Fair Isaac Corporation Annual Report 2017

FY2017 Annual Report · Fair Isaac Corporation

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FAIR ISAAC CORPORATION

2017 ANNUAL REPORT

FY2017 CEO Letter

Shareholders:

Fiscal 2017 was another strong year for FICO. Our revenues were a record-setting $932 million, up 6%
over fiscal 2016, our net income was $128 million (up 17%), and EPS was $3.98 (up 17%). Our
revenue and earnings growth are especially impressive given our movement to a cloud-first strategy
which results in less up-front revenue. Once again, we saw strong growth in both our Scores and
Software businesses.

Scores

The FICO® Score brand is stronger than it has ever been. American consumers continue to recognize
the FICO Score name, and an increasing number recognize it as the score lenders use. The continued
strong performance of our Scores business is the best evidence of the tremendous value the FICO
Score brings to billions of lending decisions each year.

A crucial part of our Scores work is addressing global issues around financial inclusion. Governments
worldwide are focused on bringing more than 3 billion adults into the credit mainstream. Credit scoring
is a very cost-effective way to do this, and we are applying new analytic techniques and new data
sources to make this happen, not only in emerging countries but in the world’s biggest credit market,
the United States. Our new FICO® Score XD analyzes alternative data to score 26 million Americans
who were previously unscorable.

As the independent and trusted leader of the credit scoring industry, we have a responsibility to ensure
that the system works well for consumers, lenders and the economy. This year, you will see us talking
about the need to expand credit responsibly. While helping people get credit, we need to protect the
soundness of lending decisions. I’m proud of the leadership stance FICO is taking.

Software

Several years ago, we made the important decision to move our software solutions to the cloud. Our
investment in this strategy is paying off as the financial services industry and others seek cloud
deployments of software at a faster adoption rate than anyone predicted.

Today, the majority of our software solutions are available through the FICO® Analytic Cloud, and
during fiscal 2017, we added Amazon Web Services as our primary cloud infrastructure provider. This
is enabling us to significantly build our recurring revenue base, which will mean more predictable,
profitable growth going forward.

For some software companies, the move to the cloud means a disruption of revenue and earnings
models. For FICO, this impact has been less dramatic for two reasons. First, our legacy revenue model
already includes significant recurring revenue. And second, our transition from license revenue to
cloud has been deliberately gradual. 2018 will be an inflection point for the cloud, and thanks to our
strategy we are ready for it.

As we pursue our cloud-first strategy, we also continue to add more advanced analytics to our
offerings. As our customers rush to embrace artificial intelligence and machine learning, FICO is
ready. In fact, FICO was a pioneer in AI when we put neural networks into FICO® Falcon® Fraud
Manager 25 years ago. In the last two years, we have introduced AI into our cybersecurity solutions,
our anti-money laundering solutions and more. Now we are integrating our groundbreaking IP into our
FICO® Analytics Workbench™, part of the FICO® Decision Management Platform we have built over
the last four years.

Investments

As in previous years, we pursued a balanced investment strategy in fiscal 2017. With a record
$205 million in free cash flow, we retired 1.5 million shares through our buyback program, bringing
shares outstanding below 30 million. In addition to our investment in R&D and product development,
we made a significant investment in our cybersecurity, including bringing onboard a new Chief
Information Security Officer.

As a company, we have never been better positioned. For years, we have believed that analytics-based
decision management would take hold the way ERP systems did in the 1990s, or CRM systems after
that. Today, the true value of advanced analytics is being recognized by all industries. Increasingly,
businesses are realizing the importance of applying analytics to decisions every day.

We have invested in analytics, invested in cloud, and invested in the people who know how to make an
incredibly complicated discipline work for our customers. We are still in the early stages of a new era
for FICO, an era when we reach new markets and provide our analytic expertise to customers eager to
make more informed decisions.

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, 2017

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

Accelerated Filer
Smaller Reporting Company
Emerging Growth Company

‘
‘
‘

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for

complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘

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, 2017, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was
$2,637,371,198 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 27, 2017 was 29,990,221 (excluding 58,866,562 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 28, 2018.

[THIS PAGE INTENTIONALLY LEFT BLANK]

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TABLE OF CONTENTS

PART I

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

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

Item 5.

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

PART II

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

Item 10.
Item 11.
Item 12.

Item 13.
Item 14.

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

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PART IV

Item 15.
Signatures

Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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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. 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 2018.

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, solutions 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, automotive companies, 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. References to our website addresses in this report are provided as a
convenience and do not constitute an incorporation by reference. 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 their enterprise, an

approach we commonly refer to as decision management. Most of our solutions address customer engagement,
including customer acquisition, customer onboarding, customer servicing and management, and customer
protection. We also help businesses improve non-customer 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 business-
to-consumer scoring solutions and services including 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.

• Decision Management Software. 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 Suite, as well as associated professional services. These tools are
available to our customers as on-premises software or through the FICO® Analytic Cloud.

Segment revenues, operating income and related financial information for fiscal 2017, 2016 and 2015 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 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 transaction profiling that bring extensive consumer information to every

decision.

•

Software such as decision 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® Decision Management Platform and FICO® Decision Management Suite, 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, which apply analytics, data management

and decision management software to specific business challenges and processes. Our applications primarily
serve clients in the banking, insurance, telecommunications, healthcare, retail and public sectors. During fiscal
2017, we continued to expand our product offerings for the FICO® Analytic Cloud, resulting in increased sales
opportunities by accommodating small to mid-size businesses that benefit from the affordability and simplicity
of cloud-based solutions. Within our Applications segment, our fraud solutions accounted for 19%, 20% and
23% of total revenues in each of fiscal 2017, 2016 and 2015, respectively; our customer communication services
accounted for 10%, 9% and 8% of total revenues for each of these periods, respectively; and our customer
management solutions accounted for 8%, 9% and 9% of total revenues in 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, alternative peer-to-peer and
online lenders, auto 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, available both on premises and in the FICO® Analytic 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 for their existing customers. These solutions help businesses apply advanced analytics in account
and customer decisions to increase portfolio revenue, decrease risk exposure and losses, and reduce customer
attrition, while improving operational efficiencies.

We provide customer strategy management solutions for banking, telecommunications and retail. Our
primary account and customer strategy management product is FICO® TRIAD® Customer Manager, a leading
credit management system, available both on premises and in the FICO® Analytic Cloud. The solution is an
adaptive control system, which enables businesses to rapidly adapt to changing business and internal conditions
by designing and testing new strategies in a “champion/challenger” environment. 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 FICO® 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 two of the largest
processors in the U.S.

Fraud and Security 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; 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 the FICO® Falcon® Platform, recognized as a leader in global

payment card fraud detection. The Falcon® Platform examines transaction, cardholder, account, customer, device
and merchant data to detect a wide range of payment card fraud quickly and accurately utilizing artificial
intelligence technology. It analyzes payment transactions in real time, assesses the risk of fraud in a fraud score,
and provides the ability for user-defined variables and rules strategies to be used in conjunction with the fraud
score to prevent fraud while expediting legitimate transactions. Adaptive analytics, a form of self-learning
models, can also be employed to accelerate our customers’ response to evolving fraud tactics.

FICO® Fraud Predictor with Merchant Profiles is used in conjunction with the Falcon® Platform to improve

fraud detection rates through the inclusion of merchant profiles, which is especially important for online
transactions. 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 our Falcon products, we offer a wide range of solutions focused on preventing and detecting a

variety of financial crimes. FICO® Application Fraud Manager helps businesses prevent both first- and third-
party fraud during the application process. By preventing fraud prior to account origination we help our
customers avoid future losses as well as unnecessary collections costs. Separately, the FICO® Card Alert Service
prevents ATM debit fraud by identifying counterfeit payment cards and reporting 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 unusual 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.

FICO offers a comprehensive modular set of compliance solutions to fight money-laundering, terrorist
financing, and to fulfill custom requirements for governance, risk and compliance. These solutions are based on
the acquisition of TONBELLER Aktiengesellschaft (“TONBELLER”) combined with FICO’s legacy fraud
analytics, such as those used in the FICO® Falcon® Platform.

FICO’s cybersecurity products utilize predictive analytics to deliver enterprise-level risk assessments as

well as prioritization of tactical cyber threat response. The FICO® Enterprise Security Score provides an
empirically derived score that conveys the security posture of an organization and the likelihood of a material
data breach in the next 12 months. The score is used to manage the cyber risk of an enterprise as well as risks
introduced by trusted business partners. Separately, FICO® Falcon® Cybersecurity Analytics utilizes advanced
streaming self-learning models to help organizations detect and remediate cyber attacks by reducing the dwell
time between when an attack occurs and when it is recognized. These products can be used independently or
together as part of a comprehensive cyber risk management program.

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 service facilitates control over the
distribution and management of accounts to agencies, attorneys, debt buyers and internal recovery departments.
FICO Debt Management Solutions also include assessments, models and scores, predictive analytics, advanced
customer engagement, optimization and speech analytics capabilities. FICO® Debt Manager™ is available both
on premises and in the FICO® Analytic Cloud.

Customer Communication Services

FICO® Customer Communication Services provide 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.

Analytic Services

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.

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; to evaluate applicants for
new credit; and to 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, Experian, TransUnion
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 several specific FICO® Industry Scores. We also develop various custom scores for our
financial services clients. The FICO® Score XD expands the scorable population using alternative credit data.
FICO® Score XD looks at public records and property data, and a consumer’s history with mobile, landline
phone and cable payments, to generate scores on the same 300-850 scale as standard FICO® Scores. FICO®
Score XD is available to lenders from LexisNexis Risk Solutions and Equifax.

Outside the U.S., we offer the FICO® Score for consumers, and in some cases for small and medium
enterprises, through credit reporting agencies in 16 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 20 different countries across five 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.

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

They are distributed directly by us through our myFICO® service and through licensed distribution partners,
including Experian and certain lenders, for use in customer and noncustomer programs.

The myFICO® products and subscription offerings are available online at www.myfico.com. 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. We
make available the 28 most widely used versions of the FICO® Score from the three major U.S. credit bureaus
through our myFICO® service, representing approximately 95% of all FICO® Scores sold and used by lenders.
Customers can use products to simulate how taking specific actions would affect their FICO® Score. Consumers
can also subscribe to monitoring services, which deliver alerts via email and text when changes to a user’s
FICO® Scores or other credit report content are detected. In addition, consumers can purchase identity theft
monitoring products that alert consumers of potential risks of identity fraud with comprehensive detection and
identity restoration services.

Decision Management Software

We provide analytic and decision management platforms and tools that businesses use to build their own
tailored, analytically powered decision management applications on-premises, within the FICO® Analytic Cloud
or via third-party cloud environments such as Amazon Web Services. In contrast to our packaged applications
developed for specific industry solutions, our tools platform adds scalable and flexible decision management
capabilities to virtually any application or operational system. These tools are sold as licensed software, and can
be used standalone, or in conjunction with third-party solutions to advance a client’s decision management
initiatives. We use these tools as common software components for our own decision management solutions,
described above in the Applications section. They are also key components of our decision management
architecture. 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 2017, FICO continued to enhance the FICO® Decision Management Suite, a collection of
tools for building, extending, deploying and scaling applications and solutions. The Decision Management Suite
includes the FICO® Decision Management Platform, along with capabilities for building and customizing
predictive analytic, decisioning, and optimization components and services; developing, orchestrating and
publishing analytics-powered applications; and visualizing, analyzing and reporting data trends. The FICO®
Decision Management Suite is available in the FICO® Analytic Cloud and on-premises; businesses can choose
either or both deployments depending on their specific needs, IT environments and other factors. Recent
upgrades and enhancements to the functionality in the suite include:

•

FICO® Decision Management Platform, the fundamental backbone of the Suite, which dramatically
improves performance, data interchange, model tracking and user collaboration;

FICO® Decision Management Streaming (formerly known as Data Management Integration Platform),
which improves scale, performance and versatility; and

FICO® Decision Central™ (formerly known as Model Central), an analytic and decision model
management tool, which expands its versatility and usability across a much broader range of
implementations and use cases.

The FICO® Decision Management Suite combines 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. It also empowers business analysts and
other domain experts to modify systems in real time without IT involvement, providing organizations with the
agility they need to rapidly respond to customer, regulatory and business changes.

The principal products offered are software tools for:

• Rules Management. The FICO® Blaze Advisor® decision 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 service-oriented architecture, Java 2 Enterprise Edition 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 decision rules. FICO’s solution for rules management in the
cloud is called FICO® Decision Modeler.

• Predictive Modeling. FICO® Decision Central™ is a comprehensive offering to help banks and other
organizations, including insurance, retail and health care companies, maximize the power of their
predictive and decision 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. 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. FICO’s solution set for predictive modeling in
the cloud is called FICO® Analytic Modeler.

• 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.
FICO’s solution for executing optimization services in the cloud is called FICO® Optimization
Modeler.

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 and customer relationship management packaged solutions providers;

business intelligence solutions providers;

•

business process management and decision 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’ 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, OptumInsight, 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 other direct to consumer credit and identity services.

Decision Management Software

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 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 nine of 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 seven of the world’s top ten
pharmaceuticals companies. All of the top ten companies on the 2017 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 2017, 2016 and 2015,
revenues generated from our agreements with Experian, TransUnion and Equifax collectively accounted for 20%,
19% and 16% 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 more than 100 countries.

Revenues from international customers, including end users and resellers, amounted to 36%, 36% and 40%
of our total revenues in fiscal 2017, 2016 and 2015, 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.

We are widely recognized as a leader in predictive analytics due to our pioneering work in credit scoring
and fraud detection. 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 2017, we continued to make progress with our FICO® Analytic Cloud and FICO® Decision
Management Platform initiatives. We have made many of our software solutions, which were previously
available only as on-premises software installations, into SaaS solutions hosted on our cloud. The FICO®
Decision Management Suite enables 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.

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.

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. Recent innovations include a solution that can integrate multiple data sources in real time and
make them available for analysis and decisions.

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 decision 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.

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. 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.

Cybersecurity. We continue to seek projects in the cybersecurity and security information and event
management 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 the FICO® Falcon® Platform, and new methods we believe to be unique approaches for detecting
certain types of cyber security threats.

Research and Development Activities

Our research and development expenses were $110.9 million, $103.7 million and $98.8 million in fiscal

2017, 2016 and 2015, 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 166 U.S. and 17 foreign patents with 86 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, 2017, we employed 3,299 persons worldwide. Of these, 169 full-time employees were

located in our San Jose, California office, 366 full-time employees were located in our San Diego, California
office, 187 full-time employees were located in our San Rafael, California office, 186 full-time employees were
located in our Roseville, Minnesota office, 130 full-time employees were located in our Fairfax, Virginia office,
786 full-time employees were located in our India-based offices and 344 full-time employees were located in our
United Kingdom-based offices. None of our employees are covered by a collective bargaining agreement other
than to the extent mandated by applicable law in certain foreign jurisdictions, and no work stoppages have been
experienced.

