FAIR ISAAC CORP 10-K

Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Fair Isaac Corporation Bozeman, Montana Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Fair Isaac Corporation and subsidiaries (the "Company") as of September 30, 2021 and 2020, the related consolidated statements of income and comprehensive income, stockholders' equity (deficit), and cash flows, for each of the three years in the period ended September 30, 2021, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of operations and cash flows for each of the three years in the period ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and 53 Table of Contents we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition – Contracts with Customers – Refer to Note 1 and Note 12 to the financial statements Critical Audit Matter Description The Company recognizes revenue when control of the promised goods or services in a contract is transferred to the customer, in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services. The Company’s revenue is primarily derived from term-based or perpetual licensing of software and scoring products and solutions, and associated maintenance; software-as-a-service (SaaS) subscription services; scoring and credit monitoring services for consumers; and professional services. The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. For contracts with customers that contain various combinations of products and services, the Company evaluates whether the products or services are distinct. Distinct products or services will be accounted for as separate performance obligations, while non-distinct products or services are combined with others to form a single performance obligation. For transactional revenue, the transaction price for contracts with customers typically includes a fixed consideration in the form of a guaranteed minimum that allows up to a certain level of usage and a variable consideration in the form of usage or transaction-based fees in excess of the minimum threshold; or usage or transaction-based variable amount not subject to a minimum threshold. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation on a relative standalone selling price (“SSP”) basis. The Company determines the SSP using data from historical standalone sales, or, in instances where such information is not available, the Company considers factors such as the stated contract prices, their overall pricing practices and objectives, go-to-market strategy, size and type of the transactions, and effects of the geographic area on pricing, among others. Given the complexity of certain of the Company’s contracts, together with the judgment involved in identifying performance obligations, estimating variable consideration, and determining SSP, auditing the related revenue required both extensive audit effort due to the volume and complexity of the contracts and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to revenue recognition to the Company’s identification of performance obligations, estimation of variable consideration, and determination of SSP included the following, among others: • We tested the effectiveness of controls over contract revenue, including management’s controls over the identification of performance obligations, estimation of variable consideration, and determination of the SSP. • We selected a sample of contracts and performed the following procedures: ◦ Obtained and read the contract, including master agreements, renewal agreements, and other source documents that were part of the contract. ◦ Obtained other contracts with the same customer that were entered into at or near the same time and evaluated management’s conclusion of whether two or more contracts for multiple products and services promised to a customer should be combined and accounted for as a single contract for revenue recognition. ◦ Confirmed the terms of the contract directly with the customer, including whether there are side agreements and terms not formally included in the contract that may impact the identification of performance obligations and revenue recognition and performed alternative procedures in the event of nonreplies. ◦ Evaluated internal certification letters provided by the Company’s sales personnel to identify the existence of side agreements that may impact the identification of performance obligations and revenue recognition. ◦ Tested management’s identification of the performance obligations within the customer contract, including whether material rights that gave rise to a performance obligation were identified. ◦ Tested management’s estimation of variable consideration in the transaction price by evaluating the reasonableness of the inputs used in management’s estimates. ◦ Tested the accuracy and completeness of the data and factors used in management’s determination of the SSP for each performance obligation. ◦ Evaluated the consistency of the methodologies used to develop the SSP for each performance obligation. 54 Table of Contents /s/ Deloitte & Touche LLP San Diego, CA November 10, 2021 We have served as the Company’s auditor since 2004. 55 Table of Contents FAIR ISAAC CORPORATION CONSOLIDATED BALANCE SHEETS September 30, 2021 2020 (In thousands, except par value data) Assets Current assets: Cash and cash equivalents $ 195,354 $ 157,394 Accounts receivable, net 312,107 334,180 Prepaid expenses and other current assets 43,513 42,504 Total current assets 550,974 534,078 Marketable securities 31,884 25,513 Other investments 1,312 1,060 Property and equipment, net 27,913 46,419 Operating lease right-of-use assets 47,275 57,656 Goodwill 788,185 812,364 Intangible assets, net 4,099 9,236 Deferred income taxes 20,549 14,629 Other assets 95,585 105,285 Total assets $ 1,567,776 $ 1,606,240 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 20,749 $ 23,033 Accrued compensation and employee benefits 103,506 117,952 Other accrued liabilities 79,535 63,367 Deferred revenue 105,417 115,159 Current maturities on debt 250,000 95,000 Total current liabilities 559,207 414,511 Long-term debt 1,009,018 739,435 Operating lease liabilities 53,670 73,207 Other liabilities 56,823 48,005 Total liabilities 1,678,718 1,275,158 Commitments and contingencies Stockholders’ equity (deficit): Preferred stock ($ 0.01 par value; 1,000 shares authorized; none issued and outstanding) — — Common stock ($ 0.01 par value; 200,000 shares authorized, 88,857 shares issued and 27,568 and 29,096 shares outstanding at September 30, 2021 and September 30, 2020, respectively) 276 291 Paid-in-capital 1,237,348 1,218,583 Treasury stock, at cost ( 61,289 and 59,761 shares at September 30, 2021 and September 30, 2020, respectively) ( 3,857,855 ) ( 2,997,856 ) Retained earnings 2,585,143 2,193,059 Accumulated other comprehensive loss ( 75,854 ) ( 82,995 ) Total stockholders’ equity (deficit) ( 110,942 ) 331,082 Total liabilities and stockholders’ equity (deficit) $ 1,567,776 $ 1,606,240 See accompanying notes. 56 Table of Contents FAIR ISAAC CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Year Ended September 30, 2021 2020 2019 (In thousands, except per share data) Revenues: On-premises and SaaS software $ 517,888 $ 584,576 $ 556,968 Professional services 144,501 181,439 181,938 Scores 654,147 528,547 421,177 Total revenues 1,316,536 1,294,562 1,160,083 Operating expenses: Cost of revenues 332,462 361,142 336,845 Research and development 171,231 166,499 149,478 Selling, general and administrative 396,281 420,930 414,086 Amortization of intangible assets 3,255 4,993 6,126 Restructuring and impairment charges 7,957 45,029 — Gains on product line asset sales and business divestiture ( 100,139 ) — — Total operating expenses 811,047 998,593 906,535 Operating income 505,489 295,969 253,548 Interest expense, net ( 40,092 ) ( 42,177 ) ( 39,752 ) Other income, net 7,745 3,208 2,276 Income before income taxes 473,142 257,000 216,072 Provision for income taxes 81,058 20,589 23,948 Net income 392,084 236,411 192,124 Other comprehensive income (loss): Foreign currency translation adjustments 7,141 7,090 ( 13,664 ) Comprehensive income $ 399,225 $ 243,501 $ 178,460 Basic earnings per share $ 13.65 $ 8.13 $ 6.63 Shares used in computing basic earnings per share 28,734 29,067 28,980 Diluted earnings per share $ 13.40 $ 7.90 $ 6.34 Shares used in computing diluted earnings per share 29,260 29,932 30,294 See accompanying notes. 57 Table of Contents FAIR ISAAC CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) Years Ended September 30, 2021, 2020 and 2019 Common Stock Accumulated Other Comprehensive Loss Total Stockholders’ Equity (Deficit) (In thousands) Shares Par Value Paid-in- Capital Treasury Stock Retained Earnings Balance at September 30, 2018 29,015 $ 290 $ 1,211,051 $ ( 2,612,007 ) $ 1,764,524 $ ( 76,421 ) $ 287,437 Share-based compensation — — 82,973 — — — 82,973 Issuance of treasury stock under employee stock plans 854 8 ( 68,659 ) 38,442 — — ( 30,209 ) Repurchases of common stock ( 925 ) ( 9 ) — ( 228,885 ) — — ( 228,894 ) Net income — — — — 192,124 — 192,124 Foreign currency translation adjustments — — — — — ( 13,664 ) ( 13,664 ) Balance at September 30, 2019 28,944 289 1,225,365 ( 2,802,450 ) 1,956,648 ( 90,085 ) 289,767 Share-based compensation — — 93,681 — — — 93,681 Issuance of treasury stock under employee stock plans 827 9 ( 100,463 ) 39,810 — — ( 60,644 ) Repurchases of common stock ( 675 ) ( 7 ) — ( 235,216 ) — — ( 235,223 ) Net income — — — — 236,411 — 236,411 Foreign currency translation adjustments — — — — — 7,090 7,090 Balance at September 30, 2020 29,096 291 1,218,583 ( 2,997,856 ) 2,193,059 ( 82,995 ) 331,082 Share-based compensation — — 111,700 — — — 111,700 Issuance of treasury stock under employee stock plans 349 4 ( 88,953 ) 18,222 — — ( 70,727 ) Repurchases of common stock ( 1,877 ) ( 19 ) ( 3,982 ) ( 878,221 ) — — ( 882,222 ) Net income — — — — 392,084 — 392,084 Foreign currency translation adjustments — — — — — 7,141 7,141 Balance at September 30, 2021 27,568 $ 276 $ 1,237,348 $ ( 3,857,855 ) $ 2,585,143 $ ( 75,854 ) $ ( 110,942 ) See accompanying notes. 58 Table of Contents FAIR ISAAC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended September 30, 2021 2020 2019 (In thousands) Cash flows from operating activities: Net income $ 392,084 $ 236,411 $ 192,124 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 25,592 30,367 31,612 Share-based compensation 112,457 93,681 82,973 Deferred income taxes ( 5,955 ) ( 8,639 ) 7,701 Non-cash operating lease costs 16,102 20,011 — Impairment loss on operating lease assets — 28,016 — Provision of doubtful accounts 652 3,199 518 Net gain (loss) on marketable securities ( 4,569 ) ( 2,071 ) 761 Net loss on sales and abandonment of property and equipment 333 5,249 127 Gains on product line asset sales and business divestiture ( 100,139 ) — — Changes in operating assets and liabilities: Accounts receivable 24,496 ( 59,889 ) ( 36,176 ) Prepaid expenses and other assets ( 5,722 ) ( 960 ) ( 55,507 ) Accounts payable ( 2,354 ) 1,059 1,885 Accrued compensation and employee benefits ( 13,144 ) 12,065 22,380 Other liabilities ( 20,502 ) 693 1,463 Deferred revenue 4,486 5,724 10,489 Net cash provided by operating activities 423,817 364,916 260,350 Cash flows from investing activities: Purchases of property and equipment ( 7,569 ) ( 21,989 ) ( 23,981 ) Proceeds from sales of marketable securities 7,237 3,470 3,480 Purchases of marketable securities ( 9,039 ) ( 6,119 ) ( 6,404 ) Proceeds from product line asset sales and business divestiture 147,431 — — Distribution from (purchase of) equity investment ( 210 ) 55 — Cash paid for acquisitions, net of cash acquired — — ( 15,855 ) Net cash provided by (used in) investing activities 137,850 ( 24,583 ) ( 42,760 ) Cash flows from financing activities: Proceeds from revolving line of credit 682,000 263,000 229,000 Payments on revolving line of credit ( 259,000 ) ( 513,000 ) ( 141,000 ) Proceeds from issuance of senior notes — 350,000 — Payments on senior notes — ( 85,000 ) ( 28,000 ) Payments on debt issuance costs ( 1,488 ) ( 6,840 ) — Payments on finance leases ( 176 ) ( 1,716 ) ( 945 ) Proceeds from issuance of treasury stock under employee stock plans 20,881 42,258 22,788 Taxes paid related to net share settlement of equity awards ( 91,609 ) ( 102,903 ) ( 52,996 ) Repurchases of common stock ( 874,179 ) ( 235,223 ) ( 228,894 ) Net cash used in financing activities ( 523,571 ) ( 289,424 ) ( 200,047 ) Effect of exchange rate changes on cash ( 136 ) 59 ( 1,140 ) Increase in cash and cash equivalents 37,960 50,968 16,403 Cash and cash equivalents, beginning of year 157,394 106,426 90,023 Cash and cash equivalents, end of year $ 195,354 $ 157,394 $ 106,426 Supplemental disclosures of cash flow information: Cash paid for income taxes, net of refunds of $ 464 , $ 1,931 and $ 1,372 during the years ended September 30, 2021, 2020 and 2019, respectively $ 71,486 $ 10,152 $ 18,779 Cash paid for interest $ 37,955 $ 37,735 $ 39,924 Supplemental disclosures of non-cash investing and financing activities: Finance lease obligation incurred $ — $ 1,387 $ 5,803 Unsettled repurchases of common stock $ 8,043 $ — $ — Purchase of property and equipment included in accounts payable $ 71 $ 166 $ 1,448 See accompanying notes. 