e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-34480
VERISK ANALYTICS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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26-2994223 |
(State or other jurisdiction of incorporation
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(I.R.S. Employer |
or organization)
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Identification No.) |
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545 Washington Boulevard
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07310-1686 |
Jersey City, NJ
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(Zip Code) |
(Address of principal executive offices) |
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(201) 469-2000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such files). Yes
þ
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of
April 29, 2011 there was the following number of shares outstanding of each of the issuers classes of common stock:
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|
Class |
|
Shares Outstanding |
Class A common stock $.001 par value
|
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152,557,291 |
Class B (Series 2) common stock $.001 par value
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14,771,340 |
Verisk Analytics, Inc.
Index to Form 10-Q
Table of Contents
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Item 1. |
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Financial Statements |
VERISK ANALYTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2011 and December 31, 2010
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2011 |
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unaudited |
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2010 |
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(In thousands, except for share and per share data) |
|
ASSETS |
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Current assets: |
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|
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|
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Cash and cash equivalents |
|
$ |
101,238 |
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$ |
54,974 |
|
Available-for-sale securities |
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5,603 |
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|
5,653 |
|
Accounts receivable, net of allowance for doubtful accounts of $3,435 and $4,028 (including amounts
from related parties of $612 and $515, respectively) (1) |
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163,888 |
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126,564 |
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Prepaid expenses |
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25,490 |
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17,791 |
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Deferred income taxes, net |
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3,681 |
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|
3,681 |
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Federal and foreign income taxes receivable |
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|
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|
15,783 |
|
State and local income taxes receivable |
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|
4,093 |
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|
8,923 |
|
Other current assets |
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|
7,705 |
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|
7,066 |
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|
|
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Total current assets |
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311,698 |
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|
240,435 |
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Noncurrent assets: |
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Fixed assets, net |
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100,774 |
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93,409 |
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Intangible assets, net |
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191,774 |
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|
200,229 |
|
Goodwill |
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632,668 |
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|
632,668 |
|
Deferred income taxes, net |
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|
21,548 |
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|
21,879 |
|
State income taxes receivable |
|
|
1,773 |
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|
1,773 |
|
Other assets |
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26,196 |
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|
26,697 |
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Total assets |
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$ |
1,286,431 |
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$ |
1,217,090 |
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LIABILITIES AND STOCKHOLDERS DEFICIT |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
88,458 |
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$ |
111,995 |
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Acquisition related liabilities |
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3,500 |
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|
3,500 |
|
Short-term debt and current portion of long-term debt |
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129,997 |
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437,717 |
|
Pension and postretirement benefits, current |
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4,663 |
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4,663 |
|
Fees received in advance (including amounts from related parties of $1,425 and $1,231, respectively) (1) |
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247,064 |
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163,007 |
|
Federal and foreign income taxes payable |
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|
18,788 |
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|
|
|
|
|
|
|
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|
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|
Total current liabilities |
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492,470 |
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720,882 |
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Noncurrent liabilities: |
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Long-term debt |
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700,520 |
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401,826 |
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Pension benefits |
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89,908 |
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|
95,528 |
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Postretirement benefits |
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23,019 |
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|
23,083 |
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Other liabilities |
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89,605 |
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|
90,213 |
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Total liabilities |
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1,395,522 |
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|
1,331,532 |
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Commitments and contingencies |
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Stockholders equity/(deficit): |
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Verisk Class A common stock, $.001 par value; 1,200,000,000 shares authorized; 150,421,644 and
150,179,126 shares issued and 141,066,860 and 143,067,924 outstanding as of March 31, 2011 and December
31, 2010, respectively |
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40 |
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39 |
|
Verisk Class B (Series 1) common stock, $.001 par value; 400,000,000 shares authorized; 198,327,962
shares issued and 12,225,480 outstanding as of March 31, 2011 and December 31, 2010 |
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47 |
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47 |
|
Verisk Class B (Series 2) common stock, $.001 par value; 400,000,000 shares authorized; 193,665,008
shares issued and 14,771,340 outstanding as of March 31, 2011 and December 31, 2010 |
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49 |
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|
49 |
|
Unearned KSOP contributions |
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|
(917 |
) |
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|
(988 |
) |
Additional paid-in capital |
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|
766,528 |
|
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|
754,708 |
|
Treasury stock, at cost, 374,350,934 and 372,107,352 shares as of March 31, 2011 and December 31, 2010,
respectively |
|
|
(1,179,704 |
) |
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|
(1,106,321 |
) |
Retained earnings |
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|
359,703 |
|
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|
293,827 |
|
Accumulated other comprehensive loss |
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|
(54,837 |
) |
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|
(55,803 |
) |
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|
|
|
|
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Total stockholders deficit |
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|
(109,091 |
) |
|
|
(114,442 |
) |
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Total liabilities and stockholders deficit |
|
$ |
1,286,431 |
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|
$ |
1,217,090 |
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|
|
|
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|
(1) |
|
See Note 13. Related Parties for further information. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
VERISK ANALYTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For The Three-Month Periods Ended March 31, 2011 and 2010
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2011 |
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2010 |
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(In thousands, except for share and per |
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share data) |
|
Revenues (including amounts from related parties of $4,396 and
$15,133, respectively) (1) |
|
$ |
312,869 |
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$ |
276,154 |
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|
|
|
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|
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Expenses: |
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|
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Cost of revenues (exclusive of items shown separately below) |
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124,556 |
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|
114,993 |
|
Selling, general and administrative |
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49,256 |
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|
37,514 |
|
Depreciation and amortization of fixed assets |
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|
11,305 |
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|
|
9,929 |
|
Amortization of intangible assets |
|
|
8,455 |
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|
|
7,304 |
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|
|
|
|
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Total expenses |
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|
193,572 |
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|
|
169,740 |
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|
|
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|
|
|
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|
|
|
|
|
|
|
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Operating income |
|
|
119,297 |
|
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|
106,414 |
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|
|
|
|
|
|
|
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Other income/(expense): |
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|
|
|
|
|
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Investment income |
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|
10 |
|
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|
32 |
|
Realized gains on securities, net |
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|
362 |
|
|
|
32 |
|
Interest expense |
|
|
(9,615 |
) |
|
|
(8,466 |
) |
|
|
|
|
|
|
|
Total other expense, net |
|
|
(9,243 |
) |
|
|
(8,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
110,054 |
|
|
|
98,012 |
|
Provision for income taxes |
|
|
(44,178 |
) |
|
|
(42,637 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
65,876 |
|
|
$ |
55,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Basic net income per share of Class A and Class B: |
|
$ |
0.39 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Diluted net income per share of Class A and Class B: |
|
$ |
0.37 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
169,030,227 |
|
|
|
180,053,550 |
|
|
|
|
|
|
|
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Diluted |
|
|
176,964,192 |
|
|
|
189,454,756 |
|
|
|
|
|
|
|
|
|
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|
(1) |
|
See Note 13. Related Parties for further information. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
VERISK ANALYTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIT (UNAUDITED)
For The
Year Ended December 31, 2010 and The Three Months Ended March 31, 2011
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|
|
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|
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Accumulated |
|
|
Total |
|
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|
Common Stock Issued |
|
|
Unearned |
|
|
Additional |
|
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|
|
|
|
|
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|
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Other |
|
|
Stockholders |
|
|
|
|
|
|
|
Verisk |
|
|
Verisk |
|
|
|
|
|
|
KSOP |
|
|
Paid-in |
|
|
Treasury |
|
|
Retained |
|
|
Comprehensive |
|
|
(Deficit)/ |
|
|
|
Verisk Class A |
|
|
Class B (Series 1) |
|
|
Class B (Series 2) |
|
|
Par Value |
|
|
Contributions |
|
|
Capital |
|
|
Stock |
|
|
Earnings |
|
|
Loss |
|
|
Equity |
|
|
|
(In thousands, except for share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2010 |
|
|
125,815,600 |
|
|
|
205,637,925 |
|
|
|
205,637,925 |
|
|
$ |
130 |
|
|
$ |
(1,305 |
) |
|
$ |
652,573 |
|
|
$ |
(683,994 |
) |
|
$ |
51,275 |
|
|
$ |
(53,628 |
) |
|
$ |
(34,949 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,552 |
|
|
|
|
|
|
|
242,552 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,175 |
) |
|
|
(2,175 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,377 |
|
Conversion of Class B-1 common stock upon follow-on public
offering (Note 1) |
|
|
7,309,963 |
|
|
|
(7,309,963 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Class B-2 common stock upon follow-on public
offering (Note 1) |
|
|
11,972,917 |
|
|
|
|
|
|
|
(11,972,917 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock acquired Class A (7,111,202 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(212,512 |
) |
|
|
|
|
|
|
|
|
|
|
(212,512 |
) |
Treasury stock acquired Class B-1 (7,583,532 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199,936 |
) |
|
|
|
|
|
|
|
|
|
|
(199,936 |
) |
Treasury stock acquired Class B-2 (374,718 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,879 |
) |
|
|
|
|
|
|
|
|
|
|
(9,879 |
) |
KSOP shares earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
317 |
|
|
|
11,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,573 |
|
Stock options exercised (including tax benefit of $49,015) |
|
|
5,579,135 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
84,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,497 |
|
Net share settlement of taxes upon exercise of stock options |
|
|
(503,043 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,051 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,051 |
) |
Stock based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,298 |
|
Other stock issuances |
|
|
4,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
|
150,179,126 |
|
|
|
198,327,962 |
|
|
|
193,665,008 |
|
|
$ |
135 |
|
|
$ |
(988 |
) |
|
$ |
754,708 |
|
|
$ |
(1,106,321 |
) |
|
$ |
293,827 |
|
|
$ |
(55,803 |
) |
|
$ |
(114,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,876 |
|
|
|
|
|
|
|
65,876 |
|
Other
comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
966 |
|
|
|
966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,842 |
|
Treasury stock acquired Class A (2,243,582 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73,383 |
) |
|
|
|
|
|
|
|
|
|
|
(73,383 |
) |
KSOP shares earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71 |
|
|
|
3,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,111 |
|
Stock options exercised (including tax benefit of $1,383) |
|
|
242,518 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
4,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,963 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011 |
|
|
150,421,644 |
|
|
|
198,327,962 |
|
|
|
193,665,008 |
|
|
$ |
136 |
|
|
$ |
(917 |
) |
|
$ |
766,528 |
|
|
$ |
(1,179,704 |
) |
|
$ |
359,703 |
|
|
$ |
(54,837 |
) |
|
$ |
(109,091 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
VERISK ANALYTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For The Three Months Ended March 31, 2011 and 2010
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
65,876 |
|
|
$ |
55,375 |
|
Adjustments to reconcile net income to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization of fixed assets |
|
|
11,305 |
|
|
|
9,929 |
|
Amortization of intangible assets |
|
|
8,455 |
|
|
|
7,304 |
|
Amortization of debt issuance costs |
|
|
309 |
|
|
|
395 |
|
Allowance for doubtful accounts |
|
|
151 |
|
|
|
105 |
|
KSOP compensation expense |
|
|
3,111 |
|
|
|
2,850 |
|
Stock-based compensation |
|
|
3,818 |
|
|
|
3,886 |
|
Non-cash charges associated with performance based appreciation awards |
|
|
546 |
|
|
|
566 |
|
Realized gains on securities, net |
|
|
(362 |
) |
|
|
(32 |
) |
Deferred income taxes |
|
|
(158 |
) |
|
|
973 |
|
Other operating |
|
|
15 |
|
|
|
15 |
|
Loss on disposal of assets |
|
|
96 |
|
|
|
11 |
|
Excess tax benefits from exercised stock options |
|
|
|
|
|
|
(147 |
) |
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities, net of effects from acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(37,475 |
) |
|
|
(42,699 |
) |
Prepaid expenses and other assets |
|
|
(7,890 |
) |
|
|
(4,591 |
) |
Federal and foreign income taxes |
|
|
35,954 |
|
|
|
32,937 |
|
State and local income taxes |
|
|
4,830 |
|
|
|
6,405 |
|
Accounts payable and accrued liabilities |
|
|
(22,100 |
) |
|
|
(25,415 |
) |
Fees received in advance |
|
|
84,057 |
|
|
|
88,273 |
|
Other liabilities |
|
|
(4,957 |
) |
|
|
1,049 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
145,581 |
|
|
|
137,189 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired of $1,556 in 2010 |
|
|
|
|
|
|
(6,227 |
) |
Proceeds from release of acquisition related escrows |
|
|
|
|
|
|
213 |
|
Escrow funding associated with acquisitions |
|
|
|
|
|
|
(1,500 |
) |
Purchases of available-for-sale securities |
|
|
(960 |
) |
|
|
(252 |
) |
Proceeds from sales and maturities of available-for-sale securities |
|
|
1,154 |
|
|
|
335 |
|
Purchases of fixed assets |
|
|
(13,648 |
) |
|
|
(7,498 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(13,454 |
) |
|
|
(14,929 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repurchase of Verisk Class A common stock |
|
|
(73,578 |
) |
|
|
|
|
Repayment of short-term debt, net |
|
|
(15,946 |
) |
|
|
(62,945 |
) |
Payment of debt issuance cost |
|
|
(256 |
) |
|
|
|
|
Excess tax benefits from exercised stock options |
|
|
|
|
|
|
147 |
|
Proceeds from stock options exercised |
|
|
3,579 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(86,201 |
) |
|
|
(62,798 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes |
|
|
338 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
46,264 |
|
|
|
59,465 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
54,974 |
|
|
|
71,527 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
101,238 |
|
|
$ |
130,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
Taxes paid |
|
$ |
3,351 |
|
|
$ |
616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
9,479 |
|
|
$ |
8,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Repurchase
of Verisk Class A common stock included in accounts payable and
accrued liabilities |
|
$ |
2,070 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability established on date of acquisition |
|
$ |
|
|
|
$ |
(732 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations |
|
$ |
6,920 |
|
|
$ |
575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures included in accounts payable and accrued liabilities |
|
$ |
310 |
|
|
$ |
815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in goodwill due to acquisition related escrow distributions |
|
$ |
|
|
|
$ |
489 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
VERISK ANALYTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data, unless otherwise stated)
1. Organization:
Verisk Analytics, Inc. and its consolidated subsidiaries (Verisk or the Company) enable
risk-bearing businesses to better understand and manage their risks. The Company provides its
customers proprietary data that, combined with analytic methods, create embedded decision support
solutions. The Company is one of the largest aggregators and providers of data pertaining to
property and casualty (P&C) insurance risks in the United States of America (U.S.). The
Company offers solutions for detecting fraud in the U.S. P&C insurance, mortgage and healthcare
industries and sophisticated methods to predict and quantify loss in diverse contexts ranging from
natural catastrophes to health insurance. The Company provides solutions, including data,
statistical models or tailored analytics, all designed to allow clients to make more logical
decisions.