Information regarding our executive officers is included in Item 10, Directors, Executive Officers and

Corporate Governance, of this Annual Report on Form 10-K.

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. Our DM strategy is also increasingly
focused on the delivery of our products through cloud-based deployments. The market may be unreceptive to our
general DM business approach, including being unreceptive to purchasing multiple products from us, unreceptive
to our customized solutions, or unreceptive to our cloud-based offerings. As we continue to pursue our DM
strategy, we may experience volatility in our revenues and operating results caused by various factors, including
differences in revenue recognition treatment between our cloud-based offerings and on-premise software
licenses, the timing of investments and other expenditures necessary to develop and operate our cloud-based
offerings, and the adoption of new sales and delivery methods. 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 communication
services, customer management solutions and decision management software 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 successfully adopt cloud-based technologies;

•

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, including the development and sale of our cloud-based product offerings. 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 or certain client or other systems. 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. Many of our customers are significantly larger than
we are and may have greater bargaining power. 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, telecommunications providers, 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 (“E.U.”) 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, Experian, TransUnion and Equifax, 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 (including credit card processors), 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, Experian,
TransUnion and Equifax. 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, Experian, TransUnion and Equifax 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 acquired
operations 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 by 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 or customer 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, and to adopt and configure cloud-based deployments, 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 customer 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., and from the U.S. and other countries to work abroad. 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.

Our business requires that we 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 privacy concerns, competition concerns, prohibitions or a lack of permission from their customers or
partners, 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 and other intellectual property 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 systems 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
distributors, 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, cause
regulatory or industry changes that impact our products and services, or subject us to third-party lawsuits,
regulatory fines or other action or liability, all of which could materially and adversely affect our business and
operating results.

Protection from system interruptions is important to our business. If we experience system interruptions, it
could harm our business.

Systems or network interruptions, including interruptions experienced in connection with our cloud-based
and other product offerings, 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 software or hardware malfunctions, communication failures, outages or other failures of
third party environments or service providers, 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
technologies, cloud-based technologies 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, customer relationship management, and customer communication and
mobility solution providers;

business intelligence solutions providers;

credit report and credit score providers;

•

business process management and decision rules management 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;

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

cloud-based customer engagement and risk management solutions providers.

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; biometric measures on devices including fingerprint and
face matching; and other card authorization techniques and user verification 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, Experian, TransUnion and Equifax 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.

Laws and regulations in the U.S. and abroad 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 products and services, it could adversely affect our business and results of operations. New
legislation or regulations, or changes to existing laws and regulations, may also negatively impact our
business and increase our costs of doing business.

Laws 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. Laws 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. Laws and regulations that may affect our
business and our current and prospective customers’ activities include, but are not limited to, those in the
following significant regulatory areas:

• Use of data by creditors and consumer reporting agencies (e.g., the U.S. Fair Credit Reporting Act);

• Laws and regulations that limit the use of credit scoring models (e.g., state “mortgage trigger” or

“inquiries” laws, state insurance restrictions on the use of credit-based insurance scores, and the E.U.
Consumer Credit Directive);

•

Fair lending laws (e.g., the U.S. Truth In Lending Act and Regulation Z, the Equal Credit Opportunity
Act and Regulation B, and the Fair Housing Act);

Privacy and security laws and regulations that limit the use and disclosure of personally identifiable
information, require security procedures, or otherwise apply to the collection, processing, storage, use
and transmission of protected data (e.g., the U.S. Financial Services Modernization Act of 1999, also
known as the Gramm Leach Bliley Act; the E.U. Data Protection Directive and the country-specific
regulations that implement that directive; the U.S. Health Insurance Portability and Accountability Act
of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act; the
Cybersecurity Act of 2015; the U.S. Department of Commerce’s National Institute of Standards and
Technology’s Cybersecurity Framework; and 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 non-governmental VISA and MasterCard electronic payment standards;

• Regulations and guidelines applicable to secondary market participants (e.g., Fannie Mae and Freddie

Mac) that could have an impact on our products;

• Laws and regulations applicable to our customer communication clients and their use of our products
and services (e.g., the Telemarketing Sales Rule, Telephone Consumer Protection Act and regulations
promulgated thereunder);

• 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 implementing regulations (e.g.,
the Consumer Financial Protection Act, the Federal Trade Commission Act, the Fair Debt Collection
Practices Act, the Servicemembers Civil Relief Act, the Military Lending Act, and the Credit Repair
Organizations Act);

• Laws and regulations governing the use of the Internet and social media, telemarketing, advertising,

endorsements and testimonials;

• Anti-bribery and corruption laws and regulations (e.g., the Foreign Corrupt Practices Act);

•

Financial regulatory standards (e.g., Sarbanes-Oxley Act requirements to maintain and verify internal
process controls, including controls for material event awareness and notification);

• Regulatory requirements for managing third parties (e.g., vendors, contractors, suppliers and

distributors);

• Anti-money laundering laws and regulations (e.g., the Bank Secrecy Act and the USA Patriot Act);

•

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; and

• Laws and regulations regarding export controls as they apply to FICO products delivered in non-U.S.

countries.

In addition, many U.S. and foreign jurisdictions have passed, or are currently contemplating, a variety of
consumer protection, privacy, and data security laws and regulations that may relate to our business or affect the
demand for our products and services. For example, on April 14, 2016, the European Parliament formally
adopted the General Data Protection Regulation (the “GDPR”), which will supersede the existing Data Protection

Directive of 95/46/EC in 2018. The GDPR imposes more stringent operational requirements for entities
processing personal information and greater penalties for noncompliance. The costs and other burdens of
compliance with privacy and data security laws and regulations could negatively impact the use and adoption of
our solutions and reduce overall demand for them. Additionally, concerns regarding data privacy may cause our
customers, or their customers and potential customers, to resist providing the data necessary to allow us to
deliver our solutions effectively. Even the perception that the privacy of personal information is not satisfactorily
protected or does not meet regulatory requirements could inhibit sales of our solutions and any failure to comply
with such laws and regulations could lead to significant fines, penalties or other liabilities. Any such decrease in
demand or incurred fines, penalties or other liabilities could have a material adverse effect on our business,
results of operations, and financial condition.

In addition to existing laws and regulations, changes in the U.S. or foreign legislative, judicial, regulatory or

consumer environments could harm our business, financial condition or results of operations. The laws and
regulations above, and changes to them, could affect the demand for or profitability of our products, including
scoring and consumer products. New laws and regulations pertaining to our customers could cause them to
pursue new strategies, reducing the demand for our products.

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 2017, 76% 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 slow 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.

Risks 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.

For example, on June 23, 2016, the United Kingdom (“U.K.”) held a referendum in which voters approved
an exit from the E.U., commonly referred to as “Brexit.” As a result of the referendum, on March 29, 2017, the
U.K. triggered Article 50 of the Lisbon Treaty formally starting negotiations regarding its exit from the E.U. The
U.K. has two years to complete these negotiations, and the future relationship between the U.K. and the E.U.
remains unknown. Brexit has caused, and may continue to create, volatility in global stock markets and regional
and global economic uncertainty, which may cause our customers to closely monitor their costs and reduce their
spending budget on our products and services.

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 2017, 36% 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 55,000 square feet of office space in San Jose, California in one building under a lease
expiring in fiscal 2024; 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 96,000 square feet of office and data center in Roseville and Brooklyn Park, Minnesota,
in two buildings under leases expiring in fiscal 2018 and 2023, respectively; 16,000 square feet of this
space is subleased to a third party; this is used for all of our segments; and

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 Decision Management Software segments.

In addition, we lease an aggregate of approximately 306,000 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 October 27, 2017, we had 366 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 2016
October 1 — December 31, 2015
January 1 — March 31, 2016
April 1 — June 30, 2016
July 1 — September 30, 2016

Fiscal 2017
October 1 — December 31, 2016
January 1 — March 31, 2017
April 1 — June 30, 2017
July 1 — September 30, 2017

High

Low

$ 97.00
$106.64
$115.87
$132.95

$126.00
$133.14
$140.64
$147.02

$ 78.11
$ 80.20
$102.77
$111.73

$109.77
$118.95
$125.71
$131.52

Dividends

We paid dividends of $0.02 per share on a quarterly basis during each of fiscal 2015 and 2016, and the first

and second quarters of our fiscal 2017. In May 2017, our Board of Directors discontinued cash dividend
payments in favor of using our excess cash flow for share repurchases.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Issuer Purchases of Equity Securities

Period

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

Total Number
of Shares
Purchased (1)

Average
Price Paid
per Share

July 1, 2017 through July 31, 2017
August 1, 2017 through August 31, 2017
September 1, 2017 through September 30, 2017

145,429
110,828
270,142

$141.15
$139.56
$139.50

140,000
110,000
270,000

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

$89,727,312
$74,375,781
$36,711,201

Total

526,399

$139.97

520,000

$36,711,201

(1)

(2)

Includes 6,399 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, 2017.
In July 2016, our Board of Directors approved a stock repurchase program following the completion of our
previous program. This program was open-ended and authorized repurchases of shares of our common stock
up to an aggregate cost of $250.0 million in the open market or in negotiated transactions. In October 2017,
our Board of Directors approved a new stock repurchase program following the completion of the July 2016
program. 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,
2012, in (a) the Company’s Common Stock, (b) the Standard & Poor’s 500 Stock Index and (c) the Standard &
Poor’s 500 Application Software Index, in each case with reinvestment of dividends. We do not believe there are
any publicly traded companies that compete with us across the full spectrum of our product and service offerings.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among FICO, the S&P 500 Index
and the S&P Application Software Index

$350

$300

$250

$200

$150

$100

$50

9/12

9/13

9/14

9/15

9/16

9/17

FICO

S&P 500

S&P Application Software

*$100 invested on 9/30/12 in stock or index, including reinvestment of dividends.
Fiscal year ending September 30.

Item 6. Selected Financial Data

We acquired CR Software, LLC. (“CR Software”) in November 2012, Infoglide Software, Inc. (“Infoglide”)

in April 2013, InfoCentricity, Inc. (“InfoCentricity”) in April 2014, TONBELLER in January 2015, and
QuadMetrics in May 2016. 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,

2017 (1)

2016

2015 (1)

2014 (1)

2013 (1)

$932,169
177,200
128,256
4.16
3.98
0.04

(In thousands, except per share data)
$788,985
$838,781
$881,356
161,868
137,505
169,592
94,879
86,502
109,448
2.80
2.75
3.52
2.72
2.65
3.39
0.08
0.08
0.08

$743,444
161,593
90,095
2.55
2.48
0.08

September 30,

2017

2016

2015

2014

2013

$ (15,724) $
1,255,620
244,000
361,000
426,537

21,561
1,220,676
316,000
255,000
446,828

(In thousands)
42,727
$
1,230,163
376,000
232,000
436,998

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

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

(1) Results of operations for fiscal years 2017, 2015, 2014 and 2013 include pre-tax charges of $4.5 million,

$18.2 million, $4.3 million and $3.5 million, respectively, in restructuring and acquisition-related expenses.

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

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 strategies and initiatives,
financial 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 Item 1A, Risk Factors, in this Annual
Report on Form 10-K.

BUSINESS OVERVIEW

Strategies and Initiatives

During fiscal 2017, our growth initiatives continued to generate significant free cash flow. We utilized our
cash to enhance shareholder value through investments in long-term growth initiatives and our share repurchase
programs.

While we continued to offer on-premise solutions for many customers who prefer to install and run our
software in-house, we continued our expansion into cloud-based solutions in our Applications and Decision
Management Software segments to provide growth opportunities with customers that can benefit from the
affordability and simplicity of these solutions. The majority of our software solutions are available through the
FICO® Analytic Cloud, and during fiscal 2017, we added Amazon Web Services, Inc. (“AWS”) as our primary
cloud infrastructure provider. We have migrated several core applications, including the Decision Management
Suite, to AWS and will migrate additional applications over the next three years. Our cloud bookings accounted
for 24% and 26% of our total bookings during fiscal 2017 and 2016, respectively, directly demonstrating the
willingness among our customers to engage our cloud-based solutions.

For our Scores segment, our industry leading business-to-business FICO® Scores expanded further into the

larger, faster growing U.S. consumer market. The FICO® Score Open Access program, which allows our
participating clients to provide their customers with a free FICO® Score along with content to help them
understand the FICO® Score their lender uses, continued its expansion during the current year. We commenced
this program in 2014 and now have more than 250 million consumer accounts with access to their free FICO®
Score. The partnership agreement we launched in fiscal 2015 with Experian, a leading global information
services provider, also continued to accelerate during the current year. This partnership provides consumers the
FICO® Score that lenders most commonly use in evaluating credit when determining applicant eligibility for new
credit cards, car loans, mortgages or other lines of credit and can be accessed through Experian.com. During
fiscal 2017, we announced the FICO Financial Inclusion Initiative, a global effort to increase access to affordable
credit for consumers and businesses with limited or no credit history, through the use of alternative data. We
continue to pursue additional partners to distribute FICO® Scores with their product offerings sold directly to
consumers. In addition, we are pursuing opportunities to make FICO® Scores available to third-parties for
affinity, white-labeled programs to further penetrate and expand the markets where our scores are available.

We also returned significant cash to shareholders through our stock repurchase program. During fiscal 2017,

we repurchased approximately 1.5 million shares at a total repurchase price of $193.3 million. As of
September 30, 2017, we had $36.7 million remaining under our then-current stock repurchase program.

Overview of Financial Results

Total revenues for fiscal 2017 were $932.2 million, an increase of 6% from $881.4 million in fiscal 2016.
Revenue in each of our segments increased, with our Scores segment the primary driver increasing by 10% in
fiscal 2017 compared to fiscal 2016. Our Applications and Decision Management Software segments increased
by 4% and 5% in fiscal 2017 compared to fiscal 2016, respectively. We derive a significant portion of revenues
internationally, and 36% of total consolidated revenues were derived from clients outside the U.S. during each of
fiscal 2017 and 2016. 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 72% of our revenues were derived from
within this industry during fiscal 2017 and 2016, respectively. In addition, we derive a significant share of
revenues from transactional or unit-based software license fees, transactional fees derived under credit scoring,
data processing, data management and SaaS subscription services arrangements, and annual software
maintenance fees. Arrangements with transactional or unit-based pricing accounted for 70% and 69% of our
revenues during fiscal 2017 and 2016, respectively. Revenue fluctuations in our business are primarily driven by
changes in the transactional volume and license fees.

Operating income for fiscal 2017 was $177.2 million, an increase of 4% from $169.6 million in fiscal 2016.

Operating margin was 19% for each of fiscal 2017 and 2016. Net income increased 17% to $128.3 million in
fiscal 2017 from $109.4 million in fiscal 2016 and net margin increased to 14% from 12%. The increases were
primarily driven by our adoption of ASU No. 2016-09, “Compensation — Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), effective October 1, 2016, as
further described in Notes 1 and 13 to the accompanying consolidated financial statements. Diluted earnings per
share for fiscal 2017 was $3.98, an increase of 17% from $3.39 in fiscal 2016.