59 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 1. Nature of Business and Summary of Significant Accounting Policies Fair Isaac Corporation Fair Isaac Corporation (“FICO”), a Delaware corporation, was founded in 1956 on the premise that data, used intelligently, can improve business decisions. Today, FICO’s software and the widely used FICO ® Score operationalize analytics, enabling thousands of businesses in nearly 120 countries to uncover new opportunities, make timely decisions that matter, and execute them at scale. Most leading banks and credit card issuers rely on our solutions, as do insurers, retailers, telecommunications providers, automotive companies, public agencies, and organizations in other industries. We also serve consumers through online services that enable people to access and understand their FICO Scores, the standard measure in the U.S. of consumer credit risk, empowering them to increase financial literacy and manage their financial health. In these consolidated financial statements, FICO is referred to as “we,” “us,” “our,” or “the Company.” Principles of Consolidation and Basis of Presentation The consolidated financial statements include the accounts of FICO and its subsidiaries. All intercompany accounts and transactions have been eliminated. During the fourth quarter of our fiscal 2021, we reevaluated our operating segments to better align with how our chief operating decision maker (“CODM”), who is our Chief Executive Officer, evaluates performance and allocates resources. The key factors evaluated included our evolving platform strategies, our go-to market considerations, and sales of our product lines and businesses during fiscal 2021, and in particular the divestiture of our Collections and Recovery (“C&R”) business in June 2021, among others. As a result, we consolidated our operating segment structure from three to two by merging Applications and Decision Management Software segments into the new Software segment. As a result, we modified the presentation of our segment financial information with retrospective application to all prior periods presented. In addition, effective beginning in the fourth quarter of fiscal 2021, we changed the classification of revenue from transactional and maintenance, professional services, and license to on-premises and SaaS software, professional services and scores on our consolidated statements of income and comprehensive income, as well as our disclosures on disaggregation of revenue, to better align with our business strategy. Previously reported amounts in the consolidated statements of income and comprehensive income and notes to the consolidated financial statements have been adjusted to conform to the current presentation. Use of Estimates We make estimates and assumptions that affect the amounts reported in the financial statements and the disclosures made in the accompanying notes. For example, we use estimates in determining the appropriate levels of various accruals; variable considerations included in the transaction price and standalone selling price of each performance obligation for our customer contracts; labor hours in connection with fixed-fee service contracts; the amount of our tax provision and the realizability of deferred tax assets. We also use estimates in determining the remaining economic lives and carrying values of acquired intangible assets, property and equipment, and other long-lived assets. In addition, we use assumptions to estimate the fair value of reporting units and share-based compensation. Actual results may differ from our estimates. As the impact of the COVID-19 pandemic continues to evolve, estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require increased judgment. These estimates and assumptions may change in future periods and will be recognized in the consolidated financial statements as new events occur and additional information becomes known. To the extent our actual results differ materially from those estimates and assumptions, our future financial statements could be affected. For more information, see Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K. Cash and Cash Equivalents Cash and cash equivalents consist of cash in banks and investments with an original maturity of 90 days or less at time of purchase. 60 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 Fair Value of Financial Instruments The fair value of certain of our financial instruments, including cash and cash equivalents, receivables, other current assets, accounts payable, accrued compensation and employee benefits, other accrued liabilities and amounts outstanding under our revolving line of credit, approximate their carrying amounts because of the short-term maturity of these instruments. The fair values of our cash and cash equivalents and marketable securities investments are disclosed in Note 5. The fair value of our derivative instruments is disclosed in Note 6. The fair value of our senior notes is disclosed in Note 10. Investments We categorize our investments in debt and equity instruments as trading, available-for-sale or held-to-maturity at the time of purchase. Trading securities are carried at fair value with unrealized gains or losses included in income (expense). Available-for-sale securities are carried at fair value measurements using quoted prices in active markets for identical assets or liabilities with unrealized gains or losses included in accumulated other comprehensive income (loss). Held-to-maturity securities are carried at amortized cost. Dividends and interest income are accrued as earned. Realized gains and losses are determined on a specific identification basis and are included in other income (expense). We review marketable securities for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. We did not classify any securities as held-to-maturity or available-for-sale during each of the three years ended September 30, 2021, 2020 and 2019. Investments with remaining maturities over one year are classified as long-term investments. We have certain other investments for which there is no readily determinable fair value. These investments are recorded at cost, less impairment (if any) plus or minus adjustments for observable price changes. The carrying value of these investments was $ 1.3 million and $ 1.1 million at September 30, 2021 and 2020, respectively, and they are reported in other assets on our consolidated balance sheets. At September 30, 2021, we reviewed the carrying value of these investments and concluded that they were not impaired and as of that date, we were unable to exercise significant influence over the investees. Concentration of Risk Financial instruments that potentially expose us to concentrations of risk consist primarily of cash and cash equivalents, marketable securities and accounts receivable, which are generally not collateralized. Our policy is to place our cash, cash equivalents, and marketable securities with high quality financial institutions, commercial corporations and government agencies in order to limit the amount of credit exposure. We have established guidelines relative to diversification and maturities for maintaining safety and liquidity. We generally do not require collateral from our customers, but our credit extension and collection policies include analyzing the financial condition of potential customers, establishing credit limits, monitoring payments, and aggressively pursuing delinquent accounts. We maintain allowances for potential credit losses. A significant portion of our revenues are derived from the sales of products and services to the financial services industries. Property and Equipment Property and equipment are recorded at cost less accumulated depreciation and amortization. Major renewals and improvements are capitalized, while repair and maintenance costs are expensed as incurred. Assets acquired under capital leases are included in property and equipment with corresponding depreciation included in accumulated depreciation. Depreciation and amortization charges are calculated using the straight-line method over the following estimated useful lives: Estimated Useful Life Data processing equipment and software 3 years to 6 years Office furniture and equipment 3 years to 7 years Leasehold improvements Shorter of estimated useful life or lease term Equipment under capital lease Shorter of estimated useful life or lease term 61 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 The cost and accumulated depreciation for property and equipment sold, retired or otherwise disposed of are removed from the applicable accounts and resulting gains or losses are recorded in our consolidated statements of income and comprehensive income. Depreciation and amortization on property and equipment totaled $ 20.3 million, $ 23.5 million and $ 24.2 million during fiscal 2021, 2020 and 2019, respectively. Internal-Use Software Costs incurred to develop internal-use software during the application development stage are capitalized and reported at cost. Application development stage costs generally include costs associated with internal-use software configuration, coding, installation and testing. Costs of significant upgrades and enhancements that result in additional functionality are also capitalized whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as incurred. Capitalized costs are amortized using the straight-line method over two to three years . Software development costs required to be capitalized for internal-use software have not been material to date. Capitalized Software and Research and Development Costs Software development costs relating to products to be sold in the normal course of business are expensed as incurred as research and development costs until technological feasibility is established. Technological feasibility for our products occurs approximately concurrently with the general release of our products; accordingly, we have not capitalized any development or production costs. Costs we incur to maintain and support our existing products after the general release of the product are expensed in the period they are incurred and included in research and development costs in our consolidated statements of income and comprehensive income. Goodwill, Acquisition Intangibles and Other Long-Lived Assets Goodwill represents the excess of cost over the fair value of identifiable assets acquired and liabilities assumed in business combinations. We assess goodwill for impairment for each of our reporting units on an annual basis during our fourth fiscal quarter using a July 1 measurement date unless circumstances require a more frequent measurement. During the fourth quarter of fiscal 2021, we reevaluated our operating segments to better align with how our CODM evaluates performance and allocates resources, which resulted in a change from three operating segments, Applications, Decision Management Software and Scores, to two operating segments, Software and Scores. As part of this reevaluation, we reconsidered our reporting units and concluded our operating segments continue to represent our reporting units. When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit's carrying amount exceeds its fair value, referred to as a “step zero” approach. If, based on the review of the qualitative factors, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying value, we would bypass the two-step impairment test. Events and circumstances we consider in performing the “step zero” qualitative assessment include macro-economic conditions, market and industry conditions, internal cost factors, share price fluctuations, and the operational stability and overall financial performance of the reporting units. If we conclude that it is more likely than not that a reporting unit's fair value is less than its carrying amount, we would perform the first step (“step one”) of the two-step impairment test and calculate the estimated fair value of the reporting unit by using discounted cash flow valuation models and by comparing our reporting units to guideline publicly-traded companies. These methods require estimates of our future revenues, profits, capital expenditures, working capital, and other relevant factors, as well as selecting appropriate guideline publicly-traded companies for each reporting unit. We estimate these amounts by evaluating historical trends, current budgets, operating plans, industry data, and other relevant factors. Alternatively, we may bypass the qualitative assessment described above for any reporting unit in any period and proceed directly to performing step one of the goodwill impairment test. We performed a step one quantitative impairment test on the Software and Scores reporting units before and immediately following the change in reporting units. There was a substantial excess of fair value over carrying value for the reporting units and we determined goodwill was not impaired for any of our reporting units before or after the change for fiscal 2021. For fiscal 2019 and 2020, we performed a step zero qualitative analysis for our annual assessment of goodwill impairment. After evaluating and weighing all relevant events and circumstances, we concluded that it is not more likely than not that the fair value of any of our reporting units was less their carrying amounts. Consequently, we did not perform a step one quantitative analysis and determined goodwill was not impaired for any of our reporting units for fiscal 2019 and 2020. 