SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
|_| TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to____________
Commission File Number
0-16439
FAIR, ISAAC AND COMPANY, INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 94-1499887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Smith Ranch Road, San Rafael, California 94903
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 472-2211
----------
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 |X| No |_|.
The number of shares of Common Stock, $0.01 par value per share,
outstanding on February 7, 2001, was 23,123,851.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements............................................. 3
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 11
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk....... 22
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.............. 23
ITEM 6. Exhibits and Reports on Form 8-K................................. 23
SIGNATURES ............................................................. 24
EXHIBIT INDEX............................................................. 25
2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
FAIR, ISAAC AND COMPANY, INCORPORATED
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and September 30, 2001
(in thousands)
(Unaudited)
December 31, September 30,
2001 2001
------------ -------------
Assets
Current assets:
Cash and cash equivalents $ 45,447 $ 24,608
Short-term investments 14,155 13,800
Accounts receivable, net 56,119 51,619
Unbilled work in progress 29,924 28,452
Prepaid expenses and other current assets 10,815 10,565
Deferred income taxes 6,117 5,217
--------- ---------
Total current assets 162,577 134,261
Investments 117,522 116,143
Property and equipment, net 47,335 49,383
Intangibles, net 9,959 6,530
Deferred income taxes 5,504 5,504
Other assets 5,966 5,192
--------- ---------
$ 348,863 $ 317,013
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 4,670 $ 1,415
Accrued compensation and employee benefits 14,964 18,233
Other accrued liabilities 12,872 9,959
Billings in excess of earned revenues 9,291 10,030
--------- ---------
Total current liabilities 41,797 39,637
--------- ---------
Long-term liabilities:
Accrued compensation and employee benefits 4,828 4,755
Other liabilities 423 849
--------- ---------
Total long-term liabilities 5,251 5,604
--------- ---------
Total liabilities 47,048 45,241
--------- ---------
Stockholders' equity:
Preferred stock -- --
Common stock 236 233
Paid in capital in excess of par value 113,326 95,875
Retained earnings 213,828 200,737
Less treasury stock, at cost (25,628) (26,446)
Accumulated other comprehensive income 53 1,373
--------- ---------
Total stockholders' equity 301,815 271,772
--------- ---------
$ 348,863 $ 317,013
========= =========
See accompanying notes to the consolidated financial statements.
3
FAIR, ISAAC AND COMPANY, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the three months ended December 31, 2001 and 2000
(in thousands, except per share data and number of shares)
(Unaudited)
Three Months Ended
December 31,
---------------------------
2001 2000
------------ ------------
Revenues $ 85,061 $ 77,123
Costs and expenses:
Cost of revenues 38,585 35,265
Research and development 7,477 7,315
Sales, general and administrative 17,942 20,146
Amortization of intangibles 525 525
------------ ------------
Total costs and expenses 64,529 63,251
------------ ------------
Income from operations 20,532 13,872
Other income, net 1,859 1,148
------------ ------------
Income before income taxes 22,391 15,020
Provision for income taxes 8,844 6,203
------------ ------------
Net income $ 13,547 $ 8,817
============ ============
Net Income $ 13,547 $ 8,817
Other comprehensive income, net of tax:
Unrealized gains (losses) on investments 685 (48)
Foreign currency translation adjustments 55 124
------------ ------------
Other comprehensive income 740 76
------------ ------------
Comprehensive income $ 14,287 $ 8,893
============ ============
Earnings per share:
Diluted $ 0.57 $ 0.40
============ ============
Basic $ 0.59 $ 0.40
============ ============
Shares used in computing earnings per share:
Diluted 23,964,000 22,168,000
============ ============
Basic 22,793,000 21,801,000
============ ============
See accompanying notes to the consolidated financial statements.
4
FAIR, ISAAC AND COMPANY, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31, 2001 and 2000
(in thousands)
(Unaudited)
Three Months Ended
December 31,
-----------------------
2001 2000
-------- --------
Cash flows from operating activities
Net income $ 13,547 $ 8,817
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation and amortization 6,706 5,936
Deferred compensation 249 249
Tax benefit from exercise of stock options 4,732 233
Other (63) 169
Changes in operating assets and liabilities:
Accounts receivable (2,654) (3,034)
Unbilled work in progress (1,472) 1,538
Prepaid expenses and other assets (720) (1,084)
Accounts payable 6,707 5,744
Accrued compensation and employee benefits (1,678) 1,294
Other accrued liabilities and other liabilities (1,492) (921)
Billings in excess of earned revenues (1,237) (199)
-------- --------
Net cash provided by operating activities 22,625 18,742
-------- --------
Cash flows from investing activities
Purchases of property and equipment (3,879) (3,039)
Cash portion of Nykamp acquisition (2,593) --
Purchases of investments (34,926) (26,380)
Proceeds from maturities of investments 6,760 11,110
Proceeds from sales of investments 24,352 --
-------- --------
Net cash used in investing activities (10,286) (18,309)
-------- --------
Cash flows from financing activities
Principal payments of capital lease obligations -- (111)
Proceeds from the exercise of stock options and
issuance of treasury stock 8,956 2,205
Dividends paid (456) (291)
Repurchase of company stock -- (8,192)
-------- --------
Net cash provided by (used in) financing activities 8,500 (6,389)
-------- --------
Increase (decrease) in cash and cash equivalents 20,839 (5,956)
Cash and cash equivalents, beginning of period 24,608 39,506
-------- --------
Cash and cash equivalents, end of period $ 45,447 $ 33,550
======== ========
See accompanying notes to the consolidated financial statements.
5
FAIR, ISAAC AND COMPANY, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 General
In management's opinion, the accompanying unaudited consolidated financial
statements for Fair, Isaac and Company, Incorporated (the "Company") for the
three months ended December 31, 2001 and 2000 have been prepared in accordance
with generally accepted accounting principles for interim financial statements
and include all adjustments (consisting only of normal recurring accruals unless
otherwise stated) that the Company considers necessary for a fair presentation
of its financial position, results of operations, and cash flows for such
periods. However, the accompanying financial statements do not contain all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. All such financial statements
presented herein are unaudited, however, the September 30 balance sheet has been
derived from audited financial statements. This report and the accompanying
financial statements should be read in connection with the Company's audited
financial statements and notes thereto presented in its Annual Report on Form
10-K for the fiscal year ended September 30, 2001. Notes that would
substantially duplicate the disclosures in the Company's audited financial
statements for the fiscal year ended September 30, 2001, contained in the 2001
Form 10-K, have been omitted. The interim financial information contained in
this Report is not necessarily indicative of the results to be expected for any
other interim period or for the full fiscal year ending September 30, 2002.
Note 2 Earnings Per Share
The following reconciles the numerators and denominators of diluted and
basic earnings per share (EPS):
Three months ended December 31,
(in thousands, except per share data) 2001 2000
- ------------------------------------------------------------------------------------------------
Numerator - Net income $ 13,547 $ 8,817
======== ========
Denominator - Shares:
Diluted weighted-average shares and assumed
conversion of stock options 23,964 22,168
Effect of dilutive securities - employee stock options (1,160) (367)
Effect of restricted securities issued in Nykamp acquisition (11) --
-------- --------
Basic weighted-average shares 22,793 21,801
======== ========
Earnings per share:
Diluted $ 0.57 $ 0.40
======== ========
Basic $ 0.59 $ 0.40
======== ========
The computation of diluted EPS at December 31, 2001 and 2000 respectively,
excludes stock options to purchase 329,000 and 798,000 shares of common stock.
The shares were excluded because the exercise prices for the options were
greater than the respective average market price of the common shares and their
inclusion would be antidilutive.
6
Note 3 Cash Flow Statement
Supplemental disclosure of cash flow information:
Three months ended December 31,
(in thousands) 2001 2000
- --------------------------------------------------------------------------------------
Income tax payments $ 140 $ 99
Interest paid -- 100
Non-cash investing and financing activities:
Issuance of treasury stock to ESOP and ESPP $1,518 $1,032
Fair value of assets acquired from Nykamp 6,425 --
Liabilities acquired from Nykamp 787 --
Future installment share payments for acquisition
of Nykamp 2,818 --
Note 4 New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires business combinations initiated after June 30,
2001 to be accounted for using the purchase method of accounting, thereby
eliminating use of the pooling-of-interest method. It also specifies the types
of acquired intangible assets that are to be recognized and reported separately
from goodwill. SFAS No. 142 requires that goodwill and certain intangibles with
indefinite lives are no longer amortized, but will instead be tested for
impairment at least annually or more frequently if impairment circumstances
arise. SFAS No. 142 is required to be applied starting with fiscal years
beginning after December 15, 2001, with early application permitted in certain
circumstances. The Company is currently evaluating the impact that the adoption
of SFAS No. 142 will have on its financial position, and results of its
operations. Goodwill amortization was approximately $525,000 for the first
quarter of fiscal years 2002 and 2001.