Verisk was established on May 23, 2008 to serve as the parent holding company of Insurance
Services Office, Inc. (ISO) upon completion of the initial public offering (IPO). ISO was
formed in 1971 as an advisory and rating organization for the P&C insurance industry to provide
statistical and actuarial services, to develop insurance programs and to assist insurance companies
in meeting state regulatory requirements. Over the past decade, the Company has broadened its data
assets, entered new markets, placed a greater emphasis on analytics, and pursued strategic
acquisitions. On October 6, 2009, ISO effected a corporate reorganization whereby the Class A and
Class B common stock of ISO were exchanged by the current stockholders for the common stock of
Verisk on a one-for-one basis. Verisk immediately thereafter effected a fifty-for-one stock split
of its Class A and Class B common stock and equally sub-divided the Class B common stock into two
new series of stock, Verisk Class B (Series 1) (Class B-1) and Verisk Class B (Series 2) (Class
B-2).
On October 9, 2009, the Company completed its IPO. Upon completion of the IPO, the selling
stockholders sold 97,995,750 shares of Class A common stock of Verisk, which included the
12,745,750 over-allotment option, at the IPO price of $22.00 per share. The Company did not
receive any proceeds from the sales of common stock in the offering. Verisk trades under the
ticker symbol VRSK on the NASDAQ Global Select Market.
On October 1, 2010, the Company completed a follow-on public offering. Upon completion of
this offering, the selling stockholders sold 2,602,212 and 19,282,880 shares of Class A and Class B
common stock of Verisk, respectively, which included the underwriters 2,854,577 over-allotment
option, at the public offering price of $27.25 per share. Class B common stock sold into this
offering was automatically converted into Class A common stock. The Company did not receive any
proceeds from the sale of common stock in the offering. Concurrently with the closing of this
offering, the Company also repurchased 7,300,000 shares of Class B common stock at $26.3644 per
share, which represents the net proceeds per share the selling stockholders received in the public
offering. The Company funded a portion of this repurchase with proceeds from borrowings of
$160,000 under its syndicated revolving credit facility. Upon consummation of the offering and the
repurchase, the Companys Class B-1 and Class B-2 common stock outstanding was 12,554,605 and
15,100,465 shares, respectively. The Class B-1 shares converted to Class A common stock on April
6, 2011 and the Class B-2 shares will automatically convert to Class A common Stock on October 6,
2011.
2. Basis of Presentation and Summary of Significant Accounting Policies:
The accompanying unaudited condensed consolidated financial statements have been prepared on
the basis of accounting principles generally accepted in the U.S. (U.S. GAAP). The preparation
of financial statements in conformity with these accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. Significant estimates
include acquisition purchase price allocations, the fair value of goodwill, the realization of
deferred tax assets, acquisition related liabilities, fair value of stock-based compensation,
liabilities for pension and postretirement benefits, and the estimate for the allowance for
doubtful accounts. Actual results may ultimately differ from those estimates.
The condensed consolidated financial statements as of March 31, 2011 and for the three-month
periods ended March 31, 2011 and 2010, in the opinion of management, include all adjustments,
consisting of normal recurring accruals, to present fairly the Companys financial position,
results of operations and cash flows. The operating results for the three-month period ended March
31, 2011 are not necessarily indicative of the results to be expected for the full year. The
condensed consolidated financial statements and related notes for the three-month period ended
March 31, 2011 have been prepared on the same basis as and should be read in conjunction with our
annual report on Form 10-K for the year ended December 31, 2010. Certain information and footnote
disclosures normally included in financial statements prepared in accordance with U.S.
GAAP have been condensed or omitted pursuant to the rules of the Securities and Exchange
Commission (SEC). The Company believes the disclosures made are adequate to keep the information
presented from being misleading.
7
Recent Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts (ASU No. 2010-28). ASU No.
2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative
carrying amounts. For those reporting units, an entity is required to perform Step 2 of the
goodwill impairment test if it is more likely than not that a goodwill impairment exists. In
determining whether it is more likely than not that a goodwill impairment exists, an entity should
consider whether there are any adverse qualitative factors indicating that an impairment may exist.
ASU No. 2010-28 is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2010. Early adoption is not permitted. The adoption of ASU No. 2010-28 did not
have any impact on the Companys consolidated financial statements, and the Company will
incorporate the provisions of this guidance as part of their Step 1 testing for goodwill impairment
as of June 30, 2011.
In April 2010, the FASB ASU No. 2010-17, Revenue RecognitionMilestone Method (ASU No.
2010-17). ASU No. 2010-17 provides guidance on defining a milestone and determining when it may
be appropriate to apply the milestone method of revenue recognition for research or development
transactions. ASU No. 2010-17 is effective on a prospective basis for milestones achieved in
fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Based
on the Companys current agreements, ASU No. 2010-17 did not have a material impact on the
Companys consolidated financial statements as the Company does not typically perform research or
development transactions.
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures
(ASU No. 2010-06). ASU No. 2010-06 provides guidance on improving disclosures on fair value
measurements, such as the transfers between Level 1, Level 2 and Level 3 inputs and the
disaggregated activity in the rollforward for Level 3 fair value measurements. ASU No. 2010-06 is
effective for interim and annual reporting periods beginning after December 15, 2009, except for
the disclosures about the disaggregated activity in the rollforward for Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010
and for interim periods within those fiscal periods. The adoption of ASU No. 2010-06 had no impact
on the Companys consolidated financial statements.
In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements
(ASU No. 2009-13). ASU No. 2009-13 establishes the accounting and reporting guidance for
arrangements under which the vendor will perform multiple revenue-generating activities.
Specifically, ASU No. 2009-13 addresses how to separate deliverables and how to measure and
allocate arrangement consideration to one or more units of accounting. ASU No. 2009-13 is effective
prospectively for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted. The Company has elected not to
early adopt. The adoption of ASU No. 2009-13 did not have a material impact on the Companys
consolidated financial statements as our Companys multiple deliverables arrangements are comprised
primarily of software licenses and services, rather than hardware. Currently, a majority of our
deliverables do not have stand alone value, which would preclude the separation and allocation of
the arrangement. Therefore, the Company will continue to recognize revenue over the duration of
the license term.
3. Investments:
The following is a summary of available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Adjusted |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered investment companies |
|
$ |
4,566 |
|
|
$ |
1,030 |
|
|
$ |
|
|
|
$ |
5,596 |
|
Equity securities |
|
|
14 |
|
|
|
|
|
|
|
(7 |
) |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities |
|
$ |
4,580 |
|
|
$ |
1,030 |
|
|
$ |
(7 |
) |
|
$ |
5,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered investment companies |
|
$ |
4,398 |
|
|
$ |
1,248 |
|
|
$ |
|
|
|
$ |
5,646 |
|
Equity securities |
|
|
14 |
|
|
|
|
|
|
|
(7 |
) |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities |
|
$ |
4,412 |
|
|
$ |
1,248 |
|
|
$ |
(7 |
) |
|
$ |
5,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
In addition to the available-for-sale securities above, the Company has equity
investments in non-public companies in which the Company acquired non-controlling interests and for
which no readily determinable market value exists. These securities were accounted for under the
cost method in accordance with ASC 323-10-25, The Equity Method of Accounting for Investments in
Common Stock. At March 31, 2011 and December 31, 2010, the carrying value of
such securities was $3,443 and $3,642 for each period and has been included in Other assets in
the accompanying condensed consolidated balance sheets.
4. Fair Value Measurements:
Certain assets and liabilities of the Company are reported at fair value in the accompanying
condensed consolidated balance sheets. Such assets and liabilities include amounts for both
financial and non-financial instruments. To increase consistency and comparability of assets and
liabilities recorded at fair value, ASC 820-10, Fair Value Measurements (ASC 820-10) establishes
a three-level fair value hierarchy to prioritize the inputs to valuation techniques used to measure
fair value. ASC 820-10 requires disclosures detailing the extent to which companies measure assets
and liabilities at fair value, the methods and assumptions used to measure fair value and the
effect of fair value measurements on earnings. In accordance with ASC 820-10, the Company applied
the following fair value hierarchy:
|
|
|
Level 1
|
|
Assets or liabilities for which the identical item is traded on an active exchange,
such as publicly-traded instruments. |
|
|
|
Level 2
|
|
Assets and liabilities valued based on observable market data for similar
instruments. |
|
|
|
Level 3
|
|
Assets or liabilities for which significant valuation assumptions are not
readily observable in the market; instruments valued based on the best available data,
some of which is internally-developed, and considers risk premiums that a market
participant would require. |
The following tables provide information for such assets and liabilities as of March 31, 2011
and December 31, 2010. The fair values of cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities, acquisition related liabilities prior to the adoption of ASC 805,
Business Combinations (ASC 805), and short-term debt approximate their carrying amounts because
of the short-term maturity of these instruments.