62 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 We amortize our finite-lived intangible assets which result from our acquisitions over the following estimated useful lives: Estimated Useful Life Completed technology 4 years to 10 years Customer contracts and relationships 5 years to 10 years Trade names 1 year Non-compete agreements 2 years Our intangible assets that have finite useful lives and other long-lived assets are assessed for potential impairment when there is evidence that events and circumstances related to our financial performance and economic environment indicate the carrying amount of the assets may not be recoverable. When impairment indicators are identified, we test for impairment using undiscounted cash flows. If such tests indicate impairment, then we measure and record the impairment as the difference between the carrying value of the asset and the fair value of the asset. We did not recognize any impairment charges on intangible assets that have finite useful lives or other long-lived assets in fiscal 2021, 2020 and 2019. Revenue Recognition Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services. See Note 12 for further discussion on revenues. Business Combinations Accounting for our acquisitions requires us to recognize, separately from goodwill, the assets acquired and the liabilities assumed at their acquisition-date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition-date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of income and comprehensive income. Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date, including our estimates for intangible assets, contractual obligations assumed, pre-acquisition contingencies and contingent consideration, where applicable. If we cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the measurement period, we will recognize an asset or a liability for such pre-acquisition contingency if: (i) it is probable that an asset existed or a liability had been incurred at the acquisition date and (ii) the amount of the asset or liability can be reasonably estimated. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Subsequent to the measurement period, changes in our estimates of such contingencies will affect earnings and could have a material effect on our consolidated results of operations and financial position. Examples of critical estimates in valuing certain of the intangible assets we have acquired include but are not limited to: (i) future expected cash flows from software license sales, support agreements, consulting contracts, other customer contracts and acquired developed technologies and patents; (ii) expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed; and (iii) the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. 63 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We reevaluate these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to our preliminary estimates being recorded to goodwill provided that we are within the measurement period. Subsequent to the measurement period or our final determination of the tax allowance’s or contingency’s estimated value, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect our provision for income taxes in our consolidated statements of income and comprehensive income and could have a material impact on our consolidated results of operations and financial position. Income Taxes We estimate our income taxes based on the various jurisdictions where we conduct business, which involves significant judgment in determining our income tax provision. We estimate our current tax liability using currently enacted tax rates and laws and assess temporary differences that result from differing treatments of certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities recorded on our consolidated balance sheets using the currently enacted tax rates and laws that will apply to taxable income for the years in which those tax assets are expected to be realized or settled. We then assess the likelihood our deferred tax assets will be realized and to the extent we believe realization is not more likely than not, we establish a valuation allowance. When we establish a valuation allowance or increase this allowance in an accounting period, we record a corresponding income tax expense in our consolidated statements of income and comprehensive income. In assessing the need for the valuation allowance, we consider future taxable income in the jurisdictions we operate; our ability to carry back tax attributes to prior years; an analysis of our deferred tax assets and the periods over which they will be realizable; and ongoing prudent and feasible tax planning strategies. An increase in the valuation allowance would have an adverse impact, which could be material, on our income tax provision and net income in the period in which we record the increase. We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the technical merits of the tax position indicate it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions more likely than not of being sustained upon audit, the second step is to measure the tax benefit as the largest amount more than 50% likely of being realized upon settlement. Significant judgment is required to evaluate uncertain tax positions and they are evaluated on a quarterly basis. Our evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our income tax expense in the period in which we make the change, which could have a material impact on our effective tax rate and operating results. A description of our accounting policies associated with tax-related contingencies and valuation allowances assumed as part of a business combination is provided under “Business Combinations” above. Earnings per Share Basic earnings per share are computed on the basis of the weighted-average number of common shares outstanding during the period under measurement. Diluted earnings per share are based on the weighted-average number of common shares outstanding and potential common shares. Potential common shares result from the assumed exercise of outstanding stock options or other potentially dilutive equity instruments, when they are dilutive under the treasury stock method. Comprehensive Income Comprehensive income is the change in our equity (net assets) during each period from transactions and other events and circumstances from non-owner sources. It includes net income, foreign currency translation adjustments and unrealized gains and losses on our investments in marketable securities, net of tax. Foreign Currency and Derivative Financial Instruments We have determined that the functional currency of each foreign operation is the local currency. Assets and liabilities denominated in their local foreign currencies are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates of exchange prevailing during the period. Foreign currency translation adjustments are accumulated as a separate component of consolidated stockholders’ equity. 64 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 We utilize derivative instruments to manage market risks associated with fluctuations in certain foreign currency exchange rates as they relate to specific balances of accounts receivable and cash denominated in foreign currencies. We principally utilize foreign currency forward contracts to protect against market risks arising in the normal course of business. Our policies prohibit the use of derivative instruments for the sole purpose of trading for profit on price fluctuations or to enter into contracts that intentionally increase our underlying exposure. All of our foreign currency forward contracts have maturity periods of less than three months. At the end of the reporting period, foreign-currency-denominated assets and liabilities are remeasured into the functional currencies of the reporting entities at current market rates. The change in value from this remeasurement is reported as a foreign exchange gain or loss for that period in other income, net in the accompanying consolidated statements of income and comprehensive income. We recorded transactional foreign exchange losses of $ 0.0 million , $ 1.0 million and $ 0.0 million during fiscal 2021, 2020 and 2019, respectively. Share-Based Compensation We measure share-based compensation cost at the grant date based on the fair value of the award and recognize it as expense, net of estimated forfeitures, over the vesting or service period, as applicable, of the stock award (generally three to four years ). See Note 16 for further discussion of our share-based employee benefit plans. Advertising and Promotion Costs Advertising and promotion costs are expensed as incurred and are included in selling, general and administrative expenses in the accompanying consolidated statements of income and comprehensive income. Advertising and promotion costs totaled $ 6.9 million, $ 8.7 million and $ 3.6 million in fiscal 2021, 2020 and 2019, respectively. New Accounting Pronouncements Recently Adopted Accounting Pronouncements In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-15, Intangibles—Goodwill and Other (Topic 350): Internal-Use Software (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted ASU 2018-15 in the first quarter of our fiscal 2021 and the adoption did not have a significant impact on our consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-11 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. We adopted Topic 326 in the first quarter of our fiscal 2021 and the adoption did not have a significant impact on our consolidated financial statements. Recent Accounting Pronouncements Not Yet Adopted We do not expect that any recently issued accounting pronouncements will have a significant effect on our financial statements. 2. Business Combinations There were no acquisitions incurred during fiscal 2021 and 2020. In fiscal 2019, we acquired 100 % of the equity of eZmCom, Inc. for $ 18.6 million in cash. We recorded $ 6.0 million of intangible assets which are being amortized using the straight-line method over a weighted-average useful life of 4.73 years. We allocated $ 11.2 million of goodwill to our Software segment that is deductible for t ax purposes. 65 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 3. Business Divestiture On May 4, 2021, we entered into a definitive agreement to sell our C&R business to Jonas Collections and Recovery Inc. (“Jonas”), a company in the Jonas Software operating group of Constellation Software Inc. The decision to sell the C&R business was the result of management’s decision to divest certain software products that are not built on FICO ® Platform. This divestiture will allow us to focus our development and go-to market resources on the growth of our Platform products. On June 7, 2021, we completed the sale to Jonas. As the C&R business has the input, process, and output elements defined in Accounting Standards Codification 805, Business Combinations , we concluded the sale qualified as a sale of a business. The gain recognized from the sale was $ 92.8 million, which was recorded in gains on product line asset sales and business divestiture within the accompanying consolidated statements of income and comprehensive income. Our C&R business was part of our Software segment. In addition, we sold all assets related to our cyber risk score operations in October 2020, and sold certain assets related to our Software operations to an affiliated joint venture in China in December 2020. The net gain realized from both transactions was immaterial. 4. Cash, Cash Equivalents and Marketable Securities The following is a summary of cash, cash equivalents and marketable securities at September 30, 2021 and 2020: September 30, 2021 September 30, 2020 Amortized Cost Fair Value Amortized Cost Fair Value (In thousands) Cash and Cash Equivalents: Cash $ 195,160 $ 195,160 $ 122,119 $ 122,119 Money market funds 194 194 35,275 35,275 Total $ 195,354 $ 195,354 $ 157,394 $ 157,394 Long-term Marketable Securities: Marketable securities $ 23,836 $ 31,884 $ 20,195 $ 25,513 The assets included in marketable securities represent long-term marketable equity securities held under a supplemental retirement and savings plan for certain officers and senior management employees, which are distributed upon termination or retirement of the employees. These investments are treated as trading securities and recorded at fair value. 