UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

Commission File Number 1-11689

Fair Isaac Corporation

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		94-1499887 (I.R.S. Employer Identification No.)
901 Marquette Avenue, Suite 3200 Minneapolis, Minnesota (Address of principal executive offices)		55402-3232 (Zip Code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer þ		Accelerated Filer o		Non-Accelerated Filer o (Do not check if a smaller reporting company)		Smaller Reporting Company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

     The number of shares of common stock outstanding on April 30, 2011 was 39,832,994 (excluding 49,023,789 shares held by the Company as treasury stock).

 

 

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements			1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			33
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			33
Item 1A. Risk Factors			34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 3. Defaults Upon Senior Securities			44
Item 4. Reserved			44
Item 5. Other Information			44
Item 6. Exhibits			44
Signatures			45
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

		March 31, 2011				September 30, 2010
		(Unaudited)
		(In thousands, except par value data)
Assets
Current assets:
Cash and cash equivalents		$	258,294			$	146,199
Marketable securities available for sale, current portion			—				68,615
Accounts receivable, net			106,893				113,187
Prepaid expenses and other current assets			15,898				19,174
Total current assets			381,085				347,175
Marketable securities available for sale, less current portion			5,123				4,367
Other investments			10,999				11,074
Property and equipment, net			29,038				30,975
Goodwill			667,431				665,953
Intangible assets, net			23,423				27,244
Deferred income taxes			27,530				27,774
Other assets			7,797				9,154
Total assets		$	1,152,426			$	1,123,716
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	16,424			$	8,765
Accrued compensation and employee benefits			24,004				33,697
Other accrued liabilities			26,383				28,732
Deferred revenue			51,020				42,953
Current maturities on long-term debt			8,000				8,000
Total current liabilities			125,831				122,147
Senior notes			512,000				512,000
Other liabilities			16,318				14,655
Total liabilities			654,149				648,802
Commitments and contingencies
Stockholders’ equity:
Preferred stock ($0.01 par value; 1,000 shares authorized; none issued and outstanding)			—				—
Common stock ($0.01 par value; 200,000 shares authorized, 88,857 shares issued, 39,824 and 39,882 shares outstanding at March 31, 2011 and September 30, 2010, respectively)			398				399
Paid-in-capital			1,099,635				1,103,244
Treasury stock, at cost (49,033 and 48,975 shares at March 31, 2011 and September 30, 2010, respectively)			(1,555,141	)			(1,556,253	)
Retained earnings			969,357				947,202
Accumulated other comprehensive loss			(15,972	)			(19,678	)
Total stockholders’ equity			498,277				474,914
Total liabilities and stockholders’ equity		$	1,152,426			$	1,123,716

See accompanying notes to condensed consolidated financial statements.

FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

		Quarter Ended March 31,								Six Months Ended March 31,
		2011				2010				2011				2010
		(in thousands, except per share data)
Revenues:
Transactional and maintenance		$	111,431			$	113,701			$	226,193			$	228,807
Professional services			27,041				23,926				54,949				50,163
License			14,352				6,093				27,613				16,246
Total revenues			152,824				143,720				308,755				295,216
Operating expenses:
Cost of revenues (1)			48,506				44,641				94,309				87,160
Research and development			16,222				19,251				34,283				38,227
Selling, general and administrative (1)			55,449				53,697				115,082				108,900
Amortization of intangible assets (1)			1,933				3,070				3,862				6,235
Restructuring			11,522				—				12,391				—
Total operating expenses			133,632				120,659				259,927				240,522
Operating income			19,192				23,061				48,828				54,694
Interest income			57				507				161				1,046
Interest expense			(8,137	)			(5,423	)			(16,378	)			(10,831	)
Other income (expense), net			(78	)			1,027				(154	)			646
Income from operations before income taxes			11,034				19,172				32,457				45,555
Provision for income taxes			3,289				6,180				8,703				14,877
Net Income		$	7,745			$	12,992			$	23,754			$	30,678
Earnings per share
Basic		$	0.19			$	0.28			$	0.59			$	0.65
Dilluted		$	0.19			$	0.28			$	0.59			$	0.65
Shares used in computing earnings per share:
Basic			40,010				46,447				39,966				47,033
Diluted			40,618				46,870				40,528				47,399

See accompanying notes to condensed consolidated financial statements.

FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME
(Unaudited)

		Common Stock																Retained				Accumulated Other				Total Stockholders’				Comprehensive
		Shares				Par Value				Paid-in-Capital				Treasury Stock				Earnings				Comprehensive Loss				Equity				Income
		(In thousands)
Balance at September 30, 2010			39,882			$	399			$	1,103,244			$	(1,556,253	)		$	947,202			$	(19,678	)		$	474,914
Share-based compensation			—				—				8,205				—				—				—				8,205
Exercise of stock options			443				4				(5,489	)			14,064				—				—				8,579
Tax effect from share-based payment arrangements			—				—				(144	)			—				—				—				(144	)
Repurchases of common stock			(642	)			(6	)			—				(17,442	)			—				—				(17,448	)
Issuance of ESPP shares from treasury			—				—				(4	)			19				—				—				15
Issuance of restricted stock to employees from treasury			141				1				(6,177	)			4,471				—				—				(1,705	)
Dividends paid			—				—				—				—				(1,599	)			—				(1,599	)
Net income			—				—				—				—				23,754				—				23,754			$	23,754
Unrealized loss on investments			—				—				—				—				—				(37	)			(37	)			(37	)
Cumulative translation adjustments			—				—				—				—				—				3,743				3,743				3,743
Balance at March 31, 2011			39,824			$	398			$	1,099,635			$	(1,555,141	)		$	969,357			$	(15,972	)		$	498,277			$	27,460

See accompanying notes to condensed consolidated financial statements.

FAIR ISAAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Six Months Ended March 31,
		2011				2010
		(In thousands)
Cash flows from operating activities:
Net income		$	23,754			$	30,678
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			12,770				16,128
Share-based compensation			8,205				9,382
Deferred income taxes			818				—
Tax effect from share-based payment arrangements			(144	)			(3,419	)
Excess tax benefits from share-based payment arrangements			(1,127	)			(1,038	)
Net amortization of premium on marketable securities			365				1,060
Benefit from provision for doubtful accounts, net			(582	)			(810	)
Net loss on sales of property and equipment			155				56
Changes in operating assets and liabilities, net of disposition effects:
Accounts receivable			7,275				12,324
Prepaid expenses and other assets			3,911				(644	)
Accounts payable			6,257				20
Accrued compensation and employee benefits			(9,788	)			(3,138	)
Other liabilities			1,580				9,304
Deferred revenue			6,169				62
Net cash provided by operating activities			59,618				69,965
Cash flows from investing activities:
Purchases of property and equipment			(5,106	)			(8,010	)
Cash proceeds from sale of property and equipment			—				50
Cash proceeds from sale of product line assets			—				490
Purchases of marketable securities			—				(71,749	)
Proceeds from sales of marketable securities			13,644				—
Proceeds from maturities of marketable securities			54,545				80,666
Distribution from cost method investees			75				—
Net cash provided by investing activities			63,158				1,447
Cash flows from financing activities:
Proceeds from issuances of common stock under employee stock option and purchase plans
			6,889				2,156
Dividends paid			(1,599	)			(1,877	)
Repurchases of common stock			(19,311	)			(57,530	)
Excess tax benefits from share-based payment arrangements			1,127				1,038
Net cash used in financing activities			(12,894	)			(56,213	)
Effect of exchange rate changes on cash			2,213				(2,446	)
Increase in cash and cash equivalents			112,095				12,753
Cash and cash equivalents, beginning of year			146,199				178,157
Cash and cash equivalents, end of year		$	258,294			$	190,910
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds		$	8,696			$	9,607
Cash paid for interest		$	16,082			$	10,629

See accompanying notes to condensed consolidated financial statements.

1. Nature of Business

     Fair Isaac Corporation

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

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

     Principles of Consolidation and Basis of Presentation

     We have prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with the instructions to Form 10-Q and the applicable accounting guidance. Consequently, we have not necessarily included in this Form 10-Q all information and footnotes required for audited financial statements. In our opinion, the accompanying unaudited interim condensed consolidated financial statements in this Form 10-Q reflect all adjustments (consisting only of normal recurring adjustments, except as otherwise indicated) necessary for a fair presentation of our financial position and results of operations. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with our audited consolidated financial statements and notes thereto presented in our Annual Report on Form 10-K for the year ended September 30, 2010. 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 entire fiscal year.