Bookings

Management regards the volume of bookings achieved as an important indicator of future revenues, but they
are not comparable to nor a substitute for an analysis of our revenues. Bookings represent contracts signed in the
current reporting period that generate current and future revenue streams. We estimate bookings as of the end of
the period in which a contract is signed and initial booking estimates are not updated in future periods for
changes between estimated and actual results. Our calculations have varying degrees of certainty depending on
the revenue type and individual contract terms. They are subject to a number of risks and uncertainties
concerning timing and contingencies affecting product delivery and performance, and estimates consider contract
terms, knowledge of the marketplace and experience with our customers, among other factors. Actual revenue
and the timing thereof could differ materially from our initial estimates.

Although many of our contracts contain non-cancelable terms, most of our bookings are transactional or
service related that depend 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. The following paragraphs discuss the key assumptions used to calculate
bookings and the susceptibility of these assumptions to variability for each revenue type.

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 estimates of 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 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.

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, 2017

Quarter ended September 30, 2016

Year ended September 30, 2017

Year ended September 30, 2016

Number of
Bookings
over $1
Million

Bookings
Yield (1)

16%

20%

36%

40%

Weighted-
Average
Term (2)

(months)
29

NM(a)

Bookings

(In millions)
$145.9

$ 80.3

$429.0

$378.0

(1) Bookings yield represents the percentage of revenue recognized from bookings for the periods indicated.
(2) Weighted-average term of bookings measures the average term over which bookings are expected to be

recognized as revenue.

(a) 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 41% and 35% of total bookings for the years ended

September 30, 2017 and 2016, respectively. Professional services bookings were 43% and 45% of total bookings
for the years ended September 30, 2017 and 2016, respectively. License bookings were 16% and 20% of total
bookings for the years ended September 30, 2017 and 2016, respectively.

RESULTS OF OPERATIONS

We are organized into the following three reportable segments: Applications, Scores and Decision
Management Software. 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. Segment
revenues, operating income, and related financial information for the years ended September 30, 2017, 2016 and
2015 are set forth in Note 17 to the accompanying consolidated financial statements.

Revenues

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

fiscal 2017, 2016 and 2015:

Segment

2017

2016

2015

Revenues
Year Ended September 30,

Period-to-Period Change

2017 to
2016

2016 to
2015

(In thousands)

Applications
Scores
Decision Management Software

$553,167
266,354
112,648

(In thousands)
$532,642
241,059
107,655

$526,274
207,007
105,500

$20,525
25,295
4,993

$ 6,368
34,052
2,155

Total

$932,169

$881,356

$838,781

50,813

42,575

Period-to-Period
Percentage Change

2017 to
2016

2016 to
2015

4%
10%
5%

1%
16%
2%

Segment

Applications
Scores
Decision Management Software

Total

Applications

Percentage of Revenues
Year Ended September 30,

2017

2016

2015

59%
29%
12%

61%
27%
12%

63%
25%
12%

100% 100% 100%

Year Ended September 30,

Period-to-Period Change

2017

2016

2015

2017 to
2016

2016 to
2015

(In thousands)

Transactional and maintenance
Professional services
License

$348,861
141,857
62,449

(In thousands)
$328,472
138,775
65,395

$320,596
124,562
81,116

$20,389
3,082
(2,946)

$ 7,876
14,213
(15,721)

Total

$553,167

$532,642

$526,274

20,525

6,368

Period-to-Period
Percentage Change

2017 to
2016

2016 to
2015

6%
2%
(5)%

2%
11%
(19)%

Applications segment revenues increased $20.5 million in fiscal 2017 from 2016 primarily due to a

$10.9 million increase in our originations solutions and a $10.5 million increase in our customer communication
services. The increase in originations solutions was primarily attributable to an increase in services and
transactional revenues from our SaaS products. The increase in customer communication services was primarily
attributable to an increase in transactional revenue as a result of our continued growth in the mobile
communication market.

Applications segment revenues increased $6.4 million in fiscal 2016 from 2015 primarily due to an
$11.3 million increase in our originations solutions, a $10.9 million increase in our customer communication
services, and a $5.1 million increase in our compliance solutions, partially offset by a $19.2 million decrease in
our fraud solutions. The increase in originations solutions was primarily attributable to an increase in services
revenue. The increase in customer communication services was primarily attributable to an increase in
transactional revenues as a result of our growth in the mobile communication market. The increase in compliance
solutions was primarily attributable to our acquisition of TONBELLER in January 2015. The decrease in fraud
solutions was primarily attributable to a decrease in software revenues mainly driven by decreased number of
large multi-year license deals occurring during our fiscal 2016.

Scores

Year Ended September 30,

Period-to-Period Change

2017

2016

2015

2017 to
2016

2016 to
2015

(In thousands)

Transactional and maintenance
Professional services
License

$259,780
2,849
3,725

(In thousands)
$233,655
4,185
3,219

$200,426
2,901
3,680

$26,125
(1,336)
506

$33,229
1,284
(461)

Total

$266,354

$241,059

$207,007

25,295

34,052

Period-to-Period
Percentage Change

2017 to
2016

2016 to
2015

11%
(32)%
16%

10%

17%
44%
(13)%

16%

Scores segment revenues increased $25.3 million in fiscal 2017 from 2016 due to a $14.2 million increase
in our business-to-business scores revenues and an $11.1 million increase in our business-to-consumer services
revenue. The increase in business-to-business scores was primarily attributable to an increase in our transactional
scores driven by new originations, prescreen and account management. The increase in business-to-consumer
services was primarily attributable to an increase in royalties derived from scores sold indirectly to consumers
through credit reporting agencies.

Scores segment revenues increased $34.1 million in fiscal 2016 from 2015 due to a $17.8 million increase

in our business-to-consumer services revenues and a $16.3 million increase in our business-to-business scores
revenue. The increase in business-to-consumer services was primarily attributable to revenue generated from the
agreement with Experian that launched in December 2014 and made FICO® Scores available to consumers on
Experian.com. The increase in business-to- business scores was primarily attributable to an increase in our
transactional scores driven by new originations, account management and prescreen.

During fiscal 2017, 2016 and 2015, revenues generated from our agreements with Experian, TransUnion
and Equifax, collectively accounted for approximately 20%, 19% and 16%, respectively, of our total revenues,
including revenues from these customers recorded in our other segments.

Decision Management Software

Year Ended September 30,

Period-to-Period Change

Transactional and maintenance
Professional services
License

2017

2016

2015

$ 44,019
34,863
33,766

(In thousands)
$ 43,792
26,778
37,085

$ 43,210
24,310
37,980

2017 to
2016

2016 to
2015

(In thousands)
227
8,085
(3,319)

$ 582
2,468
(895)

Total

$112,648

$107,655

$105,500

4,993

2,155

Period-to-Period
Percentage Change

2017 to
2016

2016 to
2015

1%
30%
(9)%

1%
10%
(2)%

Decision Management Software segment revenues increased $5.0 million in fiscal 2017 from 2016
primarily attributable to an increase in services revenue related to our FICO® Decision Optimizer, partially offset
by a decrease in license revenue related to our FICO® Blaze Advisor®.

Decision Management Software segment revenues increased $2.2 million in fiscal 2016 from 2015
primarily attributable to an increase in services revenue, largely due to an increase in our FICO® Decision
Management Platform product partially offset by a decrease in our FICO® Blaze Advisor 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 2017, 2016 and 2015:

Year Ended September 30,

Period-to-Period Change

Period-to-Period
Percentage Change

2017

2016

2015

2017 to
2016

2016 to
2015

2017 to
2016

2016 to
2015

Revenues

Operating expenses:

(In thousands, except employees)
$932,169 $881,356 $838,781 $ 50,813 $ 42,575

(In thousands, except
employees)

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

287,123 265,173 270,535
98,824
110,870 103,669
339,796 328,940 300,002
13,673
13,982
— 18,242

12,709
4,471

21,950
7,201
10,856
(1,273)
4,471

(5,362)
4,845
28,938
309
(18,242)

Total operating expenses

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

Income before income taxes
Provision for income taxes

754,969 711,764 701,276

43,205

177,200 169,592 137,505
(29,150)
(26,633)
(25,790)
883
1,610
(86)

7,608
843
(1,696)

151,324 144,569 109,238
22,736
35,121

23,068

6,755
(12,053)

Net income

$128,256 $109,448 $ 86,502

18,808

10,488

32,087
2,517
727

35,331
12,385

22,946

Number of employees at fiscal year-end

3,299

3,088

2,803

211

285

8%
7%
3%
(9)%

(2)%
5%
10%
2%
100% (100)%

4%
23%
(3)% (9)%
(105)% 82%

32%
(34)% 54%

17%

27%

10%

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,

2017

2016

2015

100% 100% 100%

30%
31%
12%
12%
37%
36%
1%
2%
1% — %

81%

32%
12%
36%
2%
2%

84%

19%
16%
19%
(3)% (3)% (3)%
13%
16%
16%
3%
4%
2%

14%

12%

10%

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; outside services; internal
network hosting costs; software royalty fees; and credit bureau data and processing services.

Cost of revenues as a percentage of revenues increased to 31% during fiscal year 2017 from 30% during
fiscal 2016. The $22.0 million increase was primarily attributable to a $14.6 million increase in personnel and

labor costs and a $7.4 million increase in allocated facilities and infrastructure costs. The increase in personnel
and labor costs was primarily attributable to an increase in professional services delivery cost driven by higher
services revenue and an increase in salaries and benefit costs as a result of our increased headcount. The increase
in allocated facilities and infrastructure costs was primarily attributable to increased resource requirements due to
our expanded investment in product delivery, support and infrastructure operations.

Cost of revenues as a percentage of revenues decreased to 30% during fiscal year 2016 from 32% during

fiscal 2015. The $5.4 million decrease was primarily attributable to a $12.9 million decrease in outside services,
partially offset by a $4.6 million increase in personnel and labor costs and a $2.4 million increase in direct
materials cost. The decrease in outside services was primarily attributable to a decrease in our billable consulting
projects utilizing temporary resources. The increase in personnel and labor costs was primarily attributable to an
increase in incentive cost and share based compensation cost, partially offset by a decrease in professional
services delivery cost. The increase in direct materials was primarily attributable to an increase in
telecommunications cost associated with the increase in our customer communications services subscription
based revenue.

In fiscal 2018, we expect cost of revenues as a percentage of revenues will be consistent with those incurred

during fiscal 2017.

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.

The fiscal year 2017 over 2016 increase of $7.2 million in research and development expenses was

primarily attributable to a $5.0 million increase in personnel and labor costs and a $2.6 million increase in
facilities and infrastructure costs, mainly driven by our continued investment in the areas of cloud computing and
SaaS, as well as new products primarily in the Decision Management Software segment. Research and
development expenses as a percentage of revenues were 12% during fiscal 2017, consistent with those incurred
during fiscal 2016.

The fiscal year 2016 over 2015 increase of $4.8 million in research development expenses was primarily

attributable to a $6.7 million increase in personnel and labor costs, partially offset by a $2.1 million decrease in
outside services. The increase in personnel and labor costs was primarily driven by an increase in incentive cost
and our continued investment in the areas of cloud computing and software-as-a-service (“SaaS”), as well as
several new products primarily in the Decision Management Software segment. The decrease in outside services
was primarily attributable to fewer internal projects utilizing temporary resources. Research and development
expenses as a percentage of revenues were 12% during fiscal 2016, consistent with those incurred during fiscal
2015.

In fiscal 2018, we expect that research and development expenditures as a percentage of revenues will be

consistent with or slightly higher than those incurred during fiscal 2017.

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 $10.9 million increase was primarily attributable to a $21.0 million increase in labor and personnel
costs, partially offset by a $4.0 million decrease in marketing expenses and a $6.6 million decrease in outside

services. The increase in personnel and costs was primarily attributable to an increase in salaries and benefits as a
result of our increased headcount, an increase in commission cost driven by revenue growth, and an increase in
stock-based compensation cost. The decrease in marketing expenses was primarily attributable to a company-
wide marketing event during our fiscal 2016. The decrease in outside services was primarily attributable to a
one-time settlement during fiscal 2017. Selling, general and administrative expenses as a percentage of revenues
was 36% during fiscal 2017, materially consistent with those incurred during fiscal 2016.

Selling, general and administrative expenses as a percentage of revenues increased to 37% during fiscal
2016 from 36% during fiscal 2015. The $28.9 million increase was primarily attributable to a $23.5 million
increase in labor and personnel costs and a $1.6 million increase in marketing expenses. The increase in
personnel and costs was primarily attributable to an increase in salaries and benefits as a result of our increased
headcount, an increase in incentive cost, and an increase in stock-based compensation cost primarily related to
the reduction in our estimated forfeiture rate as well as higher stock price. The increase in marketing expenses
was primarily attributable to our investment in expanding and refining our distribution capabilities.

In fiscal 2018, we expect that selling, general and administrative expenses as a percentage of revenues will

be consistent with those incurred during fiscal 2017.

Amortization of Intangible Assets

Amortization of intangible assets consists of 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 2017 over 2016 decrease in amortization expense of $1.3 million was primarily attributable to
certain assets associated with our Adeptra, HNC and Entiera acquisitions becoming fully amortized in fiscal 2017
and 2016.

The fiscal 2016 over 2015 increase in amortization expense of $0.3 million was primarily attributable to the

addition of intangible assets associated with our TONBELLER acquisition in January 2015, partially offset by
certain assets associated with our Entiera acquisition becoming fully amortized in May 2016.

In fiscal 2018, we expect amortization expense will be significantly lower than that incurred in 2017 due to

certain assets associated with our Adeptra and HNC acquisitions becoming fully amortized in fiscal 2017.

Restructuring and Acquisition-Related

During fiscal 2017, we incurred net charges totaling $4.5 million consisting of $1.7 million in facilities
charges associated with vacating excess leased space in San Rafael, California and $2.8 million in severance
charges due to the elimination of 79 positions throughout the Company. Cash payments for all the facilities
charges will be paid by the end of fiscal 2020. Cash payments for all the employee separation costs will be paid
by the end of the second quarter of fiscal 2018. There were no acquisition-related expenses incurred during fiscal
2017.

There were no restructuring or acquisition-related expenses incurred during fiscal 2016.

During fiscal 2015, we incurred net charges totaling $17.5 million consisting of $13.6 million in facilities
charges associated with vacating excess leased space in Roseville, Minnesota and San Rafael, California, and
$3.9 million in severance charges due to the elimination of 97 positions throughout the Company. Cash payments
for all the facilities charges will be paid by the end of fiscal 2020. Cash payments for all the severance costs were
paid by the end of fiscal 2016. We also incurred $0.7 million in acquisition-related cost primarily associated with
our TONBELLER acquisition.

The following table sets forth certain summary information on restructuring expenses for the fiscal 2017,

2016 and 2015:

Severance costs
Lease exit costs and other adjustments

Total restructuring expense

Interest Expense, Net

Year Ended September 30,

2017

2016

2015

(In thousands)

$2,742
1,729

$— $ 3,908
13,571
—

$4,471

$—

$17,479

Interest expense includes 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. On our consolidated statements of income and
comprehensive income, interest expense is netted with interest income, which is derived primarily from the
investment of funds in excess of our immediate operating requirements.