5. Fair Value Measurements Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities. • Level 1 — uses unadjusted quoted prices that are available in active markets for identical assets or liabilities. Our Level 1 assets are comprised of money market funds and certain marketable securities. We did not have any liabilities that are valued using inputs identified under a Level 1 hierarchy as of September 30, 2021 and 2020. • Level 2 — uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data. We did not have any assets that are valued using inputs identified under a Level 2 hierarchy as of September 30, 2021 and 2020. We measure the fair value of our senior notes based on Level 2 inputs, which include quoted market prices and interest rate spreads of similar securities. 66 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 • 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 did not have any assets or liabilities that are valued using inputs identified under a Level 3 hierarchy as of September 30, 2021 and 2020. The following table represents financial assets that we measured at fair value on a recurring basis at September 30, 2021 and 2020: September 30, 2021 Active Markets for Identical Instruments (Level 1) Fair Value as of September 30, 2021 (In thousands) Assets: Cash equivalents (1) $ 194 $ 194 Marketable securities (2) 31,884 31,884 Total $ 32,078 $ 32,078 September 30, 2020 Active Markets for Identical Instruments (Level 1) Fair Value as of September 30, 2020 (In thousands) Assets: Cash equivalents (1) $ 35,275 $ 35,275 Marketable securities (2) 25,513 25,513 Total $ 60,788 $ 60,788 (1) Included in cash and cash equivalents on our consolidated balance sheets at September 30, 2021 and 2020. Not included in this table are cash deposits of $ 195.2 million and $ 122.1 million at September 30, 2021 and 2020, respectively. (2) Represents securities held under a supplemental retirement and savings plan for certain officers and senior management employees, which are distributed upon termination or retirement of the employees. Included in long-term marketable securities on our consolidated balance sheets at September 30, 2021 and 2020. See Note 10 for the fair value of our senior notes. There were no transfers between Level 1, Level 2, and Level 3 of the fair value hierarchy during the years ended September 30, 2021, 2020 or 2019. 6. 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 receivable and cash balances from the effects of volatility in foreign exchange rates that might occur prior to conversion to their functional currencies. We principally utilize foreign currency forward contracts, which enable us to buy and sell foreign currencies in the future at fixed exchange rates and economically offset changes in foreign exchange rates. We routinely enter into contracts to offset exposures denominated in the British pound, Euro and Singapore dollar. Foreign-currency-denominated receivable and cash balances are remeasured at foreign exchange rates in effect on the balance sheet date with the effects of changes in foreign exchange rates reported in other income, net. The forward contracts are not designated as hedges and are marked to market through other income, net. Fair value changes in the forward contracts help mitigate the changes in the value of the remeasured receivable and cash balances attributable to changes in foreign exchange rates. The forward contracts are short-term in nature and typically have average maturities at inception of less than three months . 67 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 The following tables summarize our outstanding foreign currency forward contracts, by currency, at September 30, 2021 and 2020: September 30, 2021 Contract Amount Fair Value Foreign Currency USD USD (In thousands) Sell foreign currency: Euro (EUR) EUR 17,100 $ 19,829 — Buy foreign currency: British pound (GBP) GBP 11,467 $ 15,400 — Singapore dollar (SGD) SGD 6,650 $ 4,900 — September 30, 2020 Contract Amount Fair Value Foreign Currency USD USD (In thousands) Sell foreign currency: Euro (EUR) EUR 15,000 $ 17,656 — Buy foreign currency: British pound (GBP) GBP 16,555 $ 21,300 — Singapore dollar (SGD) SGD 7,815 $ 5,700 — The foreign currency forward contracts were entered into on September 30 of each fiscal year; therefore, their fair value was $ 0 at September 30, 2021 and 2020. Gains (losses) on derivative financial instruments are recorded in our consolidated statements of income and comprehensive income as a component of other income, net. These amounts are shown below for the years ended September 30, 2021, 2020 and 2019: Year Ended September 30, 2021 2020 2019 (In thousands) Gain (loss) on foreign currency forward contracts $ 2,064 $ ( 347 ) $ ( 896 ) 7. Goodwill and Intangible Assets Intangible assets that are subject to amortization consisted of the following at September 30, 2021 and 2020: September 30, 2021 September 30, 2020 Gross Carrying Amount Accumulated Amortization Net Average Life Gross Carrying Amount Accumulated Amortization Net Average Life (In thousands, except average life) Completed technology $ 71,808 $ ( 70,391 ) $ 1,417 5 $ 83,764 $ ( 80,136 ) $ 3,628 5 Customer contracts and relationships 13,719 ( 11,037 ) 2,682 9 19,332 ( 13,870 ) 5,462 9 Non-compete agreements — — — — 350 ( 204 ) 146 2 $ 85,527 $ ( 81,428 ) $ 4,099 6 $ 103,446 $ ( 94,210 ) $ 9,236 6 68 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 Amortization expense associated with our intangible assets is reflected as a separate operating expense caption—amortization of intangible assets—and is excluded from cost of revenues and selling, general and administrative expenses within the accompanying consolidated statements of income and comprehensive income. Amortization expense consisted of the following: Year Ended September 30, 2021 2020 2019 (In thousands) Completed technology $ 1,027 $ 1,766 $ 1,974 Customer contracts and relationships 2,082 2,927 4,098 Trade names — 125 25 Non-compete agreements 146 175 29 Total $ 3,255 $ 4,993 $ 6,126 Estimated future intangible asset amortization expense associated with intangible assets existing at September 30, 2021, was as follows (in thousands): Year Ending September 30, 2022 $ 2,082 2023 1,100 2024 917 Total $ 4,099 The following table summarizes changes to goodwill during fiscal 2021 and 2020, both in total and as allocated to our operating segments. We have not recognized any goodwill impairment losses to date. Scores Software Total (In thousands) Balance at September 30, 2019 $ 146,648 $ 656,894 $ 803,542 Foreign currency translation adjustment — 8,822 8,822 Balance at September 30, 2020 146,648 665,716 812,364 Foreign currency translation adjustment — 1,417 1,417 C&R business divestiture — ( 25,596 ) ( 25,596 ) Balance at September 30, 2021 $ 146,648 $ 641,537 $ 788,185 69 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 8. Composition of Certain Financial Statement Captions The following table presents the composition of property and equipment, net and other assets at September 30, 2021 and 2020: September 30, 2021 2020 (In thousands) Property and equipment: Data processing equipment and software $ 86,144 $ 108,913 Office furniture and equipment 16,754 20,478 Leasehold improvements 22,068 25,239 Equipment under capital lease — 6,489 Less: accumulated depreciation and amortization ( 97,053 ) ( 114,700 ) Total $ 27,913 $ 46,419 Other assets: Long-term receivables $ 37,452 $ 54,074 Prepaid commissions 44,932 38,579 Others 13,201 12,632 Total $ 95,585 $ 105,285 9. Revolving Line of Credit On August 19, 2021, we amended our credit agreement with a syndicate of banks, increasing our borrowing capacity under the unsecured revolving line of credit to $ 600 million and extended its maturity to August 19, 2026 . Borrowings under the credit facility can be used for working capital and general corporate purposes and may also be used for the refinancing of existing debt, acquisitions, and the repurchase of our common stock. Interest on amounts borrowed under the credit facility is based on (i) an adjusted base rate, which is the greatest of (a) the prime rate and (b) the Federal Funds rate plus 0.500 % and (c) the one-month LIBOR rate plus 1.000 %, plus, in each case, an applicable margin, or (ii) an adjusted LIBOR rate plus an applicable margin. The applicable margin for base rate borrowings ranges from 0 % to 0.750 % and for LIBOR borrowings ranges from 1.000 % to 1.750 % and is determined based on our consolidated leverage ratio. In addition, we must pay credit facility fees. The credit facility contains certain restrictive covenants, including maintaining a maximum consolidated leverage ratio of 3.50 , subject to a step up to 4.00 following certain permitted acquisitions; and a minimum interest coverage ratio of 3.00 . The credit agreement also contains other covenants typical of unsecured facilities. As of September 30, 2021, we had $ 518.0 million in borrowings outstanding at a weighted-average interest rate of 1.212 % and we were in compliance with all financial covenants under this credit facility. In October 2021, we further amended the credit agreement. See Note 23 for additional information. 10. Senior Notes On May 8, 2018, we issued $ 400 million of senior notes in a private offering to qualified institutional investors (the “2018 Senior Notes”). The 2018 Senior Notes require interest payments semi-annually at a rate of 5.25 % per annum and will mature on May 15, 2026 . On December 6, 2019, we issued $ 350 million of senior notes in a private offering to qualified institutional investors (the “2019 Senior Notes,” along with the 2018 Senior Notes, the “Senior Notes”). The 2019 Senior Notes require interest payments semi-annually at a rate of 4.00 % per annum and will mature on June 15, 2028 . The indentures for the 2018 Senior Notes and the 2019 Senior Notes contain customary affirmative and negative covenants, including certain events of default, typical of unsecured obligations. 70 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 The following table presents the carrying amounts and fair values for the Senior Notes at September 30, 2021 and 2020: September 30, 2021 September 30, 2020 Face Value (*) Fair Value Face Value (*) Fair Value (In thousands) The 2018 Senior Notes 400,000 453,000 400,000 442,000 The 2019 Senior Notes 350,000 357,000 350,000 358,750 Total $ 750,000 $ 810,000 $ 750,000 $ 800,750 (*) The carrying value of the Senior Notes was the face value reduced by the net debt issuance costs of $ 9.0 million and $ 10.6 million at September 30, 2021 and 2020, respectively. Future principal payments for the Senior Notes are as follows (in thousands): Year Ending September 30, 2026 400,000 Thereafter 350,000 Total $ 750,000 11. Accelerated Share Repurchase We have authorization to make repurchases of shares of our common stock from time to time in the open market or in negotiated transactions. As part of the broader share repurchase program, we entered into an accelerated share repurchase agreement (“ASR Agreement”) with a financial institution on June 17, 2021 to repurchase $ 200.0 million of our common stock. The ASR Agreement was accounted for as two separate transactions (1) a repurchase of common stock and (2) an equity-linked contract on our own stock. Pursuant to the ASR Agreement, we paid $ 200.0 million to the financial institution and received an initial delivery of 319,400 shares of common stock, which approximated 80 % of the total number of expected shares to be repurchased under the ASR Agreement. The equity-linked contract for the remaining $ 40.0 million, representing remaining shares to be delivered under the ASR Agreement, was recorded as a reduction to stockholders’ equity as of June 30, 2021 and was settled in August 2021 with us receiving 70,127 additional shares. In total, 389,527 shares were repurchased under the ASR Agreement. We were not required to make any additional cash payments or delivery of common stock to the financial institution upon settlement of the agreement. 12. Revenue from Contracts with Customers Contracts with Customers Our revenue is primarily derived from on-premises software and SaaS subscriptions, professional services and scoring services. For contracts with customers that contain various combinations of products and services, we evaluate whether the products or services are distinct — distinct products or services will be accounted for as separate performance obligations, while non-distinct products or services are combined with others to form a single performance obligation. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation on a relative standalone selling price (“SSP”) basis. Revenue is recognized when control of the promised goods or services is transferred to our customers. Our on-premises software is primarily sold on a subscription basis, which includes a term-based license and post-contract support or maintenance, both of which generally represent distinct performance obligations and are accounted for separately. The transaction price is either a fixed fee, or a usage-based fee — sometimes subject to a guaranteed minimum. When the amount is fixed, including the guaranteed minimum in a usage-based fee, license revenue is recognized at the point in time when the software is made available to the customer. Maintenance revenue is recognized ratably over the contract period as customers simultaneously consume and receive benefits. Any usage-based fees not subject to a guaranteed minimum or earned in excess of the minimum amount are recognized when the subsequent usage occurs. We occasionally sell software arrangements consisting of on-premises perpetual licenses and maintenance. License revenue is recognized at a point in time when the software is made available to the customer and maintenance revenue is recognized ratably over the contract term. 71 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 Our SaaS products provide customers with access to and standard support for our software on a subscription basis, delivered through our own infrastructure or third-party cloud services. The SaaS transaction contracts typically include a guaranteed minimum fee per period that allows up to a certain level of usage and a consumption-based variable amount in excess of the minimum threshold; or a consumption-based variable fee not subject to a minimum threshold. The nature of our SaaS arrangements is to provide continuous access to our hosted solutions in the cloud, i.e., a stand-ready obligation that comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service). We estimate the total variable consideration at contract inception — subject to any constraints that may apply — and update the estimates as new information becomes available and recognize the amount ratably over the SaaS service period, unless we determine it is appropriate to allocate the variable amount to each distinct service period and recognize revenue as each distinct service period is performed. Our professional services include software implementation, consulting, model development and training. They are sold either standalone, or together with other products or services and generally represent distinct performance obligations. The transaction price can be a fixed amount or a variable amount based upon the time and materials expended. Revenue on fixed-price services is recognized using an input method based on labor hours expended which we believe provides a faithful depiction of the transfer of services. Revenue on services provided on a time and materials basis is recognized by applying the “right-to-invoice” practical expedient as the amount to which we have a right to invoice the customer corresponds directly with the value of our performance to the customer. Our scoring services include both business-to-business and business-to-consumer offerings. Our business-to-business scoring services typically include a license that grants consumer reporting agencies the right to use our scoring solutions in exchange for a usage-based royalty. Revenue is generally recognized when the usage occurs. Business-to-consumer offerings provide consumers with access to their FICO ® Scores and credit reports, as well as other value-add services. These are provided as either a one-time or ongoing subscription service renewed monthly or annually, all with a fixed consideration. The nature of the subscription service is a stand-ready obligation to generate credit reports, provide credit monitoring, and other services for our customers, which comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service). Revenue from one-time or monthly subscription services is recognized during the period when service is performed. Revenue from annual subscription services is recognized ratably over the subscription period. Disaggregation of Revenue As discussed in Note 1, effective beginning in the fourth quarter of fiscal 2021, we changed the classification of revenue from transactional and maintenance, professional services, and license to on-premises and SaaS software, professional services and scores on our consolidated statements of income and comprehensive income, as well as our disclosures on disaggregation of revenue to better align with our business strategy. Previously reported amounts in the consolidated statements of income and comprehensive income and notes herein have been adjusted to conform to the current presentation. During fiscal 2021, we sold all assets related to our cyber risk score operations, sold certain assets related to our Software segment to an affiliated joint venture in China, and divested our C&R business. The comparability of the data below is impacted as a result of these divestitures. The following tables provide information about disaggregated revenue by primary geographical market: Year Ended September 30, 2021 Scores Software Total Percentage (Dollars in thousands) Americas $ 633,497 $ 416,436 $ 1,049,933 80 % Europe, Middle East and Africa 11,881 178,515 190,396 14 % Asia Pacific 8,769 67,438 76,207 6 % Total $ 654,147 $ 662,389 $ 1,316,536 100 % 72 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 Year Ended September 30, 2020 Scores Software Total Percentage (Dollars in thousands) Americas $ 514,909 $ 477,316 $ 992,225 76 % Europe, Middle East and Africa 6,385 197,199 203,584 16 % Asia Pacific 7,253 91,500 98,753 8 % Total $ 528,547 $ 766,015 $ 1,294,562 100 % Year Ended September 30, 2019 Scores Software Total Percentage (Dollars in thousands) Americas $ 409,369 $ 463,083 $ 872,452 75 % Europe, Middle East and Africa 6,359 188,827 195,186 17 % Asia Pacific 5,449 86,996 92,445 8 % Total $ 421,177 $ 738,906 $ 1,160,083 100 % The following table provides information about disaggregated revenue for our Software segment by deployment method: Year Ended September 30, Percentage of revenues 2021 2020 2019 2021 2020 2019 (Dollars in thousands) On-premises software $ 266,452 $ 347,532 $ 342,848 51 % 59 % 62 % SaaS software 251,436 237,044 214,120 49 % 41 % 38 % Total $ 517,888 $ 584,576 $ 556,968 100 % 100 % 100 % The following table provides information about disaggregated revenue for our Software segment by product features: Year Ended September 30, Percentage of revenues 2021 2020 2019 2021 2020 2019 (Dollars in thousands) Platform software (*) $ 66,884 $ 65,665 $ 39,175 13 % 11 % 7 % Non-Platform software 451,004 518,911 517,793 87 % 89 % 93 % Total $ 517,888 $ 584,576 $ 556,968 100 % 100 % 100 % (*) The FICO platform software is a set of interoperable services which use software assets owned and/or governed by FICO for building solutions and which conform to FICO architectural standards based on key elements of Cloud Native Computing design principles. These standards encompass shared security context and pre-integration using FICO standard application programming interfaces for all services. 73 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 The following table provides information about disaggregated revenue for our Software segment by timing of revenue recognition: Year Ended September 30, Percentage of revenues 2021 2020 2019 2021 2020 2019 (Dollars in thousands) Software recognized at a point time (1) $ 59,024 $ 127,666 $ 111,308 11 % 22 % 20 % Software recognized over contract term (2) 458,864 456,910 445,660 89 % 78 % 80 % Total $ 517,888 $ 584,576 $ 556,968 100 % 100 % 100 % (1) Includes license portion of our on-premises subscription software and perpetual license, both of which are recognized when the software is made available to the customer, or at the start of the subscription. (2) Includes maintenance portion and usage-based fees of our on-premises subscription software, maintenance revenue on perpetual licenses, as well as SaaS revenue. The following table provides information about disaggregated revenue for our Scores segment by distribution method: Year Ended September 30, Percentage of revenues 2021 2020 2019 2021 2020 2019 (Dollars in thousands) Business-to-business Scores $ 446,538 $ 381,929 $ 302,103 68 % 72 % 72 % Business-to-consumer Scores 207,609 146,618 119,074 32 % 28 % 28 % Total $ 654,147 $ 528,547 $ 421,177 100 % 100 % 100 % We derive a substantial portion of revenues from our contracts with the three major consumer reporting agencies, TransUnion, Equifax and Experian. Revenues collectively generated by agreements with these customers accounted for 38 %, 33 % and 29 % of our total revenues in fiscal 2021, 2020 and 2019, respectively, with all three consumer reporting agencies contributing more than 10% of our total revenues in fiscal 2021, and one contributing more than 10% of our total revenues in fiscal 2020 and 2019. At September 30, 2021, only one individual customer accounted for 10% or more of total consolidated receivables. At September 30, 2020, no individual customer accounted for 10% or more of total consolidated receivables. Contract Balances We record a receivable when we satisfy a performance obligation prior to invoicing if only the passage of time is required before payment is due or if we have an unconditional right to consideration before we satisfy a performance obligation. We record a contract asset when we satisfy a performance obligation prior to invoicing but our right to consideration is conditional. We record deferred revenue when the payment is made or due before we satisfy a performance obligation. 74 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 Receivables at September 30, 2021 and 2020 consisted of the following: September 30, 2021 2020 (In thousands) Billed $ 198,305 $ 211,776 Unbilled 155,408 181,550 353,713 393,326 Less: allowance for doubtful accounts ( 4,154 ) ( 5,072 ) Net receivables 349,559 388,254 Less: long-term receivables * ( 37,452 ) ( 54,074 ) Short-term receivables * $ 312,107 $ 334,180 (*) Short-term receivables and long-term receivables were recorded in accounts receivable, net and other assets, respectively, within the accompanying consolidated balance sheets. Activity in the allowance for doubtful accounts was as follows: Year Ended September 30, 2021 2020 (In thousands) Allowance for doubtful accounts, beginning balance $ 5,072 $ 2,568 Add: expense 652 3,199 Less: write-offs (net of recoveries) ( 1,570 ) ( 695 ) Allowance for doubtful accounts, ending balance $ 4,154 $ 5,072 Deferred revenue primarily relates to our maintenance and SaaS contracts billed annually in advance and generally recognized ratably over the term of the service period. Significant changes in the deferred revenues balances are as follows: Year Ended September 30, 2021 2020 (In thousands) Deferred revenues, beginning balance $ 122,141 $ 116,320 Revenue recognized that was included in the deferred revenues balance at the beginning of the period ( 84,735 ) ( 101,640 ) Decrease due to divestiture of the C&R business ( 16,671 ) — Increases due to billings, excluding amounts recognized as revenue during the period 90,028 107,461 Deferred revenues, ending balance (*) $ 110,763 $ 122,141 (*) Ending balance at September 30, 2021 included current portion of $ 105.4 million and long-term portion of $ 5.4 million that were recorded in deferred revenue and other liabilities, respectively, within the consolidated balance sheets. Ending balance at September 30, 2020 included current portion of $ 115.1 million and long-term portion of $ 7.0 million that were recorded in deferred revenue and other liabilities, respectively, within the consolidated balance sheets. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to provide customers with financing or to receive financing from our customers. Examples include multi-year on-premises licenses that are invoiced annually with revenue recognized upfront and invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period. 