     The condensed consolidated financial statements include the accounts of FICO and its subsidiaries. All intercompany accounts and transactions have been eliminated.

     Use of Estimates

     The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include, but are not limited to, assessing the following: the recoverability of accounts receivable, goodwill and other intangible assets, software development costs and deferred tax assets; the benefits related to uncertain tax positions, the determination of the fair value of stock-based compensation, the ability to estimate hours in connection with fixed-fee service contracts, the ability to estimate transactional-based revenues for which actual transaction volumes have not yet been received and the determination of whether fees are fixed or determinable and collection is probable or reasonably assured.

2. Goodwill and Intangible Assets

     Amortization expense associated with our intangible assets, which has been reflected as a separate operating expense caption within the accompanying condensed consolidated statements of income, consisted of the following:

		Quarter Ended March 31,								Six Months Ended March 31,
		2011				2010				2011				2010
		(In thousands)
Cost of revenues		$	568			$	1,711			$	1,137			$	3,450
Selling, general and administrative expenses			1,365				1,359				2,725				2,785
		$	1,933			$	3,070			$	3,862			$	6,235

     Cost of revenues reflects our amortization of completed technology and selling, general and administrative expenses reflects our amortization of other intangible assets. Intangible assets (excluding goodwill) were $23.4 million and $27.2 million, net of accumulated amortization of $111.1 million and $107.0 million, as of March 31, 2011 and September 30, 2010, respectively.

     Estimated future intangible asset amortization expense associated with intangible assets existing at March 31, 2011, was as follows (in thousands):

Fiscal year
Remainder of fiscal 2011		$	3,869
2012			6,162
2013			4,148
2014			2,407
2015			2,407
Thereafter			4,430
		$	23,423

     The following table summarizes changes to goodwill during fiscal 2011, both in total and as allocated to our segments.

		Applications				Scores				Tools				Total
		(In thousands)
Balance at September 30, 2010		$	452,248			$	146,648			$	67,057			$	665,953
Foreign currency translation adjustment			1,218				—				260				1,478
Balance at March 31, 2011		$	453,466			$	146,648			$	67,317			$	667,431

3. Restructuring Expenses

     The following table summarizes our restructuring accruals and certain FICO facility closures. The current portion and non-current portion is recorded in other accrued current liabilities and other long-term liabilities, respectively, within the accompanying condensed consolidated balance sheets. These balances are expected to be paid by fiscal 2018.

		Accrual at																Accrual at
		September 30,				Expense				Cash				Expense				March 31,
		2010				Additions				Payments				Reversals				2011
		(In thousands)
Facilities charges		$	2,836			$	4,226			$	(355	)		$	—			$	6,707
Employee separation			742				8,165				(5,613	)			—				3,294
			3,578			$	12,391			$	(5,968	)		$	—				10,001
Less: current portion			(1,474	)															(5,496	)
Non-current		$	2,104															$	4,505

     During the quarter ended December 31, 2010, we incurred net charges totaling $0.9 million consisting mainly of costs for vacating excess leased space. During the quarter ended March 31, 2011, in connection with our reengineering initiative, we incurred net charges totaling $11.5 million. The charges included $8.2 million for severance costs associated with the reduction of 177 positions throughout the company. Cash payments for substantially all the severance costs will be paid by the end of our third quarter of fiscal 2011. We also recognized charges of $3.3 million associated with vacating excess leased space in Minnesota and Georgia. The charge represents future cash lease payments, net of estimated sublease income, which will be paid out over the next seven years.

4. Composition of Certain Financial Statement Captions

     The following table summarizes property and equipment, and the related accumulated depreciation and amortization.

		March 31, 2011				September 30, 2010
		(In thousands)
Property and equipment		$	193,676			$	218,125
Less: accumulated depreciation and amortization			(164,638	)			(187,150	)
		$	29,038			$	30,975

5. Earnings Per Share

     The following reconciles the numerators and denominators of basic and diluted earnings per share (“EPS”):

		Quarter Ended March 31,								Six Months Ended March 31,
		2011				2010				2011				2010
		(In thousands, except per								(In thousands, except per
		share data)								share data)
Numerator for diluted and basic earnings per share — net income:		$	7,745			$	12,992			$	23,754			$	30,678
Denominator — shares:
Basic weighted-average shares			40,010				46,447				39,966				47,033
Effect of dilutive securities			608				423				562				366
Diluted weighted-average shares			40,618				46,870				40,528				47,399
Earnings per share from continuing operations:
Basic		$	0.19			$	0.28			$	0.59			$	0.65
Diluted		$	0.19			$	0.28			$	0.59			$	0.65