The fiscal 2017 over 2016 decrease in net interest expense of $0.8 million was primarily attributable to the
$72.0 million and $60.0 million principal payments in July 2017 and July 2016, respectively, on the senior notes
issued in July 2010, resulting in lower average debt balances for fiscal 2017, partially offset by a higher average
outstanding balance on our revolving line of credit.

The fiscal 2016 over 2015 decrease in net interest expense of $2.5 million was primarily attributable to the

$71.0 million principal payment in May 2015 on the senior notes issued in May 2008 and the $60.0 million
principal payment in July 2016 on the senior notes issued in July 2010, resulting in lower average debt balances
for fiscal 2016 for both senior notes, partially offset by a higher average outstanding balance on our revolving
line of credit.

In fiscal 2018, we expect net interest expense will be consistent with what we incurred during fiscal 2017.

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.

The fiscal 2017 over 2016 change in other income (expense), net of $1.7 million was primarily attributable

to an increase in foreign currency exchange loss during fiscal 2017.

The fiscal 2016 over 2015 change in other income (expense), net of $0.7 million was primarily attributable

to an increase in foreign currency exchange gain during fiscal 2016.

Provision for Income Taxes

Our effective tax rates were 15.2%, 24.3% and 20.8% in fiscal 2017, 2016 and 2015, respectively.

The decrease in our effective tax rate in fiscal 2017 compared to fiscal 2016 was due primarily to the

adoption of ASU 2016-09 on October 1, 2016. We no longer record excess tax benefits as an increase to
additional paid-in capital, but record such excess tax benefits on a prospective basis as a reduction of income tax
expense.

The increase in our effective tax rate in fiscal 2016 compared to 2015 was primarily due to a higher
percentage of revenue in higher taxing jurisdictions during the current year, and the favorable settlement of the
fiscal 2006-2009 state audits and the 2010 foreign transfer pricing assessment in fiscal 2015, partially offset by
higher foreign tax credits, research credits and domestic production deduction credits in fiscal 2016.

As of September 30, 2017, we have not made a provision for U.S. or additional foreign withholding taxes on
approximately $47.0 million of the excess of the amount for financial reporting over the tax basis of investments
in foreign subsidiaries. We intend to reinvest the earnings of non-U.S. subsidiaries in those operations
indefinitely, except where we are able to repatriate these earnings to the United States without material
incremental tax provision. The determination and estimation of the future income tax consequences in all
relevant taxing jurisdictions involves the application of highly complex tax laws in the countries involved,
particularly in the United States, and is based on our tax profile in the year of earnings repatriation. Accordingly,
it is not practicable to estimate the amount of deferred tax liability related to investments in these foreign
subsidiaries.

Operating Income

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

income for the fiscal 2017, 2016 and 2015:

Segment

2017

2016

2015

Year Ended September 30,

Period-to-Period
Change

Period-to-Period
Percentage Change

2017 to
2016

2016 to
2015

2017 to
2016

2016 to
2015

(In thousands)

Applications
Scores
Decision Management Software
Unallocated corporate expenses

Total segment operating

income
Unallocated share-based

compensation

Unallocated amortization expense
Unallocated restructuring and

acquisition-related

Operating income

Applications

Segment revenues
Segment operating expenses

Segment operating income

$ 159,500 $ 168,271 $159,608 $ (8,771) $ 8,663
33,870
2,690
(20,868)

211,918
(10,818)
(104,998)

185,084
(3,660)
(110,612)

151,214
(6,350)
(89,744)

26,834
(7,158)
5,614

(5)%
14%
196%
(5)%

5%
22%
(42)%
23%

255,602

239,083

214,728

16,519

24,355

11%

(61,222)
(12,709)

(55,509)
(13,982)

(45,308)
(13,673)

(5,713)
1,273

(10,201)
(309)

10%
(9)%

23%
2%

(4,471)

—

(18,242)

(4,471)

18,242

100% (100)%

$ 177,200 $ 169,592 $137,505

7,608

32,087

23%

Year Ended September 30,

Percentage of Revenues

2017

2016

2015

2017

2016

2015

$ 553,167
(393,667)

(In thousands)
$ 532,642
(364,371)

$ 526,274 100% 100% 100%
(71)% (68)% (70)%

(366,666)

$ 159,500

$ 168,271

$ 159,608

29% 32% 30%

Scores

Segment revenues
Segment operating expenses

Segment operating income

Decision Management Software

Segment revenues
Segment operating expenses

Segment operating loss

Year Ended September 30,

Percentage of Revenues

2017

2016

2015

2017

2016

2015

$266,354
(54,436)

(In thousands)
$241,059
(55,975)

$207,007
(55,793)

100% 100% 100%
(20)% (23)% (27)%

$211,918

$185,084

$151,214

80% 77% 73%

Year Ended September 30,

Percentage of Revenues

2017

2016

2015

2017

2016

2015

$ 112,648
(123,466)

(In thousands)
$ 107,655
(111,315)

$ 105,500
(111,850)

100% 100% 100%
(110)% (103)% (106)%

$ (10,818) $

(3,660) $

(6,350)

(10)% (3)% (6)%

The fiscal 2017 over 2016 increase in operating income of $7.6 million was attributable to a $50.8 million

increase in segment revenues, a $5.6 million decrease in unallocated corporate expenses and a $1.3 million
decrease in amortization expense, partially offset by a $39.9 million increase in segment operating expenses, a
$5.7 million increase in share-based compensation expense and a $4.5 million increase in restructuring and
acquisition-related expenses.

At the segment level, the $16.5 million increase in segment operating income was the result of a
$26.8 million increase in our Scores segment operating income and a $5.6 million decrease in unallocated
corporate expenses, partially offset by an $8.8 million decrease in our Applications segment operating income
and a $7.1 million increase in our Decision Management Software segment operating loss.

The $8.8 million decrease in Applications segment operating income was attributable to a $29.3 million

increase in segment operating expenses, partially offset by a $20.5 million increase in segment revenues.
Segment operating income as a percentage of segment revenues for Applications decreased to 29% from 32%
primarily due to a decrease in sales of our higher-margin software products and an increase in professional
services delivery cost.

The $26.8 million increase in Scores segment operating income was attributable to a $25.3 million increase
in segment revenues and a $1.5 million decrease in segment operating expenses. Segment operating income as a
percentage of segment revenues for Scores increased to 80% from 77% mainly due to an increase in sales of our
higher-margin score products.

The $7.1 million increase in Decision Management Software segment operating loss was attributable to a

$12.1 million increase in segment operating expenses, partially offset by a $5.0 million increase in segment
revenues. Segment operating margin for Decision Management Software decreased to a negative 10% from a
negative 3% mainly due to a decrease in sales of our higher-margin software products, our continued investment
in sales distribution, and expanded investment in cloud infrastructure operations.

The fiscal 2016 over 2015 increase in operating income of $32.1 million was attributable to a $42.7 million
increase in segment revenues, an $18.2 million decrease in restructuring and acquisition-related expenses and a
$2.6 million decrease in segment operating expenses, partially offset by a $20.9 million increase in unallocated
corporate expenses, a $10.2 million increase in share-based compensation expense and a $0.3 million increase in

amortization expense. The increase in corporate expenses was primarily driven by a higher incentive cost. The
increase in share-based compensation cost was primarily related to the reduction in our estimated forfeiture rate
as well as higher stock price.

At the segment level, the $24.4 million increase in segment operating income was the result of an
$8.7 million increase in our Applications segment operating income, a $33.9 million increase in our Scores
segment operating income and a $2.7 million decrease in our Decision Management Software segment operating
loss, partially offset by a $20.9 million increase in unallocated corporate expenses.

The $8.7 million increase in Applications segment operating income was attributable to a $6.4 million

increase in segment revenues and a $2.3 million decrease in segment operating expenses. Segment operating
income as a percentage of segment revenues for Applications increased to 32% from 30% primarily due to
improved efficiency in our professional services operations, partially offset by a decrease in sales of our higher-
margin software products.

The $33.9 million increase in Scores segment operating income was attributable to a $34.1 million increase

in segment revenues, partially offset by a $0.2 million increase in segment operating expenses. Segment
operating income as a percentage of segment revenues for Scores increased to 77% from 73% mainly due to an
increase in sales of our higher-margin score products.

The $2.7 million decrease in Decision Management Software segment operating loss was attributable to a
$2.2 million increase in segment revenues and a $0.5 million decrease in segment operating expenses. Segment
operating margin for Decision Management Software improved to a negative 3% from a negative 6% mainly due
to improved efficiency in our professional services operations.

CAPITAL RESOURCES AND LIQUIDITY

Outlook

As of September 30, 2017, we had $105.6 million in cash and cash equivalents, which included
$92.2 million held off-shore by our foreign subsidiaries. We believe these balances, as well as available
borrowings from our $500 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 $131.0 million principal
payment due in May 2018 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, even though we
do not anticipate the need to repatriate any undistributed earnings from our foreign subsidiaries for the
foreseeable future, we may take advantage of opportunities where we are able to repatriate these earnings to the
United States without material incremental tax provision.

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,

2017

2016

2015

(In thousands)

$ 225,644
(20,605)
(180,625)
5,278

$ 210,268
(27,615)
(190,015)
(2,832)

$146,772
(81,916)
(72,430)
(11,381)

Increase (decrease) in cash and cash equivalents

$ 29,692

$ (10,194)

$ (18,955)

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 $225.6 million in fiscal 2017 compared to
$210.3 million in fiscal 2016. The $15.3 million increase was mainly attributable to a $20.0 million decrease in
our deferred income tax provision and an $18.8 million increase in net income, partially offset by a $24.2 million
excess tax benefit related to share-based payments that was recorded as an increase to additional paid-in capital
in the prior year but was recorded as a reduction of income tax expense in the current year as a result of our early
adoption of ASU 2016-09 effective October 1, 2016.

Net cash provided by operating activities totaled $210.3 million in fiscal 2016 compared to $146.8 million

in fiscal 2015. The $63.5 million increase was mainly attributable to a $22.9 million increase in net income and a
$22.9 million decrease in income tax payments.

Cash Flows from Investing Activities

Net cash used in investing activities totaled $20.6 million in fiscal 2017 compared to $27.6 million in fiscal

2016. The $7.0 million decrease was primarily attributable to a $5.7 million decrease in net cash used for
acquisitions and a $2.1 million decrease in net cash used for purchases of property and equipment.

Net cash used in investing activities totaled $27.6 million in fiscal 2016 compared to $81.9 million in fiscal

2015. The $54.3 million decrease was attributable to a $51.3 million decrease in net cash used for acquisitions
and a $3.0 million decrease in net cash used for purchases of property and equipment.

Cash Flows from Financing Activities

Net cash used in financing activities totaled $180.6 million in fiscal 2017 compared to $190.0 million in

fiscal 2016. The $9.4 million decrease was primarily due to an $83.0 million increase in proceeds, net of
payments from our revolving line of credit, partially offset by a $49.2 million increase in net cash used for
repurchases of common stock, a $12.0 million increase in payment on our senior notes, and a $10.3 million
increase in taxes paid related to net share settlement of equity awards.

Net cash used in financing activities totaled $190.0 million in fiscal 2016 compared to $72.4 million in
fiscal 2015. The $117.6 million increase was primarily due to a $110.0 million decrease in proceeds, net of
payments from our revolving line of credit and a $10.5 million increase in taxes paid related to net share
settlement of equity awards, partially offset by an $11.0 million decrease in payment on our senior notes.

Repurchases of Common Stock

In July 2016, our Board of Directors approved a stock repurchase program following the completion of the

previously authorized program. This 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, 2017, we had $36.7 million remaining under this authorization. During fiscal 2017, 2016 and
2015, we expended $193.3 million, $138.4 million and $130.7 million, respectively, under this and previously
authorized stock repurchase programs.

In October 2017, our Board of Directors approved a new stock repurchase program following the

completion of the July 2016 program. 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.

Dividends

We paid dividends of $0.02 per share on a quarterly basis during each of fiscal 2015 and 2016, and the first

two quarters of our fiscal 2017. In May 2017, our Board of Directors discontinued cash dividend payments in
favor of using our excess cash flow for share repurchases.

Revolving Line of Credit

In June 2017, we amended our credit agreement with a syndicate of banks, increasing our borrowing
capacity under the unsecured revolving line of credit to $500 million with an option to increase it by another
$100 million. The revolving line of credit expires on December 30, 2019. 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, (b) the Federal Funds rate plus
0.500% and (c) the one-month LIBOR rate plus 1.000%, plus, in each case, an applicable margin, or (ii) an
adjusted LIBOR rate plus an applicable margin. The applicable margin for base rate borrowings ranges from 0%
to 0.875% and for LIBOR borrowings ranges from 1.000% to 1.875%, and is determined based on our
consolidated leverage ratio. In addition, we must pay credit facility fees. The credit facility contains certain
restrictive covenants including maintaining a minimum fixed charge ratio of 2.5 and a maximum consolidated
leverage ratio of 3.0, subject to a step up to 3.5 following certain permitted acquisitions. The credit agreement
also contains other covenants typical of unsecured facilities. As of September 30, 2017, we had $361.0 million in
borrowings outstanding at a weighted average interest rate of 2.365% 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 five to ten years. The weighted average interest rate is 7.2% and the weighted average maturity is 10.0 years
for the remaining 2008 Senior Notes. 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 six to ten
years. The weighted average interest rate is 5.6% and the weighted average maturity is 9.8 years for the
remaining 2010 Senior Notes. 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, 2017, the carrying value of the Senior Notes was
$244.0 million and 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, 2017:

Year Ended September 30,

2018

2019

2020

2021

2022

Thereafter

Total

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

(In thousands)
$131,000 $28,000 $ 85,000 $ — $ — $ — $244,000
26,696
100,756
6,480

4,752 —
13,414
—

15,675
23,787
—

6,269
22,042
—

—
22,790
—

—
9,104
—

9,619
—

Total commitments

$170,462 $56,311 $103,166 $9,619 $9,104 $22,790 $377,932

(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

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

fixed or determinable, and collection is probable. Revenues from our credit scoring, data processing, data
management and SaaS subscription services are recognized as these services are performed. Revenues from
transactional or unit-based license fees under software license arrangements, credit scoring, data processing, data
management and SaaS subscription services 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.

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. Historically, there have been no significant changes in our ESP used in allocation of
arrangement consideration. We do not believe there is a reasonable likelihood there will be a material change in
the future estimates.

If a deliverable does not have standalone value because the aforementioned criteria are not met, we combine
it with the other applicable undelivered item(s) within the arrangement and account for the multiple deliverables
as one combined unit of accounting. For example, for hosting arrangements requiring a highly specialized and
unique set of initial implementation and setup services prior to the commencement of hosting services, we
typically conclude that these implementation or setup services do not have value to the customer on a stand-alone
basis; therefore, we combine them with the hosting services as a combined unit of accounting. Revenue is
recognized upon commencement of our hosting services over the expected life of the customer relationship.