75 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 Performance Obligations Revenue allocated to remaining performance obligations represents contracted revenue that will be recognized in future periods, which is comprised of deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. This does not include: • Usage-based revenue that will be recognized in future periods from on-premises software subscriptions; • Future billings on guaranteed minimums derived from on-premises software licenses; • Consumption-based variable fees from SaaS software that will be recognized in the distinct service period during which it is earned; and • Revenue from variable considerations that will be recognized in accordance with the “right-to-invoice” practical expedient, such as fees from our professional services billed based on a time and materials basis. Revenue allocated to remaining performance obligations was $ 289.0 million as of September 30, 2021, of which we expect to recognize approximately 50 % over the next 18 months and the remainder thereafter. Revenue allocated to remaining performance obligations was $ 298.0 million as of September 30, 2020. Significant Judgments Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct and should be accounted for separately may require significant judgment. Specifically, when implementation service is included in the original software or SaaS offerings, judgment is required to determine if the implementation service significantly modifies or customizes the software or SaaS service in such a way that the risks of providing it and the customization service are inseparable. In rare instances, contracts may include significant modification or customization of the software or SaaS service and will result in the combination of software or SaaS service and implementation service as one performance obligation. We determine the SSPs using data from our historical standalone sales, or, in instances where such information is not available (such as when we do not sell the product or service separately), we consider factors such as the stated contract prices, our overall pricing practices and objectives, go-to-market strategy, size and type of the transactions, and effects of the geographic area on pricing, among others. When the selling price of a product or service is highly variable, we may use the residual approach to determine the SSP of that product or service. Significant judgment may be required to determine the SSP for each distinct performance obligation when it involves the consideration of many market conditions and entity-specific factors discussed above. Significant judgment may be required to determine the timing of satisfaction of a performance obligation in certain professional services contracts with a fixed consideration, in which we measure progress using an input method based on labor hours expended. In order to estimate the total hours of the project, we make assumptions about labor utilization, efficiency of processes, the customer’s specification and IT environment, among others. For certain complex projects, due to the risks and uncertainties inherent with the estimation process and factors relating to the assumptions, actual progress may differ due to the change in estimated total hours. Adjustments to estimates are made in the period in which the facts requiring such revisions become known and, accordingly, recognized revenues are subject to revisions as the contract progresses to completion. Capitalized Commission Costs We capitalize incremental commission fees paid as a result of obtaining customer contracts. Capitalized commission costs, which are recorded in other assets within the accompanying consolidated balance sheets, were $ 44.9 million and $ 38.6 million at September 30, 2021 and 2020, respectively. Capitalized commission costs are amortized on a straight-line basis over ten years — determined using a portfolio approach — based on the transfer of goods or services to which the assets relate, taking into consideration both the initial and future contracts as we do not typically pay a commission on a contract renewal. The amortization costs are included in selling, general, and administrative expenses of our consolidated statements of income and comprehensive income. The amount of amortization was $ 6.0 million, $ 5.7 million, and $ 5.0 million during the years ended September 30, 2021, 2020 and 2019, respectively. There was no impairment loss in relation to the costs capitalized. We apply a practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less. These costs are recorded within selling, general, and administrative expenses. 76 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 13. Employee Benefit Plans Defined Contribution Plans We sponsor the Fair Isaac Corporation 401(k) plan for eligible employees in the U.S. Under this plan, eligible employees may contribute up to 25 % of compensation, not to exceed statutory limits. We also provide a company matching contribution. Investment in FICO common stock is not an option under this plan. Our contributions into all 401(k) plans, including former-acquired-company-sponsored plans that have since merged into the Fair Isaac Corporation 401(k) plan or have been frozen, totaled $ 9.8 million, $ 10.1 million and $ 10.3 million during fiscal 2021, 2020 and 2019, respectively. Employee Incentive Plans We maintain various employee incentive plans for the benefit of eligible employees, including officers. The awards generally are based on the achievement of certain financial and performance objectives subject to the discretion of management. Total expenses under our employee incentive plans were $ 58.1 million, $ 60.6 million and $ 57.5 million during fiscal 2021, 2020 and 2019, respectively. 14. Restructuring and Impairment Charges During fiscal 2021, we incurred restructuring charges of $ 8.0 million in employee separation costs due to the elimination of 160 positions throughout the Company. Cash payments for all the employee separation costs will be paid by the end of our fiscal 2022. There were no impairment charges incurred during fiscal 2021. During fiscal 2020, we incurred net charges totaling $ 45.0 million consisting of $ 28.0 million in impairment loss on operating lease assets, $ 5.2 million in impairment loss on disposals of property and equipment and $ 11.8 million in restructuring charges. The impairment losses were associated with closing certain non-core offices and reducing office space in other locations to better align with anticipated needs in light of post-pandemic workforce patterns. The restructuring charges related to employee separation costs as a result of eliminating 209 positions throughout the Company. Cash payments for all those employee separation costs were fully paid before the end of our fiscal 2021. There were no restructuring and impairment charges incurred during fiscal 2019. The following tables summarize our restructuring accruals. At September 30 2021, 2020, and 2019, the balances were classified as current liabilities and recorded in other accrued liabilities within the accompanying consolidated balance sheets. Accrual at September 30, 2019 Expense Additions Cash Payments Accrual Adjustments (*) Accrual at September 30, 2020 (In thousands) Facilities charges $ 1,378 $ — $ — $ ( 1,378 ) $ — Employee separation — 11,768 ( 3,577 ) — 8,191 1,378 $ 11,768 $ ( 3,577 ) $ ( 1,378 ) 8,191 Accrual at September 30, 2020 Expense Additions Cash Payments Accrual Adjustments Accrual at September 30, 2021 (In thousands) Employee separation 8,191 7,956 ( 8,291 ) — 7,856 8,191 $ 7,956 $ ( 8,291 ) $ — 7,856 (*) Upon adoption of Topic 842, accrued lease exit obligations of $ 1.4 million, which were associated with vacating excess leased space in fiscal 2017, were reclassified to operating lease liabilities. 77 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 15. Income Taxes The provision for income taxes was as follows during fiscal 2021, 2020 and 2019: Year ended September 30, 2021 2020 2019 (In thousands) Current: Federal $ 43,437 $ 14,566 $ 1,299 State 7,961 2,180 ( 423 ) Foreign 35,615 12,482 15,371 87,013 29,228 16,247 Deferred: Federal ( 4,602 ) ( 8,575 ) 7,003 State ( 948 ) ( 957 ) 947 Foreign ( 405 ) 893 ( 249 ) ( 5,955 ) ( 8,639 ) 7,701 Total provision $ 81,058 $ 20,589 $ 23,948 The foreign provision was based on foreign pre-tax earnings of $ 62.1 million, $ 42.2 million and $ 36.0 million in fiscal 2021, 2020 and 2019, respectively. Current foreign tax expense related to foreign tax withholdings was $ 7.5 million, $ 6.4 million and $ 6.5 million in fiscal 2021, 2020 and 2019, respectively. Foreign withholding tax and related foreign tax credits are included in current tax expense above. Deferred tax assets and liabilities at September 30, 2021 and 2020 were as follows: September 30, 2021 2020 (In thousands) Deferred tax assets: Loss and credit carryforwards $ 30,311 $ 31,015 Compensation benefits 29,305 29,640 Operating lease liabilities 17,076 21,827 Other assets 16,711 9,000 93,403 91,482 Less: valuation allowance ( 28,403 ) ( 24,563 ) Total deferred tax assets 65,000 66,919 Deferred tax liabilities: Intangible assets ( 10,518 ) ( 14,715 ) Deferred commission ( 10,520 ) ( 9,027 ) Property and equipment ( 487 ) ( 3,135 ) Operating lease right-of-use assets ( 11,258 ) ( 13,719 ) Other liabilities ( 11,668 ) ( 11,694 ) Total deferred tax liabilities ( 44,451 ) ( 52,290 ) Deferred tax assets, net $ 20,549 $ 14,629 Based upon the level of historical taxable income and projections for future taxable income over the periods that the deferred tax assets will reverse, management believes it is more likely than not that we will realize the benefits of the deferred tax assets, net of the existing valuation allowance at September 30, 2021. 78 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 As of September 30, 2021, we had available U.S. federal and foreign net operating loss (“NOL”) carryforwards of approximately $ 6.7 million and $ 29.2 million, respectively. The U.S. federal NOLs were acquired in connection with our acquisitions of Adeptra in fiscal 2012 and Infoglide in fiscal 2013. The U.S. federal NOL carryforward will expire at various dates beginning in fiscal 2024, if not utilized. The $ 29.2 million of foreign NOL includes $ 4.9 million related to China and $ 18.1 million related to Germany. Due to a limited ability to utilize the China and Germany NOLs, a full valuation allowance has been recorded on the China and Germany NOLs, resulting in no tax benefit. Utilization of the U.S. federal NOL is subject to an annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986, as amended. We have available an excess California state research credit of approximately $ 17.1 million. The California state research credit does not have an expiration date; however, based on enacted law and expected future cash taxes, we have recorded a valuation allowance of $ 17.1 million. There is approximately $3.0 million of excess Foreign Tax Credit. The foreign tax credit is not expected to be utilized fully in future tax, and a valuation allowance of $3.0 million has been recorded. A reconciliation of the provision for income taxes, with the amount computed by applying the U.S. federal statutory income tax rate of 21 % to income before provision for income taxes for fiscal 2021, 2020 and 2019 is shown below: Year Ended September 30, 2021 2020 2019 (In thousands) Income tax provision at U.S. federal statutory rate $ 99,360 $ 53,970 $ 45,375 State income taxes, net of U.S. federal benefit 7,815 4,619 4,194 Foreign tax rate differential 1,490 493 839 Research credits ( 6,795 ) ( 5,868 ) ( 5,761 ) Valuation allowance 3,839 5,332 ( 333 ) Excess tax benefits relating to share-based compensation ( 15,573 ) ( 45,086 ) ( 24,891 ) GILTI, FDII and BEAT ( 4,958 ) 7,136 1,467 Other ( 4,120 ) ( 7 ) 3,058 Recorded income tax provision $ 81,058 $ 20,589 $ 23,948 The increase in our income tax provision in fiscal 2021 compared to fiscal 2020 is due to an increase in pretax book income, of which a large amount was due to the gain on divestiture of C&R business, as well as a decrease in excess tax benefits related to share-based compensation. The decrease in our income tax provision in fiscal 2020 compared to fiscal 2019 is due to the excess tax benefits related to share-based compensation. As of September 30, 2021, we had approximately $ 141.5 million of unremitted earnings of non-U.S. subsidiaries. The Company generates substantial cash flow in the U.S. and does not have a current need for the cash to be returned to the U.S. from the foreign entities. In the event these earnings are later remitted to the U.S., any estimated withholding tax and state income tax due upon remittance of those earnings is expected to be immaterial to the income tax provision. Unrecognized Tax Benefit for Uncertain Tax Positions We conduct business globally and, as a result, file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities. With a few exceptions, we are no longer subject to U.S. federal, state, local, or foreign income tax examinations for fiscal years prior to 2018. 79 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Year Ended September 30, 2021 2020 2019 (In thousands) Gross unrecognized tax benefits at beginning of year $ 7,994 $ 5,834 $ 6,113 Gross increases for tax positions in prior years — 883 509 Gross decreases for tax positions in prior years ( 385 ) ( 65 ) ( 611 ) Gross increases based on tax positions related to the current year 5,273 2,260 1,439 Decreases for settlements and payments ( 643 ) — ( 637 ) Decreases due to statute expiration ( 1,342 ) ( 918 ) ( 979 ) Gross unrecognized tax benefits at end of year $ 10,897 $ 7,994 $ 5,834 We had $ 10.9 million of total unrecognized tax benefits as of September 30, 2021, including $ 10.4 million of tax benefits that, if recognized, would impact the effective tax rate. Although the timing and outcome of audit settlements are uncertain, it is unlikely there will be a significant reduction of the uncertain tax benefits in the next twelve months. We recognize interest expense and penalties related to unrecognized tax benefits and penalties as part of the provision for income taxes in our consolidated statements of income and comprehensive income. We recognize interest earned related to income tax matters as interest income in our consolidated statements of income and comprehensive income. As of September 30, 2021, we had accrued interest of $ 0.4 million related to the unrecognized tax benefits. 