FAIR ISAAC CORP 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk Market Risk Disclosures We are exposed to market risk related to changes in interest rates and foreign exchange rates. We do not use derivative financial instruments for speculative or trading purposes. Interest Rate We maintain an investment portfolio consisting of bank deposits and money market funds. The funds provide daily liquidity and may be subject to interest rate risk and fall in value if market interest rates increase. We do not expect our operating results or cash flows to be affected to any significant degree by a sudden change in market interest rates. The following table presents the principal amounts and related weighted-average yields for our investments with interest rate risk at December 31, 2021 and September 30, 2021: December 31, 2021 September 30, 2021 Cost Basis Carrying Amount Average Yield Cost Basis Carrying Amount Average Yield (Dollars in thousands) Cash and cash equivalents $ 162,157 $ 162,157 0.09 % $ 195,354 $ 195,354 0.04 % 32 Table of Contents On May 8, 2018, we issued $400 million of senior notes in a private placement to qualified institutional investors (the “2018 Senior Notes”). On December 6, 2019, we issued $350 million of senior notes in a private offering to qualified institutional investors (the “2019 Senior Notes”). On December 17, 2021, we issued $550 million of additional senior notes of the same class as the 2019 Senior Notes in a private placement to qualified institutional investors (the “2021 Senior Notes” and collectively with the 2018 Senior Notes and 2019 Senior Notes, the “Senior Notes”). The fair value of the Senior Notes may increase or decrease due to various factors, including fluctuations in market interest rates and fluctuations in general economic conditions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources and Liquidity” for additional information on the Senior Notes. The following table presents the face values and fair values for the Senior Notes at December 31, 2021 and September 30, 2021: December 31, 2021 September 30, 2021 Face Value (*) Fair Value Face Value (*) Fair Value (In thousands) The 2018 Senior Notes 400,000 437,000 400,000 453,000 The 2019 Senior Notes and the 2021 Senior Notes 900,000 920,250 350,000 357,000 Total $ 1,300,000 $ 1,357,250 $ 750,000 $ 810,000 (*) The carrying value of the Senior Notes was the face value reduced by the net debt issuance costs of $15.8 million and $9.0 million at December 31, 2021 and September 30, 2021, respectively. We have a $600 million unsecured revolving line of credit with a syndicate of banks that expires on August 19, 2026. Proceeds from the credit facility can be used for working capital and general corporate purposes and may also be used for the refinancing of existing debt, acquisitions and the repurchase of our common stock. Interest on amounts borrowed under the credit facility is based on (i) a base rate, which is the greater of (a) the prime rate, (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. On October 20, 2021, we amended our credit agreement to provide for the issuance of a $300 million term loan, increasing the total capacity of the agreement to $900 million. The term loan is subject to the same pricing and covenants as the revolving line of credit and mature at the expiration of the facility on August 19, 2026. As of December 31, 2021, we had $50.0 million in borrowings outstanding under the revolving credit facility at a weighted-average interest rate of 1.352% and $300.0 million in outstanding balance of the term loan at an interest rate of 1.354%, of which $285.0 million was classified as a long-term liability and recorded in long-term debt within the accompanying condensed consolidated balance sheets. Foreign Currency Forward Contracts We maintain a program to manage our foreign exchange rate risk on existing foreign-currency-denominated receivable and cash balances by entering into forward contracts to sell or buy foreign currencies. At period end, foreign-currency-denominated receivable and cash balances held by our various reporting entities are remeasured into their respective functional currencies at current market rates. The change in value from this remeasurement is then reported as a foreign exchange gain or loss for that period in our accompanying condensed consolidated statements of income and comprehensive income and the resulting gain or loss on the forward contract mitigates the foreign exchange rate risk of the associated assets. All of our foreign currency forward contracts have maturity periods of less than three months. Such derivative financial instruments are subject to market risk. The following tables summarize our outstanding foreign currency forward contracts, by currency, at December 31, 2021 and September 30, 2021: 33 Table of Contents December 31, 2021 Contract Amount Fair Value Foreign Currency USD USD (In thousands) Sell foreign currency: Euro (EUR) EUR 15,900 $ 18,044 $ — Buy foreign currency: British pound (GBP) GBP 10,983 $ 14,800 $ — Singapore dollar (SGD) SGD 7,405 $ 5,500 $ — 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 $ — The foreign currency forward contracts were entered into on December 31, 2021 and September 30, 2021, respectively; therefore, their fair value was $0 on each of these dates.