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The standard applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development, and (or) normal use of the asset. SFAS
No. 143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The fair value of the liability is added to
the carrying amount of the associated asset and this additional carrying amount
is depreciated over the life of the asset. The liability is accreted at the end
of each period through charges to operating expense. If the obligation is
settled for other than the carrying amount of the liability, the Company will
recognize a gain or loss on settlement. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002, and early application is encouraged. The
Company implemented SFAS No. 143 in its first quarter of fiscal year 2002, which
did not have any material impact on the Company's consolidated financial
position, results of operations or cash flows.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. SFAS No. 144 establishes the accounting model for
long-lived assets to be disposed of by sale applies to all long-lived assets,
including discontinued operations, and replaces the provisions of APB opinion
No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, for the disposal of segments of a business. SFAS No. 144
is effective for fiscal years beginning after December 15, 2001, and early
application is encouraged.
7
The Company implemented SFAS No. 144 in its first quarter of fiscal year 2002,
which did not have any material impact on the Company's consolidated financial
position, results of operations or cash flows.
Note 5 Segment Information
Effective October 1, 2001, the Company reorganized into four reportable
segments worldwide to align with the new internal management reporting of our
business operations based on its products. The Reportable segments include
Scoring, Strategy Machines, Consulting and Software & Maintenance.
The Scoring segment includes our risk scoring services distributed through
major credit bureaus; our ScoreNet(R), our PreScore(R) services offered through
credit bureaus for large credit card issuers that contract directly with us for
scores to pre-screen prospects for their mailing solicitations; and insurance
bureau scores sold through credit bureaus. These products and services were
previously reported in the Global Data Repositories & Processors segment in
fiscal year 2001.
The Strategy Machines segment includes the TRIAD(TM) credit account
management services distributed through third-party bankcard processors which
were included under the Global Data Repositories & Processors segment in fiscal
year 2001, and the remaining products in this new segment were included in the
Global Financial Services segment or Other segment in fiscal 2001.
The Consulting segment includes all consulting services. In fiscal 2001,
custom analytics was included in the Other segment and most other consulting
services were reported in the segment in which the revenues from the related
products and services were reported.
The Software & Maintenance segment includes TRIAD, StrategyWare(TM) and
Decision System products. In fiscal 2001, our TRIAD, StrategyWare and Decision
System products were included under the Global Financial Services and Other
segments.
The segment information for the three months ended December 31, 2000 has
been restated to conform to the fiscal year 2002 presentation.
The Company's Chief Executive and Operating Officers evaluate segment
financial performance based on segment revenues and operating income. Operating
income is calculated as revenue less expenses such as personnel, facilities,
consulting and travel. Unallocated other income consists mainly of interest
income and net gain on sale of investments. The Company does not evaluate the
financial performance of each segment based on its assets or capital
expenditures.
8
Strategy Software &
(in thousands) Scoring Machines Consulting Maintenance Total
- ---------------------------------------------------------------------------------------------------------------
Three months ended December 31, 2001
Revenue $30,089 $34,345 $12,704 $ 7,923 $85,061
======= ======= ======= ======= =======
Operating income $14,177 $ 3,277 $ 622 $ 2,456 $20,532
Unallocated other income, net 1,859
-------
Income before income taxes $22,391
=======
Depreciation and Amortization $ 1,724 $ 3,646 $ 843 $ 493 $ 6,706
======= ======= ======= ======= =======
Three months ended December 31, 2000
Revenue $27,057 $32,424 $ 9,229 $ 8,413 $77,123
======= ======= ======= ======= =======
Operating income $11,221 $ 1,493 $ 263 $ 895 $13,872
Unallocated other income, net 1,148
-------
Income before income taxes $15,020
=======
Depreciation and Amortization $ 1,480 $ 3,347 $ 598 $ 511 $ 5,936
======= ======= ======= ======= =======
The Company's revenue and percentage of revenue by reportable market
segments are as follows:
Three Months Ended Three Months Ended
December 31, 2001 December 31, 2000
----------------------- -----------------------
Scoring $30,089 35% $27,057 35%
Strategy Machines 34,345 41% 32,424 42%
Consulting 12,704 15% 9,229 12%
Software & Maintenance 7,923 9% 8,413 11%
------- ------- ------- -------
$85,061 100% $77,123 100%
======= ======= ======= =======
In addition, the Company's revenues and percentage of revenues on
geographical basis are set out as follows:
Three Months Ended Three Months Ended
December 31, 2001 December 31, 2000
----------------------- -----------------------
United States $70,819 83% $63,305 82%
International 14,242 17% 13,818 18%
------- ------- ------- -------
$85,061 100% $77,123 100%
======= ======= ======= =======
9
Note 6 Acquisition of Nykamp
On December 11, 2001, the Company announced that it was acquiring
substantially all of the assets of Nykamp Consulting Group, Inc. (Nykamp), a
privately held company based in Chicago. Nykamp provides customer relationship
management strategy and implementation services. The agreement was signed on
December 10, 2001 and the acquisition was completed on December 17, 2001. The
assets acquired and liabilities assumed are recorded at estimated fair values as
determined by the Company's management based on information currently available
and on current assumptions as to future operations. Under the acquisition
agreement, the Company will pay total consideration valued at approximately $5.6
million, including cash and common stock over the next three years. As a result
of the acquisition, assets and liabilities are recorded as follows:
(in thousands)
--------------
Current assets acquired $ 2,144
Fixed and other assets acquired 327
Other intangible assets (including trade name, 1,359
non-compete agreement, and customer base,
amortizable between approximately 3 to 5 years)
Goodwill 2,595
-------
Fair value of assets acquired 6,425
Liabilities assumed (787)
-------
Net assets acquired $ 5,638
=======
10
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Certain statements contained in this Report that are not statements of
historical fact constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act (the "Act"). In addition, certain
statements in our future filings with the Securities and Exchange Commission, 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 financial items; (ii) statements of our plans and objectives
by our management or Board of Directors, including those relating to products or
services; (iii) statements of future economic performance; and (iv) statements
of assumptions underlying such statements. Words such as "believes,"
"anticipates," "expects," "intends," "targeted," 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 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 this Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations-Risk Factors, below. 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 the Company files from time to time with the Securities and
Exchange Commission, including our Reports on Forms 10-Q, 10-K and 8-K to be
filed by the Company in fiscal year 2002.
Business Overview
Fair, Isaac and Company, Incorporated (NYSE: FIC) (the "Company", which may
be referred to as we, us or our) is the leading provider of creative analytics
for predictive modeling and decisioning that unlock value for people, businesses
and industries. Our predictive modeling, decision analysis, intelligence
management and decision engine systems power more than 14 billion decisions a
year. Founded in 1956, we help thousands of companies in over 60 countries
acquire customers more efficiently, increase customer value, reduce risk and
credit losses, lower operating expenses and enter new markets more profitably.
Most leading banks and credit card issuers rely on our analytic solutions, as do
many insurers, retailers, telecommunications providers and other
customer-oriented companies. Through the www.myFICO.com Web site, consumers use
our FICO(R) scores, the standard measure of credit risk, to understand and
manage their credit risk profile. Our home page on the Internet is at
www.fairisaac.com. You can learn more about us by visiting that site. The
information on these Web sites is not incorporated by reference into this
Report.
11
RESULTS OF OPERATIONS
Revenues
Effective October 1, 2001, we reorganized into four reportable segments
worldwide to align with the new internal management reporting of our business
operations based on products. These four reportable segments are Scoring,
Strategy Machines, Consulting, and Software and Maintenance, which are further
described below.
o Scoring. This segment includes our risk scoring services distributed
through major credit bureaus, including TransUnion Corporation,
Experian Information Solutions, Inc., Equifax Inc., ChoicePoint and
Call Credit; our ScoreNet(R)service sold directly to credit grantors
which allows credit grantors to obtain our credit bureau scores and
related data from the credit bureaus on their existing accounts for
use in their account management system or for integration with the
services of a credit card processor; our PreScore(R)services offered
through credit bureaus for large credit card issuers that contract
directly with us for scores to pre-screen prospects for their mailing
solicitations; and insurance bureau scores sold through credit
bureaus. These services primarily generate usage revenues. Scoring
segment products were included under the Global Data Repositories &
Processors segment in fiscal year 2001.
o Strategy Machines. These products can deliver a complete solution,
encompassing software, data, analytics and operations, for a specific
function for the customer. The lines of products and services in this
segment are our TRIAD credit account management services distributed
through third-party bankcard processors who include First Data
Resources, Inc., Total System Services, Inc. and Electronic Data
Systems, Inc. Fair, Isaac MarketSmart Decision
System(TM)("MarketSmart"), LiquidCredit(TM), TelAdaptive(TM), Score
Power(TM), and Strategy Science. These products and services are
generally sold on a usage basis. Our TRIAD credit account management
services distributed through third-party bankcard processors products
were included under the Global Data Repositories & Processors segment
in fiscal 2001, and the remaining products in this new segment were
included under either the Global Financial Services segment or Other
segment.