16. Share-Based Employee Benefit Plans Description of Stock Option and Share Plans We maintained the 2012 Long-Term Incentive Plan (the “2012 Plan”) under which we were authorized to issue equity awards, including stock options, stock appreciation rights, restricted stock awards, stock unit awards and other share-based awards. All employees, consultants and advisors of FICO or any subsidiary, as well as all non-employee directors were eligible to receive awards under the 2012 Plan. Upon effectiveness of the new long-term incentive plan on March 3, 2021 as described further below, no new awards may be made under the 2012 Plan. On March 3, 2021, our shareholders approved the adoption of the 2021 Long-Term Incentive Plan (the “2021 Plan”). The 2021 Plan authorizes the issuance of up to 5,900,000 shares of our common stock, plus additional shares that become available due to the expiration, forfeiture or cancellation of awards outstanding under the 2012 Plan on March 3, 2021. Under the terms of the 2021 Plan, the pool of shares available for issuance may be used for all types of equity awards available under the 2021 Plan, which include stock options, stock appreciation rights, restricted stock awards, stock unit awards and other share-based awards. All employees, consultants and advisors of FICO or any subsidiary, as well as all non-employee directors, are eligible to receive awards under the 2021 Plan. The 2021 Plan will remain in effect until the earliest of the following: all shares subject to the Plan are distributed, the Board terminates the Plan, or the tenth anniversary of the effective date of the Plan. Stock option awards have a maximum term of ten years . In general, stock option awards and restricted stock unit awards not subject to market or performance conditions vest annually over four years . Restricted stock unit awards subject to market or performance conditions generally vest annually over three years based on the achievement of specified criteria. At September 30, 2021, there were 5,850,154 shares available for issuance as new awards under the 2021 Plan. Description of Employee Stock Purchase Plan We maintain the 2019 Employee Stock Purchase Plan (the “2019 Purchase Plan”) under which we are authorized to issue up to 1,000,000 shares of our common stock to eligible employees. Employees may have up to 15 % of their eligible pay withheld through payroll deductions to purchase FICO common stock during semi-annual offering periods. The purchase price of the stock is 85 % of the closing sales price of FICO common stock on the last trading day of each offering period. Offering period means approximately six-month periods commencing (a) on the first trading day on or after September 1 and terminating on the last trading day in the following February, and (b) on the first trading day on or after March 1 and terminating on the last trading day in the following August. At September 30, 2021, there were 907,300 shares available for issuance under the 2019 Purchase Plan. 80 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 We satisfy stock option exercises, vesting of restricted stock units and the 2019 Purchase Plan issuances from treasury shares. Share-Based Compensation Expense and Related Income Tax Benefits We recorded share-based compensation expense of $ 112.5 million, $ 93.7 million and $ 83.0 million in fiscal years 2021, 2020 and 2019, respectively. The total tax benefit related to this share-based compensation expense was $ 14.0 million, $ 13.2 million and $ 12.5 million in fiscal 2021, 2020 and 2019, respectively. As of September 30, 2021, there was $ 151.0 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect to recognize that cost over a weighted-average period of 2.27 years. In fiscal 2021 we received $ 4.4 million in cash from stock option exercises, with the tax benefit realized for the tax deductions from these exercises of $ 3.7 million. Share-Based Activity Stock Options We estimate the fair value of stock options granted using the Black-Scholes option valuation model and we amortize the fair value on a straight-line basis over the vesting period. We used the following assumptions to estimate the fair value of our stock options during fiscal 2021, 2020 and 2019: Year Ended September 30, 2021 2020 2019 Stock Options: Weighted-average expected term (years) 4.47 4.46 4.26 Expected volatility (range) 33.6 - 34.4 % 30.0 - 35.9 % 31.1 - 32.4 % Weighted-average volatility 33.9 % 30.6 % 32.2 % Risk-free interest rate (range) 0.29 - 0.73 % 0.36 - 1.68 % 2.50 - 2.68 % Weighted-average expected dividend yield — % — % — % Expected Volatility. We estimate the volatility of our common stock at the date of grant based on a combination of the implied volatility of publicly traded options on our common stock and our historical volatility rate. Expected Term. The expected term represents the period that our stock options are expected to be outstanding. We estimate the expected term based on historical experience of similar awards, giving consideration to the contractual terms of the share-based awards, vesting schedules and expectations of future employee behavior. Dividends. We have not declared or paid any cash dividends on our common stock since May 2017, and we do not presently plan to pay cash dividends on our common stock in the foreseeable future. Consequently, we used an expected dividend yield of zero in the years presented. Risk-Free Interest Rate. The risk-free interest rate assumption is based on observed interest rates appropriate for the term of our employee options. Forfeitures. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest. 81 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 The following table summarizes option activity during fiscal 2021: Shares Weighted- average Exercise Price Weighted- average Remaining Contractual Term Aggregate Intrinsic Value (In thousands) (In years) (In thousands) Outstanding at September 30, 2020 246 $ 166.80 Granted 21 485.77 Exercised ( 40 ) 108.81 Forfeited ( 1 ) 506.91 Outstanding at September 30, 2021 226 $ 205.90 3.44 $ 45,263,900 Exercisable at September 30, 2021 163 $ 168.38 2.85 $ 37,659,408 Vested or expected to vest at September 30, 2021 225 $ 204.66 3.42 $ 45,173,168 The weighted-average fair value of options granted were $ 139.11 , $ 99.30 and $ 59.63 during fiscal 2021, 2020 and 2019, respectively. The aggregate intrinsic value of options outstanding at September 30, 2021 was calculated as the difference between the exercise price of the underlying options and the market price of our common stock for the 0.2 million outstanding options that had exercise prices lower than the $ 397.93 market price of our common stock at September 30, 2021. The total intrinsic value of options exercised was $ 15.8 million, $ 132.6 million and $ 99.1 million during fiscal 2021, 2020 and 2019, respectively, determined as of the date of exercise. Restricted Stock Units The fair value of restricted stock units (“RSUs”) granted is the closing market price of our common stock on the date of grant, adjusted for the expected dividend yield, if applicable. We amortize the fair value on a straight-line basis over the vesting period. The following table summarizes the RSUs activity during fiscal 2021: Shares Weighted-average Grant-date Fair Value (In thousands) Outstanding at September 30, 2020 721 $ 229.10 Granted 182 505.70 Released ( 311 ) 197.53 Forfeited ( 75 ) 300.05 Outstanding at September 30, 2021 517 $ 335.16 The weighted-average fair value of the RSUs granted were $ 505.70 , $ 356.66 and $ 206.29 during fiscal 2021, 2020 and 2019, respectively. The total intrinsic value of the RSUs that vested was $ 156.6 million, $ 159.0 million and $ 91.2 million during fiscal 2021, 2020 and 2019, respectively, determined as of the date of vesting. Performance Share Units Performance share units (“PSUs”) are granted to our senior officers and earned based on pre-established performance goals approved by the Leadership Development and Compensation Committee of our Board of Directors for any given performance period. The range of payout is zero to 200 % of the number of target PSUs, based on the outcome of the performance conditions. We estimate the fair value of the PSUs using the closing market price of our common stock on the date of grant, adjusted for the expected dividend yield if applicable, based on the performance condition that is probable of achievement. We amortize the fair values over the requisite service period for each vesting tranche of the award. We reassess the probability at each reporting period and recognize the cumulative effect of the change in estimate in the period of change. 82 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 The following table summarizes the PSUs activity during fiscal 2021: Shares Weighted- average Grant-date Fair Value (In thousands) Outstanding at September 30, 2020 127 $ 248.97 Granted 67 506.91 Released ( 68 ) 217.36 Outstanding at September 30, 2021 126 $ 403.61 The weighted-average fair value of the PSUs granted were $ 506.91 , $ 354.18 and $ 185.05 during fiscal 2021, 2020 and 2019, respectively. The total intrinsic value of the PSUs that vested was $ 34.7 million, $ 36.5 million and $ 19.3 million during fiscal 2021, 2020 and 2019, respectively, determined as of the date of vesting. Market Share Units Market share units (“MSUs”) are granted to our senior officers and earned based on our total stockholder return relative to the Russell 3000 Index over performance periods of one, two and three years . We estimate the fair value of MSUs granted using the Monte Carlo valuation model and amortize the fair values over the requisite service period for each vesting tranche of the award. In addition, we do not reverse the compensation cost solely because the market condition is not satisfied, and the award is therefore not earned by the employee, provided the requisite service is rendered. We used the following assumptions to estimate the fair value of our MSUs during fiscal 2021, 2020 and 2019: Year Ended September 30, 2021 2020 2019 Expected volatility in FICO’s stock price 41.3 % 25.2 % 24.6 % Expected volatility in Russell 3000 Index 23.7 % 12.9 % 12.8 % Correlation between FICO and the Russell 3000 Index 77.5 % 64.0 % 66.6 % Risk-free interest rate 0.20 % 1.67 % 2.73 % Average expected dividend yield — % — % — % The expected volatility was determined based on daily historical movements in our stock price and the Russell 3000 Index for the three years preceding the grant date. The correlation between FICO and the Russell 3000 Index was determined based on historical daily stock price movements for the three years preceding the grant date. Because we have not declared or paid any cash dividends on our common stock since May 2017, and we do not presently plan to pay cash dividends on our common stock in the foreseeable future, we used an expected dividend yield of zero. The risk-free rate was determined based on U.S. Treasury zero-coupon yields over the three-year performance period. The following table summarizes the MSUs activity during fiscal 2021: Shares Weighted- average Grant-date Fair Value (In thousands) Outstanding at September 30, 2020 63 $ 311.91 Granted 67 471.16 Released ( 67 ) 257.15 Outstanding at September 30, 2021 63 $ 541.42 The weighted-average fair value of the MSUs granted were $ 471.16 , $ 249.13 and $ 169.46 during fiscal 2021, 2020 and 2019, respectively. The total intrinsic value of the MSUs that vested was $ 34.5 million, $ 44.6 million and $ 21.6 million during fiscal 2021, 2020 and 2019, respectively, determined as of the date of vesting. 83 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 Employee Stock Purchase Plan The compensation expense on the employee stock purchase plan arises from the 15 % discount offered to participants. During fiscal 2021, a total of 42,402 shares of our common stock with a weighted-average purchase price of $389.61 per share was issued under the 2019 Purchase Plan. During fiscal 2020, a total of 50,298 shares of our common stock with a weighted-average purchase price of $ 334.21 per share was issued under the 2019 Purchase Plan. 17. Earnings per Share The following table presents reconciliations for the numerators and denominators of basic and diluted earnings per share (“EPS”) during fiscal 2021, 2020 and 2019: Year Ended September 30, 2021 2020 2019 (In thousands, except per share data) Numerator for basic and diluted earnings per share — net income $ 392,084 $ 236,411 $ 192,124 Denominator — share: Basic weighted-average shares 28,734 29,067 28,980 Effect of dilutive securities 526 865 1,314 Diluted weighted-average shares 29,260 29,932 30,294 Earnings per share: Basic $ 13.65 $ 8.13 $ 6.63 Diluted $ 13.40 $ 7.90 $ 6.34 Anti-dilutive share-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented. 