The fair value of the Companys long-term debt
was estimated at $872,157 and $584,361 as of March 31, 2011 and December 31, 2010, respectively,
and is based on an estimate of interest rates available to the Company for debt with similar
features, the Companys current credit rating and spreads applicable to the Company. These assets
and liabilities are not presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active Markets |
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
Total |
|
|
Assets (Level 1) |
|
|
Inputs (Level 2) |
|
|
Inputs (Level 3) |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents money-market funds |
|
$ |
1,666 |
|
|
$ |
|
|
|
$ |
1,666 |
|
|
$ |
|
|
Registered investment companies (1) |
|
$ |
5,596 |
|
|
$ |
5,596 |
|
|
$ |
|
|
|
$ |
|
|
Equity securities (1) |
|
$ |
7 |
|
|
$ |
7 |
|
|
$ |
|
|
|
$ |
|
|
Contingent consideration under ASC
805 (2) |
|
$ |
(3,351 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(3,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents money-market funds |
|
$ |
2,273 |
|
|
$ |
|
|
|
$ |
2,273 |
|
|
$ |
|
|
Registered investment companies (1) |
|
$ |
5,646 |
|
|
$ |
5,646 |
|
|
$ |
|
|
|
$ |
|
|
Equity securities (1) |
|
$ |
7 |
|
|
$ |
7 |
|
|
$ |
|
|
|
$ |
|
|
Contingent consideration under ASC
805 (2) |
|
$ |
(3,337 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(3,337 |
) |
|
|
|
(1) |
|
Registered investment companies and equity securities are classified as
available-for-sale securities and are valued using quoted prices in active markets multiplied by
the number of shares owned. |
|
(2) |
|
Under ASC 805, contingent consideration is recognized at fair value at the end of each
reporting period for acquisitions after January 1, 2009. The Company records the initial
recognition of the fair value of contingent consideration in other liabilities on the condensed
consolidated balance sheet. Subsequent changes in the fair value of contingent consideration are
recorded in the statement of operations. |
9
The table below includes a rollforward of the Companys contingent consideration liability
under ASC 805 for the three-month periods ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
Beginning balance |
|
$ |
3,337 |
|
|
$ |
3,344 |
|
Acquisitions (1) |
|
|
|
|
|
|
491 |
|
Accretion on acquisition
related liabilities |
|
|
14 |
|
|
|
5 |
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
3,351 |
|
|
$ |
3,840 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Under ASC 805, contingent consideration is recognized at fair value at the end of each
reporting period for acquisitions after January 1, 2009. The Company records the initial
recognition of the fair value of contingent consideration in acquisition related liabilities on the
consolidated balance sheet. Subsequent changes in the fair value of contingent consideration is
recorded in the statement of operations. |
5. Goodwill and Intangible Assets:
Goodwill as allocated to the Companys operating segments, Risk Assessment and Decision
Analytics, was $27,908 and $604,760, respectively, as of March 31, 2011 and December 31, 2010.
There had been no changes in goodwill from December 31, 2010 through March 31, 2011.
These balances are net of accumulated impairment charges of $3,244 that occurred prior to the
periods included within the condensed consolidated financial statements.
Goodwill and intangible assets with indefinite lives are subject to impairment testing
annually as of June 30, or whenever events or changes in circumstances indicate that the carrying
amount may not be fully recoverable. The Company completed the required annual impairment test as
of June 30, 2010, which resulted in no impairment of goodwill. Based on the results of the
impairment assessment as of June 30, 2010, the Company confirmed that the fair value of its
reporting units exceeded their respective carrying value and that there were no reporting units
that were at risk for impairment. This testing compares the carrying value of each reporting unit
to its fair value. If the fair value of the reporting unit exceeds the carrying value of the net
assets, including goodwill assigned to that reporting unit, goodwill is not impaired. If the
carrying value of the reporting units net assets including goodwill exceeds the fair value of the
reporting unit, then the Company will determine the implied fair value of the reporting units
goodwill. If the carrying value of a reporting units goodwill exceeds its implied fair value, then
an impairment loss is recorded for the difference between the carrying amount and the implied fair
value of goodwill. There were no goodwill impairment indicators after the date of the last annual
impairment test.
The Companys intangible assets and related accumulated amortization consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Useful Life |
|
|
Cost |
|
|
Amortization |
|
|
Net |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology-based |
|
7 years |
|
$ |
210,212 |
|
|
$ |
(141,523 |
) |
|
$ |
68,689 |
|
Marketing-related |
|
5 years |
|
|
40,882 |
|
|
|
(29,837 |
) |
|
|
11,045 |
|
Contract-based |
|
6 years |
|
|
6,555 |
|
|
|
(6,336 |
) |
|
|
219 |
|
Customer-related |
|
13 years |
|
|
145,567 |
|
|
|
(33,746 |
) |
|
|
111,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible
assets |
|
|
|
|
|
$ |
403,216 |
|
|
$ |
(211,442 |
) |
|
$ |
191,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Useful Life |
|
|
Cost |
|
|
Amortization |
|
|
Net |
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology-based |
|
7 years |
|
$ |
210,212 |
|
|
$ |
(136,616 |
) |
|
$ |
73,596 |
|
Marketing-related |
|
5 years |
|
|
40,882 |
|
|
|
(28,870 |
) |
|
|
12,012 |
|
Contract-based |
|
6 years |
|
|
6,555 |
|
|
|
(6,287 |
) |
|
|
268 |
|
Customer-related |
|
13 years |
|
|
145,567 |
|
|
|
(31,214 |
) |
|
|
114,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible
assets |
|
|
|
|
|
$ |
403,216 |
|
|
$ |
(202,987 |
) |
|
$ |
200,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Consolidated amortization expense related to intangible assets for the three months ended
March 31, 2011 and 2010 was $8,455 and $7,304, respectively. Estimated amortization expense in
future periods through 2016 and thereafter for intangible assets subject to amortization is as
follows:
|
|
|
|
|
Year |
|
Amount |
|
2011 |
|
$ |
22,439 |
|
2012 |
|
|
27,551 |
|
2013 |
|
|
22,038 |
|
2014 |
|
|
14,912 |
|
2015 |
|
|
14,724 |
|
2016-Thereafter |
|
|
90,110 |
|
|
|
|
|
|
|
$ |
191,774 |
|
|
|
|
|
6. Acquisitions:
2010 Acquisitions
On December 16, 2010, the Company acquired 100% of the stock of 3E Company (3E), a
global source for a comprehensive suite of environmental health and safety compliance solutions for
a net cash purchase price of approximately $99,603 and funded $7,730 of indemnity escrows. Within
the Companys Decision Analytics segment, 3E overlaps the customer sets served by the other supply
chain risk management solutions and helps the Companys customers across a variety of vertical
markets address their environmental health and safety issues.
On December 14, 2010, the Company acquired 100% of the stock of Crowe Paradis Services
Corporation (CP), a provider of claims analysis and compliance solutions to the P&C insurance
industry for a net cash purchase price of approximately $83,589 and funded $6,750 of indemnity
escrows. Within the Companys Decision Analytics segment, CP offers solutions for complying with
the Medicare Secondary Payer Act, provides services to P&C insurance companies, third-party
administrators and self-insured companies, which the Company believes further enhances the solution
it currently offers.
On February 26, 2010, the Company acquired 100% of the stock of Strategic Analytics
(SA), a provider of credit risk and capital management solutions to consumer and mortgage
lenders, for a net cash purchase price of approximately $6,386 and the Company funded $1,500 of
indemnity escrows. Within the Decision Analytics segment, the Company believes SA solutions and
application set will allow customers to take advantage of state-of-the-art loss forecasting, stress
testing, and economic capital requirement tools to better understand and forecast the risk
associated within their credit portfolios.
Acquisition Contingent Payments
Based on the results of operations of Atmospheric and Environmental Research, Inc. (AER),
which was acquired in 2008, the Company recorded an increase of $3,500 to acquisition related
liabilities and goodwill during the year ended December 31, 2010. AER was acquired in 2008 and
therefore, accounted for under the transition provisions of FASB No. 141 (Revised), Business
Combinations (FAS No. 141(R)). As such, any adjustments to contingent consideration are recorded
to goodwill until the final resolution has occurred.
Acquisition Escrows
Pursuant to the related acquisition agreements, the Company has funded various escrow accounts
to satisfy pre-acquisition indemnity and tax claims arising subsequent to the acquisition date, as
well as a portion of the contingent payments. At March 31, 2011 and December 31, 2010, the current
portion of the escrows amounted to $6,168 and $6,167, respectively, and has been included in Other
current assets in the accompanying condensed consolidated balance sheets. At March 31, 2011 and
December 31, 2010, the noncurrent portion of the escrow amounted to $15,958 and $15,953,
respectively.
7. Income Taxes:
The Companys effective tax rate for the three months ended March 31, 2011 was 40.1% compared
to the effective tax rate for the three months ended March 31, 2010 of 43.5%. The effective rate
for the three months ended March 31, 2011 was lower primarily due to a change in deferred tax
assets of $2,362 resulting from reduced tax benefits of Medicare subsidies associated
with legislative changes in the period ending March 31, 2010. Without this charge, the
effective rate for the prior period would have been 41.1%. The March 31, 2011 effective tax rate
is also lower than the March 31, 2010 effective tax rate due to favorable state audit settlements, the
continued execution of tax planning strategies and the benefits associated with enacted research
and development legislation. The difference between statutory tax rates and the companys
effective tax rate are primarily attributable to state taxes and non-deductible share appreciation
from the KSOP.
11
As a result of the Patient Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act of 2010, the tax treatment of federal subsidies paid to sponsors of
retiree health benefit plans that provide prescription drug benefits that are at least actuarially
equivalent to the corresponding benefits provided under Medicare Part D was effectively changed.
The legislative change reduces the future tax benefits of the coverage provided by the Company to
participants in the postretirement plan. The Company is required to account for this change in the
period for which the law is enacted. As a result, the Company recorded a non-cash tax charge of
$2,362 for the three months ended March 31, 2010.
8. Debt:
The following table presents short-term and long-term debt by issuance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance |
|
Maturity |
|
March 31, |
|
|
December 31, |
|
|
|
Date |
|
Date |
|
2011 |
|
|
2010 |
|
Short-term debt and current portion of
long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated revolving credit facility |
|
Various |
|
Various |
|
$ |
|
|
|
$ |
310,000 |
|
Prudential senior notes: |
|
|
|
|
|
|
|
|
|
|
|
|
4.60% Series E senior notes |
|
6/14/2005 |
|
6/13/2011 |
|
|
50,000 |
|
|
|
50,000 |
|
6.00% Series F senior notes |
|
8/8/2006 |
|
8/8/2011 |
|
|
25,000 |
|
|
|
25,000 |
|
Principal senior notes: |
|
|
|
|
|
|
|
|
|
|
|
|
6.03% Series A senior notes |
|
8/8/2006 |
|
8/8/2011 |
|
|
50,000 |
|
|
|
50,000 |
|
Capital lease obligations and other |
|
Various |
|
Various |
|
|
4,997 |
|
|
|
2,717 |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt and current
portion of long-term debt |
|
|
|
|
|
$ |
129,997 |
|
|
$ |
437,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated revolving credit facility |
|
Various |
|
Various |
|
$ |
295,000 |
|
|
$ |
|
|
Prudential senior notes: |
|
|
|
|
|
|
|
|
|
|
|
|
6.13% Series G senior notes |
|
8/8/2006 |
|
8/8/2013 |
|
|
75,000 |
|
|
|
75,000 |
|
5.84% Series H senior notes |
|
10/26/2007 |
|
10/26/2013 |
|
|
17,500 |
|
|
|
17,500 |
|
5.84% Series H senior notes |
|
10/26/2007 |
|
10/26/2015 |
|
|
17,500 |
|
|
|
17,500 |
|
6.28% Series I senior notes |
|
4/29/2008 |
|
4/29/2013 |
|
|
15,000 |
|
|
|
15,000 |
|
6.28% Series I senior notes |
|
4/29/2008 |
|
4/29/2015 |
|
|
85,000 |
|
|
|
85,000 |
|
6.85% Series J senior notes |
|
6/15/2009 |
|
6/15/2016 |
|
|
50,000 |
|
|
|
50,000 |
|
Principal senior notes: |
|
|
|
|
|
|
|
|
|
|
|
|
6.16% Series B senior notes |
|
8/8/2006 |
|
8/8/2013 |
|
|
25,000 |
|
|
|
25,000 |
|
New York Life senior notes: |
|
|
|
|
|
|
|
|
|
|
|
|
5.87% Series A senior notes |
|
10/26/2007 |
|
10/26/2013 |
|
|
17,500 |
|
|
|
17,500 |
|
5.87% Series A senior notes |
|
10/26/2007 |
|
10/26/2015 |
|
|
17,500 |
|
|
|
17,500 |
|
6.35% Series B senior notes |
|
4/29/2008 |
|
4/29/2015 |
|
|
50,000 |
|
|
|
50,000 |
|
Aviva Investors North America: |
|
|
|
|
|
|
|
|
|
|
|
|
6.46% Series A senior notes |
|
4/27/2009 |
|
4/27/2013 |
|
|
30,000 |
|
|
|
30,000 |
|
Capital lease obligations and other |
|
Various |
|
Various |
|
|
5,520 |
|
|
|
1,826 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
$ |
700,520 |
|
|
$ |
401,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
|
|
|
|
$ |
830,517 |
|
|
$ |
839,543 |
|
|
|
|
|
|
|
|
|
|
|
|
On March 16, 2011, The Northern Trust Company joined the syndicated revolving credit facility
to increase the capacity by $25,000, for a $600,000 total commitment. In connection with the
senior notes issuance on April 6, 2011 described below, the Company used a portion of the proceeds
from the senior notes issuance to refinance on a long term basis the outstanding balance of
$295,000. As such, in accordance with ASC 470, Classification of Short-Term Obligations Expected to
Be Refinanced, the Company recorded $295,000 of its outstanding obligation as of March 31, 2011
under the syndicated revolving credit facility as a Noncurrent liabilities within the
accompanying condensed consolidated balance sheet. On March 28, 2011, the Company entered into
amendments to our revolving credit facility and our master shelf agreements to, among other things,
permit the issuance of the notes and guarantees noted below.