o Consulting. This segment includes revenues from all consulting
services. Revenues in this segment are derived from analytics, custom
applications, data warehousing, integration, and risk management
consulting services. We undertake consulting engagements primarily
with companies that are users of our analytics, software and
netsourced solutions, and with companies deemed to be attractive
prospective clients for those solutions. Consulting services include
building custom analytic models for clients, advising clients on how
to develop and implement sound analytic solutions, providing expert
analysis of model development and assisting with successful
implementation or repositioning of predictive modeling within the
business for greater effectiveness. These services are generally
offered on an hourly fee basis. In fiscal 2001, custom analytics
products were included in the Other segment and most other consulting
services revenues were reported in the segment with the associated
products and services.
o Software and Maintenance. This segment is comprised of our software
products that are sold directly to an end user, who is responsible for
installing, operating and supporting them. The principal products in
this segment are TRIAD(TM), StrategyWare and Decision System(TM)
products. These products are generally licensed to a single user on a
fixed-price basis. This segment also includes ongoing maintenance
revenue related to installed software systems. In fiscal 2001, TRIAD,
StrategyWare and Decision System products were included under the
Global Financial Services Other segments.
Comparative segment revenues, operating income, and related financial
information for this quarter ended December 31, 2001 and the corresponding
period in fiscal 2001 are set forth in Note 5 to the Consolidated Financial
Statements.
12
The following table displays (a) the percentage of revenues by segment and
(b) the percentage change in revenues within each segment from the prior fiscal
year.
Period-to-Period
Percentage Changes
Percentage of Three Months Ended
Revenue 12/31/01
Three Months Ended Compared to
December 31, Three Months Ended
2001 2000 12/31/00
- --------------------------------------------------------------------------------
Scoring 35% 35% 11%
Strategy Machines 41% 42% 6%
Consulting 15% 12% 38%
Software and Maintenance 9% 11% (6)%
---- ----
Total Revenues 100% 100% 10%
==== ====
The growth in Scoring segment revenues in the quarter ended December 31,
2001 compared to the same period in the prior fiscal year was primarily due to
increased revenues derived from risk and insurance scoring services at the
credit bureaus and the PreScore service. This growth is mainly attributable to
increased marketing efforts of credit card issuers and a strong market for
mortgage re-financings. These increases were partially offset by decreased
revenues derived from ScoreNet. The Company believes that the decline in
ScoreNet services revenues primarily reflects a shift in the purchasing patterns
of customers from these products to credit scoring services at the credit
bureaus.
The increases in revenues derived from our Strategy Machines segment in the
three months ended December 31, 2001 compared with the same period in the prior
fiscal year were due primarily to revenues from sales of our newer products,
ScorePower introduced in March 2001 and CLSO introduced during the third quarter
of fiscal 2001. These revenues were, in part, offset primarily by decreased
revenues from TRIAD credit account management services distributed through
third-party bankcard processors. Revenues generated from bankcard processors
accounted for approximately 10% of our revenues in the first quarter of fiscal
2002 and 12% of revenues in the same quarter in the prior fiscal year.
Consulting revenues grew in the three months ended December 31, 2001
compared to the same period in the prior fiscal year primarily due to increased
revenues derived from consulting services related to MarketSmart, Strategy
Science, Decision System, StrategyWare and custom models.
The decline in revenues derived from our Software and Maintenance segment
in the three months ended December 31, 2001 compared with same period in the
prior fiscal year were due primarily to decreases in revenues from StrategyWare
and TRIAD. These decreases were partially offset by increased sales of our
Decision System product.
In the first quarter of fiscal 2002, revenues generated from our agreements
with TransUnion, Equifax and Experian accounted for approximately 7%, 13% and 7%
of revenues, respectively. In the first quarter of fiscal 2001, TransUnion
accounted for approximately 10% of our revenues; Equifax, approximately 8%; and
Experian, approximately 7%. Revenues from alliances with the credit bureaus,
including services distributed through such alliances, increased 14% in fiscal
2001 and 13% in fiscal 2000, and accounted for approximately 38% of revenues in
fiscal 2001 and 37% in fiscal 2000.
While we have been successful in extending or renewing our agreements with
credit bureaus and credit card processors in the past, and believe we will
likely be able to do so in the future, the loss of one or more
13
such alliances or an adverse change in terms could have a material adverse
effect on revenues and operating margin.
Revenues from clients outside the United States represented approximately
17% of total revenues in the three months ended December 31, 2001 and 18% for
the same period of prior fiscal year. During fiscal 2001 and 2000, we received
approximately 18% of our revenues from business outside the United States.
Fluctuations in currency exchange rates have not had a significant effect on
revenues to date. In October 2001, we initiated a hedging program to reduce our
exposure to fluctuations in certain foreign currency translation rates resulting
from holding net assets denominated in foreign currencies. Foreign currency
translation losses were $164,000, and $33,000 for the first quarter of fiscal
2002 and 2001, respectively.
For comparison purposes we present comparative data of revenues for our new
and prior segments for the quarters and annual period of fiscal 2001, and the
quarter ended December 31, 2001:
(in thousands) Q101 Q201 Q301 Q401 FY01 Q102
- -----------------------------------------------------------------------------------------------------------------
New Segments
Scoring $ 27,057 $ 29,079 $ 30,749 $ 35,260 $ 122,145 $ 30,089
Strategy Machines 32,424 32,232 36,823 34,069 135,548 34,345
Consulting 9,229 9,412 9,181 11,024 38,846 12,704
Software & Maintenance 8,413 10,608 7,480 6,108 32,609 7,923
-----------------------------------------------------------------------
Total $ 77,123 $ 81,331 $ 84,233 $ 86,461 $ 329,148 $ 85,061
=======================================================================
Prior Segments
Global Data Repositories & Processors $ 37,259 $ 39,690 $ 43,206 $ 47,129 $ 167,284 $ 43,392
Global Financial Services 24,862 25,881 23,622 21,655 96,020 25,836
Other 15,002 15,760 17,405 17,677 65,844 15,833
-----------------------------------------------------------------------
Total $ 77,123 $ 81,331 $ 84,233 $ 86,461 $ 329,148 $ 85,061
=======================================================================
14
Expenses
The following table sets forth for the fiscal periods indicated (a) the
percentage of revenues represented by certain line items in our Consolidated
Statements of Income and Comprehensive Income and (b) the percentage change in
the amount of each such line item from the prior fiscal year.
Period-to-Period
Percentage Changes
Percentage of Revenue ------------------
--------------------- Three Months Ended
Three Months Ended 12/31/01
December 31, Compared to
---------------------------- Three Months Ended
2001 2000 12/31/00
---- ---- ------------------
Revenues 100% 100% 10%
Costs and expenses:
Cost of revenues 45% 46% 9%
Research and development 9% 9% 2%
Sales, general and administrative 21% 26% (11)%
Amortization of intangibles 1% 1% 0%
----- -----
Total costs and expenses 76% 82% 2%
----- -----
Income from operations 24% 18% 48%
Other income, net 2% 1% 62%
----- -----
Income before income taxes 26% 19% 49%
Provision for income taxes 10% 8% 43%
----- -----
Net income 16% 11% 54%
===== =====
Costs and Expenses
Cost of revenues consists primarily of personnel directly involved in
creating, installing and supporting revenue products; travel and related
overhead costs; costs of computer service bureaus; and our payments made to
credit bureaus for scores and for related outside support in connection with the
ScoreNet Service. As compared with the same quarter a year earlier, the cost of
revenues, as a percentage of revenues, decreased slightly in the three months
ended December 31, 2001 but in absolute dollars increased primarily due to
transition costs associated with a new arrangement to outsource our mainframe
operations to International Business Machines Corp.
Research and development expenses include the personnel and related
overhead costs incurred in development, researching mathematical and statistical
models and developing software tools that are aimed at improving productivity,
profitability and management control. Research and development expenses in the
three months ended December 31, 2001, as a percentage of revenues, were the same
as in the corresponding quarter of fiscal 2001, and in absolute dollars was up
2% due to increased costs for analytic personnel.
Sales, general and administrative expenses consist principally of personnel
costs for sales and marketing and most corporate support and administrative
functions, travel, overhead, advertising and other promotional expenses,
corporate facilities expenses, the costs of administering certain benefit plans,
legal expenses, business development expenses, and the cost of operating the
computer systems. As a percentage of revenues and in absolute dollars, these
expenses for the three months ended December 31, 2001 decreased as compared to
the corresponding period of fiscal 2001, due primarily to lower travel, facility
and consulting costs.