     The computation of diluted EPS for the quarters ended March 31, 2011 and 2010, excludes options to purchase approximately 3,833,000 and 4,796,000 shares of common stock, respectively, and for the six months ended March 31, 2011 and 2010 excludes options to purchase approximately 4,204,000 and 5,136,000 shares of common stock, respectively, because the options’ exercise prices exceeded the average market price of our common stock in these periods and their inclusion would be antidilutive.

6. Segment Information

     We are organized into the following three reportable segments to align with internal management of our worldwide business operations based on product offerings.

	•		Applications. Our Applications products are pre-configured Decision Management applications and associated professional services, designed for a specific type of business problem or process, such as marketing, account origination, customer management, fraud and insurance claims management.
	•		Scores. This segment includes our business-to-business scoring solutions, our myFICO® solutions for consumers and associated professional services. Our scoring solutions give our clients access to analytics that can be easily integrated into their transaction streams and decision-making processes. Our scoring solutions are distributed through major credit reporting agencies, as well as services through which we provide our scores to clients directly.
	•		Tools. The Tools segment is composed of software tools and associated professional services that clients can use to create their own custom Decision Management applications.

     Our Chief Executive Officer evaluates segment financial performance based on segment revenues and segment operating income. Segment operating expenses consist of direct and indirect costs principally related to personnel, facilities, consulting, travel and

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

     The following tables summarize segment information for the three and six months ended March 31, 2011 and 2010:

		Quarter Ended March 31, 2011
														Unallocated
														Corporate
		Applications				Scores				Tools				Expenses				Total
		(In thousands)
Segment revenues:
Transactional and maintenance		$	64,102			$	39,894			$	7,435			$	—			$	111,431
Professional services			23,486				730				2,825				—				27,041
License			8,348				336				5,668				—				14,352
Total segment revenues			95,936				40,960				15,928				—				152,824
Segment operating expense			(72,262	)			(15,262	)			(13,057	)			(15,425	)			(116,006	)
Segment operating income		$	23,674			$	25,698			$	2,871			$	(15,425	)			36,818
Unallocated share-based compensation expense																			(4,171	)
Unallocated amortization expense																			(1,933	)
Unallocated restructuring expense																			(11,522	)
Operating income																			19,192
Unallocated interest income																			57
Unallocated interest expense																			(8,137	)
Unallocated other income, net																			(78	)
Income before income taxes																		$	11,034
Depreciation expense		$	3,431			$	271			$	406			$	274			$	4,382

		Quarter Ended March 31, 2011
														Unallocated
														Corporate
		Applications				Scores				Tools				Expenses				Total
		(In thousands)
Segment revenues:
Transactional and maintenance		$	64,703			$	41,885			$	7,113			$	—			$	113,701
Professional services			19,621				649				3,656				—				23,926
License			2,572				—				3,521				—				6,093
Total segment revenues			86,896				42,534				14,290				—				143,720
Segment operating expense			(66,342	)			(15,201	)			(13,710	)			(17,489	)			(112,742	)
Segment operating income		$	20,554			$	27,333			$	580			$	(17,489	)			30,978
Unallocated share-based compensation expense																			(4,847	)
Unallocated amortization expense																			(3,070	)
Operating income																			23,061
Unallocated interest income																			507
Unallocated interest expense																			(5,423	)
Unallocated other income, net																			1,027
Income before income taxes																		$	19,172
Depreciation expense		$	3,770			$	338			$	530			$	333			$	4,971

		Six Months Ended March 31, 2011
														Unallocated
														Corporate
		Applications				Scores				Tools				Expenses				Total
		(In thousands)
Segment revenues:
Transactional and maintenance		$	130,699			$	80,399			$	15,095			$	—			$	226,193
Professional services			48,235				969				5,745				—				54,949
License			14,638				407				12,568				—				27,613
Total segment revenues			193,572				81,775				33,408				—				308,755
Segment operating expense			(146,749	)			(30,513	)			(28,147	)			(30,060	)			(235,469	)
Segment operating income		$	46,823			$	51,262			$	5,261			$	(30,060	)			73,286
Unallocated share-based compensation expense																			(8,205	)
Unallocated amortization expense																			(3,862	)
Unallocated restructuring expense																			(12,391	)
Operating income																			48,828
Unallocated interest income																			161
Unallocated interest expense																			(16,378	)
Unallocated other income, net																			(154	)
Income before income taxes																		$	32,457
Depreciation expense		$	6,921			$	551			$	912			$	524			$	8,908