12
On April 6, 2011, the Company completed an issuance of senior notes in the aggregate principal
amount of $450,000. These senior notes are due on May 1, 2021 and accrue interest at a rate of
5.80%. The Company received net proceeds of $446,031 after deducting original issue discount,
underwriting discount, and commissions of $3,969. The senior notes are fully and unconditionally
guaranteed, jointly and severally, on an unsecured and unsubordinated basis by ISO and certain
subsidiaries that guarantee our syndicated revolving credit facility or any amendment, refinancing
or replacement thereof (See Note 15. Condensed Consolidated Financial Information for Guarantor
Subsidiaries and Non-Guarantor Subsidiaries for further information). Interest will be payable
semi-annually on May 1st and November 1st of each year, beginning on November 1, 2011. Interest
accrues from April 6, 2011. The debt issuance costs will be amortized from the date of issuance to
the maturity date.
9. Stockholders Deficit:
On November 18, 1996, the Company authorized 335,000,000 shares of ISO Class A redeemable
common stock. Effective with the corporate reorganization on October 6, 2009, the ISO Class A
redeemable common stock and all Verisk Class B shares sold into the IPO were converted to Verisk
Class A common stock on a one-for-one basis. In addition, the Verisk Class A common stock
authorized was increased to 1,200,000,000 shares. The Verisk Class A common shares have rights to
any dividend declared by the board of directors, subject to any preferential or other rights of any
outstanding preferred stock, and voting rights to elect eight of the eleven members of the board of
directors. The eleventh seat on the board of directors is held by the CEO of the Company.
On November 18, 1996, the Company authorized 1,000,000,000 ISO Class B shares and issued
500,225,000 shares. On October 6, 2009, the Company completed a corporate reorganization whereby
the ISO Class B common stock and ISO Class B treasury stock were converted to Verisk Class B common
stock and Verisk Class B treasury stock on a one-for-one basis. All Verisk Class B shares sold
into the IPO were converted to Verisk Class A common stock on a one-for-one basis. In addition,
the Verisk Class B common stock authorized was reduced to 800,000,000 shares, sub-divided into
400,000,000 shares of Class B-1 and 400,000,000 shares of Class B-2. Each share of Class B-1
common stock converted automatically, without any action by the stockholder, into one share of
Verisk Class A common stock on April 6, 2011. Each share of Class B-2 common stock shall convert
automatically, without any action by the stockholder, into one share of Verisk Class A common stock
on October 6, 2011. The Class B shares have the same rights as Verisk Class A shares with respect
to dividends and economic ownership, but have voting rights to elect three of the eleven directors.
The Company did not repurchase any Class B shares during the three months ended March 31, 2011 and
2010.
On October 6, 2009, the Company authorized 80,000,000 shares of preferred stock, par value
$0.001 per share, in connection with the reorganization. The preferred shares have preferential
rights over the Verisk Class A and Class B common shares with respect to dividends and net
distribution upon liquidation. The Company did not issue any preferred shares from the
reorganization date through March 31, 2011.
Share Repurchase Program
On April 29, 2010, the Companys board of directors authorized a $150,000 share repurchase
program of the Companys common stock (the Repurchase Program). On October 19, 2010, the
Companys board of directors authorized another $150,000 of share repurchases under the Repurchase
Program. Under the Repurchase Program, the Company may repurchase stock in the open market or as
otherwise determined by the Company. The Company has no obligation to repurchase stock under this
program and intends to use this authorization as a means of offsetting dilution from the issuance
of shares under the KSOP, the Verisk Analytics, Inc. 2009 Equity Incentive Plan (the Incentive
Plan) and the Insurance Services Office, Inc. 1996 Incentive Plan (the Option Plan). This
authorization has no expiration date and may be suspended or terminated at any time. Repurchased
shares will be recorded as treasury stock and will be available for future issuance as part of the
Repurchase Program. On March 11, 2011, the Companys board of directors authorized an additional
$150,000 of share repurchases under the Repurchase Program.
During the three months ended March 31, 2011, 2,243,582 shares of Verisk Class A common stock
were repurchased by the Company as part of this program at a weighted average price of $32.71 per
share. The Company utilized cash from operations and borrowings from its syndicated revolving
credit facility to fund these repurchases. As treasury stock purchases are recorded based on trade
date, the Company has included $2,070 in Accounts payable and accrued liabilities in the
accompanying consolidated balance sheets for those purchases that have not settled as of March 31,
2011. The Company had $164,105 available to repurchase shares under the Repurchase Program as
of March 31, 2011.
Treasury Stock
As of March 31, 2011, the Companys treasury stock consisted of 9,354,784 Class A common
stock, 186,102,482 Class B-1 common stock and 178,893,668 Class B-2 common stock. Consistent with
the Class B-1 and Class B-2 common stock, the Companys Class B-1 treasury stock converted to Class
A treasury stock on April 6, 2011 and the Class B-2 treasury stock will convert to Class A treasury
stock on October 6, 2011.
13
Earnings Per Share (EPS)
Basic earnings per common share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding during the period less the
weighted average Employee Stock Ownership Plan (ESOP) shares of common stock that have not been
committed to be released. The computation of diluted EPS is similar to the computation of basic EPS
except that the denominator is increased to include the number of additional common shares that
would have been outstanding, using the treasury stock method, if the dilutive potential common
shares, such as stock awards and stock options, had been issued.
The following is a reconciliation of the numerators and denominators of the basic and diluted
EPS computations for the three-month periods ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2010 |
|
Numerator used in basic and diluted EPS: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
65,876 |
|
|
$ |
55,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average number of common shares used in basic EPS |
|
|
169,030,227 |
|
|
|
180,053,550 |
|
Effect of dilutive shares: |
|
|
|
|
|
|
|
|
Potential Class A common stock issuable upon the exercise of stock options |
|
|
7,933,965 |
|
|
|
9,401,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and dilutive potential common
shares used in diluted EPS |
|
|
176,964,192 |
|
|
|
189,454,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS of Class A and Class B |
|
$ |
0.39 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS of Class A and Class B |
|
$ |
0.37 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
The potential shares of common stock that were excluded from diluted EPS were 1,957,020
and 147,280 for the three months ended March 31, 2011 and 2010, respectively, because the effect of
including these potential shares was anti-dilutive.
Accumulated Other Comprehensive Losses
The following is a summary of accumulated other comprehensive losses:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Unrealized gains on investments |
|
$ |
599 |
|
|
$ |
725 |
|
Unrealized foreign currency losses |
|
|
(454 |
) |
|
|
(792 |
) |
Pension and postretirement unfunded
liability adjustment |
|
|
(54,982 |
) |
|
|
(55,736 |
) |
|
|
|
|
|
|
|
Accumulated other comprehensive losses |
|
$ |
(54,837 |
) |
|
$ |
(55,803 |
) |
|
|
|
|
|
|
|
14
The before tax and after tax amounts of other comprehensive income for the three months
ended March 31, 2011 and 2010 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Benefit/ |
|
|
|
|
|
|
Before Tax |
|
|
(Expense) |
|
|
After Tax |
|
For the Three Months Ended March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding loss on investments arising during
the year |
|
$ |
(218 |
) |
|
$ |
92 |
|
|
$ |
(126 |
) |
Unrealized foreign currency gain |
|
|
338 |
|
|
|
|
|
|
|
338 |
|
Pension and postretirement unfunded liability adjustment |
|
|
1,336 |
|
|
|
(582 |
) |
|
|
754 |
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
$ |
1,456 |
|
|
$ |
(490 |
) |
|
$ |
966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain on investments arising during
the year |
|
$ |
146 |
|
|
$ |
(59 |
) |
|
$ |
87 |
|
Reclassification adjustment for amounts included in net
income |
|
|
12 |
|
|
|
(5 |
) |
|
|
7 |
|
Unrealized foreign currency gain |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
Pension and postretirement unfunded liability adjustment |
|
|
1,391 |
|
|
|
(545 |
) |
|
|
846 |
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
$ |
1,552 |
|
|
$ |
(609 |
) |
|
$ |
943 |
|
|
|
|
|
|
|
|
|
|
|
10. Equity Compensation Plans:
All of the Companys granted equity awards, including outstanding stock options and restricted
stock, are covered under the Incentive Plan or the Option Plan. Awards under the Incentive Plan
may include one or more of the following types: (i) stock options (both nonqualified and incentive
stock options), (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock
units, (v) performance awards, (vi) other share-based awards, and (vii) cash. Employees, directors
and consultants are eligible for awards under the Incentive Plan. Cash received from stock option
exercises for the three months ended March 31, 2011 and 2010 was $3,579 and $0, respectively. The
Company did not grant any stock options for the three months ended March 31, 2011 and 2010. As of
March 31, 2011, there are 8,683,159 shares of Class A common stock reserved and available for
future issuance.
On April 1, 2011, the Company granted 1,401,308 nonqualified stock options and 146,664 shares
of restricted stock to key employees. The nonqualified stock options have an exercise price equal
to the closing price of the Companys Class A common stock on the grant date, with a ten-year
contractual term and a service vesting period of four years. The restricted stock is valued at the
closing price of the Companys Class A common stock on the date of grant and has a graded service
vesting period of four years. The Company will recognize the expense of the restricted stock
ratably over the periods in which the restrictions lapse. The restricted stock is not assignable
or transferrable until it becomes vested.
The expected term for a majority of the stock options granted was estimated based on studies
of historical experience and projected exercise behavior. However, for certain stock options
granted, for which no historical exercise pattern exists, the expected term was estimated using the
simplified method. The risk-free interest rate is based on the yield of U.S. Treasury zero coupon
securities with a maturity equal to the expected term of the equity award. The volatility factor
was based on the average volatility of the Companys peers, calculated using historical daily
closing prices over the most recent period commensurate with the expected term of the stock option
award. The expected dividend yield was based on the Companys expected annual dividend rate on the
date of grant.
