each of fiscal 2014, 2013 and 2012, respectively; our customer management solutions accounted for 10%, 11%
and 13% of total revenues, in each of these periods, respectively; and our collections & recovery solutions
accounted for 9%, 9% and 8% for each of these periods, respectively.

Our revenues and percentage of revenues on a geographical basis are summarized below for fiscal 2014,

2013 and 2012:

United States
United Kingdom
Other countries

Total

Year Ended September 30,

2014

2013

2012

(Dollars in thousands)

$457,270
98,784
232,931

58% $449,437
12%
79,238
30% 214,769

60% $410,178
11%
66,964
29% 199,281

61%
10%
29%

$788,985

100% $743,444

100% $676,423

100%

During fiscal 2014, 2013 and 2012, no individual customer accounted for 10% or more of our total
revenues; however, we derive a substantial portion of 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 15%, 16% and 18% of our total revenues in fiscal 2014, 2013 and 2012,
respectively. At September 30, 2014 and 2013, 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, 2014 and

2013. At September 30, 2014 and 2013, no individual country outside the U.S. accounted for 10% or more of
total consolidated net property and equipment.

United States
International

Total

September 30,

2014

2013

$29,276
7,401

(Dollars in thousands)
80% $39,737
5,418
20%

88%
12%

$36,677

100% $45,155

100%

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

18. Commitments

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

at September 30, 2014:

Year Ended September 30,

2015
2016
2017
2018
2019
Thereafter

Total

Future
Minimum
Lease
Commitments

(In thousands)
$21,666
18,544
15,158
13,427
11,702
11,097

$91,594

Lease Commitments

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 expense under operating leases, including month-to-month leases, totaled $19.4 million,
$22.1 million and $21.3 million during fiscal 2014, 2013 and 2012, 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.

19. 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 record litigation accruals for legal matters which are both probable and estimable. For legal proceedings
for which there is a reasonable possibility of loss (meaning those losses for which the likelihood is more than remote
but less than probable), we have determined we do not have material exposure on an aggregate basis.

20. 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

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

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.

21. 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, 2014. 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.

Revenues
Cost of revenues (2)

Gross profit

Net income

Earnings per share (1):

Basic

Diluted

Quarter Ended

September 30,
2014

June 30,
2014

March 31,
2014

December 31,
2013

(In thousands, except per share data)

$221,570
71,026

$197,610
62,752

$185,462
58,183

$184,343
57,319

150,544

134,858

127,279

127,024

$ 36,603

$ 20,548

$ 20,751

$ 16,977

1.14

1.10

0.60

0.58

0.60

0.59

0.49

0.47

Shares used in computing earnings per share:

Basic
Diluted

32,123
33,217

34,210
35,162

34,500
35,311

34,699
35,820

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2014, 2013 and 2012

Revenues
Cost of revenues (2)

Gross profit

Net income

Earnings per share (1):

Basic

Diluted

Quarter Ended

September 30,
2013

June 30,
2013

March 31,
2013

December 31,
2012

(In thousands, except per share data)

$190,327
56,809

$183,772
57,655

$179,325
58,856

$190,020
56,148

133,518

126,117

120,469

133,872

$ 28,557

$ 19,622

$ 18,495

$ 23,421

0.81

0.79

0.55

0.54

0.52

0.51

0.67

0.65

Shares used in computing earnings per share:

Basic
Diluted

35,132
36,151

35,499
36,385

35,664
36,492

35,043
36,151

(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 of $1.9 million, $1.9 million, $1.8 million, $1.8 million,
$1.7 million, $1.7 million, $1.7 million and $1.5 million for the quarters ended September 30, 2014,
June 30, 2014, March 31, 2014, December 31, 2013, September 30, 2013, June 30, 2013, March 31, 2013
and December 31, 2012, respectively.

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 CEO and CFO,
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 year ended September 30,
2014, 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 control 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, 2014.

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, 2014, 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 24, 2015.

Our current executive officers are as follows:

Name

William J. Lansing . . . . . . . . . . . .