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 consolidated 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. Historically, there have been no significant changes in our
estimates or assumptions. To the extent a significant acquisition is made during a fiscal year, as appropriate we
will expand the discussion to include specific assumptions and inputs used to determine the fair value of our
acquired intangible assets.

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 consolidated results of operations and financial position. Historically, there have
been no significant changes in our valuation allowances or uncertain tax positions as it relates to business
combinations. We do not believe there is a reasonable likelihood there will be a material change in the future
estimates.

Goodwill, Acquisition Intangibles and Other Long-Lived Assets — Impairment Assessment

annual basis during the fourth quarter using a July 1 measurement date unless circumstances require a more
frequent measurement. We have determined that our reporting units are the same as our reportable segments.
When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more
likely than not that a reporting unit’s carrying amount exceeds its fair value, referred to as a “step zero”
approach. If, based on the review of the qualitative factors, we determine it is not more likely than not that the
fair value of a reporting unit is less than its carrying value, we would bypass the two-step impairment test. Events
and circumstances we consider in performing the “step zero” qualitative assessment include macro-economic
conditions, market and industry conditions, internal cost factors, share price fluctuations, and the operational
stability and the overall financial performance of the reporting units. If we conclude that it is more likely than not
that a reporting unit’s fair value is less than its carrying amount, we would perform the first step (“step one”) of
the two-step impairment test and calculate the estimated fair value of the reporting unit by 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. 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.

For fiscal 2016 and 2015, we performed a step zero qualitative analysis for our annual assessment of
goodwill impairment. After evaluating and weighing all relevant events and circumstances, we concluded that it
is not more likely than not that the fair value of any of our reporting units was less their carrying amounts.
Consequently, we did not perform a step one quantitative analysis. For fiscal 2017, we elected to proceed directly
to the step one quantitative analysis for all of our reporting units, as three years had elapsed since the date of our
previous quantitative valuation. There was a substantial excess of fair value over carrying value for each of our
reporting units and we determined goodwill was not impaired for any of our reporting units for fiscal 2017.

Our intangible assets that have finite useful lives and other long-lived assets are assessed for potential
impairment 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, 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 our
intangible assets or other long-lived assets could occur. We review the estimated remaining useful lives of our
acquired intangible assets at each reporting period. A reduction in our estimate of remaining useful lives, if any,
could result in increased annual amortization expense in future periods. We did not recognize any impairment
charges on intangible assets that have finite useful lives or other long-lived assets in fiscal 2017, 2016 and 2015.

As discussed above, while we believe that the assumptions and estimates utilized were appropriate based on
the information available to management, different assumptions, judgments and estimates could materially affect
our impairment assessments for our goodwill, acquired intangibles with finite lives and other long-lived assets.
Historically, there have been no significant changes in our estimates or assumptions that would have had a
material impact for our goodwill or intangible assets impairment assessment. We believe our projected operating
results and cash flows would need to be significantly less favorable to have a material impact on our impairment
assessment. However, based upon our historical experience with operations, we do not believe there is a
reasonable likelihood of a significant change in our projections.

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). We use the Black-Scholes valuation model to determine the fair value of
our stock options and a Monte Carlo valuation model to determine the fair value of our market share units. Our
valuation models and generally accepted valuation techniques require us to make assumptions and to apply
judgment to determine the fair value of our awards. These assumptions and judgments include estimating the
volatility of our stock price, expected dividend yield, employee turnover rates and employee stock option
exercise behaviors. Historically, there have been no material changes in our estimates or assumptions. We do not
believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions. See
Note 14 to the accompanying consolidated financial statements 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 consolidated balance sheets 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 more likely than
not, 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; our ability to carry back tax attributes to prior years; 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 have historically had
minimal changes in our valuation allowances related to deferred tax assets, as described in Note 13 to the
accompanying consolidated financial statements.

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. Historically, settlements related to
our unrecognized tax benefits have been minimal, as described in Note 13 to the accompanying consolidated
financial statements.

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. Historically, there have been no material changes in our estimates or assumptions. We do not believe
there is a reasonable likelihood there will be a material change in the future estimates.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Effective October 1, 2016, we early adopted ASU No. 2016-09, “Compensation — Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09
simplifies several aspects of the accounting for share-based payment transactions, including income tax
consequences, classification of awards as either equity or liabilities, and classification on the statement of cash
flows. As a result of the adoption, we recognized $24.7 million of excess tax benefits related to share-based
payments in our provision for income taxes during fiscal 2017. These items were historically recorded as
additional paid-in capital. We elected to apply the change retrospectively in presentation to our consolidated
statements of cash flows and no longer classified the excess tax benefits from employee stock plans as a
reduction from operating cash flows, which resulted in increases to both net cash provided by operating activities
and net cash used in financing activities of $25.0 million and $13.8 million for fiscal 2016 and 2015,
respectively. Our adoption of ASU 2016-09 also impacted the calculation of diluted weighted-average shares
under the treasury stock method as we no longer increase or decrease the assumed proceeds from the vesting of,
or an employee exercising, a share-based payment award by the amount of excess tax benefits or deficiencies
taken to additional paid-in capital. During fiscal 2017, the impact was immaterial. Given our historical practice
of including employee withholding taxes paid within financing activities in the statement of cash flows, no prior
period reclassifications are required by the clarifications on classification provided by ASU 2016-09.
Furthermore, we elected to continue to estimate expected forfeitures of employee equity awards to determine the
amount of compensation expense to be recognized in each period.

Effective October 1, 2016, we retrospectively adopted ASU No. 2015-03, “Simplifying the Presentation of

Debt Issuance” (“ASU 2015-03”). ASU 2015-03 requires an entity to present debt issuance costs related to a
recognized debt liability, other than those relating to line-of-credit arrangements, in the balance sheet as a direct
deduction from the related debt liability rather than as an asset. As a result of the adoption, at September 30,
2017, the amount of debt issuance costs reflected as a deduction of long-term debt was $0.2 million. At
September 30, 2016, the amount of debt issuance costs reclassified from other assets to a deduction of long-term
debt was $0.4 million.

Recent Accounting Pronouncements Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“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. In August 2015, the FASB issued ASU
No. 2015-14, “Deferral of the Effective Date” (“ASU 2015-14”), which defers the effective date for ASU

2014-09 by one year. For public entities, the guidance in ASU 2014-09 will be effective for annual reporting
periods beginning after December 15, 2017 (including interim reporting periods within those periods), which
means it will be effective for our fiscal year beginning October 1, 2018. Early adoption is permitted to the
original effective date of December 15, 2016 (including interim reporting periods within those periods). In March
2016, the FASB issued ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue versus
Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations in
the new revenue recognition standard. In April 2016, the FASB issued ASU No. 2016-10, “Identifying
Performance Obligations and Licensing” (“ASU 2016-10”), which reduces the complexity when applying the
guidance for identifying performance obligations and improves the operability and understandability of the
license implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Narrow-Scope
Improvements and Practical Expedients” (“ASU 2016-12”), which amends the guidance on transition,
collectability, noncash consideration and the presentation of sales and other similar taxes. In December 2016, the
FASB further issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from
Contracts with Customers” (“ASU 2016-20”), which makes minor corrections or minor improvements to the
Codification that are not expected to have a significant effect on current accounting practice or create a
significant administrative cost to most entities. The amendments are intended to address implementation issues
that were raised by stakeholders and provide additional practical expedients to reduce the cost and complexity of
applying the new revenue standard. These amendments have the same effective date as the new revenue standard.
Preliminarily, we plan to adopt Topic 606 in the first quarter of our fiscal 2019 using the retrospective transition
method, and are continuing to evaluate the impact our pending adoption of Topic 606 will have on our
consolidated financial statements.

We have established a cross-functional implementation team consisting of representatives across the
organization to address the scope of work required to implement the recognition and disclosure requirements
under the new standard. This cross-functional implementation team has developed a project plan, including
evaluating customer contracts across the organization, developing policies, processes and tools to report financial
results, and implementing and evaluating our internal controls over financial reporting that will be necessary
under the new standard. We currently plan to adopt Topic 606 in the first quarter of our fiscal 2019 using the
retrospective transition method. Our ability to adopt using the full retrospective method is dependent on system
readiness, and the completion of our analysis of information necessary to restate prior period financial
statements. As we continue to assess the new standard along with industry trends and additional interpretive
guidance, we may adjust our implementation plan accordingly.

We are continuing to assess the impact of adopting Top 606 on our consolidated financial statements and

believe the new standard will impact the following policies and disclosures:

• Timing of revenue recognition of license revenue on term licenses and transactional revenue on

guaranteed minimum fees related to our on-premises software products. Under the new standard, we
expect to recognize revenue when control of the license is transferred to the customer, rather than at the
date payments become due and payable, or ratably over the term of the contract required under the
current standard;

•

Presentation of contract balances. Under the new standard, when we enter into noncancellable contracts
that provide unconditional rights to payment from our customers for services that we have not yet
completed providing or services we will provide in the near future, we expect to present the
unconditional rights as receivables, regardless of whether cash has been received from customers;

• Required disclosures including information about remaining transaction price and when we expect to

recognize revenue; and

• Accounting for commissions under the new standard will result in the deferral of incremental

commission costs for obtaining contracts.

We do not currently expect Topic 606 to have a significant effect on the timing of revenue recognition for

our maintenance or professional services revenues, or SaaS contracts.

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of

Assets Other Than Inventory” (“ASU 2016-16”). ASU 2016-16 requires an entity to recognize the income tax
consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The guidance
is effective for fiscal years and interim periods beginning after December 15, 2017, which means it will be
effective for our fiscal year beginning October 1, 2018. ASU 2016-16 should be applied on a modified
retrospective basis through a cumulative-effect adjustment directly to retained earnings at the beginning of the
period of adoption. Early adoption is permitted as of the beginning of an annual reporting period for which
financial statements (interim or annual) have not been issued. We do not believe that adoption of ASU 2016-16
will have a significant impact on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which
requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements
in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the
obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease
term. ASU 2016-02 is effective for fiscal years and interim periods within those fiscal years beginning after
December 15, 2018, which means it will be effective for our fiscal year beginning October 1, 2019. Early
adoption is permitted. We are currently evaluating the timing of our adoption and 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, 2017 and 2016:

Cash and cash equivalents

September 30, 2017

September 30, 2016

Cost Basis

Carrying
Amount

Average
Yield

Cost Basis

Carrying
Amount

Average
Yield

$105,618

(Dollars in thousands)
0.56% $75,926

$75,926

0.17%

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
for additional information on the Senior Notes. The following table presents the carrying amounts and fair values
for the Senior Notes at September 30, 2017 and 2016:

September 30, 2017

September 30, 2016

Carrying
Amounts

Fair Value

Carrying
Amounts

Fair Value

(In thousands)

The 2008 Senior Notes
The 2010 Senior Notes
Debt issuance costs

Total

$131,000
113,000

(199) $

$134,250
119,106
(199)

$131,000
185,000
(376)

$139,902
195,715
(376)

$243,801

$253,157

$315,624

$335,241

We have interest rate risk with respect to our $500 million unsecured revolving line of credit. 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 0.500% and (c) the one-month LIBOR rate plus 1.000%, plus, in each case,
an applicable margin, or (ii) an adjusted LIBOR rate plus an applicable margin. The applicable margin for base
rate borrowings ranges from 0% to 0.875% and for LIBOR borrowings ranges from 1.000% to 1.875% 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 $361.0 million
in borrowings outstanding at a weighted average interest of 2.365% under the credit facility as of September 30,
2017.

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
and Euro.

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, 2017 and 2016:

Sell foreign currency:
Euro (EUR)

Buy foreign currency:

British pound (GBP)

Sell foreign currency:
Euro (EUR)

Buy foreign currency:

British pound (GBP)

September 30, 2017

Contract Amount

Fair Value

Foreign
Currency

US$

(In thousands)

EUR

5,050

$ 5,968

GBP

9,341

$12,500

—

September 30, 2016

Contract Amount

Fair Value

Foreign
Currency

US$

(In thousands)

EUR

7,850

$ 8,743

GBP

7,721

$10,000

—

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

fair value was $0 on September 30, 2017 and 2016.

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, 2017 and 2016, 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, 2017. We also have audited the Company’s internal control over financial reporting as of September 30,
2017, based on the criteria established in Internal Control — Integrated Framework (2013) 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 and subsidiaries as of September 30, 2017 and 2016, and the results of their
operations and their cash flows for each of the three years in the period ended September 30, 2017, 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, 2017, based on the criteria established in Internal Control — Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ Deloitte & Touche LLP
San Diego, CA
November 9, 2017

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
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

Long-term debt
Other liabilities

Total liabilities

Commitments and contingencies
Stockholders’ equity:

September 30,

2017

2016

(In thousands, except par value
data)

105,618
168,586
36,727

310,931

13,791
11,724
40,703
804,414
21,185
47,204
5,668

75,926
167,786
23,926

267,638

11,016
10,920
45,122
798,415
33,619
47,598
6,348

$ 1,255,620

$ 1,220,676

19,510
77,610
32,104
55,431
142,000

326,655

462,801
39,627

829,083

22,952
71,216
27,780
47,129
77,000

246,077

493,624
34,147

773,848

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 30,243 and 30,935 shares outstanding at September 30, 2017 and
September 30, 2016, respectively)

Paid-in-capital
Treasury stock, at cost (58,614 and 57,922 shares at September 30, 2017 and

September 30, 2016, respectively)

Retained earnings
Accumulated other comprehensive loss

Total stockholders’ equity

Total liabilities and stockholders’ equity

302
1,195,431

309
1,188,913

(2,301,097)
1,598,395
(66,494)

(2,136,760)
1,471,377
(77,011)

426,537

446,828

$ 1,255,620

$ 1,220,676

See accompanying notes.

FAIR ISAAC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Year Ended September 30,

2017

2016
(In thousands, except per share data)

2015

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):

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

$652,660
179,569
99,940

$605,919
169,738
105,699

$564,232
151,773
122,776

932,169

881,356

838,781

287,123
110,870
339,796
12,709
4,471

265,173
103,669
328,940
13,982
—

270,535
98,824
300,002
13,673
18,242

754,969

711,764

701,276

177,200
(25,790)
(86)

151,324
23,068

169,592
(26,633)
1,610

144,569
35,121

137,505
(29,150)
883

109,238
22,736

128,256

109,448

86,502

10,517

(26,296)

(27,526)

$138,773

$ 83,152

$ 58,976

4.16

3.52

2.75

30,862

31,129

31,402

3.98

3.39

2.65

32,245

32,308

32,609

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

assets. See Note 7.

See accompanying notes.