		Six Months Ended March 31, 2011
														Unallocated
														Corporate
		Applications				Scores				Tools				Expenses				Total
		(In thousands)
Segment revenues:
Transactional and maintenance		$	131,437			$	83,028			$	14,342			$	—			$	228,807
Professional services			41,083				1,059				8,021				—				50,163
License			7,248				—				8,998				—				16,246
Total segment revenues			179,768				84,087				31,361				—				295,216
Segment operating expense			(133,522	)			(29,479	)			(27,889	)			(34,015	)			(224,905	)
Segment operating income		$	46,246			$	54,608			$	3,472			$	(34,015	)			70,311
Unallocated share-based compensation expense																			(9,382	)
Unallocated amortization expense																			(6,235	)
Operating income																			54,694
Unallocated interest income																			1,046
Unallocated interest expense																			(10,831	)
Unallocated other income, net																			646
Income before income taxes																		$	45,555
Depreciation expense		$	7,504			$	680			$	1,043			$	666			$	9,893

7. Fair Value Measurements

     Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.

	•		Level 1 — uses unadjusted quoted prices that are available in active markets for identical assets or liabilities. Our Level 1 securities are comprised of money market funds and certain equity securities.
	•		Level 2 — uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data. Our Level 2 securities are comprised of U.S. government and corporate debt obligations that are generally held to maturity.
	•		Level 3 — uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, and significant management judgment or estimation. We do not have any assets or liabilities that are valued using inputs identified under a Level 3 hierarchy.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

     The following table represents financial assets that we measured at fair value on a recurring basis at March 31, 2011 and September 30, 2010, respectively:

		Active Markets for				Significant Other
		Identical Instruments				Observable Inputs				Fair Value as of
March 31, 2011		(Level 1)				(Level 2)				March 31, 2011
Assets:
Cash equivalents (1)		$	150,167			$	—			$	150,167
Marketable securities (3)			5,123				—				5,123
Total		$	155,290			$	—			$	155,290

		Active Markets for				Significant Other
		Identical Instruments				Observable Inputs				Fair Value as of
September 30, 2010		(Level 1)				(Level 2)				September 30, 2010
Assets:
Cash equivalents (1)		$	82,545			$	—			$	82,545
U.S. corporate debt (2)			—				2,981				2,981
Non U.S. corporate debt (2)			—				17,267				17,267
U.S. government obligations (2)			—				39,452				39,452
U.S. municipal obligations (2)			—				8,915				8,915
Marketable securities (3)			4,367				—				4,367
Total		$	86,912			$	68,615			$	155,527

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

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

8. Derivative Financial Instruments

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

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

     The following tables summarize the fair value of our derivative instruments and their location in the consolidated balance sheet as of March 31, 2011 and September 30, 2010:

March 31, 2011

(In thousands)

Assets

Liabilities

Derivatives not designated as hedging instruments

Balance Sheet Location

Amount

Balance Sheet Location

Amount

Foreign currency forward contracts

Other current assets

$

—

Other current liabilities

$

—

September 30, 2010

(In thousands)

Assets

Liabilities

Derivatives not designated as hedging instruments

Balance Sheet Location

Amount

Balance Sheet Location

Amount

Foreign currency forward contracts

Other current assets

$

—

Other current liabilities

$

—

     The following tables summarize our outstanding forward foreign currency contracts, by currency at March 31, 2011 and September 30, 2010:

March 31, 2011

Contract Amount

Fair Value

Foreign Currency

US$

US$

(In thousands)

Sell foreign currency:

Canadian dollar (CAD)

CAD 1,200

$

1,236

$

—

Euro (EUR)

EUR 5,390

7,637

—

Buy foreign currency:

British pound (GBP)

GBP 3,243

5,200

—

		September 30, 2010
		Contract Amount								Fair Value
		Foreign Currency				US$				US$
		(In thousands)
Sell foreign currency:
Canadian dollar (CAD)		CAD 1,300				$	1,258			$	—
Euro (EUR)		EUR 5,460				$	7,446				—
Buy foreign currency:
British pound (GBP)		GBP3,672				$	5,800				—

     The forward foreign currency contracts were all entered into on March 31, 2011 and September 30, 2010, respectively; therefore, their fair value was $0.