At December 31, 2001 we employed approximately 1,507 persons worldwide
compared with approximately 1,492 employees at the end of the corresponding
quarter in the prior fiscal year. The increase in personnel is primarily due to
the
15
hiring of personnel with the acquisition of Nykamp Consulting Group, Inc.,
discussed below under the "Financial Condition" section.
We are amortizing the intangible assets arising from various acquisitions
over periods ranging from four to fifteen years. Goodwill amortization was
approximately $525,000 for the first quarter of fiscal years 2002 and 2001.
Other income, net
Other income, net consists mainly of interest income from investments,
interest expense, exchange gains/losses from holding foreign currencies in bank
accounts, and other non-operating items. Other income, net increased in the
three months ended December 31, 2001 compared with the corresponding period a
year earlier due to sale of a long-term investment, which resulted in a gain of
approximately $580,000 and higher balances invested in interest bearing
instruments. In October 2001, we initiated a hedging program to reduce our
exposure to fluctuations in certain foreign currency translation rates resulting
from holding net assets denominated in foreign currencies. Foreign currency
translation losses were $164,000, and $33,000 for the first quarter of fiscal
2002 and 2001, respectively.
Provision for income taxes
The Company's effective tax rate is 39.5% for the three months ended
December 31, 2001 compared to 41.3% in the same period of the prior fiscal year.
The decrease is primarily due to the reduction in the valuation allowance as a
result of capitalized gains, implementation of the "extraterritorial income
exclusion" regime, the availability of research and development tax credit, and
the revision to the state tax rate to reflect activities in states with lower
tax rates.
Financial Condition
Working capital increased to $120.8 million at December 31, 2001 from
approximately $94.6 million at September 30, 2001 primarily due to significant
increase in cash inflows resulted from higher net income, proceeds from sales of
investments, and proceeds from the exercise of stock options and issuance of
treasury stock, partially offset by increased cash outflows made for the
purchase of investments, and the acquisition of net assets from Nykamp. Cash and
marketable investments increased to approximately $177.1 million at December 31,
2001 from approximately $154.6 million at September 30, 2001. The Company's
long-term obligations are mainly related to employee incentive and benefit
obligations.
On December 11, 2001, the Company announced that it was acquiring
substantially all of the assets of Nykamp Consulting Group, Inc., a privately
held company. Nykamp provides customer relationship management strategy and
implementation services. The agreement was signed on December 10, 2001 and the
acquisition was completed effective on December 17, 2001. Under the acquisition
agreement, the Company will pay total consideration valued at approximately $5.6
million over the next three years. See Note 6 to the Consolidated Financial
Statements for additional information.
In fiscal 1999, we initiated a stock repurchase program to purchase up to
1.5 million shares of our common stock, to be funded by cash on hand. Since the
program was initiated through December 31, 2001, we have purchased a total of
1,177,500 shares at an aggregate cost of $32.1 million. During the current
quarter to February 12, 2002, we have repurchased an additional 94,600 shares at
a cost of $5.6 million. We expect to continue to evaluate opportunities to
repurchase shares under the program.
We believe that our current cash and cash equivalents, short-term cash
investments and cash expected to be generated from operations will be sufficient
to meet our working capital, capital expenditure, and investment needs for both
the current fiscal year and the foreseeable future.
European Economic and Monetary Union (EMU)
Under the European Union's plan for Economic and Monetary Union (EMU), the
euro becomes the sole accounting currency of EMU countries on January 1, 2002.
The euro initially went into effect on
16
January 1, 1999, and has now replaced the separate currencies of 12
participating countries: Austria, Belgium, Finland, France, Greece, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. We believe that
our computer systems and programs are euro-compliant. Our costs associated with
compliance were not material and were expensed as they were incurred. We also
believe the conversion to the euro will not have a material impact on our
consolidated financial results.
Risk Factors
Our revenues are dependent, to a great extent, upon general economic conditions
and more particularly, upon conditions in the consumer credit and the financial
services industries.
Approximately 81% of our revenues are derived from sales of products and
services to the consumer credit and financial services industry in the first
quarter of both fiscal 2002 and 2001. A downturn in the consumer credit industry
or the financial services industry caused by increases in interest rates or a
tightening of credit, among other factors, could harm our results of operations.
The revenue growth and profitability of our business depends on the overall
demand for our existing and new products. A softening of demand for our
decisioning solutions caused by a weakening of the economy generally may result
in decreased revenues or lower growth rates. There can be no assurance that we
will be able to effectively promote future revenue growth in our business. Since
1990, while the rate of account growth in the U.S. bankcard industry has been
slowing and many of our largest institutional clients have merged and
consolidated, we have generated most of our revenue growth from our
bankcard-related scoring and account management business by cross-selling our
products and services to large banks and other credit issuers. As this industry
continues to consolidate, we may have fewer opportunities for revenue growth.
For example, consolidation in the financial services industry could change the
demand for our products and services that support our clients' customer
acquisitions programs. There can be no assurance that we will be able to
effectively promote future revenue growth in our business. In addition, recent
terrorist attacks upon the U.S. have added (or exacerbated) economic, political
and other uncertainties, which could adversely affect the Company's revenue
growth.
Quarterly revenues and operating results have varied significantly in the past
and this unpredictability will likely continue in the future.
Our revenues and operating results have varied significantly in the past.
We expect fluctuations in our operating results to continue for the foreseeable
future. Consequently, we believe that period-to-period comparisons of our
financial results should not be relied upon as an indication of future
performance. It is possible that in some future period our operating results may
fall below the expectations of market analysts and investors, and in this event
the market price of our common stock would likely fall. In addition, with the
exception of the cost of ScoreNet service data purchased by us, most of our
operating expenses are not affected by short-term fluctuations in revenues;
thus, short-term fluctuations in revenues may have a significant impact on
operating results. Factors that affect our revenues and operating results
include the following:
o Variability in demand from our existing customers, particularly within
our Strategy Machines and Scoring segments;
o The lengthy sales cycle of many of our products;
o Consumer dissatisfaction with, or problems caused by, the performance
of our personal credit management products;
o Our ability to develop, introduce and market sucessful new products
and product enhancements in a timely manner;
o The timing of our new product announcements and introductions in
comparison with our competitors;
o The level of our operating expenses;
o Changes in competitive conditions in the consumer credit and financial
services industries;
o Fluctuations in domestic and international economic conditions;
o Acquisition-related expenses and charges;
17
o Timing of orders for and deliveries of certain software systems; and
o Other factors unique to our product lines.
Our ability to increase our revenues is highly dependent upon the introduction
of new products and services and if our products and services are not accepted
by the marketplace, our business may be harmed.
We have a significant share of the available market for our traditional
products and services, such as the products and services included in our Scoring
and Strategy Machines segment (specifically, account management services at
credit card processors). 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 our future growth prospects will rest on our ability to
continue to expand into newer markets for our products and services, such as
direct marketing, insurance, small business lending, retail, telecommunications
and our newest market, personal credit management. If our current or potential
customers are not willing to switch to or adopt our new products and services,
our revenues will be harmed.
There are significant risks associated with the introduction of new products.
Significant undetected errors or delays in new products or new versions of
a product, especially in the area of customer relationship management, may
affect market acceptance of our products and could harm our business, results of
operations or financial position. If we were to experience delays in the
commercialization and introduction of new or enhanced products, if customers
were to experience significant problems with the implementation and installation
of products, or if customers were dissatisfied with product functionality or
performance, our business, results of operations or financial position could be
harmed.
There can be no assurance that our new products will achieve significant
market acceptance or will generate significant revenue. Products that we plan to
directly or indirectly market in the future are in various stages of
development. We are expanding our technology into a number of new business areas
to foster long-term growth, including consumer services and the design of
business strategies using our new Strategy Science technology. These areas are
relatively new to our product development and sales and marketing personnel.
There is no assurance that we will compete effectively or will generate
significant revenues in these new areas.
Failure to obtain data from our clients to update and re-develop or to create
new models could harm our business.
Updates of models and development of new and enhanced models depend to a
significant extent on availability of statistically relevant data. Such data is
usually obtained under agreements with our clients. Refusals by clients to
provide such data or to obtain permission of their customers to provide such
data, and privacy and data protection restrictions, could result in loss of
access to required data. Any interruption of our supply of data could have a
material adverse effect on our business, financial condition or results of
operations.
Our business and the business of our clients are subject to government
regulation and changes in regulation.
