EXHIBIT 99.02
PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined consolidated financial
statements give effect to the merger between Fair, Isaac and HNC using the
purchase method of accounting for business combinations.
The information is only a summary and you should read it together with our
historical financial statements and related notes contained in the annual
reports and other information that we have filed with the SEC and incorporated
by reference.
The pro forma data is based on an exchange ratio for the merger of 0.519 of a
share of Fair, Isaac common stock for each share of HNC common stock. The Fair,
Isaac historical and pro forma share and per share data reflect Fair, Isaac's
3-for-2 stock split on June 5, 2002.
The unaudited pro forma condensed combined consolidated balance sheet of Fair,
Isaac gives effect to the merger as if it occurred on June 30, 2002 and combines
the unaudited historical consolidated balance sheets of Fair, Isaac and HNC as
of June 30, 2002.
The unaudited pro forma condensed combined consolidated statements of operations
of Fair, Isaac gives effect to the proposed merger as if the merger had been
consummated on October 1, 2000. The unaudited pro forma condensed combined
consolidated statement of operations of Fair, Isaac for the nine month period
ended June 30, 2002 combines the unaudited consolidated statements of operations
of Fair, Isaac and HNC for the nine month period ended June 30, 2002. The
unaudited pro forma condensed combined consolidated statement of operations of
Fair, Isaac for the fiscal year ended September 30, 2001 combines the audited
historical consolidated statement of operations of Fair, Isaac for the fiscal
year ended September 30, 2001 with the unaudited pro forma condensed
consolidated statement of operations of HNC for the year ended December 31,
2001.
On August 15, 2001, HNC acquired the assets of the Blaze business unit from
Brokat Technologies, Inc., which was a significant transaction to HNC. The HNC
unaudited pro forma condensed consolidated statement of operations for the year
ended December 31, 2001 reflects the historical results of operations of HNC for
the year ended December 31, 2001, which included operations of Blaze from the
acquisition date through December 31, 2001, adjusted to give effect to the Blaze
acquisition as if it had occurred on January 1, 2001.
The accompanying unaudited pro forma condensed combined consolidated financial
statements are presented in accordance with Article 11 of Regulation S-X. The
pro forma information is not necessarily indicative of the operating results or
financial position that would have occurred if the proposed merger had been
consummated on October 1, 2000 or June 30, 2002, respectively, nor is it
necessarily indicative of future operating results or financial position. The
pro forma financial statements should be read in conjunction with the
accompanying notes and with Fair, Isaac's and HNC's historical consolidated
financial statements and related notes.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
AT JUNE 30, 2002
(THOUSANDS OF DOLLARS)
<Table>
<Caption>
HISTORICAL
----------------------------- PRO FORMA PRO FORMA
FAIR, ISAAC HNC ADJUSTMENTS COMBINED
----------- ------------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 42,013 $ 128,384 $ -- $ 170,397
Short-term investments 16,822 122,301 -- 139,123
Accounts receivable, net 55,522 36,635 -- 92,157
Unbilled work in progress 28,943 4,784 -- 33,727
Prepaid expenses and other current assets 13,408 9,933 -- 23,341
Deferred income taxes 6,512 19,782 (15,554)A 10,740
--------- --------- --------- ----------
Total current assets 163,220 321,819 (15,554) 469,485
Investments 60,305 71,028 -- 131,333
Property and equipment, net 48,491 20,102 (1,572)A 67,021
Goodwill, net 7,551 88,000 (88,000)C 428,799
421,248 A
Intangibles, net 1,190 32,321 (32,321)C 91,490
42,000 A
39,700 A
8,600 A
Deferred income taxes 5,504 41,467 1,201 A 48,172
Other assets 3,493 6,264 (4,871)A 4,886
--------- --------- --------- ----------
$ 289,754 $ 581,001 $ 370,431 $1,241,186
========= ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 32,493 $ 30,017 $ 8,544 A $ 87,287
16,233 A
Billings in excess of earned revenues 10,247 9,030 (2,729)A 16,548
--------- --------- --------- ----------
Total current liabilities 42,740 39,047 22,048 103,835
Long-term liabilities:
Other liabilities 4,859 1,650 2,265 A 8,774
Convertible subordinated notes -- 150,000 (10,302)A 139,698
--------- --------- --------- ----------
Total long-term liabilities 4,859 151,650 (8,037) 148,472
--------- --------- --------- ----------
Total liabilities 47,599 190,697 14,011 252,307
--------- --------- --------- ----------
Stockholders' equity:
Common stock 351 36 (36)B 539
188 A
Paid in capital in excess of par value 130,694 536,519 (536,519)B 919,257
68,706 A
719,857 A
Retained earnings (accumulated deficit) 241,251 (146,143) 146,143 B 201,051
(40,200)A
Less treasury stock, at cost (129,694) -- -- (129,694)
Deferred compensation -- (140) 140 B (1,827)
(1,827)A
Accumulated other comprehensive income (loss) (447) 32 (32)B (447)
--------- --------- --------- ----------
Total stockholders' equity 242,155 390,304 356,420 988,879
--------- --------- --------- ----------
$ 289,754 $ 581,001 $ 370,431 $1,241,186
========= ========= ========= ==========
</Table>
See accompanying notes to unaudited pro forma condensed
combined consolidated financial statements.
UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 2002
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<Table>
<Caption>
HISTORICAL
-------------------------- PRO FORMA PRO FORMA
FAIR, ISAAC HNC ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
Revenues $263,125 $167,011 -- $430,136
Costs and expenses:
Cost of revenues 118,436 67,727 -- 186,163
Research and development 21,672 38,595 -- 60,267
Sales, general and administrative 57,004 53,636 -- 110,640
Amortization of intangibles and
transaction-related costs 1,743 25,367 (23,752) C 12,933
9,575 A
Amortization of deferred compensation -- -- 864 A 864
Restructuring and impairment charges -- 897 -- 897
-------- -------- --------- --------
Total costs and expenses 198,855 186,222 (13,313) 371,764
-------- -------- --------- --------
Income (loss) from operations 64,270 (19,211) 13,313 58,372
Other income (expense), net 4,439 (298) (301) A 3,840
-------- -------- --------- --------
Income (loss) before income taxes 68,709 (19,509) 13,012 62,212
Provision (benefit) for income taxes 26,625 (6,010) 4,892 D 25,507
-------- -------- --------- --------
Net income (loss) $ 42,084 $(13,499) $ 8,120 $ 36,705
======== ======== ========= ========
Earnings (loss) per share:
Diluted $ 1.17 $ (0.38) E $ 0.64
Basic $ 1.23 $ (0.38) E $ 0.70
Shares used in computing earnings (loss)
per share:
Diluted 35,832 35,585 E 57,524
Basic 34,113 35,585 E 52,582
</Table>
See accompanying notes to unaudited pro forma condensed
combined consolidated financial statements.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS OF
HNC SOFTWARE INC.
FOR THE YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<Table>
<Caption>
HISTORICAL PRO FORMA
----------------------- PRO FORMA CONSOLIDATED
HNC BLAZE(1) ADJUSTMENTS HNC
-------- --------- ----------- ------------
Revenues $226,670 $ 17,357 $ -- $244,027
Costs and expenses:
Costs of revenues 87,192 8,602 -- 95,794
Research and development 45,667 7,739 -- 53,406
Sales, general and
administrative 74,649 24,596 -- 99,245
Transaction-related
amortization and costs 56,556 552,227 (552,227)(F) 58,693
2,137 (G)
In-process research
and development 487 -- -- 487
Restructuring and
impairment charges 4,642 1,393 -- 6,035
-------- --------- --------- --------
Total operating expenses 269,193 594,557 (550,090) 313,660
Income (loss) from operations (42,523) (577,200) 550,090 (69,633)
Other income (expense), net (201) (35) -- (236)
-------- --------- --------- --------
Income (loss) before income
tax provision (benefit) (42,724) (577,235) 550,090 (69,869)
Income tax provision (benefit) (6,272) -- (876)(H) (7,148)
-------- --------- --------- --------
Net income (loss) $(36,452) $(577,235) $ 550,966 $(62,721)
======== ========= ========= ========
Earnings (loss) per share:
Basic and diluted net loss
per common share $ (1.06) $ (1.82)
Shares used in computing
basic and diluted net
loss per common share 34,509 34,509
</Table>
- ------------
(1) Blaze was acquired by HNC on August 15, 2001. These results represent
revenue and expenses recognized by the predecessor owner of Blaze from
January 1, 2001 through August 14, 2001 and are not reflective of actual
results subsequent to HNC's acquisition of Blaze. The unaudited pro forma
condensed combined consolidated statement of operations for the nine months
ended June 30, 2002 includes actual results for Blaze subsequent to the
acquisition. These amounts reflect the effects of integrating Blaze,
including associated cost-cutting measures.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
HISTORICAL
------------------------- PRO FORMA HISTORICAL PRO FORMA PRO FORMA
FAIR, ISAAC(1) HNC(2) ADJUSTMENTS SUBTOTAL BLAZE(3) ADJUSTMENTS COMBINED
-------------- -------- ----------- -------- ---------- ----------- ---------
Revenues $329,148 $226,670 $ -- $555,818 $ 17,357 $ -- $573,175
Costs and expenses:
Cost of revenues 148,559 87,192 -- 235,751 8,602 -- 244,353
Research and development 28,321 45,667 -- 73,988 7,739 -- 81,727
Sales, general and
administrative 78,061 74,649 -- 152,710 24,596 -- 177,306
Amortization of intangibles and
transaction-related costs 2,100 56,556 (56,444)(C) 14,979 552,227 (552,227)(F) 14,979
12,767 (A) -- --
Amortization of deferred
compensation -- -- 1,152 (A) 1,152 -- -- 1,152
In-process research and
development -- 487 -- 487 -- -- 487
Restructuring and impairment
charges -- 4,642 -- 4,642 1,393 -- 6,035
-------- -------- -------- -------- --------- --------- --------
Total costs and expenses 257,041 269,193 (42,525) 483,709 594,557 (552,227) 526,039