     Gains (losses) on derivative financial instruments are recorded in our consolidated statements of income as a component of other income (expense), net. These amounts are shown for the quarter and six months ended March 31, 2011 and 2010 in the table below:

		Quarter Ended				Quarter Ended
		March 31, 2011				March 31, 2010
		(In thousands)
Foreign currency forward contracts		$	(126	)		$	(344	)
		Six Months Ended				Six Months Ended
		March 31, 2011				March 31, 2010
		(In thousands)
Foreign currency forward contracts		$	(249	)		$	(124	)

9. Income Taxes

Effective Tax Rate

     Our effective tax rate was 29.8% and 32.2% during the quarters ended March 31, 2011 and 2010, respectively, and 26.8% and 32.7% during the six months ended March 31, 2011 and 2010, respectively. The provision for income taxes during interim quarterly reporting periods is based on our estimates of the effective tax rates for the respective full fiscal year.

     The effective tax rate in any quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution. The decrease in our effective tax rate year over year was due to the recognition of the 2010 extension of the Federal Research and Development credit and changes in the foreign and domestic earnings mix.

     The total unrecognized tax benefit for uncertain tax positions at March 31, 2011 and September 30, 2010 is estimated to be approximately $13.0 million and $12.3 million, respectively. We recognize interest expense related to unrecognized tax benefits and penalties as part of the provision for income taxes in our consolidated statements of income. As of March 31, 2011 and September 30, 2010, we have accrued interest of $1.5 million and $1.4 million, respectively, related to the unrecognized tax benefits.

10. Revolving Line of Credit

     As of March 31, 2011 we had a $200 million unsecured revolving line of credit with a syndicate of banks that expires on October 20, 2011. Proceeds from the credit facility can be used for working capital and general corporate purposes and may also be used for the refinancing of existing debt, acquisitions, and the repurchase of the Company’s common stock. Interest on amounts borrowed under the credit facility is based on (i) a base rate, which is the greater of (a) the prime rate and (b) the Federal Funds rate plus 0.50% or (ii) LIBOR plus an applicable margin. The margin on LIBOR borrowings ranges from 0.30% to 0.55% and is determined based on our consolidated leverage ratio. In addition, we must pay utilization fees if borrowings and commitments under the credit facility exceed 50% of the total credit facility commitment, as well as facility fees. The credit facility contains certain restrictive covenants, including maintenance of consolidated leverage and fixed charge coverage ratios. The credit facility also contains covenants typical of unsecured facilities. As of March 31, 2011 and September 30, 2010, we had no borrowings outstanding under the credit facility.

11. Senior Notes

     In May 2008, we issued $275 million of Senior Notes in a private placement to a group of institutional investors. The Senior Notes were issued in four series with maturities ranging from 5 to 10 years. The Senior Notes’ weighted average interest rate is 6.8% and the weighted average maturity is 7.9 years. In July 2010, we issued $245 million of Senior Notes in a private placement to a group of institutional investors. The Senior Notes were issued in four series with maturities ranging from 5 to 10 years. The Senior Notes’ weighted average interest rate is 5.2% and the weighted average maturity is 8.0 years. These Senior Notes are subject to certain restrictive covenants that are substantially similar to those in the credit agreement for the revolving line of credit, including maintenance of consolidated leverage and fixed charge coverage ratios. The purchase agreement for the Senior Notes also includes covenants typical of unsecured facilities.

12. Contingencies

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

Braun Consulting, Inc.