FAIR ISAAC CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended September 30, 2017, 2016 and 2015
(In thousands, except per share data)

Common
Stock

Par
Value

Paid-in-
Capital

Treasury
Stock

Retained
Earnings

Balance at September 30, 2014 32,047 $320 $1,133,154 $(1,936,095) $1,280,424
Share-based compensation
— —
Issuance of treasury stock under

45,308

—

954

(34,366)

33,153

—

employee stock plans
Tax effect from share-based
payment arrangements

Repurchases of common stock
Dividends paid
Net income
Foreign currency translation

— —

(1,711)

(17)

— —
— —

12,530
—
—
—

adjustments

— —

—

Balance at September 30, 2015 31,290
Share-based compensation
Issuance of treasury stock under

313 1,156,626
55,509

— —

employee stock plans
Tax effect from share-based
payment arrangements

Repurchases of common stock
Dividends paid
Net income
Foreign currency translation

— —

(1,335)

(14)

— —
— —

24,184
—
—
—

adjustments

— —

—

Balance at September 30, 2016 30,935
Share-based compensation
Issuance of treasury stock under

309 1,188,913
61,222

— —

—

(130,702)

—
—

—

—
—
(2,508)
86,502

—

(2,033,644) 1,364,418
—

—

(138,385)

—
—

—

—
—
(2,489)
109,448

—

(2,136,760) 1,471,377
—

—

980

(47,406)

35,269

—

Accumulated
Other
Comprehensive
Loss

$(23,189)

—

—
—
—
—

(27,526)

(50,715)
—

—

—
—
—
—

(26,296)

(77,011)
—

Total
Stockholders’
Equity

$ 454,614
45,308

(1,203)

12,530
(130,719)
(2,508)
86,502

(27,526)

436,998
55,509

(12,127)

24,184
(138,399)
(2,489)
109,448

(26,296)

446,828
61,222

(25,758)
(193,290)
(1,238)
128,256

employee stock plans

Repurchases of common stock
Dividends paid
Net income
Foreign currency translation

774
(1,466)

8
(15)

— —
— —

(54,704)
—
—
—

adjustments

— —

—

28,938
(193,275)

—
—

—

—
—
(1,238)
128,256

—
—
—
—

—

10,517

Balance at September 30, 2017 30,243 $302 $1,195,431 $(2,301,097) $1,598,395

$(66,494)

$ 426,537

See accompanying notes.

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
Provision of doubtful accounts
Net 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

Year Ended September 30,

2017

2016

2015

(In thousands)

$ 128,256 $ 109,448 $ 86,502

36,214
61,222
(6,049)
—
1,640
14

(1,265)
(7,115)
(2,027)
6,464
(683)
8,973

31,633
55,509
(26,007)
24,184
2,011
6

(18,225)
12,848
564
17,079
(4,282)
5,500

33,889
45,308
(5,934)
12,530
—
2,210

(4,602)
(15,462)
(3,672)
(1,506)
4,113
(6,604)

Net cash provided by operating activities

225,644

210,268

146,772

Cash flows from investing activities:
Purchases of property and equipment
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
Payments on senior notes
Proceeds from issuance of treasury stock under employee stock plans
Taxes paid related to net share settlement of equity awards
Dividends paid
Repurchases of common stock

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

(19,828)
—
(777)

(21,969)
(5,683)
37

(24,999)
(56,992)
75

(20,605)

(27,615)

(81,916)

190,000
(84,000)
(72,000)
14,474
(40,232)
(1,238)
(187,629)

122,000
(99,000)
(60,000)
17,828
(29,955)
(2,489)
(138,399)

249,000
(116,000)
(71,000)
18,258
(19,461)
(2,508)
(130,719)

(180,625)

(190,015)

(72,430)

5,278

29,692
75,926

(2,832)

(11,381)

(10,194)
86,120

(18,955)
105,075

$ 105,618 $ 75,926 $ 86,120

Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds of $3,757, $11,363 and $1,592

during the years ended September 30, 2017, 2016 and 2015, 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

$ 31,315 $ 10,855 $ 33,752
$ 26,083 $ 26,884 $ 30,470

$
$

5,661 $
1,751 $

— $
3,287 $

—
436

See accompanying notes.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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, 2017, 2016 and 2015

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
$23.0 million, $17.7 million and $20.2 million during fiscal 2017, 2016 and 2015, respectively.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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
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, Acquisition Intangibles and Other Long-Lived Assets

Goodwill represents the excess of cost over the fair value of identifiable assets acquired and liabilities
assumed in business combinations. We assess goodwill for impairment for each of our reporting units on an
annual basis during the fourth quarter using a July 1 measurement date unless circumstances require a more
frequent measurement. We have determined that our reporting units are the same as our reportable segments.
When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more
likely than not that a reporting unit’s carrying amount exceeds its fair value, referred to as a “step zero”
approach. If, based on the review of the qualitative factors, we determine it is not more likely than not that the
fair value of a reporting unit is less than its carrying value, we would bypass the two-step impairment test. Events
and circumstances we consider in performing the “step zero” qualitative assessment include macro-economic
conditions, market and industry conditions, internal cost factors, share price fluctuations, and the operational
stability and the overall financial performance of the reporting units. If we conclude that it is more likely than not
that a reporting unit’s fair value is less than its carrying amount, we would perform the first step (“step one”) of
the two-step impairment test and calculate the estimated fair value of the reporting unit by 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. Alternatively, we may bypass the qualitative assessment described above for any reporting unit
in any period and proceed directly to performing step one of the goodwill impairment test.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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
3 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
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

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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 SaaS subscription services are recognized as these services are performed. Revenues from
transactional or unit-based license fees under software license arrangements, credit scoring, data processing, data
management and SaaS subscription services 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

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

Multiple-Deliverable Arrangements including Non-Software

When we enter into a multiple-deliverable arrangement that includes non-software, each deliverable is

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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

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

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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 consolidated results of operations and financial position.

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

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 consolidated results of operations and financial position.

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 more likely than not, 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; our ability to carry back tax attributes to prior years; 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.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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.

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.

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 gains (losses) of $(1.1) million, $0.2 million and $22,000

during fiscal 2017, 2016 and 2015, respectively.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

Share-Based Compensation

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 $3.1 million, $3.6 million and $3.7 million in fiscal 2017, 2016 and
2015, respectively.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Effective October 1, 2016, we early adopted ASU No. 2016-09, “Compensation — Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09
simplifies several aspects of the accounting for share-based payment transactions, including income tax
consequences, classification of awards as either equity or liabilities, and classification on the statement of cash
flows. As a result of the adoption, we recognized $24.7 million of excess tax benefits related to share-based
payments in our provision for income taxes during fiscal 2017. These items were historically recorded as
additional paid-in capital. We elected to apply the change retrospectively in presentation to our consolidated
statements of cash flows and no longer classify the excess tax benefits from employee stock plans as a reduction
from operating cash flows, which resulted in increases to both net cash provided by operating activities and net
cash used in financing activities of $25.0 million and $13.8 million for fiscal 2016 and 2015, respectively. Our
adoption of ASU 2016-09 also impacted the calculation of diluted weighted-average shares under the treasury
stock method as we no longer increase or decrease the assumed proceeds from the vesting of, or an employee
exercising, a share-based payment award by the amount of excess tax benefits or deficiencies taken to additional
paid-in capital. During fiscal 2017, the impact was immaterial. Given our historical practice of including
employee withholding taxes paid within financing activities in the statement of cash flows, no prior period
reclassifications are required by the clarifications on classification provided by ASU 2016-09. Furthermore, we
elected to continue to estimate expected forfeitures of employee equity awards to determine the amount of
compensation expense to be recognized in each period.

Effective October 1, 2016, we retrospectively adopted ASU No. 2015-03, “Simplifying the Presentation of

Recent Accounting Pronouncements Not Yet Adopted

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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. In August 2015, the FASB issued ASU
No 2015-14, “Deferral of the Effective Date” (“ASU 2015-14”), which defers the effective date for ASU 2014-09
by one year. For public entities, the guidance in ASU 2014-09 will be effective for annual reporting periods
beginning after December 15, 2017 (including interim reporting periods within those periods), which means it
will be effective for our fiscal year beginning October 1, 2018. Early adoption is permitted to the original
effective date of December 15, 2016 (including interim reporting periods within those periods). In March 2016,
the FASB issued ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue versus Net)”
(“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations in the
new revenue recognition standard. In April 2016, the FASB issued ASU No. 2016-10, “Identifying Performance
Obligations and Licensing” (“ASU 2016-10”), which reduces the complexity when applying the guidance for
identifying performance obligations and improves the operability and understandability of the license
implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Narrow-Scope Improvements and
Practical Expedients” (“ASU 2016-12”), which amends the guidance on transition, collectability, noncash
consideration and the presentation of sales and other similar taxes. In December 2016, the FASB further issued
ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with
Customers” (“ASU 2016-20”), which makes minor corrections or minor improvements to the Codification that
are not expected to have a significant effect on current accounting practice or create a significant administrative
cost to most entities. The amendments are intended to address implementation issues that were raised by
stakeholders and provide additional practical expedients to reduce the cost and complexity of applying the new
revenue standard. These amendments have the same effective date as the new revenue standard.

We are continuing to assess the impact of adopting Top 606 on our consolidated financial statements and

believe the new standard will impact the following policies and disclosures:

• Timing of revenue recognition of license revenue on term licenses and transactional revenue on

•

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

• Required disclosures including information about remaining transaction price and when we expect to

recognize revenue; and

• Accounting for commissions under the new standard will result in the deferral of incremental

commission costs for obtaining contracts.

We do not currently expect Topic 606 to have a significant effect on the timing of revenue recognition for

our maintenance or professional services revenues, or SaaS contracts.

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of

2. Business Combinations

There were no acquisitions incurred during fiscal 2017.

In fiscal 2016, we acquired 100% of the equity of QuadMetrics for $5.7 million in cash. We recorded
$2.0 million of intangible assets, which are being amortized using the straight-line method over a weighted
average useful life of approximately 4.0 years We allocated $3.9 million of goodwill to our Applications segment
that was not deductible for tax purposes.

In fiscal 2015, we acquired 100% of the equity of TONBELLER for $59.6 million in cash. We recorded
$14.9 million of intangible assets, which are being amortized using the straight-line method over a weighted
average useful life of approximately 4.9 years. The goodwill of $46.1 million was allocated to our Applications
segment and was not deductible for tax purposes.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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, 2017 and 2016:

Cash and Cash Equivalents:
Cash
Money market funds
Bank time deposits

Total

Long-term Marketable Securities:
Marketable equity securities

September 30, 2017

September 30, 2016

Amortized
Cost

Gross
Unrealized
Gains

Fair Value

Amortized
Cost

(In thousands)

Gross
Unrealized
Gains

Fair Value

$ 90,323
6,471
8,824

$ — $ 90,323
6,471
8,824

—
—

$75,486
440
—

$105,618

$ — $105,618

$75,926

$ —
—
—

$ —

$75,486
440
—

$75,926

$ 10,788

$3,003

$ 13,791

$ 9,598

$1,418

$11,016

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, 2017 and 2016.

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, 2017 and 2016.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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

September 30, 2017 and 2016:

September 30, 2017

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

Total

September 30, 2016

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

Total

Active Markets for
Identical Instruments
(Level 1)

Fair Value as of
September 30, 2017

(In thousands)

$15,295
13,791

$29,086

$15,295
13,791

$29,086

Active Markets for
Identical Instruments
(Level 1)

Fair Value as of
September 30, 2016

(In thousands)

440
11,016

$11,456

440
11,016

$11,456

(1)

Included in cash and cash equivalents on our balance sheet at September 30, 2017 and 2016. Not included in
this table are cash deposits of $90.3 million and $75.5 million at September 30, 2017 and 2016, 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, 2017 and 2016.

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. We have 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, 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, 2017, 2016 and 2015

(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, 2017 and 2016:

Sell foreign currency:
Euro (EUR)
Buy foreign currency:

British pound (GBP)

Sell foreign currency:
Euro (EUR)
Buy foreign currency:

British pound (GBP)

September 30, 2017

Contract Amount

Fair Value

Foreign Currency

US$

(In thousands)

EUR

5,050

$ 5,968

GBP

9,341

$12,500

September 30, 2016

—

Contract Amount

Fair Value

Foreign Currency

US$

(In thousands)

EUR

7,850

$ 8,743

GBP

7,721

$10,000

—

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

their fair value was $0 at September 30, 2017 and 2016.

Gains (losses) 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, 2017, 2016 and 2015:

Gain (loss) on foreign currency forward contracts

6. Receivables

Receivables at September 30, 2017 and 2016 consisted of the following:

Year Ended September 30,

2017

2016

2015

(In thousands)
$(2,911)

$210

$(62)

Billed
Unbilled (1)

Less: allowance for doubtful accounts

Receivables, net

September 30,

2017

2016

(In thousands)

$126,887
44,640

$124,731
45,247

171,527
(2,941)

169,978
(2,192)

$168,586

$167,786

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

(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,

2017

2016

(In thousands)

$2,192
1,640
(891)

$2,941

$ 2,126
2,011
(1,945)

$ 2,192

7. Goodwill and Intangible Assets

Intangible assets that are subject to amortization consisted of the following at September 30, 2017 and 2016:

September 30, 2017

September 30, 2016

Gross
Carrying
Amount

Accumulated
Amortization

Net

Average
Life

Gross
Carrying
Amount

Accumulated
Amortization

Net

Average
Life

(In thousands, except average life)

Completed

technology

Customer contracts
and relationships

Trade names

$ 84,955

$(77,682)

$ 7,273

28,947
603

(15,091)
(547)

13,856
56

$114,505

$(93,320)

$21,185

8
3

$ 84,184

$ (70,368) $13,816

64,592
575

(45,034)
(330)

19,558
245

$149,351

$(115,732) $33,619

12
3

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 2017, 2016 and 2015:

Cost of revenues
Selling, general and administrative expenses

Total

Year Ended September 30,

2017

2016

2015

$ 6,511
6,198

(In thousands)
$ 7,300
6,682

$ 7,594
6,079

$12,709

$13,982

$13,673

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.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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

September 30, 2017, was as follows (in thousands):

Year Ended September 30,

2018
2019
2020
2021
2022
Thereafter

Total

$ 6,555
6,037
3,670
2,426
2,280
217

$21,185

The following table summarizes changes to goodwill during fiscal 2017 and 2016, both in total and as

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

Balance at September 30, 2015
Addition from acquisitions
Adjustment related to prior acquisitions
Foreign currency translation adjustment

Balance at September 30, 2016

Applications

Scores

Decision
Management
Software

Total

(In thousands)

$596,765
3,857
283
(18,185)

$146,648
—
—
—

$71,337
—
—
(2,290)

$814,750
3,857
283
(20,475)

582,720

146,648

69,047

798,415

Foreign currency translation adjustment

5,568

—

431

5,999

Balance at September 30, 2017

$588,288

$146,648

$69,478

$804,414

8. Composition of Certain Financial Statement Captions

The following table presents the composition of property and equipment at September 30, 2017 and 2016:

Property and equipment:

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

Total

September 30,

2017

2016

(In thousands)

$ 88,830
20,763
25,767
(94,657)

$ 84,761
16,847
25,152
(81,638)

$ 40,703

$ 45,122

9. Revolving Line of Credit

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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
0.500% and (c) the one-month LIBOR rate plus 1.000%, plus, in each case, an applicable margin, or (ii) an
adjusted LIBOR rate plus an applicable margin. The applicable margin for base rate borrowings ranges from 0%
to 0.875% and for LIBOR borrowings ranges from 1.000% to 1.875% and is determined based on our
consolidated leverage ratio. In addition, we must pay credit facility fees. The credit facility contains certain
restrictive covenants including maintaining a minimum fixed charge ratio of 2.5 and a maximum consolidated
leverage ratio of 3.0, subject to a step up to 3.5 following certain permitted acquisitions. The credit agreement
also contains other covenants typical of unsecured facilities. As of September 30, 2017, we had $361.0 million in
borrowings outstanding at a weighted average interest rate of 2.365%, of which $350.0 million was classified as
a long-term liability and recorded in long-term debt within the accompanying consolidated balance sheets. We
were in compliance with all financial covenants under this credit facility as of September 30, 2017.