Legislation and governmental regulation inform how our business is
conducted. Both our core businesses and our newer consumer initiatives are
affected by regulation. In both arenas, significant regulatory areas include:
federal and state regulation of consumer report data and consumer reporting
agencies, like the Fair Credit Reporting Act (the "FCRA"); regulation designed
to insure that lending practices are fair and non-discriminatory, like the Equal
Credit Opportunity Act; and privacy law, like
18
provisions of the Financial Services Modernization Act of 1999. A variety of
other consumer protection laws affect our business such as federal and state
statutes governing the use of the Internet and telemarketing. In addition, many
foreign jurisdictions relevant to our business have regulation in one or more of
these general areas. For example, in the European Union (EU) the Privacy
Directive (Directive 95/46/EC) creates minimum standards for the protection of
personal data. In addition, some EU member states have enacted protections which
go beyond the requirements of the Privacy Directive.
In connection with our core business-to-business activities, these statutes
govern our operations directly to some degree. For example, the Financial
Services Modernization Act's restrictions on the use and transmittal of
nonpublic personal information govern some of our activities. However,
governmental regulation has a significant indirect effect on such activities
because such regulation influences our clients' expectations and needs vis-a-vis
our products and services. Our current and prospective clients' activities are
closely governed by the regulations outlined above and by other regulations. For
example, our clients include credit bureaus, credit card processors, state and
federally chartered banks, savings and loan associations, credit unions,
consumer finance companies, and other consumer lenders and insurers, all of
which are subject to extensive and complex federal and state regulations, and
often international regulations. The products and services we sell to such
clients must be appropriately designed to function in these regulated
industries. Moreover, industries we may target in the future may also be subject
to extensive regulations.
In connection with our Score Power service, many of the same regulations
are pertinent. In this arena, however, our activities are more directly affected
by regulation. For example, the Fair Credit Reporting Act, or FCRA, governs when
and how we may deliver the Score Power service to consumers. The Financial
Services Modernization Act of 1999 requires us to make certain disclosure to
consumers regarding our collection and use of personal information and grants
consumers certain opt out rights. This type of regulation creates risk
associated with compliance, such as possible regulatory enforcement action.
Changes to existing regulation or legislation, or new regulation or
legislation, or more restrictive interpretation of existing regulation by
enforcement agencies, could harm our business, results of operations and
financial condition. Examples of possible regulatory developments that could
affect our business include restrictions on the sharing of information by
affiliated entities, narrowing of the permitted uses of consumer report data,
and mandates to provide credit scores to consumers. The permitted uses of
consumer report data in connection with certain customer acquisition efforts are
governed primarily by the FCRA. The relevant federal preemption provisions
effectively sunset in 2004. Unless extended, the sunset of preemption could lead
to greater state regulation, increasing the cost of customer acquisition
activity. Such state legislation could cause financial institutions to pursue
new strategies, negatively affecting the demand for our existing offerings.
Our operations outside the United States subject us to unique risks that may
harm our results of operations.
A growing portion of our revenues is derived from international sales.
During both fiscal 2001 and 2000, we received approximately 18% of our revenues
from business outside the United States. As part of our growth strategy, we plan
to continue to pursue opportunities outside the United States. 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:
o The general economic and political conditions in countries where we
sell our products and services;
o Incongruent tax structures;
o Difficulty in staffing and managing our organization's operations in
various countries;
o The effects of a variety of foreign laws and regulations;
o Import and export licensing requirements;
o Longer payment cycles;
o Currency fluctuations and changes in tariffs and other trade barriers;
and
o Difficulties and delays in translating products and related
documentation into foreign languages.
19
There can be no assurance that we will be able to successfully address each
of these challenges in the near term. Some of our business is conducted in
currencies other than the U.S. dollar. Foreign currency translation gains and
losses are not currently material to our financial position, results of
operations or cash flows. Foreign currency translation losses were $164,000, and
$33,000 for the first quarter of fiscal 2002 and 2001, respectively. An increase
in our foreign revenues could subject us to increased foreign currency
translation risks in the future.
If we do not recruit and retain qualified personnel, our business could be
harmed.
Our continued growth and success depend, to a significant extent, on the
continued service of our senior management and other highly qualified key
research, development, sales and marketing personnel and the hiring of new
qualified personnel. Competition for highly skilled business, product
development, technical and other personnel is intense. There can be no assurance
that we will be successful in continually recruiting new personnel and in
retaining existing personnel. In general, we do not have long-term employment or
non-competition agreements with our employees. The loss of one or more key
employees or our inability to attract additional qualified employees or retain
other employees could harm our revenues and results of operations.
We rely upon our proprietary technology rights and if we are unable to protect
them, our business could be harmed.
Because the protection of our proprietary technology is limited, our
proprietary technology could be used by others without our consent. 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. We cannot assure you that our means of protecting our intellectual
property rights in the United States or abroad will be adequate or that others,
including our competitors, will not use our proprietary technology without our
consent. Furthermore, litigation may be necessary to enforce our intellectual
property rights, to protect our trade secrets, to determine the validity and
scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. Such litigation could result in substantial costs
and diversion of resources and could harm our business, operating results and
financial condition.
We may be subject to possible infringement claims that could harm our business.
With recent developments in the law that permit patenting of business
methods, we expect that products in the industry segments in which we compete
will increasingly be subject to claims of patent infringement as the number of
products and competitors in our industry segments grow and the functionality of
products overlaps. Similarly, we expect more software products will be subject
to patent infringement claims in light of recent developments in the law that
extend the ability to patent software. Regardless of the merits, responding to
any such claim made against us could be time-consuming, result in costly
litigation and require us to enter into royalty and licensing agreements on
terms unfavorable to us. If a successful claim is made against us and we fail to
develop or license a substitute technology, our business, results of operations
or financial position could be harmed.
Security is important to our business, and breaches of security, or the
perception that e-commerce is not secure could harm our business.
Internet-based, business-to-business electronic commerce requires the
secure transmission of confidential information over public networks. Several of
our products, including our new personal credit management product, are accessed
through the Internet. Consumers using the Internet to access their personal
information will demand the secure transmission of such data. Security breaches
in connection with the delivery of our products and services, including our
netsourced products and Score Power service, or well-publicized security
breaches affecting the Internet in general, could significantly harm our
business, operating results and financial condition. We cannot be certain that
advances in computer capabilities, new
20
discoveries in the field of cryptography, or other developments will not result
in a compromise or breach of the technology we use to protect content and
transactions on the networks on which the netsourced products and the
proprietary information in our databases are accessed or on which the Score
Power service is made available. Anyone who is able to circumvent our security
measures or the security measures of our business partners could misappropriate
proprietary, confidential customer information or cause interruptions in our
operations. We may be required to incur significant costs to protect against
security breaches or to alleviate problems caused by such breaches. Further, a
well-publicized compromise of security could deter people and businesses from
using the Internet to conduct transactions that involve transmitting
confidential information.
We are dependent upon major contracts with credit bureaus.
A substantial portion of our revenues is derived from alliances with the
three major credit bureaus. These contracts, which normally have a term of five
years or less, accounted for approximately 38% and 37% of our revenues in fiscal
2001 and 2000, respectively. If we are unable to renew any of these contracts on
the same or similar terms, our revenues and results of operations would be
harmed.
We may incur risks related to acquisitions or significant investment in
businesses.
As part of our business strategy, we have made in the past, and may make in
the future, acquisitions of, or significant investments in, businesses that
offer complementary products, services and technologies. Any acquisitions or
investments will be accompanied by the risks commonly encountered in
acquisitions of businesses. Such risks include, among other things, the
possibility that we will pay more than the acquired company or assets are worth,
the difficulty of assimilating the operations and personnel of the acquired
businesses, the potential product liability associated with the sale of the
acquired company's products, the potential disruption of our ongoing business,
the distraction of management from our business, and the impairment of
relationships with employees and clients as a result of any integration of new
management personnel. These factors could harm our business, results of
operations or financial position, particularly in the case of a larger
acquisition. Consideration paid for future acquisitions, if any, could be in the
form of cash, stock, and rights to purchase stock or a combination thereof.
Dilution to existing stockholders and to earnings per share may result in
connection with any such future acquisitions.
Backlog orders may be cancelled or delayed.
There is no assurance that backlog will result in revenues. We believe that
increased revenue growth in fiscal 2002 and later years will depend to a
significant extent on sales of newly developed products.
21
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Disclosures
The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We are exposed to market risk
related to changes in interest rates, foreign currency exchange rates and equity
security price risk. We do not use derivative financial instruments for
speculative or trading purposes.
Interest Rate Sensitivity
We maintain an investment portfolio consisting mainly of income securities
with an average maturity of less than five years. These available-for-sale
securities are subject to interest rate risk and will fall in value if market
interest rates increase. We have the ability to hold our fixed income
investments until maturity, and therefore we would not expect our operating
results or cash flows to be affected to any significant degree by the effect of
a sudden change in market interest rates on our securities portfolio. We believe
that our foreign currency and equity risks are not material.