Exercise prices for options outstanding and exercisable at March 31, 2011 ranged from $2.16 to
$30.25 as outlined in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
Average |
|
|
Stock |
|
|
Weighted |
|
|
Remaining |
|
|
Stock |
|
|
Weighted |
|
Range of |
|
Remaining |
|
|
Options |
|
|
Average |
|
|
Contractual |
|
|
Options |
|
|
Average |
|
Exercise Prices |
|
Contractual Life |
|
|
Outstanding |
|
|
Exercise Price |
|
|
Life |
|
|
Exercisable |
|
|
Exercise Price |
|
$2.16 to $2.96 |
|
|
1.8 |
|
|
|
1,772,850 |
|
|
$ |
2.80 |
|
|
|
1.8 |
|
|
|
1,772,850 |
|
|
$ |
2.80 |
|
$2.97 to $4.80 |
|
|
2.2 |
|
|
|
4,038,600 |
|
|
$ |
3.72 |
|
|
|
2.2 |
|
|
|
4,038,600 |
|
|
$ |
3.72 |
|
$4.81 to $8.90 |
|
|
4.2 |
|
|
|
3,732,250 |
|
|
$ |
8.52 |
|
|
|
4.2 |
|
|
|
3,732,250 |
|
|
$ |
8.52 |
|
$8.91 to $15.10 |
|
|
5.5 |
|
|
|
2,726,825 |
|
|
$ |
13.55 |
|
|
|
5.5 |
|
|
|
2,726,825 |
|
|
$ |
13.55 |
|
$15.11 to $17.84 |
|
|
7.5 |
|
|
|
5,650,215 |
|
|
$ |
16.68 |
|
|
|
7.3 |
|
|
|
2,649,400 |
|
|
$ |
17.05 |
|
$17.85 to $22.00 |
|
|
8.5 |
|
|
|
2,766,053 |
|
|
$ |
22.00 |
|
|
|
8.5 |
|
|
|
437,192 |
|
|
$ |
22.00 |
|
$22.01 to $30.25 |
|
|
9.0 |
|
|
|
2,127,046 |
|
|
$ |
28.36 |
|
|
|
9.3 |
|
|
|
31,906 |
|
|
$ |
30.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,813,839 |
|
|
|
|
|
|
|
|
|
|
|
15,389,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
A summary of options outstanding under the Incentive Plan and the Option Plan as of March
31, 2011 and changes during the three months ended are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Aggregate |
|
|
|
Number |
|
|
Average |
|
|
Intrinsic |
|
|
|
of Options |
|
|
Exercise Price |
|
|
Value |
|
Outstanding at December 31, 2010 |
|
|
23,057,857 |
|
|
$ |
13.35 |
|
|
$ |
478,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(242,518 |
) |
|
$ |
14.76 |
|
|
$ |
(4,296 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired |
|
|
(1,500 |
) |
|
$ |
17.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011 |
|
|
22,813,839 |
|
|
$ |
13.33 |
|
|
$ |
443,189 |
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2011 |
|
|
15,389,023 |
|
|
$ |
9.39 |
|
|
$ |
359,613 |
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31,
2010 |
|
|
14,820,447 |
|
|
$ |
9.22 |
|
|
$ |
368,466 |
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value for stock options is calculated based on the exercise price of the
underlying awards and the quoted price of Verisks common stock as of the reporting date. The
aggregate intrinsic value of stock options outstanding and exercisable at March 31, 2011 was
$443,189 and $359,613, respectively.
In accordance with ASC 718, Stock Compensation, excess tax
benefit from exercised stock options is recorded as an increase to additional paid-in capital and a
corresponding reduction in taxes payable. This tax benefit is calculated as the excess of the
intrinsic value of options exercised in excess of compensation recognized for financial reporting
purposes. The amount of the tax benefit that has been realized, as a result of those excess tax
benefits, is presented in the statement of cash flows as a financing cash inflow.
For the three
months ended March 31, 2011 and 2010, the Company recorded excess tax benefit from stock options
exercised of $1,383 and $0, respectively. The Company realized $0 and $147 of tax benefit within
the Companys quarterly tax payments through March 31, 2011 and 2010, respectively. The realized
tax benefit is presented as a financing cash inflow within the accompanying condensed consolidated
statements of cash flows.
The Company estimates expected forfeitures of equity awards at the date of grant and
recognizes compensation expense only for those awards that the Company expects to vest. The
forfeiture assumption is ultimately adjusted to the actual forfeiture rate. Changes in the
forfeiture assumptions may impact the total amount of expense ultimately recognized over the
requisite service period and may impact the timing of expense recognized over the requisite service
period.
As of March 31, 2011, there was $35,095 of total unrecognized compensation cost related to
nonvested share-based compensation arrangements granted under the Incentive Plan and the Option
Plan. That cost is expected to be recognized over a weighted average period of 2.34 years. As of
March 31, 2011, there were 7,424,816 nonvested stock options, of which 6,429,934 are expected to
vest. The total grant date fair value of options vested during the three months ended March 31,
2011 and 2010 was $4,818 and $6,177, respectively.
11. Pension and Postretirement Benefits:
Prior to January 1, 2002, the Company maintained a qualified defined benefit pension plan for
substantially all of its employees through membership in the Pension Plan for Insurance
Organizations (the Pension Plan), a multiple-employer trust. The Company has applied the
projected unit credit cost method for its Pension Plan, which attributes an equal portion of total
projected benefits to each year of employee service. Effective January 1, 2002, the Company amended
the Pension Plan to determine future benefits using a cash balance formula. Under the cash balance
formula, each participant has an account, which is credited annually based on salary rates
determined by years of service, as well as the interest earned on their previous year-end cash
balance. Prior to December 31, 2001, pension plan benefits were based on years of service and the
average of the five highest consecutive years earnings of the last ten years. Effective March 1,
2005, the Company established the Profit Sharing Plan, a defined contribution plan, to replace the
Pension Plan for all eligible employees hired on or after March 1, 2005. The Company also has a
nonqualified supplemental cash balance plan (SERP) for certain employees. The SERP is funded from
the general assets of the Company.
The Company also provides certain healthcare and life insurance benefits for both active and
retired employees. The Postretirement Health and Life Insurance Plan (the Postretirement Plan) is
contributory, requiring participants to pay a stated percentage of the premium for coverage. As of
October 1, 2001, the Postretirement Plan was amended to freeze benefits for current retirees and
certain other employees at the January 1, 2002 level. Also, as of October 1, 2001, the
Postretirement Plan had a
curtailment, which eliminated retiree life insurance for all active employees and healthcare
benefits for almost all future retirees, effective January 1, 2002.
16
The components of net periodic benefit cost and the amounts recognized in other comprehensive
income for the three-month periods ended March 31, 2011 and 2010 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
Pension Plan |
|
|
Postretirement Plan |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Service cost |
|
$ |
1,570 |
|
|
$ |
1,810 |
|
|
$ |
|
|
|
$ |
|
|
Interest cost |
|
|
5,441 |
|
|
|
5,275 |
|
|
|
251 |
|
|
|
320 |
|
Amortization of transition
obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42 |
|
Expected return on plan assets |
|
|
(6,465 |
) |
|
|
(5,638 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service cost |
|
|
(200 |
) |
|
|
(200 |
) |
|
|
(36 |
) |
|
|
|
|
Amortization of net actuarial loss |
|
|
1,409 |
|
|
|
1,411 |
|
|
|
163 |
|
|
|
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
1,755 |
|
|
$ |
2,658 |
|
|
$ |
378 |
|
|
$ |
500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions |
|
$ |
6,168 |
|
|
$ |
4,165 |
|
|
$ |
315 |
|
|
$ |
755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected contributions to the Pension Plan and the Postretirement Plan for the year
ending December 31, 2011 are consistent with the amounts previously disclosed as of December 31,
2010.
12. Segment Reporting:
ASC 280-10, Disclosures About Segments of an Enterprise and Related Information (ASC
280-10), establishes standards for reporting information about operating segments. ASC 280-10
requires that a public business enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components of an enterprise for which
separate financial information is available that is evaluated regularly by the chief operating
decision maker (CODM) in deciding how to allocate resources and in assessing performance. The
Companys CEO and Chairman of the Board is identified as the CODM as defined by ASC 280-10. To
align with the internal management of the Companys business operations based on service offerings,
the Company is organized into the following two operating segments, which are also the Companys
reportable segments:
|
|
Risk Assessment: The Company is the leading provider of statistical, actuarial and
underwriting data for the U.S. P&C insurance industry. The Companys databases include cleansed
and standardized records describing premiums and losses in insurance transactions, casualty and
property risk attributes for commercial buildings and their occupants and fire suppression
capabilities of municipalities. The Company uses this data to create policy language and
proprietary risk classifications that are industry standards and to generate prospective loss
cost estimates used to price insurance policies. |
|
|
Decision Analytics: The Company develops solutions that its customers use to analyze the three
key processes in managing risk: prediction of loss, detection and prevention of fraud and
quantification of loss. The Companys combination of algorithms and analytic methods
incorporates its proprietary data to generate solutions in each of these three categories. In
most cases, the Companys customers integrate the solutions into their models, formulas or
underwriting criteria in order to predict potential loss events, ranging from hurricanes and
earthquakes to unanticipated healthcare claims. The Company develops catastrophe and extreme
event models and offers solutions covering natural and man-made risks, including acts of
terrorism. The Company also develops solutions that allow customers to quantify costs after loss
events occur. Fraud solutions include data on claim histories, analysis of mortgage applications
to identify misinformation, analysis of claims to find emerging patterns of fraud, and
identification of suspicious claims in the insurance, mortgage and healthcare sectors. |
The two aforementioned operating segments represent the segments for which separate discrete
financial information is available and upon which operating results are regularly evaluated by the
CODM in order to assess performance and allocate resources. The Company uses segment EBITDA as the
profitability measure for making decisions regarding ongoing operations. Segment EBITDA is income
from continuing operations before investment income and interest expense, income taxes,
depreciation and amortization, and acquisition related liabilities adjustment. Segment EBITDA is
the measure of operating results used to assess corporate performance and optimal utilization of
debt and acquisitions. Segment operating expenses consist of direct and indirect costs principally
related to personnel, facilities, software license fees, consulting, travel, and third-party
information services. Indirect costs are generally allocated to the segments using fixed rates
established by management based upon estimated expense contribution levels and other assumptions
that management considers reasonable. The Company does not allocate investment income, realized
gains/(losses) on securities, net, interest expense, or income tax expense, since these items are
not considered in evaluating the
segments overall operating performance. The CODM does not evaluate the financial performance
of each segment based on assets. On a geographic basis, no individual country outside of the U.S.
accounted for 1% or more of the Companys consolidated revenue for either the three-month periods
ended March 31, 2011 or 2010. No individual country outside of the U.S. accounted for 1% or more
of total consolidated long-term assets as of March 31, 2011 or December 31, 2010.