-------- -------- -------- -------- --------- --------- --------
Income (loss) from operations 72,107 (42,523) 42,525 72,109 (577,200) 552,227 47,136
Other income (expense), net 4,746 (201) (244)(A) 4,301 (35) -- 4,266
-------- -------- -------- -------- --------- --------- --------
Income (loss) before income taxes 76,853 (42,724) 42,281 76,410 (577,235) 552,227 51,402
Provision (benefit) for income
taxes 30,741 (6,272) 6,859 (D) 31,328 -- (10,253)(D) 21,075
-------- -------- -------- -------- --------- --------- --------
Net income (Loss) $ 46,112 $(36,452) $ 35,422 $ 45,082 $(577,235) $ 562,480 $ 30,327
======== ======== ======== ======== ========= ========= ========
Earnings (loss) per share:
Diluted $ 1.33 $ (1.06) $ 0.84 (E) $ 0.56
Basic $ 1.40 $ (1.06) $ 0.89 (E) $ 0.60
Shares used in computing earnings
(loss) per share:
Diluted 34,589 34,509 53,917 (E) 53,917
Basic 32,979 34,509 50,889 (E) 50,889
</Table>
- ---------------
(1) For the year ended September 30, 2001.
(2) For the year ended December 31, 2001.
(3) Blaze was acquired by HNC on August 15, 2001. These results represent
revenue and expenses recognized by the predecessor owner of Blaze from
January 1, 2001 through August 14, 2001 and are not reflective of actual
results subsequent to HNC's acquisition of Blaze. The unaudited pro forma
condensed combined consolidated statement of operations for the nine months
ended June 30, 2002 includes actual results for Blaze subsequent to the
acquisition. These amounts reflect the effects of integrating Blaze,
including associated cost-cutting measures.
See accompanying notes to unaudited pro forma condensed
combined consolidated financial statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA ADJUSTMENTS
The measurement date to determine the value of the merger was August 5, 2002.
(A) Purchase Price Adjustments
The purchase price adjustments reflect the issuance of 18,780,482 shares of
Fair, Isaac common stock to HNC stockholders using an exchange ratio of 0.519,
based on the outstanding shares of HNC on August 5, 2002. The fair value of the
Fair, Isaac shares assumed to be issued is based on a per share value of
$38.3401, which is equal to the weighted average closing sale price per share,
by volume, of Fair, Isaac's common stock as reported on the New York Stock
Exchange for the five-day trading period beginning two days before and ending
two days after August 5, 2002.
For purposes of the pro forma financial information, the following table
presents the assumptions used.
Total consideration (in thousands):
Fair value of Fair, Isaac common stock assumed to be issued $720,045
Acquisition related costs 8,544
Fair value of options to purchase Fair, Isaac
common stock to be issued, less $1.8 million representing
the portion of the intrinsic value of HNC's unvested
options applicable to the remaining vesting period 66,879
--------
$795,468
========
The estimated acquisition-related costs consist primarily of banking, legal and
accounting fees, printing and mailing costs, and other directly related charges.
The planning process for the integration of HNC's operations may result in
additional accruals for severance costs and/or facilities closures in accordance
with Emerging Issues Task Force (EITF) Issue No. 95-3. Such accruals would
increase the allocation of the purchase consideration to goodwill.
The following represents the preliminary allocation of the purchase price to
the acquired assets and assumed liabilities of HNC. This allocation is
preliminary and based on HNC's assets and liabilities as of June 30, 2002.
Purchase price allocation (in thousands):
Net tangible assets $243,720
Goodwill 421,248
Other intangible assets:
Existing Technology 42,000
Customer Relationship 39,700
Trade Name 8,600
In-process research and development 40,200
--------
$795,468
========
Net tangible assets consist of $270.0 million recorded on the HNC historical
financial statements as of June 30, 2002, adjusted principally to reflect a
decrease in deferred tax assets of $14.4 million, a decrease of net property and
equipment of $1.6 million, a decrease in the convertible subordinated note
liability of $10.3 million and the removal of associated deferred debt issuance
costs of $4.9 million, and a reduction in deferred revenue of $2.7 million,
along with an aggregate $18.5 million increase in other liabilities recorded as
of the acquisition date, related primarily to HNC severance and change in
control liabilities, accrued lease exit costs and accrued banking fees that
became payable upon the merger consummation.
