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