17
The following tables provide the Companys revenue and operating income performance by
reportable segment for the three-month periods ended March 31, 2011 and 2010, as well as a
reconciliation to income before income taxes for all periods presented in the accompanying
condensed consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
|
|
Risk |
|
|
Decision |
|
|
|
|
|
|
Risk |
|
|
Decision |
|
|
|
|
|
|
Assessment |
|
|
Analytics |
|
|
Total |
|
|
Assessment |
|
|
Analytics |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
140,543 |
|
|
$ |
172,326 |
|
|
$ |
312,869 |
|
|
$ |
134,578 |
|
|
$ |
141,576 |
|
|
$ |
276,154 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of
items shown separately below) |
|
|
47,257 |
|
|
|
77,299 |
|
|
|
124,556 |
|
|
|
49,898 |
|
|
|
65,095 |
|
|
|
114,993 |
|
Selling, general and administrative |
|
|
19,127 |
|
|
|
30,129 |
|
|
|
49,256 |
|
|
|
19,184 |
|
|
|
18,330 |
|
|
|
37,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA |
|
|
74,159 |
|
|
|
64,898 |
|
|
|
139,057 |
|
|
|
65,496 |
|
|
|
58,151 |
|
|
|
123,647 |
|
Depreciation and amortization of
fixed assets |
|
|
4,318 |
|
|
|
6,987 |
|
|
|
11,305 |
|
|
|
4,323 |
|
|
|
5,606 |
|
|
|
9,929 |
|
Amortization of intangible assets |
|
|
36 |
|
|
|
8,419 |
|
|
|
8,455 |
|
|
|
36 |
|
|
|
7,268 |
|
|
|
7,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
69,805 |
|
|
|
49,492 |
|
|
|
119,297 |
|
|
|
61,137 |
|
|
|
45,277 |
|
|
|
106,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income |
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
32 |
|
Realized gains on securities, net |
|
|
|
|
|
|
|
|
|
|
362 |
|
|
|
|
|
|
|
|
|
|
|
32 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
(9,615 |
) |
|
|
|
|
|
|
|
|
|
|
(8,466 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
|
|
|
|
|
|
|
|
$ |
110,054 |
|
|
|
|
|
|
|
|
|
|
$ |
98,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, including
non-cash purchases of fixed assets
and capital lease obligations |
|
$ |
3,395 |
|
|
$ |
15,345 |
|
|
$ |
18,740 |
|
|
$ |
1,889 |
|
|
$ |
6,999 |
|
|
$ |
8,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating segment revenue by type of service is provided below:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Risk Assessment: |
|
|
|
|
|
|
|
|
Industry-standard insurance programs |
|
$ |
92,857 |
|
|
$ |
88,044 |
|
Property-specific rating and underwriting information |
|
34,497 |
|
|
33,959 |
|
Statistical agency and data services |
|
|
7,742 |
|
|
|
7,179 |
|
Actuarial services |
|
|
5,447 |
|
|
|
5,396 |
|
|
|
|
|
|
|
|
Total Risk Assessment |
|
|
140,543 |
|
|
|
134,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decision Analytics: |
|
|
|
|
|
|
|
|
Fraud identification and detection solutions |
|
|
86,586 |
|
|
|
78,795 |
|
Loss prediction solutions |
|
|
52,941 |
|
|
|
36,928 |
|
Loss quantification solutions |
|
|
32,799 |
|
|
|
25,853 |
|
|
|
|
|
|
|
|
Total Decision Analytics |
|
|
172,326 |
|
|
|
141,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
312,869 |
|
|
$ |
276,154 |
|
|
|
|
|
|
|
|
13. Related Parties:
The Company considers its Verisk Class A and Class B stockholders that own more than 5% of the
outstanding stock within the respective class to be related parties as defined within ASC 850,
Related Party Disclosures. At March 31, 2011, the related parties were four Class B stockholders
each owning more than 5% of the outstanding Class B shares compared to six Class B stockholders at
March 31, 2010 of which four remained unchanged.
At March 31, 2011 and 2010, there were four and
five Class A stockholders owning more than 5% of the outstanding Class A shares, respectively. The
Company had accounts receivable, net of $612 and $515 and fees received in advance of $1,425 and
$1,231 from related parties as of March 31, 2011 and December 31, 2010, respectively. In addition,
the Company had revenues from related parties for the three months ended March 31, 2011 and 2010 of
$4,396 and $15,133, respectively.
18
14. Commitments and Contingencies:
The Company is a party to legal proceedings with respect to a variety of matters
in the ordinary course of business, including those matters described below. The Company is unable,
at the present time, to determine the ultimate resolution of or provide a reasonable estimate of
the range of possible loss attributable to these matters or the impact they may have on the
Companys results of operations, financial position or cash flows. This is primarily because many
of these cases remain in their early stages and only limited discovery has taken place. Although
the Company believes it has strong defenses for the litigation proceedings described below, the
Company could in the future incur judgments or enter into settlements of claims that could have a
material adverse effect on its results of operations, financial position or cash flows.
Claims Outcome Advisor Litigation
Hensley, et al. v. Computer Sciences Corporation et al. was a putative nationwide class action
complaint, filed in February 2005, in Miller County, Arkansas state court. Defendants included
numerous insurance companies and providers of software products used by insurers in paying claims.
The Company was among the named defendants. Plaintiffs alleged that certain software products,
including the Companys Claims Outcome Advisor product and a competing software product sold by
Computer Sciences Corporation, improperly estimated the amount to be paid by insurers to their
policyholders in connection with claims for bodily injuries.
The Company entered into settlement agreements with plaintiffs asserting claims relating to
the use of Claims Outcome Advisor by defendants Hanover Insurance Group, Progressive Car Insurance
and Liberty Mutual Insurance Group. Each of these settlements was granted final approval by the
court and together the settlements resolve the claims asserted in this case against the Company
with respect to the above insurance companies, who settled the claims against them as well. A
provision was made in 2006 for this proceeding and the total amount the Company paid in 2008 with
respect to these settlements was less than $2,000. A fourth defendant, The Automobile Club of
California, which is alleged to have used Claims Outcome Advisor, was dismissed from the action. On
August 18, 2008, pursuant to the agreement of the parties the Court ordered that the claims against
the Company be dismissed with prejudice.
Subsequently, Hanover Insurance Group made a demand for reimbursement, pursuant to an
indemnification provision contained in a December 30, 2004 License Agreement between Hanover and
the Company, of its settlement and defense costs in the Hensley class action. Specifically, Hanover
demanded $2,536 including $600 in attorneys fees and expenses. The Company disputes that Hanover
is entitled to any reimbursement pursuant to the License Agreement. In July 2010, after the Company
and Hanover were unable to resolve the dispute in mediation, Hanover served a summons and complaint
seeking indemnity and contribution from the Company. At this time, it is not possible to determine
the ultimate resolution of or estimate the liability related to this matter.
Xactware Litigation
The following two lawsuits were filed by or on behalf of groups of Louisiana insurance
policyholders who claim, among other things, that certain insurers who used products and price
information supplied by the Companys Xactware subsidiary (and those of another provider) did not
fully compensate policyholders for property damage covered under their insurance policies. The
plaintiffs seek to recover compensation for their damages in an amount equal to the difference
between the amount paid by the defendants and the fair market repair/restoration costs of their
damaged property.
Schafer v. State Farm Fire & Cas. Co., et al. was a putative class action pending against the
Company and State Farm Fire & Casualty Company filed in March 2007 in the Eastern District of
Louisiana. The complaint alleged antitrust violations, breach of contract, negligence, bad faith,
and fraud. The court dismissed the antitrust claim as to both defendants and dismissed all claims
against the Company other than fraud. Judge Duval denied plaintiffs motion to certify a class with
respect to the fraud and breach of contract claims on August 3, 2009. After the single action was
reassigned to Judge Africk plaintiffs agreed to settle the matter with the Company and State Farm
and a Settlement Agreement and Release was executed by all parties in June 2010.
Mornay v. Travelers Ins. Co., et al. is a putative class action pending against the Company
and Travelers Insurance Company filed in November 2007 in the Eastern District of Louisiana. The
complaint alleged antitrust violations, breach of contract, negligence, bad faith, and fraud. As in
Schafer, the court dismissed the antitrust claim as to both defendants and dismissed all claims
against the Company other than fraud. Judge Duval stayed all proceedings in the case pending an
appraisal of the lead plaintiffs insurance claim. The matter was re-assigned to Judge Barbier, who
on September 11, 2009 issued an order administratively closing the matter pending completion of the
appraisal process. At this time, it is not possible to determine the ultimate resolution of or
estimate the liability related to this matter.
19
iiX Litigation
In
April 2010, the Companys subsidiary, iiX, as well as other information
providers in the State of Missouri were served with a summons and class action complaint filed in
the United States District Court for the Western District of Missouri alleging violations of the
Driver Privacy Protection Act, or the DPPA, entitled Janice Cook, et al. v. ACS State & Local
Solutions, et al. Plaintiffs brought the action on their own behalf and on behalf of all similarly
situated individuals whose personal information is contained in any motor vehicle record maintained
by the State of Missouri and who have not provided express consent to the State of Missouri for the
distribution of their personal information for purposes not enumerated by the DPPA and whose
personal information has been knowingly obtained and used by the defendants. The class complaint
alleges that the defendants knowingly obtained personal information for a purpose not authorized by
the DPPA and seeks liquidated damages in the amount of two thousand five hundred dollars for each
instance of a violation of the DDPA, punitive damages and the destruction of any illegally obtained
personal information. The court granted iiXs motion to dismiss the complaint based on a failure to
state a claim on November 19, 2010. Plaintiffs filed a notice of appeal on December 17, 2010. At
this time, it is not possible to determine the ultimate resolution of or estimate the liability
related to this matter.
Interthinx Litigation
In September 2009, the Companys subsidiary, Interthinx, Inc., was served with a putative
class action entitled Renata Gluzman v. Interthinx, Inc. The plaintiff, a former Interthinx
employee, filed the class action on August 13, 2009 in the Superior Court of the State of
California, County of Los Angeles on behalf of all Interthinx information technology employees for
unpaid overtime and missed meals and rest breaks, as well as various related claims claiming that
the information technology employees were misclassified as exempt employees and, as a result, were
denied certain wages and benefits that would have been received if they were properly classified as
non-exempt employees. The pleadings included, among other things, a violation of Business and
Professions Code 17200 for unfair business practices, which allowed plaintiffs to include as class
members all information technology employees employed at Interthinx for four years prior to the
date of filing the complaint. The complaint sought compensatory damages, penalties that are
associated with the various statutes, restitution, interest costs, and attorney fees. On June 2,
2010, plaintiffs agreed to settle their claims with Interthinx and the court granted final approval
to the settlement on February 23, 2011.
20
15. Condensed Consolidated Financial Information for Guarantor Subsidiaries and Non-Guarantor
Subsidiaries
In April 2011, Verisk Analytics, Inc. (the Parent Company) registered senior notes with full
and unconditional and joint and several guarantees by certain of its
100 percent wholly-owned subsidiaries and issued
certain other debt securities with full and unconditional and joint and several guarantees by
certain of its subsidiaries. Accordingly, presented below is condensed consolidating financial
information for (i) the Parent Company, (ii) the guarantor subsidiaries of the Parent Company on a
combined basis, and (iii) all other non-guarantor
subsidiaries of the Parent Company on a combined basis, all as of March 31, 2011 and December
31, 2010 and for the three months ended March 31, 2011 and 2010. The condensed consolidating
financial information has been presented using the equity method of accounting, to show the nature
of assets held, results of operations and cash flows of the Parent Company, the guarantor
subsidiaries and the non-guarantor subsidiaries assuming all guarantor subsidiaries provide both
full and unconditional, and joint and several guarantees to the Parent Company at the beginning of
the periods presented.