The following table presents the principal amounts and related
weighted-average yields for our fixed rate investment portfolio at December 31,
2001 and September 30, 2001:
December 31, 2001 September 30, 2001
---------------------- ------------------------
Book/Market Average Book/Market Average
(in thousands) Value Yield Value Yield
- ----------------------------- ----------- ------- ----------- -------
Cash and cash equivalents $ 36,883 1.97% $ 16,918 2.87%
Short-term investments 14,155 2.20% 13,800 2.57%
Long-term investments 112,284 4.05% 110,709 3.78%
-------- --------
$163,322 3.42% $141,427 3.55%
======== ========
22
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
Set forth below is information concerning each matter submitted to a vote
at the Annual Meeting of Stockholders held on February 5, 2002.
1. Election of Directors
Stockholders elected seven incumbent directors for one-year terms. The vote
tabulation for individual directors was:
Matter For Withheld
- ------ --- --------
A. George Battle 19,774,049 1,145,988
Tony J. Christianson 19,314,752 1,605,285
Thomas G. Grudnowski 19,817,583 1,102,454
Philip G. Heasley 19,786,050 1,133,987
Guy R. Henshaw 19,889,350 1,030,687
David S.P. Hopkins 19,889,104 1,030,933
Margaret L. Taylor 19,781,379 1,138,658
2. Amendment to the Restated Certificate of Incorporation, as amended, to
Increase the Number of shares of Common Stock Authorized for issuance from
35,000,000 to 100,000,000
The stockholders approved the Amendment to the Restated Certificate of
Incorporation, as amended, to increase the number of shares of common stock
authorized for issuance from 35,000,000 shares to 100,000,000 shares (with
17,063,129 affirmative votes, 3,837,838 negative votes, 19,070 votes abstaining,
and no broker non-votes).
3. Amendments to the Company's Long-term Incentive Plan
The stockholders approved the Amendments to increase the maximum number of
shares of common stock subject to annual stock option grants to 250,000 shares
and to allow outside directors to take stock options in lieu of an annual cash
retainer (with 11,717,454 affirmative votes, 8,760,708 negative votes, 441,875
abstaining and no broker non-votes).
4. Ratification of Auditors
The stockholders ratified the appointment of KPMG LLP as the Company's
independent auditors for the fiscal year ended September 30, 2002 (with
12,586,776 affirmative votes, 723,855 negative votes, and 8,225 votes
abstaining).
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3.1 Amended and Restated Bylaws
3.2 Certificate of Amendment of Amended and Restated Articles of
Incorporation
(b) Reports on Form 8-K:
No report on Form 8-K was filed during the quarter ended December 31, 2001.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAIR, ISAAC AND COMPANY, INCORPORATED
DATE: February 14, 2002
By /s/ Henk J. Evenhuis
-------------------------------------
Henk J. Evenhuis
Vice President and Chief Financial Officer
24
EXHIBIT INDEX
TO FAIR, ISAAC AND COMPANY, INCORPORATED
REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001
Exhibit No. Exhibit
- ----------- -------
3.1 Amended and Restated Bylaws
3.2 Certificate of Amendment of Amended and Restated Articles
of Incorporation
25
B Y - L A W S
OF
FAIR, ISAAC AND COMPANY, INCORPORATED
(as amended and restated effective February 5, 2002)
ARTICLE I
Offices
1.1 Registered Office. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
1.2 Additional Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
Stockholders
2.1 Annual Meetings. An annual meeting of stockholders shall be held
for the election of directors and scheduled for the first Tuesday of February of
each year, at 10:00 A.M. or, should such day fall upon a legal holiday, at the
same time on the next business day thereafter that is not a legal holiday, or at
such other date and time as may be designated by the Board of Directors from
time to time. The annual meeting of stockholders may be held at such place
either within or without the State of Delaware, or by means of remote
communication, as may be designated by the Board of Directors from time to time;
in the absence of any such designation, the annual meeting shall be held at the
principal executive offices of the Corporation. At such meeting, the
stockholders shall elect directors and transact such other business as may be
properly brought before the meeting.
To be properly brought before the annual meeting, business must be
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a stockholder of record. In
addition to any other applicable requirements, for business to be properly
brought before the annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered by a nationally recognized
courier service or mailed by first class United States mail, postage or delivery
charges prepaid, and received at the principal executive offices of the
Corporation, addressed to the attention of the Secretary of the Corporation, not
less than 60 days nor more than 90 days prior to the scheduled date of the
meeting (regardless of any postponements, deferrals or adjournments of that
meeting to a later date); provided, however, that in the event that the annual
meeting is held at a date other than the first Tuesday of February, or the next
business day if such Tuesday is a legal holiday and less than 70 days' notice or
prior public disclosure of the date of the scheduled meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the earlier of (a) the close of business on the 10th day following
the day on which such notice of the date of the scheduled annual meeting was
mailed or such public disclosure was made, whichever first occurs, and (b) two
days prior to the date of the scheduled meeting. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class, series and number of
shares of the Corporation that are owned beneficially by the stockholder, and
(iv) any material interest of the stockholder in such business. Notwithstanding
anything in these by-laws to the contrary, no business shall be conducted at the
annual meeting except in accordance with the procedures set forth in
-1-
this Section 2.1; provided, however, that nothing in this Section 2.1 shall be
deemed to preclude discussion by any stockholder of any business properly
brought before the annual meeting.
The Chairman of the Board of Directors (or such other person presiding
at the meeting in accordance with Section 2.7 of these by-laws) shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 2.1, and if he or she should so determine, he or she shall so declare to
the meeting and any such business not properly brought before the meeting shall
not be transacted.
2.2 Special Meetings. Special meetings of stockholders may be called at
any time only by the Chairman of the Board of Directors, if any, the Vice
Chairman of the Board of Directors, if any, the President or the Board of
Directors, to be held at such date, time and place (if any) as may be stated in
the notice of the meeting. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice of the
meeting.
2.3 Notice of Meetings. Whenever stockholders are required or permitted
to take any action at a meeting, notice of the meeting shall be given in
accordance with Section 2.4 which shall state the place (if any), date and hour
of the meeting, the means of remote communication (if any) by which stockholders
and proxyholders may be deemed to be present in person and vote at such meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called. Unless otherwise provided by law, the notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting.
2.4 Manner Of Giving Notice. Notice of any meeting of stockholders
shall be given personally, by mail, by electronic transmission or by other
written communication, addressed to the stockholder at the address, number,
electronic mail address or other location of that stockholder appearing on the
books of the Corporation or given by the stockholder to the Corporation for the
purpose of notice. If no such address, number, email address or other location
appears on the Corporation's books or is given, notice shall be deemed to have
been given if sent to that stockholder by mail or telegraphic or other written
communication to the Corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or, if sent by electronic
transmission, as follows: (i) if by facsimile telecommunication, when directed
to a number at which the stockholder has consented to receive notice, (ii) if by
electronic mail, when directed to an electronic mail address at which the
stockholder has consented to receive notice, (iii) if by a posting on an
electronic network together with separate notice to the stockholder of such
specific posting, upon the later of (a) such posting and (b) the giving of such
separate notice, and (iv) if by any other form of electronic transmission, when
directed to the stockholder.
An affidavit of mailing or of electronic transmission of any notice or
report in accordance with the provisions of this Section 2.4, executed by the
Secretary, Assistant Secretary or any transfer agent or other agent, shall be
prima facie evidence of the giving of the notice.
2.5 Adjournments. Any meeting of stockholders, annual or special, may
adjourn from time to time to reconvene at the same or some other place (if any),
and notice need not be given of any such adjourned meeting if the time and place
(if any) thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting the Corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
2.6 Quorum. At each meeting of stockholders, except where otherwise
provided by law or the certificate of incorporation or these by-laws, the
holders of a majority of the outstanding shares of each class of stock entitled
to vote at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, two or more classes or
series of stock shall be considered a single class if the holders thereof are
entitled to vote together as a single class at the meeting. In the absence of a
quorum the stockholders so present may, by majority vote, adjourn the meeting
from time to time in the manner provided by Section 2.5 of these by-laws until a
quorum shall attend. Shares of its own capital stock belonging on the record
date for the meeting to
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the Corporation or to another corporation, if a majority of the shares entitled
to vote in the election of directors of such other corporation is held, directly
or indirectly, by the Corporation, shall neither be entitled to vote nor be
counted for quorum purposes; provided, however, that the foregoing shall not
limit the right of the Corporation to vote stock, including but not limited to
its own stock, held by it in a fiduciary capacity.