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

     On April 2, 2009, a stipulation and agreement of settlement between the plaintiffs, issuer defendants and underwriter defendants was submitted to the United States District Court for the Southern District of New York for preliminary approval. This settlement requires no financial contribution from us. The Court granted the plaintiffs’ motion for preliminary approval and preliminarily certified the settlement classes on June 10, 2009. The settlement “fairness” hearing was held on September 10, 2009. The Court granted the plaintiffs’ motion for final approval of the settlement and certified the settlement classes on October 5, 2009. The Court determined that the settlement is fair to the class members, approved the settlement and dismissed, with prejudice, the case against the Company and its individual defendants. Notices of appeal of the opinion granting final approval have been filed. Due to the inherent uncertainties of litigation and because the settlement remains subject to appeal, the ultimate outcome of the matter is uncertain.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

     Statements contained in this Report that are not statements of historical fact should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). In addition, certain statements in our future filings with the Securities and Exchange Commission (“SEC”), in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenue, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other statements concerning future financial performance; (ii) statements of our plans and objectives by our management or Board of Directors, including those relating to products or services; (iii) statements of assumptions underlying such statements; (iv) statements regarding business relationships with vendors, customers or collaborators; and (v) statements regarding products, their characteristics, performance, sales potential or effect in the hands of customers. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” “should,” “potential,” “goals,” “strategy,” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in Part II, Item 1A, Risk Factors. The performance of our business and our securities may be adversely affected by these factors and by other factors common to other businesses and investments, or to the general economy. Forward-looking statements are qualified by some or all of these risk factors. Therefore, you should consider these risk factors with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Such forward-looking statements speak only as of the date on which statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events or circumstances. Readers should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the SEC, including our reports on Forms 10-Q and 8-K to be filed by the Company in fiscal 2011.

OVERVIEW

     We are a leader in Decision Management solutions that enable businesses to automate, improve and connect decisions to enhance business performance. Our predictive analytics, which include the industry standard FICO^® score, and our Decision Management systems power billions of customer decisions each year. We help companies acquire customers more efficiently, increase customer value, reduce fraud and credit losses, lower operating expenses and enter new markets more profitably. Most leading banks and credit card issuers rely on our solutions, as do many insurers, retailers, healthcare organizations, pharmaceutical companies and government agencies. We also serve consumers through online services that enable people to purchase and understand their FICO^® scores, the standard measure in the United States of credit risk, empowering them to manage their financial health.

     Most of our revenues are derived from the sale of products and services within the banking (including consumer credit) and insurance industries, approximately 78% and 76% of our revenues during the quarters ended March 31, 2011 and 2010, respectively, and 77% of our revenues for the six months ended March 31, 2011 and 2010, were derived from within these industries. A significant portion of our remaining revenues is derived from the healthcare and retail industries. Our clients utilize our products and services to facilitate a variety of business processes, including customer marketing and acquisition, account origination, credit and underwriting risk management, fraud loss prevention and control, and client account and policyholder management. A significant portion of our revenues is derived from transactional or unit-based software license fees, annual license fees under long-term software license arrangements, transactional fees derived under scoring, network service or internal hosted software arrangements, and annual software maintenance fees. The recurrence of these revenues is, to a significant degree, dependent upon our clients’ continued usage of our products and services in their business activities. The more significant activities underlying the use of our products in these areas include: credit and debit card usage or active account levels; lending acquisition, origination and customer management activity; and customer acquisition, cross selling and retention programs. Approximately 73% and 79% of our revenues during the quarters ended March 31, 2011 and 2010, respectively, and 73% and 78% of our revenues for the six months ended March 31, 2011 and 2010 were derived from maintenance or arrangements with transactional or unit-based pricing. We also derive revenues from other sources which generally do not recur and include, but are not limited to, perpetual or time-based licenses with upfront payment terms and non-recurring professional service arrangements.

     Our revenues derived from clients outside the United States have generally grown, and may in the future grow, more rapidly than our revenues from domestic clients. International revenues totaled $59.3 million and $46.8 million during the quarters ended March

31, 2011 and 2010, representing 39% and 33% of total consolidated revenues in each of these periods. International revenues totaled $116.6 million and $98.4 million during the six months ended March 31, 2011 and 2010, representing 38% and 33% of total consolidated revenues in each of these periods. We expect that the percentage of our revenues derived from international clients will increase in the future, subject to the impact of foreign currency fluctuations.

     Bookings

     Management uses bookings as an indicator of our business performance. Bookings represent contracts signed in the current reporting period that will generate current and future revenue streams. We consider contract terms, knowledge of the marketplace and experience with our customers, among other factors, when determining the estimated value of contract bookings.