CONDENSED CONSOLIDATING BALANCE SHEET
As of March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Verisk |
|
|
Guarantor |
|
|
Guarantor |
|
|
Eliminating |
|
|
|
|
|
|
Analytics, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Consolidated |
|
|
|
(In
thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1 |
|
|
$ |
71,056 |
|
|
$ |
30,181 |
|
|
$ |
|
|
|
$ |
101,238 |
|
Available-for-sale securities |
|
|
|
|
|
|
5,603 |
|
|
|
|
|
|
|
|
|
|
|
5,603 |
|
Accounts receivable, net of allowance for doubtful accounts of $3,435 (including amounts from related parties of $612) |
|
|
|
|
|
|
142,446 |
|
|
|
21,442 |
|
|
|
|
|
|
|
163,888 |
|
Prepaid expenses |
|
|
|
|
|
|
23,324 |
|
|
|
2,166 |
|
|
|
|
|
|
|
25,490 |
|
Deferred income taxes, net |
|
|
|
|
|
|
2,745 |
|
|
|
936 |
|
|
|
|
|
|
|
3,681 |
|
Federal and foreign income taxes receivable |
|
|
|
|
|
|
|
|
|
|
1,629 |
|
|
|
(1,629 |
) |
|
|
|
|
State and local income taxes receivable |
|
|
|
|
|
|
3,089 |
|
|
|
1,004 |
|
|
|
|
|
|
|
4,093 |
|
Intercompany receivables |
|
|
113,361 |
|
|
|
750,893 |
|
|
|
74,996 |
|
|
|
(939,250 |
) |
|
|
|
|
Other current assets |
|
|
|
|
|
|
7,249 |
|
|
|
456 |
|
|
|
|
|
|
|
7,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
113,362 |
|
|
|
1,006,405 |
|
|
|
132,810 |
|
|
|
(940,879 |
) |
|
|
311,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net |
|
|
|
|
|
|
86,581 |
|
|
|
14,193 |
|
|
|
|
|
|
|
100,774 |
|
Intangible assets, net |
|
|
|
|
|
|
69,986 |
|
|
|
121,788 |
|
|
|
|
|
|
|
191,774 |
|
Goodwill |
|
|
|
|
|
|
449,065 |
|
|
|
183,603 |
|
|
|
|
|
|
|
632,668 |
|
Deferred income taxes, net |
|
|
|
|
|
|
64,061 |
|
|
|
|
|
|
|
(42,513 |
) |
|
|
21,548 |
|
State income taxes receivable |
|
|
|
|
|
|
1,773 |
|
|
|
|
|
|
|
|
|
|
|
1,773 |
|
Investment in subsidiaries |
|
|
393,268 |
|
|
|
20,166 |
|
|
|
|
|
|
|
(413,434 |
) |
|
|
|
|
Other assets |
|
|
|
|
|
|
9,766 |
|
|
|
16,430 |
|
|
|
|
|
|
|
26,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
506,630 |
|
|
$ |
1,707,803 |
|
|
$ |
468,824 |
|
|
$ |
(1,396,826 |
) |
|
$ |
1,286,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS (DEFICIT)/EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
|
|
|
$ |
73,252 |
|
|
$ |
15,206 |
|
|
$ |
|
|
|
$ |
88,458 |
|
Acquisition related liabilities |
|
|
|
|
|
|
|
|
|
|
3,500 |
|
|
|
|
|
|
|
3,500 |
|
Short-term debt and current portion of long-term debt |
|
|
|
|
|
|
129,802 |
|
|
|
195 |
|
|
|
|
|
|
|
129,997 |
|
Pension and postretirement benefits, current |
|
|
|
|
|
|
4,663 |
|
|
|
|
|
|
|
|
|
|
|
4,663 |
|
Fees received in advance (including amounts from related parties of $1,425) |
|
|
|
|
|
|
224,863 |
|
|
|
22,201 |
|
|
|
|
|
|
|
247,064 |
|
Intercompany payables |
|
|
615,721 |
|
|
|
184,341 |
|
|
|
139,188 |
|
|
|
(939,250 |
) |
|
|
|
|
Federal and foreign taxes payable |
|
|
|
|
|
|
20,417 |
|
|
|
|
|
|
|
(1,629 |
) |
|
|
18,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
615,721 |
|
|
|
637,338 |
|
|
|
180,290 |
|
|
|
(940,879 |
) |
|
|
492,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
700,495 |
|
|
|
25 |
|
|
|
|
|
|
|
700,520 |
|
Pension and postretirement benefits |
|
|
|
|
|
|
112,927 |
|
|
|
|
|
|
|
|
|
|
|
112,927 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
42,513 |
|
|
|
(42,513 |
) |
|
|
|
|
Other liabilities |
|
|
|
|
|
|
71,116 |
|
|
|
18,489 |
|
|
|
|
|
|
|
89,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
615,721 |
|
|
|
1,521,876 |
|
|
|
241,317 |
|
|
|
(983,392 |
) |
|
|
1,395,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficit)/equity |
|
|
(109,091 |
) |
|
|
185,927 |
|
|
|
227,507 |
|
|
|
(413,434 |
) |
|
|
(109,091 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders (deficit)/equity |
|
$ |
506,630 |
|
|
$ |
1,707,803 |
|
|
$ |
468,824 |
|
|
$ |
(1,396,826 |
) |
|
$ |
1,286,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Verisk |
|
|
Guarantor |
|
|
Guarantor |
|
|
Eliminating |
|
|
|
|
|
|
Analytics, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Consolidated |
|
|
|
(In thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1 |
|
|
$ |
31,576 |
|
|
$ |
23,397 |
|
|
$ |
|
|
|
$ |
54,974 |
|
Available-for-sale securities |
|
|
|
|
|
|
5,653 |
|
|
|
|
|
|
|
|
|
|
|
5,653 |
|
Accounts receivable, net of allowance for doubtful accounts of $4,028 (including amounts from related parties of $515) |
|
|
|
|
|
|
98,817 |
|
|
|
27,747 |
|
|
|
|
|
|
|
126,564 |
|
Prepaid expenses |
|
|
|
|
|
|
15,566 |
|
|
|
2,225 |
|
|
|
|
|
|
|
17,791 |
|
Deferred income taxes, net |
|
|
|
|
|
|
2,745 |
|
|
|
936 |
|
|
|
|
|
|
|
3,681 |
|
Federal and foreign income taxes receivable |
|
|
|
|
|
|
13,590 |
|
|
|
2,193 |
|
|
|
|
|
|
|
15,783 |
|
State and local income taxes receivable |
|
|
|
|
|
|
7,882 |
|
|
|
1,041 |
|
|
|
|
|
|
|
8,923 |
|
Intercompany receivables |
|
|
101,470 |
|
|
|
668,906 |
|
|
|
59,021 |
|
|
|
(829,397 |
) |
|
|
|
|
Other current assets |
|
|
|
|
|
|
6,720 |
|
|
|
346 |
|
|
|
|
|
|
|
7,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
101,471 |
|
|
|
851,455 |
|
|
|
116,906 |
|
|
|
(829,397 |
) |
|
|
240,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net |
|
|
|
|
|
|
78,928 |
|
|
|
14,481 |
|
|
|
|
|
|
|
93,409 |
|
Intangible assets, net |
|
|
|
|
|
|
75,307 |
|
|
|
124,922 |
|
|
|
|
|
|
|
200,229 |
|
Goodwill |
|
|
|
|
|
|
449,065 |
|
|
|
183,603 |
|
|
|
|
|
|
|
632,668 |
|
Deferred income taxes, net |
|
|
|
|
|
|
64,421 |
|
|
|
|
|
|
|
(42,542 |
) |
|
|
21,879 |
|
State income taxes receivable |
|
|
|
|
|
|
1,773 |
|
|
|
|
|
|
|
|
|
|
|
1,773 |
|
Investment in subsidiaries |
|
|
326,387 |
|
|
|
20,912 |
|
|
|
|
|
|
|
(347,299 |
) |
|
|
|
|
Other assets |
|
|
|
|
|
|
10,248 |
|
|
|
16,449 |
|
|
|
|
|
|
|
26,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
427,858 |
|
|
$ |
1,552,109 |
|
|
$ |
456,361 |
|
|
$ |
(1,219,238 |
) |
|
$ |
1,217,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS (DEFICIT)/EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
|
|
|
$ |
95,425 |
|
|
$ |
16,570 |
|
|
$ |
|
|
|
$ |
111,995 |
|
Acquisition related liabilities |
|
|
|
|
|
|
|
|
|
|
3,500 |
|
|
|
|
|
|
|
3,500 |
|
Short-term debt and current portion of long-term debt |
|
|
|
|
|
|
437,457 |
|
|
|
260 |
|
|
|
|
|
|
|
437,717 |
|
Pension and postretirement benefits, current |
|
|
|
|
|
|
4,663 |
|
|
|
|
|
|
|
|
|
|
|
4,663 |
|
Fees received in advance (including amounts from related parties of $1,231) |
|
|
|
|
|
|
137,521 |
|
|
|
25,486 |
|
|
|
|
|
|
|
163,007 |
|
Intercompany payables |
|
|
542,300 |
|
|
|
165,681 |
|
|
|
121,416 |
|
|
|
(829,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
542,300 |
|
|
|
840,747 |
|
|
|
167,232 |
|
|
|
(829,397 |
) |
|
|
720,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
401,788 |
|
|
|
38 |
|
|
|
|
|
|
|
401,826 |
|
Pension and postretirement benefits |
|
|
|
|
|
|
118,611 |
|
|
|
|
|
|
|
|
|
|
|
118,611 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
42,542 |
|
|
|
(42,542 |
) |
|
|
|
|
Other liabilities |
|
|
|
|
|
|
71,663 |
|
|
|
18,550 |
|
|
|
|
|
|
|
90,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
542,300 |
|
|
|
1,432,809 |
|
|
|
228,362 |
|
|
|
(871,939 |
) |
|
|
1,331,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficit)/equity |
|
|
(114,442 |
) |
|
|
119,300 |
|
|
|
227,999 |
|
|
|
(347,299 |
) |
|
|
(114,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders(deficit)/equity |
|
$ |
427,858 |
|
|
$ |
1,552,109 |
|
|
$ |
456,361 |
|
|
$ |
(1,219,238 |
) |
|
$ |
1,217,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For The Three-Month Period Ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Verisk |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Eliminating |
|
|
|
|
|
|
Analytics, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Consolidated |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
279,580 |
|
|
$ |
35,122 |
|
|
$ |
(1,833 |
) |
|
$ |
312,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of items shown separately below) |
|
|
|
|
|
|
108,783 |
|
|
|
16,753 |
|
|
|
(980 |
) |
|
|
124,556 |
|
Selling, general and administrative |
|
|
|
|
|
|
36,478 |
|
|
|
13,631 |
|
|
|
(853 |
) |
|
|
49,256 |
|
Depreciation and amortization of fixed assets |
|
|
|
|
|
|
9,442 |
|
|
|
1,863 |
|
|
|
|
|
|
|
11,305 |
|
Amortization of intangible assets |
|
|
|
|
|
|
5,320 |
|
|
|
3,135 |
|
|
|
|
|
|
|
8,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
|
|
|
|
160,023 |
|
|
|
35,382 |
|
|
|
(1,833 |
) |
|
|
193,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(expense) |
|
|
|
|
|
|
119,557 |
|
|
|
(260 |
) |
|
|
|
|
|
|
119,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income/(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income |
|
|
|
|
|
|
14 |
|
|
|
(4 |
) |
|
|
|
|
|
|
10 |
|
Realized gains on securities, net |
|
|
|
|
|
|
362 |
|
|
|
|
|
|
|
|
|
|
|
362 |
|
Interest expense |
|
|
|
|
|
|
(9,595 |
) |
|
|
(20 |
) |
|
|
|
|
|
|
(9,615 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
|
|
|
|
|
(9,219 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
(9,243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
before equity in net income of subsidiary and income taxes |
|
|
|
|
|
|
110,338 |
|
|
|
(284 |
) |
|
|
|
|
|
|
110,054 |
|
Equity in
net income/(loss) of subsidiary |
|
|
65,876 |
|
|
|
(1,088 |
) |
|
|
|
|
|
|
(64,788 |
) |
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
(43,553 |
) |
|
|
(625 |
) |
|
|
|
|
|
|
(44,178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss) |
|
$ |
65,876 |
|
|
$ |
65,697 |
|
|
$ |
(909 |
) |
|
$ |
(64,788 |
) |
|
$ |
65,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For The Three-Month Period Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Verisk |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Eliminating |
|
|
|
|
|
|
Analytics, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Consolidated |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
263,690 |
|
|
$ |
13,463 |
|
|
$ |
(999 |
) |
|
$ |
276,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of items shown separately below) |
|
|
|
|
|
|
106,076 |
|
|
|
9,365 |
|
|
|
(448 |
) |
|
|
114,993 |
|
Selling, general and administrative |
|
|
|
|
|
|
33,956 |
|
|
|
3,646 |
|
|
|
(88 |
) |
|
|
37,514 |
|
Depreciation and amortization of fixed assets |
|
|
|
|
|
|
8,989 |
|
|
|
1,382 |
|
|
|
(442 |
) |
|
|
9,929 |
|
Amortization of intangible assets |
|
|
|
|
|
|
6,617 |
|
|
|
687 |
|
|
|
|
|
|
|
7,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
|
|
|
|
155,638 |
|
|
|
15,080 |
|
|
|
(978 |
) |
|
|
169,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(expense) |
|
|
|
|
|
|
108,052 |
|
|
|
(1,617 |
) |
|
|
(21 |
) |
|
|
106,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income/(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income |
|
|
|
|
|
|
20 |
|
|
|
12 |
|
|
|
|
|
|
|
32 |
|
Realized gains on securities, net |
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
32 |
|
Interest expense |
|
|
|
|
|
|
(8,458 |
) |
|
|
(29 |
) |
|
|
21 |
|
|
|
(8,466 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
|
|
|
|
|
(8,406 |
) |
|
|
(17 |
) |
|
|
21 |
|
|
|
(8,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
before equity in net income of subsidiary and income taxes |
|
|
|
|
|
|
99,646 |
|
|
|
(1,634 |
) |
|
|
|
|
|
|
98,012 |
|
Equity in
net income/(loss) of subsidiary |
|
|
55,375 |
|
|
|
(1,198 |
) |
|
|
|
|
|
|
(54,177 |
) |
|
|
|
|
Provision for income taxes |
|
|
|
|
|
|
(43,073 |
) |
|
|
436 |
|
|
|
|
|
|
|
(42,637 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss) |
|
$ |
55,375 |
|
|
$ |
55,375 |
|
|
$ |
(1,198 |
) |
|
$ |
(54,177 |
) |
|
$ |
55,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For The Three-Month Period Ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Verisk |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Eliminating |
|
|
|
|
|
|
Analytics, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Net cash provided by operating activities |
|
$ |
|
|
|
$ |
139,524 |
|
|
$ |
6,057 |
|
|
$ |
|
|
|
$ |
145,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances
provided to other subsidiaries |