If authorized by the Board of Directors in its sole discretion, and
subject to such guidelines and procedures as the Board of Directors may adopt,
stockholders and proxyholders not physically present at a meeting of
stockholders may, by means of remote communication:
(1) participate in a meeting of stockholders; and
(2) be deemed present in person and vote at a meeting of
stockholders whether such meeting is to be held at a designated place
or solely by means of remote communication, provided that (i) the
Corporation shall implement reasonable measures to verify that each
person deemed present and permitted to vote at the meeting by means of
remote communication is a stockholder or proxyholder, (ii) the
Corporation shall implement reasonable measures to provide such
stockholders and proxyholders a reasonable opportunity to participate
in the meeting and to vote on matters submitted to the stockholders,
including an opportunity to read or hear the proceedings of the
meeting substantially concurrently with such proceedings, and (iii) if
any stockholder or proxyholder votes or takes other action at the
meeting by means of remote communication, a record of such vote or
other action shall be maintained by the Corporation.
2.7 Organization. Meetings of stockholders shall be presided over by
the Chairman of the Board of Directors, if any, or in the absence of the
Chairman of the Board of Directors by the President, or in the absence of the
President by a Vice President, or in the absence of the foregoing persons by a
chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, or in the absence of the Secretary by an Assistant
Secretary, or in their absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.
2.8 Voting; Proxies. Unless otherwise provided in the certificate of
incorporation, each stockholder entitled to vote at any meeting of stockholders
shall be entitled to one vote for each share of stock held by such stockholder
which has voting power upon the matter in question. Each stockholder entitled to
vote at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for such stockholder by proxy, but no such proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer
period. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke any
proxy which is not irrevocable by attending the meeting, whether in person or by
other means provided for in these by-laws or the certificate of incorporation,
and voting or by filing an instrument in writing revoking the proxy or another
duly executed proxy bearing a later date with the Secretary of the Corporation.
Voting at meetings of stockholders need not be by written ballot and need not be
conducted by inspectors unless the holders of a majority of the outstanding
shares of all classes of stock entitled to vote thereon present in person or by
proxy at such meeting shall so determine. If authorized by the Board of
Directors, votes may be submitted by electronic transmission, provided that any
such electronic transmission must either set forth or be submitted with
information from which it can be determined that the electronic transmission was
authorized by the stockholder or proxyholder. At all meetings of stockholders
for the election of directors a plurality of the votes cast shall be sufficient
to elect. With respect to other matters, unless otherwise provided by law or by
the certificate of incorporation or these by-laws, the affirmative vote of the
holders of a majority of the shares of all classes of stock present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders, provided that (except as otherwise
required by law or by the certificate of incorporation) the Board of Directors
may require a larger vote upon any such matter. Where a separate vote by class
is required, the affirmative vote of the holders of a majority of the shares of
each class present in person or represented by proxy at the meeting shall be the
act of such class, except as otherwise provided by law or by the certificate of
incorporation or these by-laws.
2.9 Fixing Date for Determination of Stockholders of Record. In order
that the Corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment
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thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. If no record date is fixed:
(1) the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed; and (3) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
2.10 List of Stockholders Entitled To Vote. The Secretary shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Nothing contained herein
shall require the Corporation to include electronic mail address or other
electronic contact information on such list. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting for a
period of at least ten days prior to the meeting: (i) on a reasonably accessible
electronic network, provided that the information required to gain access to
such list is provided with the notice of the meeting, or (ii) during ordinary
business hours at the principal place of business of the Corporation. In the
event the meeting is to be held at a place, the list shall be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. If the meeting is to be held solely
by means of remote communication, then the list shall also be open to
examination of any stockholder during the whole time of the meeting on a
reasonably accessible electronic network, and the information required to access
such list shall be provided with the notice of the meeting.
2.11 Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the certificate of incorporation, any action required by law to be
taken at any annual or special meeting of stockholders of the Corporation, or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
Board of Directors
3.1 Powers; Number; Qualifications. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the certificate of
incorporation. The number of directors which shall constitute the Board of
Directors shall be seven (7). Directors need not be stockholders.
3.2 Election; Term of Office; Resignation; Removal; Vacancies;
Nominations. Each director shall hold office until the annual meeting of
stockholders next succeeding his or her election and until his or her successor
is elected and qualified or until his or her earlier resignation or removal. Any
director may resign at any time upon notice in writing or electronic
transmission to the Board of Directors or to the President or the Secretary of
the Corporation. Such resignation shall take effect at the time specified
therein, and unless otherwise specified therein
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no acceptance of such resignation shall be necessary to make it effective. Any
director or the entire Board of Directors may be removed, with or without cause,
by the holders of a majority of the shares then entitled to vote at an election
of directors. Unless otherwise provided in the certificate of incorporation or
these by-laws, vacancies and newly created directorships resulting from any
increase in the authorized number of directors or from any other cause may be
filled by a majority of the directors then in office, although less than a
quorum, or by the sole remaining director.
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors. Nominations of persons
for election to the Board of Directors at the annual meeting, by or at the
direction of the Board of Directors, may be made by any Nominating Committee or
person appointed by the Board of Directors; nominations may also be made by any
stockholder of record of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 3.2. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered by a nationally recognized courier service or mailed by first class
United States mail, postage or delivery charges prepaid, and received at the
principal executive offices of the Corporation addressed to the attention of the
Secretary of the Corporation not less than 60 days nor more than 90 days prior
to the scheduled date of the meeting (regardless of any postponements, deferrals
or adjournments of that meeting to a later date); provided, however, that, in
the case of an annual meeting and in the event that the annual meeting is held
at a date other than the first Tuesday of February, or the next business day if
such Tuesday is a legal holiday and less than 70 days' notice or prior public
disclosure of the date of the scheduled meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the earlier of (a) the close of business on the 10th day following
the day on which such notice of the date of the scheduled meeting was mailed or
such public disclosure was made, whichever first occurs, or (b) two days prior
to the date of the scheduled meeting. Such stockholder's notice to the Secretary
shall set forth (a) as to each person whom the stockholder proposes to nominate
for election or reelection as a director, (i) the name, age, business address
and residence address of the person, (ii) the principal occupation or employment
of the person, (iii) the class, series and number of shares of capital stock of
the Corporation that are owned beneficially by the person, (iv) a statement as
to the person's citizenship, and (v) any other information relating to the
person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Section 14 of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder; and (b)
as to the stockholder giving the notice, (i) the name and record address of the
stockholder and (ii) the class, series and number of shares of capital stock of
the Corporation that are owned beneficially by the stockholder. The Corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the Corporation to determine the eligibility of such
proposed nominee to serve as director of the Corporation. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth herein.
In connection with any annual meeting, the Chairman of the Board of
Directors (or such other person presiding at such meeting in accordance with
Section 2.7 of these by-laws) shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the foregoing
procedure, and if he or she should so determine, he or she shall so declare to
the meeting and the defective nomination shall be disregarded.
3.3 Regular meetings. Regular meetings of the Board of Directors may be
held at such places within or without the State of Delaware and at such times as
the Board of Directors may from time to time determine, and if so determined
notice thereof need not be given.
3.4 Special Meetings. Special meetings of the Board of Directors may be
held at any time or place within or without the State of Delaware whenever
called by the Chairman of the Board of Directors, if any, by the Vice Chairman
of the Board of Directors, if any, by the President or by any two directors.
Reasonable notice thereof shall be given by the person or persons calling the
meeting.
3.5 Participation in Meetings by Conference Telephone Permitted. Unless
otherwise restricted by the certificate of incorporation or these by-laws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors or of such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating
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in the meeting can hear each other, and participation in a meeting pursuant to
this by-law shall constitute presence in person at such meeting.
3.6 Quorum; Vote Required for Action. At all meetings of the Board of
Directors one third of the entire Board of Directors, but not less than two
shall constitute a quorum for the transaction of business. The vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors unless the certificate of
incorporation or these by-laws shall require a vote of a greater number. In case
at any meeting of the Board of Directors a quorum shall not be present, the
members of the Board of Directors present may adjourn the meeting from time to
time until a quorum shall attend.
3.7 Organization. Meetings of the Board of Directors shall be presided
over by the Chairman of the Board of Directors, if any, or in the absence of the
Chairman of the Board of Directors by the Vice Chairman of the Board of
Directors, if any, or in the absence of the Vice Chairman of the Board of
Directors by the President, or in their absence by a chairman chosen at the
meeting. The Secretary, or in the absence of the Secretary an Assistant
Secretary, shall act as secretary of the meeting, but in the absence of the
Secretary and any Assistant Secretary the chairman of the meeting may appoint
any person to act as secretary of the meeting.
3.8 Action by Directors Without a Meeting. Unless otherwise restricted
by the certificate of incorporation or these by-laws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or of such committee, as the case may be, consent thereto in writing
or electronic transmission, and the writing or writings or electronic
transmission or transmissions are filed with the minutes of proceedings of the
Board of Directors or committee. All such actions by written consent or
electronic transmission shall have the same force and effect as a unanimous vote
of such directors.