Goodwill represents the excess of the purchase price over the fair value of
tangible and identifiable intangible assets. The unaudited pro forma condensed
combined consolidated statement of operations does not reflect the amortization
of goodwill acquired in the proposed merger consistent with the guidance in the
Financial Accounting Standards Board (FASB) Statement No. 142, Goodwill and
Other Intangible Assets.
Amortization of other intangible assets has been provided over the following
estimated useful lives: existing technology--5 years; customer relationship--15
years; trade name--5 years. This will result in annual amortization of
approximately $8.4 million for existing technology, $2.6 million for customer
relationship and $1.7 million for trade name.
The purchase price allocation includes a reduction in HNC's reported deferred
revenue at August 5, 2002. HNC's deferred revenue relates primarily to the
remaining portion of periodic licenses, maintenance and services sold to
customers for
which payment has been received. Under the purchase method of accounting, HNC's
deferred revenue was reduced by approximately $2.7 million to the estimated fair
value of the related obligations as of August 5, 2002. This adjustment will have
the effect of reducing the amount of revenue the combined company will recognize
in periods subsequent to the merger compared to the amount of revenue HNC would
have recognized in the same periods absent the merger.
The purchase price allocation also includes a reduction in HNC's reported
convertible subordinated note balance at August 5, 2002, to reflect such balance
at its estimated fair value. The purchase price allocation also eliminates
associated deferred debt issuance costs. These adjustments will have the effect
of increasing the amount of interest expense the combined company will recognize
in periods subsequent to the merger compared to the amount of interest expense
HNC would have recognized in the same periods absent the merger.
The $1.8 million of deferred stock-based compensation represents the unearned
portion, as of August 5, 2002, of the intrinsic value of HNC's unvested common
stock options assumed in the merger. The deferred compensation will be amortized
on a straight-line basis over the remaining vesting period of less than one to
four years.
(B) The pro forma adjustment represents the elimination of HNC's stockholders'
equity accounts.
(C) The pro forma adjustment represents the elimination of HNC's capitalized
goodwill and other intangible assets aggregating $120.3 million at June 30,
2002 and related amortization expense of $56.4 million and $23.8 million for
the fiscal year ended September 30, 2001 and the nine month period ended
June 30, 2002, respectively.
(D) The adjustment reflects the statutory tax rate of 41%.
(E) The following table sets forth the computation of basic and diluted earnings
per share:
HISTORICAL
---------------------- PRO FORMA
FOR THE NINE MONTHS ENDED JUNE 30, 2002 FAIR, ISAAC HNC COMBINED
- --------------------------------------- ----------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator:
Net income (loss) $ 42,084 $(13,499) $ 36,705
Denominator:
Weighted-average common shares outstanding 34,113 35,585 52,582
Effect of dilutive employee stock options outstanding 1,656 1,031 2,133
Restricted securities issued in Nykamp acquisition 63 -- 63
Effect of dilutive Employee Stock Purchase Plan equivalents -- 82 43
Effect of conversion of convertible subordinated notes -- 5,208 2,703
Diluted common shares 35,832 41,906 57,524
Diluted earnings (loss) per share $ 1.17 $ (0.38) $ 0.64
Basic earnings (loss) per share $ 1.23 $ (0.38) $ 0.70
HISTORICAL PRO FORMA PRO FORMA
FOR THE YEAR ENDED SEPTEMBER 30, 2001 FAIR, ISAAC HNC COMBINED
- ------------------------------------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator:
Net income (loss) $ 46,112 $(62,721) $ 30,327
Denominator:
Weighted-average common shares outstanding 32,979 34,509 50,889
Effect of dilutive employee stock options outstanding 1,610 1,799 2,044
Effect of dilutive Employee Stock Purchase Plan equivalents -- 61 32
Effect of conversion of convertible subordinated notes -- 1,835 952
Diluted common shares 34,589 38,204 53,917
Diluted earnings (loss) per share $ 1.33 $ (1.82) $ 0.56
Basic earnings (loss) per share $ 1.40 $ (1.82) $ 0.60
(F) Reflects the elimination of Blaze's historical amortization and impairment
of goodwill and intangible assets.
(G) Reflects the amortization of identifiable intangible assets resulting from
the Blaze acquisition over the estimated useful lives of two to four years,
as if the acquisition had occurred on January 1, 2001.
(H) Reflects the estimated tax benefit resulting from the amortization of the
intangible assets recorded as part of the Blaze acquisition, as if it had
occurred on January 1, 2001.