18. Segment Information During the fourth quarter of our fiscal 2021, we reevaluated our operating segments to better align with how our CODM, who is our Chief Executive Officer, evaluates performance and allocates resources. The key factors evaluated included our evolving platform strategies, our go-to market considerations, and sales of our product lines and businesses during fiscal 2021, and in particular the divestiture of our C&R business in June 2021, among others. As a result, we consolidated our operating segment structure from three to two by merging Applications and Decision Management Software segments into the new Software segment. All periods presented have been adjusted to reflect these changes. The new segments are as follows: • Scores. This segment includes our business-to-business (“B2B”) scoring solutions and services which give our clients access to predictive credit and other scores that can be easily integrated into their transaction streams and decision-making processes. This segment also includes our business-to-consumer (“B2C”) scoring solutions, including our myFICO.com subscription offerings. • Software . This segment includes pre-configured analytic and decision management solutions designed for a specific type of business need or process — such as account origination, customer management, customer engagement, fraud detection, financial crimes compliance, and marketing — as well as associated professional services. This segment also includes FICO ® Platform, a modular software offering designed to support advanced analytic and decision use cases, as well as stand-alone analytic and decisioning software that can be configured by our customers to address a wide variety of business use cases. These offerings are available to our customers as SaaS or as on-premises software. 84 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 Our CODM evaluates segment financial performance based on segment revenues and segment operating income. Segment operating expenses consist of direct and indirect costs principally related to personnel, facilities, consulting, travel and depreciation. Indirect costs are allocated to the segments generally based on relative segment revenues, fixed rates established by management based upon estimated expense contribution levels and other assumptions that management considers reasonable. We do not allocate broad-based incentive expense, share-based compensation expense, restructuring and acquisition-related expense, amortization expense, various corporate charges and certain other income and expense measures to our segments. These income and expense items are not allocated because they are not considered in evaluating the segment’s operating performance. Our Chief Executive Officer does not evaluate the financial performance of each segment based on its respective assets or capital expenditures; rather, depreciation amounts are allocated to the segments from their internal cost centers as described above. The following tables summarize segment information for fiscal 2021, 2020 and 2019: Year Ended September 30, 2021 Scores Software Unallocated Corporate Expenses Total (In thousands) Segment revenues: On-premises and SaaS software $ — $ 517,888 $ — $ 517,888 Professional services — 144,501 — 144,501 Scores 654,147 — — 654,147 Total segment revenues 654,147 662,389 — 1,316,536 Segment operating expense ( 93,463 ) ( 557,242 ) ( 136,812 ) ( 787,517 ) Segment operating income $ 560,684 $ 105,147 $ ( 136,812 ) $ 529,019 Unallocated share-based compensation expense ( 112,457 ) Unallocated amortization expense ( 3,255 ) Unallocated restructuring and impairment charges ( 7,957 ) Unallocated gains on product line asset sales and business divestiture 100,139 Operating income 505,489 Unallocated interest expense, net ( 40,092 ) Unallocated other income, net 7,745 Income before income taxes $ 473,142 Depreciation expense $ 667 $ 19,505 $ 147 $ 20,319 85 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 Year Ended September 30, 2020 Scores Software Unallocated Corporate Expenses Total (In thousands) Segment revenues: On-premises and SaaS software $ — $ 584,576 $ — $ 584,576 Professional services — 181,439 — 181,439 Scores 528,547 — — 528,547 Total segment revenues 528,547 766,015 — 1,294,562 Segment operating expense ( 74,237 ) ( 635,949 ) ( 144,704 ) ( 854,890 ) Segment operating income $ 454,310 $ 130,066 $ ( 144,704 ) 439,672 Unallocated share-based compensation expense ( 93,681 ) Unallocated amortization expense ( 4,993 ) Unallocated restructuring and impairment charges ( 45,029 ) Operating income 295,969 Unallocated interest expense, net ( 42,177 ) Unallocated other income, net 3,208 Income before income taxes $ 257,000 Depreciation expense $ 617 $ 22,418 $ 418 $ 23,453 Year Ended September 30, 2019 Scores Software Unallocated Corporate Expenses Total (In thousands) Segment revenues: On-premises and SaaS software $ — $ 556,968 $ — $ 556,968 Professional services — 181,938 — 181,938 Scores 421,177 — — 421,177 Total segment revenues 421,177 738,906 — 1,160,083 Segment operating expense ( 59,821 ) ( 612,860 ) ( 144,755 ) ( 817,436 ) Segment operating income $ 361,356 $ 126,046 $ ( 144,755 ) 342,647 Unallocated share-based compensation expense ( 82,973 ) Unallocated amortization expense ( 6,126 ) Operating income 253,548 Unallocated interest expense, net ( 39,752 ) Unallocated other income, net 2,276 Income before income taxes $ 216,072 Depreciation expense $ 498 $ 22,802 $ 904 $ 24,204 86 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 19. Leases We lease office space and data centers under operating lease arrangements, which constitute the majority of our lease obligations. We also enter into finance lease agreements from time to time for certain computer equipment. For any lease with a lease term in excess of 12 months, the related lease assets and liabilities are recognized on our consolidated balance sheets as either operating or finance leases at the commencement of an agreement where it is determined that a lease exists. We have lease agreements that contain both lease and non-lease components, and we have elected to combine these components together and account for them as a single lease component for all classes of assets. Leases with a lease term of 12 months or less are not recorded on our consolidated balance sheets. Furthermore, we recognize lease expense for these leases on a straight-line basis over the lease term. Operating lease assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized based on the present value of future payments over the lease term at the commencement date. We use a collateralized incremental borrowing rate based on the information available at the commencement date, including the lease term, in determining the present value of future payments. In calculating the incremental borrowing rates, we consider recent ratings from credit agencies and current lease demographic information. Our operating leases also typically require payment of real estate taxes, common area maintenance, insurance and other operating costs as well as payments that are adjusted based on a consumer price index. These components comprise the majority of our variable lease cost and are excluded from the present value of our lease obligations. In instances where they are fixed, they are included due to our election to combine lease and non-lease components. Operating lease assets also include prepaid lease payments and initial direct costs, and are reduced by lease incentives. Our lease terms generally do not include options to extend or terminate the lease unless it is reasonably certain that the option will be exercised. Fixed payments may contain predetermined fixed rent escalations. We recognize the related rent expense on a straight-line basis from the commencement date to the end of the lease term. The following table presents the lease balances within the accompanying consolidated balance sheet as of September 30, 2021 and 2020: Balance Sheet Location September 30, 2021 2020 (In thousands) Assets Operating leases Operating lease right-of-use assets $ 47,275 $ 57,656 Finance leases (*) Property and equipment, net — 5,021 Total lease assets $ 47,275 $ 62,677 Liabilities Current: Operating leases Other accrued liabilities $ 22,074 $ 22,787 Finance leases Other accrued liabilities — 2,186 Non-current: Operating leases Operating lease liabilities 53,670 73,207 Finance leases Other liabilities — 3,076 Total lease liabilities $ 75,744 $ 101,256 (*) Finance leases were recorded net of accumulated depreciation of $ 1.5 million at September 30, 2020. 87 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 The components of our operating and finance lease expenses were as follows: Year Ended September 30, 2021 2020 (In thousands) Operating lease cost $ 19,551 $ 23,624 Finance lease cost: Depreciation of lease assets 175 2,078 Interest on lease liabilities 11 186 Short-term lease cost 85 1,171 Variable lease cost 1,190 3,264 Total lease cost $ 21,012 $ 30,323 The following table presents weighted-average remaining lease term and weighted-average discount rates related to our operating and finance leases: September 30, 2021 2020 Operating lease: Weighted-average remaining lease term (in months) 53 63 Weighted-average discount rate 3.64 % 3.86 % Finance lease: Weighted-average remaining lease term (in months) 0 29 Weighted-average discount rate — % 2.56 % 88 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 Supplemental cash flow information related to our operating and finance leases was as follows: Year Ended September 30, 2021 2020 (In thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflow for operating leases $ 23,260 $ 18,801 Operating cash outflow for finance leases 11 186 Financing cash outflow for finance leases 176 1,716 Lease assets obtained in exchange for new lease liabilities: Operating leases 5,413 11,457 Finance leases — 1,387 Future lease payments under our non-cancellable leases as of September 30, 2021 were as follows: (In thousands) Operating Leases Fiscal 2022 $ 24,441 Fiscal 2023 19,621 Fiscal 2024 14,025 Fiscal 2025 8,639 Fiscal 2026 7,602 Thereafter 7,522 Total future undiscounted lease payments 81,850 Less imputed interest ( 6,106 ) Total reported lease liability $ 75,744 20. Commitments In the ordinary course of business, we enter into contractual purchase obligations and other agreements that are legally binding and specify certain minimum payment terms. We are also a party to a management agreement with 23 of our executives providing for certain payments and other benefits in the event of a qualified change in control of FICO, coupled with a termination of the officer during the following year. 21. Contingencies We are in disputes with certain customers regarding amounts owed in connection with the sale of certain of our products and services. We also have had claims asserted by former employees relating to compensation and other employment matters. We are also involved in various other claims and legal actions arising in the ordinary course of business. We record litigation accruals for legal matters which are both probable and estimable. For legal proceedings for which there is a reasonable possibility of loss (meaning those losses for which the likelihood is more than remote but less than probable), we have determined we do not have material exposure on an aggregate basis. 22. Guarantees In the ordinary course of business, we are not subject to potential obligations under guarantees , except for standard indemnification and warranty provisions that are contained within many of our customer license and service agreements and certain supplier agreements, including underwriter agreements, as well as standard indemnification agreements that we have executed with certain of our officers and directors, and give rise only to the disclosure in the consolidated financial statements. In addition, we continue to monitor the conditions that are subject to the guarantees and indemnifications to identify whether it 89 Table of Contents FAIR ISAAC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended September 30, 2021, 2020 and 2019 is probable that a loss has occurred, and would recognize any such losses under the guarantees and indemnifications when those losses are estimable. Indemnification and warranty provisions contained within our customer license and service agreements and certain supplier agreements are generally consistent with those prevalent in our industry. The duration of our product warranties generally does not exceed 90 days following delivery of our products. We have not incurred significant obligations under customer indemnification or warranty provisions historically and do not expect to incur significant obligations in the future. Accordingly, we do not maintain accruals for potential customer indemnification or warranty-related obligations. The indemnification agreements that we have executed with certain of our officers and directors would require us to indemnify such officers and directors in certain instances. We have not incurred obligations under these indemnification agreements historically and do not expect to incur significant obligations in the future. Accordingly, we do not maintain accruals for potential officer or director indemnification obligations. The maximum potential amount of future payments that we could be required to make under the indemnification provisions in our customer license and service agreements, and officer and director agreements is unlimited. 23. Subsequent Event In October 2021, we amended our credit agreement with a syndicate of banks to allow for the issuance of $ 300 million in term loans, increasing the total capacity of the agreement to $ 900 million. The term loans are subject to the same pricing and covenants as the revolving line of credit, a description of which is provided in Note 9, and mature at the expiration of the facility on August 19, 2026 . Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.