3.9 Compensation of Directors. The Board of Directors shall have the
authority to fix the compensation of directors.
ARTICLE IV
Committees
4.1 Executive Committee. The Board of Directors may, by resolution
approved by at least a majority of the authorized number of directors, establish
and appoint one or more members of the Board of Directors to constitute an
Executive Committee (the "Executive Committee"), with such powers as may be
expressly delegated to it by resolution of the Board of Directors. The Executive
Committee shall act only in the intervals between meetings of the Board of
Directors and shall be subject at all times to the control of the Board of
Directors.
4.2 Committees. In addition to the Executive Committee, the Board of
Directors may, by resolution passed by a majority of the whole Board of
Directors, designate one or more other committees, each committee to consist of
one or more of the directors of the Corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in place of any
such absent or disqualified member. Any such committee, to the extent provided
in the resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but no such committee shall have
power or authority in reference to amending the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
of Directors as provided in Section 151(a) of the General Corporation Law of
Delaware fix any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the
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Corporation), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of dissolution, removing or
indemnifying directors or amending these by-laws; and, unless the resolution
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock or adopt a certificate
of ownership and merger.
4.3 Committee Rules. Unless the Board of Directors otherwise provides,
the committee designated by the Board of Directors may adopt, amend and repeal
rules for the conduct of its business. In the absence of a provision by the
Board of Directors or a provision in the rules of such committee to the
contrary, a majority of the entire authorized number of members of such
committee shall constitute a quorum for the transaction of business, the vote of
a majority of the members present at a meeting at the time of such vote if a
quorum is then present shall be the act of such committee, and in other respects
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article III of these by-laws.
ARTICLE V
Officers
5.1 Officers; Election. As soon as practicable after the annual meeting
of stockholders in each year, the Board of Directors shall elect a President and
a Secretary, and it may, if it so determines, elect from among its members a
Chairman of the Board of Directors. The Board of Directors may also elect one or
more Vice Presidents, one or more Assistant Vice Presidents, one or more
Assistant Secretaries, a Treasurer and one or more Assistant Treasurers and such
other officers as the Board of Directors may deem desirable or appropriate and
may give any of them such further designations or alternate titles as it
considers desirable. Any number of offices may be held by the same person;
provided, however, that the offices of President and Secretary shall not be held
by the same person.
5.2 Term of Office; Resignation; Removal; Vacancies. Except as
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until the first meeting of the Board of
Directors after the annual meeting of stockholders next succeeding his or her
election, and until his or her successor is elected and qualified or until his
or her earlier resignation or removal. Any officer may resign at any time upon
written notice to the Board of Directors or to the President or the Secretary of
the Corporation. Such resignation shall take effect at the time specified
therein, and unless otherwise specified therein no acceptance of such
resignation shall be necessary to make it effective. The Board of Directors may
remove any officer with or without cause at any time. Any such removal shall be
without prejudice to the contractual rights of such officer, if any, with the
Corporation, but the election of an officer shall not of itself create
contractual rights. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise may be filled for the unexpired portion
of the term by the Board of Directors at any regular or special meeting.
5.3 Powers and Duties. The officers of the Corporation shall have such
powers and duties in the management of the Corporation as shall be stated in
these by-laws or in a resolution of the Board of Directors which is not
inconsistent with these by-laws and, to the extent not so stated, as generally
pertain to their respective offices, subject to the control of the Board of
Directors. The Board of Directors may require any officer, agent or employee to
give security for the faithful performance of his or her duties.
5.4 Chairman of the Board of Directors. The Chairman of the Board of
Directors, if there shall be such an officer, shall, if present, preside at all
meetings of the Board of Directors and exercise and perform such other powers
and duties as may be from time to time assigned to him by the Board of Directors
or prescribed by the by-laws.
5.5 President. The President shall be the chief executive officer of
the Corporation. Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the Chairman of the Board of Directors, if there be
such an officer, and subject to the provisions of these by-laws and to the
direction of the Board of Directors, the President shall have supervision over
and may exercise general executive powers of the business and affairs of the
Corporation and shall perform all duties and have all powers which are commonly
incident to the office of chief
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executive or which are delegated to him by the Board of Directors. He shall have
power to sign all stock certificates, contracts and other instruments of the
Corporation which are authorized and shall have general supervision and
direction of all of the other officers, employees and agents of the Corporation.
The President shall be ex officio, a member of all the standing committees,
including the Executive Committee. In the absence of the Chairman of the Board
of Directors, the President shall preside at all meetings of the Board of
Directors.
5.6 Vice President. In the absence of the President or in his inability
or refusal to act, the Vice President (or in the event there be more than one
Vice President, the Vice Presidents in the order designated by the directors, or
in the absence of any designation, then in the order of their election) shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
Presidents shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
5.7 Secretary. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the Corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the Corporation and he, or an Assistant Secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature.
5.8 Assistant Secretary. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
5.9 Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as Treasurer
and of the financial condition of the Corporation.
5.10 Assistant Treasurer. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE VI
Stock
6.1 Certificates. Every holder of stock in the Corporation shall be
entitled to have a certificate signed by or in the name of the Corporation by
the Chairman or Vice Chairman of the Board of Directors, if any, or the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary, of the Corporation, certifying the
number of shares owned by such holder in the Corporation. If such certificate is
manually signed by one officer or manually countersigned by a transfer agent or
by a registrar, any other signature on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or
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registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue.
Upon the face or back of each stock certificate issued to represent any
partly paid shares, or upon the books and records of the Corporation in the case
of uncertificated partly paid shares, shall be set forth the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
If the Corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in Section
202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
6.2 Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or such owner's legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
6.3 Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Upon receipt of proper transfer instructions from
the registered owner of uncertified shares such uncertified shares shall be
canceled and issuance of new equivalent uncertificated shares or certificated
shares shall be made to the person entitled thereto and the transaction shall be
recorded upon the books of the Corporation.
6.4 Fixing Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
6.5 Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII
Miscellaneous
7.1 Fiscal Year. The fiscal year of the Corporation shall be determined
by the Board of Directors.
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7.2 Seal. The Corporation may have a corporate seal which shall have
the name of the Corporation inscribed thereon and shall be in such form as may
be approved from time to time by the Board of Directors. The corporate seal may
be used by causing it or a facsimile thereof to be impressed or affixed or in
any other manner reproduced.
7.3 Waiver of Notice of Meetings of Stockholders, Directors and
Committees. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these by-laws.
7.4 Interested Directors; Quorum. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (2) the material facts as to
his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (3) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
7.5 Amendment of By-Laws. These by-laws may be amended or repealed, and
new by-laws adopted, by the Board of Directors, but the stockholders entitled to
vote may adopt additional by-laws and may amend or repeal any by-law whether or
not adopted by them.
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CERTIFICATE OF SECRETARY
I hereby certify that:
I am the duly elected and acting Secretary of Fair, Isaac and Company,
Incorporated, a Delaware corporation (the "Corporation"); and
Attached hereto is a complete and accurate copy of the by-laws of the
Corporation as duly adopted by the Board of Directors at a meeting held on
February 5, 2001 and said by-laws are presently in effect.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of the Corporation this 5th day of February, 2002.
------------------------------------------
Andrea M. Fike
Secretary
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CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
FAIR, ISAAC AND COMPANY, INCORPORATED
FAIR, ISAAC AND COMPANY, INCORPORATED, a Delaware corporation (the
"Corporation"), does hereby certify:
First: That the Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended by deleting in its entirety Article 4. (a) and
inserting the following in lieu thereof:
"4. (a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is one hundred one million
(101,000,000), of which one million (1,000,000) shares shall be Preferred
Stock of the par value of $.01 per share, and one hundred million
(100,000,000) shares shall be Common Stock of the par value of $.01 per
share. The number of authorized shares of Common Stock or Preferred Stock
may be increased or decreased (but not below the number of shares thereof
then outstanding) if the increase or decrease is approved by the holders of
a majority of the shares of Common Stock, without the vote of the holders
of the shares of Preferred Stock or any series thereof, unless any such
Preferred holders are entitled to vote thereon pursuant to the provisions
established by the Board of Directors in the resolution or resolutions
providing for the issue of such Preferred Stock, and if such holders of
such Preferred Stock are so entitled to vote thereon, then, except as may
otherwise be set forth in this Certificate of Incorporation, the only
stockholder approval required shall be that of a majority of the combined
voting power of the Common and Preferred Stock so entitled to vote."
Second: The foregoing amendment was duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by THOMAS G. GRUDNOWSKI, its President, and attested by ANDREA M. FIKE,
its Secretary, on this 7th day of February, 2002.
/s/ Thomas G. Grudnowski
-------------------------------------------
THOMAS G. GRUDNOWSKI
President
ATTEST:
/s/ Andrea M. Fike
-------------------------------------------
ANDREA M. FIKE
Secretary