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

Amount

Interest Rate

Maturity Date

A
B
C
D

(In millions)
$ 41.0
$ 40.0
$ 63.0
$131.0

6.37%
6.37%
6.71%
7.18%

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

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

(In millions)
$60.0
$72.0
$28.0
$85.0

4.72%
5.04%
5.42%
5.59%

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

We were and 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 contain certain restrictive
covenants, including the maintenance of consolidated net debt to consolidated EBITDA ratio and a fixed charge
coverage ratio. The purchase agreements for the Senior Notes also contain certain covenants typical of unsecured
facilities. As of September 30, 2017, we were in compliance with all financial covenants.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

The following table presents the carrying amounts and fair values for the Senior Notes at September 30,

2017 and 2016:

The 2008 Senior Notes
The 2010 Senior Notes
Debt issuance costs

Total

September 30, 2017

September 30, 2016

Carrying
Amounts

Fair Value

Carrying
Amounts (1)

Fair Value (1)

(In thousands)

$131,000
113,000
(199)

$134,250
119,106
(199)

$131,000
185,000
(376)

$139,902
195,715
(376)

$243,801

$253,157

$315,624

$335,241

(1) Balances as of September 30, 2016 have been recast as a result of the adoption of ASU 2015-03 to present
debt issuance costs of $0.4 million as a direct deduction from the carrying amount of the Senior Notes.

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,

2018
2019
2020

Total

11. Employee Benefit Plans

Defined Contribution Plans

$131,000
28,000
85,000

$244,000

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 $8.4 million, $7.3 million and
$7.1 million during fiscal 2017, 2016 and 2015, respectively.

Employee Incentive Plans

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

awards generally are based on the achievement of certain financial and performance objectives subject to the
discretion of management. Total expenses under our employee incentive plans were $41.6 million, $40.0 million
and $20.3 million during fiscal 2017, 2016 and 2015, respectively.

12. Restructuring Expenses

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

charges due to the elimination of 79 positions throughout the Company. Cash payments for all the facilities
charges will be paid by the end of fiscal 2020. Cash payments for all the employee separation costs will be paid
by the end of the second quarter of fiscal 2018.

There was no restructuring expense incurred during fiscal 2016.

The following tables summarize our restructuring accruals associated with the above actions. The current
portion and non-current portion was recorded in other accrued 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,
2015

$12,995
2,405

15,400

(5,570)

$ 9,830

Expense
Additions

Cash
Payments

(In thousands)

$—
—

$—

$(3,762)
(2,405)

$(6,167)

Accrual at
September 30,
2016

$ 9,233
—

9,233

(4,266)

$ 4,967

Accrual at
September 30,
2016

Expense
Additions

Cash
Payments

(In thousands)

Accrual at
September 30,
2017

$ 9,233
—

$1,729
2,742

$(2,842)
(2,557)

$ 8,120
185

9,233

$4,471

$(5,399)

8,305

(4,266)

$ 4,967

(3,077)

$ 5,228

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

13. Income Taxes

The provision for income taxes was as follows during fiscal 2017, 2016 and 2015:

Current:

Federal
State
Foreign

Deferred:

Federal
State
Foreign

Total provision

Year ended September 30,

2017

2016

2015

(In thousands)

$19,576
1,055
8,486

$ 50,631
2,900
7,597

$23,646
(5,381)
10,405

29,117

61,128

28,670

(5,027)
(296)
(726)

(23,592)
(225)
(2,190)

(6,049)

(26,007)

(5,004)
1,422
(2,352)

(5,934)

$23,068

$ 35,121

$22,736

The foreign provision was based on foreign pre-tax earnings of $27.8 million, $33.0 million and
$45.2 million in fiscal 2017, 2016 and 2015, respectively. Current foreign tax expense related to foreign tax
withholdings was $4.6 million, $6.5 million and $5.3 million in fiscal 2017, 2016 and 2015, respectively. Foreign
withholding tax and related foreign tax credits are included in current tax expense above.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

Deferred tax assets and liabilities at September 30, 2017 and 2016 were as follows:

Deferred tax assets:

Net operating loss carryforward
Foreign tax credit carryforward
Research credit carryforward
Accrued bonus
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
Deferred revenue
Other

Total deferred tax liabilities

Deferred tax assets, net

September 30,

2017

2016

(In thousands)

$ 16,765
10,286
7,333
14,468
582
1,585
29,770
—
3,026
3,476
8,630

$ 16,122
14,590
6,132
13,807
619
1,328
27,203
1,467
3,406
3,348
7,728

95,921
(17,657)

95,750
(15,145)

78,264

80,605

(25,346)
(4,681)
(41)
(992)

(28,056)
(3,959)
—
(992)

(31,060)

(33,007)

$ 47,204

$ 47,598

Based upon the level of historical taxable income and projections for future taxable income over the periods

that the deferred tax assets will reverse, management believes it is more likely than not that we will realize the
benefits of the deferred tax assets, net of the existing valuation allowance at September 30, 2017.

As of September 30, 2017, we had available U.S. federal, state and foreign net operating loss (“NOL”)
carryforwards of approximately $17.1 million, $0.3 million, and $38.8 million, respectively. The U.S. NOLs
were acquired in connection with our acquisitions of Braun in fiscal 2005, Adeptra in fiscal 2012, Infoglide in
fiscal 2013 and Quadmetrics in 2016. The U.S. federal NOL carryforward will expire at various dates beginning
in fiscal 2020, if not utilized. The state NOL carryforward will begin to expire at various dates beginning in fiscal
2021, if not utilized. The $38.8 million of foreign NOL includes $24.2 million related to China. Due to a limited
ability to utilize the China NOLs a full valuation allowance has been recorded on the China NOLs, resulting in
no tax benefit. 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. In
fiscal 2016 and 2017 we generated excess foreign tax credits associated with dividends received from two of our
foreign subsidiaries. The associated deferred tax asset of $9.6 million can be carried forward for up to 10 years.
Management believes it is more likely than not that we will realize the benefit of this deferred tax asset and
therefore no valuation allowance has been recorded to offset the future benefit of these credits. We also have
available excess California state research credit of approximately $7.3 million. The California state research

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

credit does not have an expiration date; however, based on enacted law and expected future cash taxes, we have
recorded a valuation allowance of $7.3 million.

A reconciliation of the provision for income taxes, with the amount computed by applying the U.S. federal
statutory income tax rate (35% in fiscal 2017, 2016 and 2015) to income before provision for income taxes for
fiscal 2017, 2016 and 2015 is shown below:

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
Amended Returns/Audit Settlements/Statute Expirations
Foreign
Valuation allowance
Foreign tax credit
Excess tax benefits relating to stock-based compensation
Other

Year Ended September 30,

2017

2016

2015

$ 52,963
2,193
(1,761)
(477)
(2,572)
(3,075)
(1,296)
744
2,512
(1,342)
(24,746)
(75)

(In thousands)
$50,599
2,244
(4,661)
(1,223)
(4,398)
(3,726)
(248)
(1,702)
1,262
(3,286)
—
260

$38,233
1,719
(5,279)
(1,260)
(2,104)
(1,607)
(5,806)
(3,109)
1,805
(1,296)
—
1,440

Recorded income tax provision

$ 23,068

$35,121

$22,736

The decrease in our income tax provision in fiscal 2017 compared to fiscal 2016 was due primarily to the

The increase in our income tax provision in fiscal 2016 compared to fiscal 2015 was due primarily to the
favorable settlement of the fiscal 2006-2009 state audits and the favorable settlement of the 2010 foreign transfer
pricing assessment in fiscal 2015, partially offset by an increase in the foreign tax credit associated with the
repatriation of income from the United Kingdom and Brazil and the Domestic Production Activities Deduction in
fiscal 2016.

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

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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 2014. We are currently under audit by New York City for fiscal 2011, 2012
and 2013. 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
Decreases due to statue expiration

Gross unrecognized tax benefits at end of year

Year Ended September 30,

2017

2016

2015

$ 6,799
57
(19)
1,291
(151)
(1,497)

(In thousands)
$4,634
1,004
(117)
1,310
(32)
—

$ 4,554
1,725
(3)
582
(2,224)
—

$ 6,480

$6,799

$ 4,634

We had $6.5 million of total unrecognized tax benefits as of September 30, 2017, including $5.8 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 unlikely there will be a reduction of the uncertain tax benefits 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, 2017, we have accrued interest of $0.4 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 one other long-term
incentive plan under which awards are currently outstanding: the 1992 Long-term Incentive Plan, which was
adopted in February 1992 and expired in February 2012. Stock option awards have a maximum term of seven
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 the achievement of specified criteria. At September 30, 2017, there were 4,018,329 shares
available for issuance under the 2012 Plan.

Description of Employee Stock Purchase Plan

Under our Employee Stock Purchase Plan (the “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

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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, 2017, there were 2,707,966 shares available for issuance.

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

treasury shares.

Share-Based Compensation Expense and Related Income Tax Benefits

We recorded share-based compensation expense of $61.2 million, $55.5 million and $45.3 million in fiscal
years 2017, 2016 and 2015, respectively. The total tax benefit related to this share-based compensation expense
was $20.4 million, $18.7 million and $16.1 million in fiscal 2017, 2016 and 2015, respectively. As of
September 30, 2017, there was $87.6 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 2.34 years.

In fiscal 2017 we received $14.5 million in cash from stock option exercises, with the tax benefit realized

for the tax deductions from these exercises of $9.4 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 2017, 2016 and 2015:

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)

Year Ended September 30,

2017

2016

2015

4.18

5.00
4.83
35.3% 35.3 - 36.4% 34.5 - 35.3%
35.3%
34.6%
36.0%
2.02% 1.21 - 1.49% 1.33 - 1.48%
0.14%
0.09%
0.07%
0.07% 0.09 - 0.10% 0.11 - 0.14%

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.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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 2017:

Outstanding at October 1, 2016
Granted
Exercised

Outstanding at September 30, 2017

Exercisable at September 30, 2017

Weighted-
average
Exercise
Price

$ 52.37
128.80
44.52

$ 56.54

(In thousands)
1,521
34
(325)

1,230

946

$ 50.29

Vested and expected to vest at September 30, 2017

1,223

$ 56.43

Weighted-
average
Remaining
Contractual
Term

Aggregate
Intrinsic Value

(In years)

(In thousands)

3.12

2.74

3.11

$103,275

$ 85,354

$102,843

The weighted average fair value of options granted were $43.80, $31.06 and $21.66 during fiscal 2017,
2016 and 2015, respectively. The aggregate intrinsic value of options outstanding at September 30, 2017 was
calculated as the difference between the exercise price of the underlying options and the market price of our
common stock for the 1.2 million outstanding shares, which had exercise prices lower than the $140.50 market
price of our common stock at September 30, 2017. The total intrinsic value of options exercised was
$27.0 million, $41.3 million and $24.3 million during fiscal 2017, 2016 and 2015, 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, if applicable. We amortize the fair value on a straight-
line basis over the vesting period.

The following table summarizes the RSUs activity during fiscal 2017:

Outstanding at October 1, 2016
Granted
Released
Forfeited

Outstanding at September 30, 2017

(In thousands)
1,211
460
(475)
(52)

1,144

Weighted-average
Grant-date Fair Value

$ 76.93
122.47
68.54
93.80

$ 97.95

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

The weighted average fair value of the RSUs granted were $122.47, $94.77 and $73.93 during fiscal 2017,
2016 and 2015, respectively. The total intrinsic value of the RSUs that vested was $58.7 million, $49.8 million
and $38.5 million during fiscal 2017, 2016 and 2015, respectively, determined as of the date of vesting.

Performance Share 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. We estimate the fair value of the PSUs using the closing
market price of our common stock on the date of grant, adjusted for the expected dividend yield if applicable,
based on the performance condition that is probable of achievement. We amortize the fair values over the
requisite service period for each vesting tranche of the award. We reassess the probability at each reporting
period and recognize the cumulative effect of the change in estimate in the period of change.

The following table summarizes the PSUs activity during fiscal 2017:

Outstanding at October 1, 2016
Granted
Released

Outstanding at September 30, 2017

(In thousands)
230
110
(136)

204

Weighted-average
Grant-date Fair Value

$ 73.99
121.30
65.24

$105.37

The weighted average fair value of the PSUs granted were $121.30, $91.74 and $71.86 during fiscal 2017,
2016 and 2015, respectively. The total intrinsic value of the PSUs that vested was $16.6 million, $14.0 million
and $9.7 million during fiscal 2017, 2016 and 2015, respectively, determined as of the date of vesting.

Market Share Units

Market share units (“MSUs”) are granted to our senior officers and earned based on our total shareholder

return relative to the Russell 3000 Index over performance periods of one, two and three years. We estimate the
fair value of MSUs granted using the Monte Carlo valuation model and amortize the fair values over the requisite
service period 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 earned by the employee, provided the
requisite service is rendered. We used the following assumptions to estimate the fair value of our MSUs during
fiscal 2017, 2016 and 2015:

Expected volatility in FICO’s stock price
Expected volatility in Russell 3000 Index
Correlation between FICO and the Russell 3000 Index
Risk-free interest rate
Average expected dividend yield

Year Ended
September 30,

2017

2016

2015

27.4% 24.1% 26.6%
13.6% 12.8% 12.2%
59.8% 60.2% 55.9%
1.40% 1.25% 1.10%
0.07% 0.09% 0.14%

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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.

The following table summarizes the MSUs activity during fiscal 2017:

Outstanding at October 1, 2016
Granted
Released

Outstanding at September 30, 2017

(In thousands)
142
155
(166)

131

Weighted-average
Grant-date Fair Value

$100.40
108.09
89.09

$123.82

The weighted average fair value of the MSUs granted were $108.09, $100.63 and $101.85 during fiscal

2017, 2016 and 2015, respectively. The total intrinsic value of the MSUs that vested was $20.2 million,
$9.2 million and $1.7 million during fiscal 2017, 2016 and 2015, respectively, determined as of the date of
vesting.