Age

Positions Held

January 2012-present, Chief Executive Officer and member of the
Board of Directors of the Company. February 2009-November 2010,
Chief Executive Offer and President, Infospace, Inc. 2004-2007,
Chief Executive Officer and President, ValueVision Media, Inc.
2001-2003, General Partner, General Atlantic LLC. 2000-2001, Chief
Executive Officer, NBC Internet, Inc. 1998-2000, President/Chief
Executive Officer, Fingerhut Companies, Inc. 1996-1998, Vice
President, Corporate Business Development, General Electric
Company. 1996, Executive Vice President, Chief Operating Office,
Prodigy, Inc. 1986-1995, various positions, McKinsey & Company,
Inc.

Michael J. Pung . . . . . . . . . . . . . . . November 2010-present, Executive 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.

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.

Wayne Huyard . . . . . . . . . . . . . . . November 2014-present, Executive Vice President of Sales, Services,

and Marketing of the Company. January 2014-November 2014,
Consultant to the Chief Executive Officer of the Company. September
2012-November 2014, Chief Executive Officer and President,
TEXbase, Inc. March 2012-May 2012, General Manager of RightNow
Technologies, Oracle Corporation. July 2010-February 2012,
President and Chief Operating Officer, RightNow Technologies, Inc.
May 2006-May 2010, Operations and Advisory Group Executive
Leadership Team Member, Cerberus Capital Management L.P.

Name

Positions Held

Andrew N. Jennings . . . . . . . . . . . February 2011-present, Senior Vice President, Chief Analytics

Age

Officer of the Company. October 2007-February 2011, 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.

Michael S. Leonard . . . . . . . . . . . . November 2011-present, Vice President, Chief Accounting Officer of

the Company. November 2007-November 2011, Senior Director,
Finance of the Company. July 2000-November 2007, Director,
Finance of the Company. 1998-2000, Controller of Natural
Alternatives International, Inc. 1994-1998, various audit staff
positions at KPMG LLP.

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.

James M. Wehmann . . . . . . . . . . . April 2012-present, Executive Vice President, Scores of the

Company. November 2003-March 2012, Vice President/Senior Vice
President, Global Marketing, Digital River, Inc. March 2002-June
2003, Vice President, Marketing, Brylane, Inc. September 2000-
March 2002, Senior Vice President, Marketing, New Customer
Acquisition, Bank One. 1993-2000, various roles, including Senior
Vice President, Marketing, Fingerhut Companies, Inc.

Stuart C. Wells . . . . . . . . . . . . . . . April 2012-present, Executive Vice President, Chief Technology
Officer of the Company. June 2010- April 2012, Head of Global
Professional Services and Support of the Company (Consultant).
February 2009-June 2010, CEO, and Chairman of the Board,
ScaleMP. January 2007-January 2009, Senior Vice President and
President, Avaya, Inc. April 2005-December 2006, Executive Vice
President, Utility Computing, Sun Microsystems.

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 24, 2015.

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 audit committee 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 24, 2015.

Item 11. Executive Compensation

The information required by this Item is incorporated by reference from the information under the captions
“Director Compensation for 2014,” “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 24, 2015.

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 Plan
Information” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on
February 24, 2015.

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 24, 2015.

Item 14. Principal Accountant Fees and Services

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

“Ratification of Independent Registered Public Accounting Firm” in our definitive proxy statement for the
Annual Meeting of Stockholders to be held on February 24, 2015.

Item 15. Exhibits and Financial Statement Schedules

1. Consolidated Financial Statements:

PART IV

Reference Page
Form 10-K

Report of independent registered public accounting firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated balance sheets as of September 30, 2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated statements of income and comprehensive income for the years ended September 30,
2014, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated statements of stockholders’ equity for the years ended September 30, 2014, 2013

and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated statements of cash flows for the years ended September 30, 2014, 2013 and 2012 . .
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

55
56

58
59
60

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

10.1

10.2

10.3

10.4

10.5

10.6

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.)

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.)