     Bookings calculations have varying degrees of certainty depending on the revenue type and individual contract terms. Our revenue types are transactional and maintenance, professional services and license. Our estimate of bookings is as of the end of the period in which a contract is signed, and we do not update our initial booking estimates in future periods for changes between estimated and actual results. Actual revenue and the timing thereof could differ materially from our initial estimates. The following paragraphs discuss the key assumptions used to calculate bookings and the susceptibility of these assumptions to variability.

     Transactional and Maintenance Bookings

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

	•		The health of the economy and economic trends in our customer’s industries;
	•		Individual performance of our customers relative to their competitors; and
	•		Regulatory and other factors that affect the business environment in which our customers operate.

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

     Professional Services Bookings

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

     License Bookings

     Licenses are sold on a perpetual or term basis and bookings generally equal the fixed amount stated in the contract.

     Bookings Trend Analysis

										Number of
										Bookings				Weighted-
						Bookings				over $1				Average
		Bookings				Yield*				Million				Term
		(in millions)												(months)
Quarter ended March 31, 2011		$	57.7				29	%			12				19
Quarter ended March 31, 2010		$	54.3				17	%			11				22
Six months ended March 31, 2011		$	141.7				29	%			22			NM
Six months ended March 31, 2010		$	114.2				27	%			23			NM

NM Measure is not meaningful

     Transactional and maintenance bookings were 29% and 54% of total bookings for the quarters ended March 31, 2011 and 2010, respectively. Professional services bookings were 48% and 34% of total bookings for the quarters ended March 31, 2011 and 2010, respectively. License bookings were 23% and 12% of total bookings for the quarters ended March 31, 2011 and 2010, respectively.

     Transactional and maintenance bookings were 48% and 52% of total bookings for the six months ended March 31, 2011 and 2010, respectively. Professional services bookings were 34% and 35% of total bookings for the six months ended March 31, 2011 and 2010, respectively. License bookings were 18% and 13% of total bookings for the six months ended March 31, 2011 and 2010, respectively.

     The weighted-average term of bookings achieved measures the average term over which the bookings are expected to be recognized as revenue. As the weighted-average term increases, the average amount of revenues expected to be realized in a quarter decreases, however, the revenues are expected to be recognized over a longer period of time. As the weighted-average term decreases, the average amount of revenues expected to be realized in a quarter increases; however, the revenues are expected to be recognized over a shorter period of time.

     Management regards the volume of bookings achieved, among other factors, as an important indicator of future revenues, but they are not comparable to, nor should they be substituted for, an analysis of our revenues, and they are subject to a number of risks and uncertainties concerning timing and contingencies affecting product delivery and performance.

     Although many of our contracts contain noncancelable terms, most of our bookings are transactional or service related and are dependent upon estimates such as volume of transactions, number of active accounts, or number of hours incurred. Since these estimates cannot be considered fixed or firm, we do not believe it is appropriate to characterize bookings as backlog.

Current Business Environment

     General economic conditions have stabilized, however, high levels of unemployment and a difficult housing market continue to impact our customers in the United States and the pace of global recovery is likely to be modest across the geographical markets we serve. During the latter half of fiscal 2010 our business stabilized and we currently see signs of gradual improvement. We will continue to manage our expenses in an effort to maintain solid earnings and cash flows. We also plan to continue to invest in our Decision Management solutions as well as our core business operations to drive revenue growth.

     The mixed economic conditions impacted the estimates used in our July 1, 2010 annual goodwill impairment testing, and in particular, for our Applications segment, which had $448.0 million in goodwill as of July 1, 2010. If market conditions decline more quickly than we can reduce costs, our margins will decrease and we may experience a decline in the fair value of our reporting units. Such declines in fair value may require us to record an impairment charge related to goodwill.

RESULTS OF OPERATIONS

Revenues

     The following table sets forth certain summary information on a segment basis related to our revenues for the fiscal periods indicated:

																						Period-to-Period
		Quarter Ended March 31,								Percentage of Revenues								Period-to-Period				Percentage
Segment		2011				2010				2011				2010				Change				Change
		(In thousands)																(In thousands)
Applications		$	95,936			$	86,896				63	%			60	%		$	9,040				10	%
Scores			40,960				42,534				27	%			30	%			(1,574	)			(4	)%
Tools			15,928				14,290				10	%			10	%			1,638				11	%
Total revenue		$	152,824			$	143,720				100	%			100	%			9,104				6	%