15. Earnings per Share

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

earnings per share (“EPS”) during fiscal 2017, 2016 and 2015:

Year Ended September 30,

2017

2016

2015

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

(In thousands, except per share data)
$109,448

$128,256

$86,502

30,862
1,383

32,245

31,129
1,179

32,308

31,402
1,207

32,609

4.16

3.98

3.52

3.39

2.75

2.65

The computation of diluted EPS excludes options to purchase approximately 8,000, 9,000, and 138,000
shares of common stock for fiscal 2017, 2016 and 2015, respectively, because the exercise prices of the options
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

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

party revenue was immaterial for the years ended September 30, 2017, 2016 and 2015. The accounts receivable
balance from this company was not significant as of September 30, 2017 and 2016.

17. Segment Information

We are organized into the following three operating segments, each of which is a reportable segment, to

align with internal management of our worldwide business operations based on product offerings.

•

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, 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.

Decision Management Software. 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 Suite, as well as associated professional services. These tools are
available to our customers as on-premises software or through the FICO® Analytic Cloud.

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.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

The following tables summarize segment information for fiscal 2017, 2016 and 2015:

Segment revenues:

Transactional and maintenance
Professional services
License

Total segment revenues

Segment operating expense

Year Ended September 30, 2017

Applications

Scores

Decision
Management
Software

Unallocated
Corporate
Expenses

Total

(In thousands)

$ 348,861
141,857
62,449

$259,780
2,849
3,725

$ 44,019
34,863
33,766

— $ 652,660
179,569
—
99,940
—

553,167
(393,667)

266,354
(54,436)

112,648
(123,466)

—

(104,998)

932,169
(676,567)

Segment operating income (loss)

$ 159,500

$211,918

$ (10,818) $(104,998) $ 255,602

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

expenses

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

Income before income taxes

(61,222)
(12,709)

(4,471)

177,200
(25,790)
(86)

$ 151,324

Depreciation expense

$ 15,857

991

4,783

1,349

$ 22,980

Segment revenues:

Transactional and maintenance
Professional services
License

Total segment revenues

Segment operating expense

Year Ended September 30, 2016

Applications

Scores

Decision
Management
Software

Unallocated
Corporate
Expenses

Total

(In thousands)

$ 328,472
138,775
65,395

$233,655
4,185
3,219

$ 43,792
26,778
37,085

— $ 605,919
169,738
—
105,699
—

532,642
(364,371)

241,059
(55,975)

107,655
(111,315)

—

(110,612)

881,356
(642,273)

Segment operating income (loss)

$ 168,271

$185,084

(3,660) $(110,612)

239,083

Unallocated share-based compensation expense
Unallocated amortization expense

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

Income before income taxes

(55,509)
(13,982)

169,592
(26,633)
1,610

$ 144,569

Depreciation expense

$ 11,852

814

3,657

1,328

$ 17,651

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

Year Ended September 30, 2015
Decision
Management
Software

Unallocated
Corporate
Expenses

Scores

Total

Applications

Segment revenues:

Transactional and maintenance
Professional services
License

Total segment revenues

Segment operating expense

(In thousands)

$ 320,596
124,562
81,116

$200,426
2,901
3,680

$ 43,210
24,310
37,980

$ — $ 564,232
151,773
122,776

—
—

526,274
(366,666)

207,007
(55,793)

105,500
(111,850)

—
(89,744)

838,781
(624,053)

Segment operating income (loss)

$ 159,608

$151,214

(6,350)

$(89,744)

214,728

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

expenses

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

Income before income taxes

(45,308)
(13,673)

(18,242)

137,505
(29,150)
883

$ 109,238

Depreciation expense

$ 13,861

921

3,087

$ 2,347

$ 20,216

Our revenues and percentage of revenues by reportable market segments were as follows for fiscal 2017,
2016 and 2015, the majority of which were derived from the sale of products and services within the banking
(including consumer credit) industry:

Applications
Scores
Decision Management Software

Total

Year Ended September 30,

2017

2016

2015

(Dollars in thousands)

$553,167
266,354
112,648

59% $532,642
29% 241,059
12% 107,655

61% $526,274
27% 207,007
12% 105,500

63%
25%
12%

$932,169

100% $881,356

100% $838,781

100%

Within our Applications segment our fraud solutions accounted for 19%, 20% and 23% of total revenues in
each of fiscal 2017, 2016 and 2015, respectively, our customer communication services accounted for 10%, 9%
and 8% of total revenues in each of these periods, respectively; and our customer management solutions
accounted for 8%, 9% and 9% of total revenues in each of these periods, respectively.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

Our revenues and percentage of revenues on a geographical basis are summarized below for fiscal 2017,

2016 and 2015:

United States
United Kingdom
Other countries

Total

Year Ended September 30,

2017

2016

2015

(Dollars in thousands)

$598,765
71,989
261,415

64% $567,443
8%
86,485
28% 227,428

64% $505,109
10%
93,855
26% 239,817

60%
11%
29%

$932,169

100% $881,356

100% $838,781

100%

During fiscal 2017, 2016 and 2015, 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, Experian, TransUnion and Equifax. Revenues collectively generated by agreements with
these customers accounted for 20%, 19% and 16% of our total revenues in fiscal 2017, 2016 and 2015,
respectively. At September 30, 2017 and 2016, 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, 2017 and

2016:

United States
United Kingdom
Other countries

Total

18. Commitments

September 30,

2017

2016

$30,773
4,893
5,037

(Dollars in thousands)
76% $36,083
3,769
12%
5,270
12%

80%
8%
12%

$40,703

100% $45,122

100%

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

at September 30, 2017:

Year Ended September 30,

2018
2019
2020
2021
2022
Thereafter

Total

Future
Minimum
Lease
Commitments

(In thousands)
$ 23,787
22,042
13,414
9,619
9,104
22,790

$100,756

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

Lease Commitments

The above amounts have contractual sublease commitments totaling $0.3 million for fiscal 2018 and fiscal
2019. 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 $18.6 million,
$17.6 million and $20.7 million during fiscal 2017, 2016 and 2015, 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
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.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

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, 2017. 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 (1)

Gross profit

Net income

Earnings per share (2):

Basic

Diluted

Shares used in computing earnings per share:

Basic
Diluted

Revenues
Cost of revenues (1)

Gross profit

Net income

Earnings per share (2):

Basic

Diluted

Quarter Ended

September 30,
2017

June 30,
2017

March 31,
2017

December 31,
2016

(In thousands, except per share data)

$253,205
75,202

$230,986
69,793

$228,378
72,131

$219,600
69,997

178,003

161,193

156,247

149,603

$ 40,044

$ 25,227

$ 25,084

$ 37,901

1.31

1.25

0.82

0.78

0.81

0.78

1.22

1.16

30,534
31,963

30,914
32,224

31,017
32,260

30,989
32,536

Quarter Ended

September 30,
2016

June 30,
2016

March 31,
2016

December 31,
2015

(In thousands, except per share data)

$235,824
74,298

$238,778
66,384

$206,678
62,298

$200,076
62,193

161,526

172,394

144,380

137,883

$ 32,104

$ 34,987

$ 23,116

$ 19,241

1.04

1.00

1.12

1.08

0.74

0.72

0.62

0.59

Shares used in computing earnings per share:

Basic
Diluted

30,916
32,221

31,149
32,313

31,268
32,262

31,185
32,436

(1) Cost of revenues excludes amortization expense of $1.4 million, $1.7 million, $1.7 million, $1.7 million,
$1.7 million, $1.8 million, $1.8 million and $1.9 million for the quarters ended September 30, 2017,
June 30, 2017, March 31, 2017, December 31, 2016, September 30, 2016, June 30, 2016, March 31, 2016
and December 31, 2015, respectively.

(2) 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.

FAIR ISAAC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2017, 2016 and 2015

22. Subsequent Events

In October 2017, our Board of Directors approved a new stock repurchase program following the

completion of a similar program that was approved in July 2016. 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.

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

Not applicable.

Item 9A. Controls and Procedures

Evaluation of Disclosure 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.

Changes in Internal Control over Financial Reporting

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,
2017, 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 defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. 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 as of September 30, 2017 based on the guidelines established in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation management has concluded that our internal control over
financial reporting was effective as of September 30, 2017.

Deloitte & Touche LLP, an 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, 2017, 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 28, 2018.

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 . . . . . . . . . . . . . . . November 2015-present, Executive Vice President, Chief Human
Resources Officer of the Company. August 2007-November 2015,
Senior Vice President, Chief Human Resources Officer of the
Company. January 2001-August 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

Age

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 28, 2018.

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 website 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 website. 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 28, 2018.

Item 11. Executive Compensation

The information required by this Item is incorporated by reference from the information under the captions
“Director Compensation for 2017,” “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 28, 2018.

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 28, 2018.

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 28, 2018.

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 28, 2018.

100

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, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated statements of income and comprehensive income for the years ended September 30,
2017, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated statements of stockholders’ equity for the years ended September 30, 2017, 2016

and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated statements of cash flows for the years ended September 30, 2017, 2016 and 2015 . .
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

58
59

61
62
63

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

Bylaws of Fair Isaac Corporation. (Incorporated by reference to Exhibit 3.1 to the Company’s
Form 10-Q for the quarter ended December 31, 2009 (file no. 001-11689))

Composite Restated Certificate of Incorporation of Fair Isaac Corporation. (Incorporated by
reference to Exhibit 3.2 to the Company’s Form 10-Q for the quarter ended December 31, 2009 (file
no. 001-11689))

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 the Company’s Form 8-K filed on May 13, 2008 (file
no. 001-11689))

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 (file
no. 001-11689))

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 for the quarter ended
June 30, 2010 (file no. 001-11689)) (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 the Company’s Form 10-Q for
the quarter ended December 31, 2007 (file no. 001-11689)) (1)

101

Exhibit
Number

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

Description

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 quarter ended December 31, 2008 (file no. 001-11689)) (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 the Company’s Form 10-Q for
the quarter ended December 31, 2007 (file no. 001-11689)) (1)

Form of Restricted Stock Agreement under 1992 Long-Term Incentive Plan. (Incorporated by
reference to Exhibit 10.43 to the Company’s Form 10-K for the period ended September 30, 2006
(file no. 001-11689)) (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 (file no. 001-11689)) (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 Form 10-K for the
fiscal year ended September 30, 2002 (file no. 001-11689)) (1)

Form of Management Agreement entered into with each of the Company’s executive officers.
(Incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on February 10,
2012.) (1)

Form of Amendment to Management Agreement entered into with certain of the Company’s
executive officers. (Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the
quarter ended December 31, 2014) (1)

Form of Amendment to Management Agreement entered into with each of the Company’s executive
officers. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter
ended June 30, 2016.)

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 (file
no. 001-11689)) (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)

102

Exhibit
Number

10.19

10.20

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

Description

Letter Agreement dated November 5, 2014 by and between the Company and Wayne Huyard.
(Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended
December 31, 2014.) (1)

Form of Amendment to Letter Agreement entered into with each of the Company’s executive
officers. (Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter
ended June 30, 2016.) (1)

Fair Isaac Corporation 2012 Long-Term Incentive Plan, as amended through February 24, 2016.
(Incorporated by reference to Exhibit A of the Company’s definitive proxy statement for the 2016
Annual Meeting of Stockholders, filed with the SEC on January 20, 2016.) (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)

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 Employee Non-Statutory Stock Option Agreement 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, 2016.) (1)

Form of Employee Restricted Stock Unit Award Agreement 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, 2016.) (1)

Form of Executive Non-Statutory Stock Option Agreement 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
December 31, 2016.) (1)

Form of Executive Restricted Stock Unit Award Agreement 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
December 31, 2016.) (1)

Form of Employee Non Statutory Stock Option Agreement (International) 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 December 31, 2016.) (1)

Form of Employee Non Statutory Stock Option Agreement (United Kingdom) 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 December 31, 2016.) (1)

Form of Employee Restricted Stock Unit Award Agreement (International) 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 December 31, 2016.) (1)

103

Exhibit
Number

10.33

10.34

10.35

10.36

10.37

10.38

10.39

10.40

10.41

10.42

10.43

10.44

10.45

10.46

Description

Form of Employee Restricted Stock Unit Award Agreement (United Kingdom) under the 2012 Long-
Term Incentive Plan. (Incorporated by reference to Exhibit 10.9 to the Company’s Form 10-Q for the
quarter ended December 31, 2016.) (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 Director Non-Statutory Stock Option Agreement 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
March 31, 2017.) (1)

Form of Director Restricted Stock Unit Award Agreement 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, 2017.) (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 Performance Share Unit Award Agreement (fiscal 2015 grants) under the 2012 Long-Term
Incentive Plan. (Incorporated by reference to Exhibit 10.29 to the Company’s Form 10-K for the
fiscal year ended September 30, 2015.) (1)

Form of Performance Share Unit Award Agreement (fiscal 2016 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, 2015.) (1)

Form of Performance Share Unit Award Agreement (fiscal 2017 grants) under the 2012 Long-Term
Incentive Plan. (Incorporated by reference to Exhibit 10.10 to the Company’s Form 10-Q for the
quarter ended December 31, 2016.) (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)

Form of Market Share Unit Agreement (fiscal 2015 grants) under the 2012 Long-Term Incentive
Plan. (Incorporated by reference to Exhibit 10.31 to the Company’s Form 10-K for the fiscal year
ended September 30, 2015.) (1)

Form of Market Share Unit Award Agreement (fiscal 2016 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, 2015.) (1)

104

Exhibit
Number

10.47

10.48

10.49

10.50

12.1*

21.1*

23.1*

31.1*

31.2*

32.1*

32.2*

Description

Form of Market Share Unit Agreement (fiscal 2017 grants) under the 2012 Long-Term Incentive
Plan. (Incorporated by reference to Exhibit 10.11 to the Company’s Form 10-Q for the quarter ended
December 31, 2016.) (1)

Amended and Restated Credit Agreement dated December 31, 2014 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 Form 8-K filed on
December 31, 2014.)

First Amendment to Amended and Restated Credit Agreement among the Company, Wells Fargo
Bank, National Association as administrative agent and the lenders thereto dated as of April 16,
2015. (Incorporated by reference to the Exhibit 10.1 to the Company’s Form 8-K filed on April 17,
2015.)

Commitment Increase Agreement and Second Amendment to Credit Agreement dated as of June 26,
2017 by and among Fair Isaac Corporation, the lenders party thereto and Wells Fargo Bank, National
Association as Administrative Agent (Incorporated by reference to the Exhibit 10.1 to the
Company’s Form 8-K filed on June 26, 2017.)

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.

105

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 9, 2017

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/ MARK W. BEGOR

Mark W. Begor

/s/ BRADEN R. KELLY
Braden R. Kelly

/s/ JAMES D. KIRSNER

James D. Kirsner

/s/ MARC F. MCMORRIS

Marc F. McMorris

/s/ JOANNA REES

Joanna Rees

/s/ DAVID A. REY

David A. Rey

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)

Director

106

November 9, 2017

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