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)

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)

Exhibit
Number

10.7

10.8

10.9

10.10

Description

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)

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)

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.
(Incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed on
February 10, 2012.) (1)

10.11*

Form of Amendment Management Agreement entered into with certain of the Company’s executive
officers. (1)

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

10.21

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)

Letter Agreement dated January 24, 2012 by and between the Company and William J. Lansing.
(Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on
January 26, 2012.) (1)

Letter Agreement dated February 6, 2012 by and between the Company and Michael Pung.
(Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on
February 10, 2012.) (1)

Letter Agreement dated February 6, 2012 by and between the Company and Mark Scadina.
(Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on
February 10, 2012.) (1)

Letter Agreement dated March 7, 2012 by and between the Company and James M. Wehmann.
(Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended
December 31, 2012.) (1)

Letter Agreement dated April 24, 2012 by and between the Company and Stuart C. Wells.
(Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended
December 31, 2012.) (1)

Fair Isaac Corporation 2012 Long-Term Incentive Plan (incorporated by reference to Appendix A of
the Company’s definitive proxy statement for the 2012 Annual Meeting of Stockholders, filed with the
SEC on January 4, 2012.) (1)

Form of Employee Non-Statutory Stock Option Agreement (U.S.) under the 2012 Long-Term
Incentive Plan. (Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the
quarter ended March 31, 2012.) (1)

Form of Employee Restricted Stock Unit Award Agreement (U.S.) under the 2012 Long-Term
Incentive Plan. (Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the
quarter ended March 31, 2012.) (1)

Form of Employee Non-Statutory Stock Option Agreement (International) under the 2012 Long-
Term Incentive Plan. (Incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q for the
quarter ended March 31, 2012.) (1)

Exhibit
Number

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

12.1*

21.1*

23.1*

31.1*

31.2*

32.1*

32.2*

Description

Form of Employee Restricted Stock Unit Award Agreement (International) under the 2012 Long-
Term Incentive Plan. (Incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q for
the quarter ended March 31, 2012.) (1)

Form of Director Non-Statutory Stock Option Agreement under the 2012 Long-Term Incentive Plan.
(Incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q for the quarter ended
March 31, 2012.) (1)

Form of Director Restricted Stock Unit Award Agreement under the 2012 Long-Term Incentive Plan.
(Incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q for the quarter ended
March 31, 2012.) (1)

Form of Performance Share Unit Award Agreement (fiscal 2012 grants) under the 2012 Long-Term
Incentive Plan. (Incorporated by reference to Exhibit 10.8 to the Company’s Form 10-Q for the
quarter ended March 31, 2012.) (1)

Form of Performance Share Unit Award Agreement (fiscal 2013 grants) under the 2012 Long-
Term Incentive Plan. (Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for
the quarter ended December 31, 2012.) (1)

Form of Performance Share Unit Award Agreement (fiscal 2014 grants) under the 2012 Long-
Term Incentive Plan. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for
the quarter ended December 31, 2013.) (1)

Form of Market Share Unit Agreement (fiscal 2014 grants) under the 2012 Long-Term Incentive
Plan. (Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter
ended December 31, 2013.) (1)

Credit Agreement dated September 27, 2011 among the Company, Wells Fargo Securities, LLC,
U.S. Bank National Association, and Wells Fargo Bank, National Association. (Incorporated by
reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the SEC on
September 30, 2011.)

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.

101.INS

XBRL Instance Document.

101.SCH

XBRL Taxonomy Extension Schema Document.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

(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
Executive Vice President
and Chief Financial Officer

DATE: November 10, 2014

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/ WILLIAM J. LANSING
William J. Lansing

/s/ MICHAEL J. PUNG
Michael J. Pung

/s/ MICHAEL S. LEONARD
Michael S. Leonard

/s/ A. GEORGE BATTLE
A. George Battle

/s/ GREG R. GIANFORTE
Greg R. Gianforte

/s/ BRADEN R. KELLY
Braden R. Kelly

/s/ JAMES D. KIRSNER
James D. Kirsner

/s/ RAHUL N. MERCHANT
Rahul N. Merchant

/s/ DAVID A. REY
David A. Rey

/s/ DUANE E. WHITE
Duane E. White

Chief Executive Officer
(Principal Executive Officer)
and Director

Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)

Vice President and
Chief Accounting Officer
(Principal Accounting Officer)

November 10, 2014

Director

November 10, 2014

Director

November 10, 2014

Director

November 10, 2014

Director

November 10, 2014

Director

November 10, 2014

Director

November 10, 2014

Director

November 10, 2014