|
|
|
|
|
|
(8,606 |
) |
|
|
(15,936 |
) |
|
|
24,542 |
|
|
|
|
|
Purchases of available-for-sale securities |
|
|
|
|
|
|
(960 |
) |
|
|
|
|
|
|
|
|
|
|
(960 |
) |
Proceeds from sales and maturities of available-for-sale securities |
|
|
|
|
|
|
1,154 |
|
|
|
|
|
|
|
|
|
|
|
1,154 |
|
Purchases of fixed assets |
|
|
|
|
|
|
(12,239 |
) |
|
|
(1,409 |
) |
|
|
|
|
|
|
(13,648 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities |
|
|
|
|
|
|
(20,651 |
) |
|
|
(17,345 |
) |
|
|
24,542 |
|
|
|
(13,454 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of Verisk Class A common stock |
|
|
|
|
|
|
(73,578 |
) |
|
|
|
|
|
|
|
|
|
|
(73,578 |
) |
Repayment of short-term debt, net |
|
|
|
|
|
|
(15,868 |
) |
|
|
(78 |
) |
|
|
|
|
|
|
(15,946 |
) |
Advances
received from other subsidiaries |
|
|
|
|
|
|
6,770 |
|
|
|
17,772 |
|
|
|
(24,542 |
) |
|
|
|
|
Payment of debt issuance cost |
|
|
|
|
|
|
(256 |
) |
|
|
|
|
|
|
|
|
|
|
(256 |
) |
Proceeds from stock options exercised |
|
|
|
|
|
|
3,579 |
|
|
|
|
|
|
|
|
|
|
|
3,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
(used in)/provided by financing activities |
|
|
|
|
|
|
(79,353 |
) |
|
|
17,694 |
|
|
|
(24,542 |
) |
|
|
(86,201 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes |
|
|
|
|
|
|
(40 |
) |
|
|
378 |
|
|
|
|
|
|
|
338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
|
|
|
|
39,480 |
|
|
|
6,784 |
|
|
|
|
|
|
|
46,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
1 |
|
|
|
31,576 |
|
|
|
23,397 |
|
|
|
|
|
|
|
54,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
1 |
|
|
$ |
71,056 |
|
|
$ |
30,181 |
|
|
|
|
|
|
$ |
101,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in
intercompany balances from the purchase of treasury stock by Verisk
funded directly by ISO |
|
$ |
73,578 |
|
|
$ |
73,578 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in
intercompany balances from proceeds received by ISO related to the
issuance of Verisk common stock from exercised stock options |
|
$ |
3,579 |
|
|
$ |
3,579 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For The Three-Month Period Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Verisk |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
Eliminating |
|
|
|
|
|
|
Analytics, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Entries |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Net cash provided by/(used in) operating activities |
|
$ |
|
|
|
$ |
139,559 |
|
|
$ |
(2,370 |
) |
|
$ |
|
|
|
$ |
137,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired of $1,556 |
|
|
|
|
|
|
(6,227 |
) |
|
|
|
|
|
|
|
|
|
|
(6,227 |
) |
Proceeds from release of acquisition related escrows |
|
|
|
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
213 |
|
Escrow funding associated with acquisitions |
|
|
|
|
|
|
(1,500 |
) |
|
|
|
|
|
|
|
|
|
|
(1,500 |
) |
Advances provided to other subsidiaries |
|
|
|
|
|
|
(782 |
) |
|
|
(706 |
) |
|
|
1,488 |
|
|
|
|
|
Purchases of available-for-sale securities |
|
|
|
|
|
|
(252 |
) |
|
|
|
|
|
|
|
|
|
|
(252 |
) |
Proceeds from sales and maturities of available-for-sale securities |
|
|
|
|
|
|
335 |
|
|
|
|
|
|
|
|
|
|
|
335 |
|
Purchases of fixed assets |
|
|
|
|
|
|
(6,123 |
) |
|
|
(1,375 |
) |
|
|
|
|
|
|
(7,498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
(14,336 |
) |
|
|
(2,081 |
) |
|
|
1,488 |
|
|
|
(14,929 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of short-term debt, net |
|
|
|
|
|
|
(62,936 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
(62,945 |
) |
Advance received from other subsidiaries |
|
|
|
|
|
|
712 |
|
|
|
776 |
|
|
|
(1,488 |
) |
|
|
|
|
Excess tax benefits from exercised stock options |
|
|
|
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
(used in)/provided by financing activities |
|
|
|
|
|
|
(62,077 |
) |
|
|
767 |
|
|
|
(1,488 |
) |
|
|
(62,798 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes |
|
|
|
|
|
|
(53 |
) |
|
|
56 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in cash and cash equivalents |
|
|
|
|
|
|
63,093 |
|
|
|
(3,628 |
) |
|
|
|
|
|
|
59,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
1 |
|
|
|
51,005 |
|
|
|
20,521 |
|
|
|
|
|
|
|
71,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
1 |
|
|
$ |
114,098 |
|
|
$ |
16,893 |
|
|
|
|
|
|
$ |
130,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16. Subsequent Event
On
April 27, 2011, the Company acquired 100% of the stock of Bloodhound Technologies, Inc.
(Bloodhound), a privately-owned provider of medical claims overpayment protection services and
medical billing data analysis. Bloodhound addresses the need of healthcare payers to control fraud and
waste in a real-time claims-processing environment, and these capabilities align with the Companys
existing fraud identification tools. This acquisition further advances the Companys position within the
Decision Analytics segment as a provider of data, analytics, and decision-support solutions in the healthcare industry. The Company paid a net cash purchase price of $82,000, which was funded by the
issuance of senior notes in 2011 (See Note 8. Debt). The Company used $6,560 of the net cash purchase
price to fund the indemnity escrows. The cash paid will be adjusted subsequent to close to reflect final
balances of certain working capital accounts and other closing adjustments. Due to the limited time
since the acquisition date and limitations on access to Bloodhound information prior to the acquisition
date, the initial accounting for the business combination is incomplete at this time. As a result, the
Company is unable to provide amounts recognized as of the acquisition date for major classes of assets
and liabilities acquired and resulting from the transaction, including the information required for
contingencies, intangible assets and goodwill. This information will be included in the quarterly report
on Form 10-Q for the six months ending June 30, 2011.
24
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with our historical financial
statements and the related notes included within our annual report on Form 10-K dated and filed
with the Securities and Exchange Commission on February 28, 2011. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual results may differ
materially from those discussed in or implied by any of the forward-looking statements as a result
of various factors.
We enable risk-bearing businesses to better understand and manage their risks. We provide
value to our customers by supplying proprietary data that, combined with our analytic methods,
creates embedded decision support solutions. We are the largest aggregator and provider of data
pertaining to U.S. property and casualty, or P&C, insurance risks. We offer solutions for detecting
fraud in the U.S. P&C insurance, mortgage and healthcare industries and sophisticated methods to
predict and quantify loss in diverse contexts ranging from natural catastrophes to health insurance
to supply chain.
Our customers use our solutions to make better risk decisions with greater efficiency and
discipline. We refer to these products and services as solutions due to the integration among our
products and the flexibility that enables our customers to purchase components or the comprehensive
package of products. These solutions take various forms, including data, statistical models or
tailored analytics, all designed to allow our clients to make more logical decisions. We believe
our solutions for analyzing risk positively impact our customers revenues and help them better
manage their costs.
We organize our business in two segments: Risk Assessment and Decision Analytics. Our Risk
Assessment segment provides statistical, actuarial and underwriting data for the U.S. P&C insurance
industry. Our Risk Assessment segment revenues represented approximately 45% and 49% of our
revenues for the three months ended March 31, 2011 and 2010, respectively. Our Decision Analytics
segment provides solutions our customers use to analyze the processes of the Verisk Risk Analysis
Framework: Loss Prediction, Fraud Identification and Detection, and Loss Quantification. Our
Decision Analytics segment revenues represented approximately 55% and 51% of our revenues for the
three months ended March 31, 2011 and 2010, respectively.
Executive Summary
Key Performance Metrics
We believe our businesss ability to generate recurring revenue and positive cash flow is the
key indicator of the successful execution of our business strategy. We use year over year revenue
growth and EBITDA margin as metrics to measure our performance. EBITDA and EBITDA margin are
non-GAAP financial measures within the meaning of Regulation G under the Securities Exchange Act of
1934 (See footnote 1 within the Condensed Consolidated Results of Operations section of Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations).
Revenue growth. We use year over year revenue growth as a key performance metric. We assess
revenue growth based on our ability to generate increased revenue through increased sales to
existing customers, sales to new customers, sales of new or expanded solutions to existing and new
customers and strategic acquisitions of new businesses.
EBITDA margin. We use EBITDA margin as a metric to assess segment performance and scalability
of our business. We assess EBITDA margin based on our ability to increase revenues while
controlling expense growth.
Revenues
We earn revenues through subscriptions, long-term agreements and on a transactional basis.
Subscriptions for our solutions are generally paid in advance of rendering services either
quarterly or in full upon commencement of the subscription period, which is usually for one year
and automatically renewed each year. As a result, the timing of our cash flows generally precedes
our recognition of revenues and income and our cash flow from operations tends to be higher in the
first quarter as we receive subscription payments. Examples of these arrangements include
subscriptions that allow our customers to access our standardized coverage language or our
actuarial services throughout the subscription period. In general, we experience minimal
seasonality within the
business. Our long-term agreements are generally for periods of three to seven years. We
recognize revenue from subscriptions ratably over the term of the subscription and most long-term
agreements are recognized ratably over the term of the agreement.
25
Certain of our solutions are also paid for by our customers on a transactional basis. For
example, we have solutions that allow our customers to access fraud detection tools in the context
of an individual mortgage application or file, obtain property-specific rating and underwriting
information to price a policy on a commercial building, or compare a P&C insurance, medical or
workers compensation claim with information in our databases. For the three month periods ended
March 31, 2011 and 2010, respectively, 30% and 31% of our revenues were derived from providing
transactional solutions. We earn transactional revenues as our solutions are delivered or services
performed. In general, transactions are billed monthly at the end of each month.
Approximately 85% and 84% of the revenues in our Risk Assessment segment for the three month
periods ended March 31, 2011 and 2010, respectively, were derived from subscriptions and long-term
agreements for our solutions. Our customers in this segment include most of the P&C insurance
providers in the United States. Approximately 58% and 54% of the revenues in our Decision
Analytics segment, for the three months ended March 31, 2011 and 2010, respectively, were derived
from subscriptions and long-term agreements for our solutions.
Principal Operating Costs and Expenses
Personnel expenses are the major component of both our cost of revenues and selling, general
and administrative expenses. Personnel expenses include salaries, benefits, incentive
compensation, equity compensation costs (described under Equity Compensation Costs below), sales
commissions, employment taxes, recruiting costs, and outsourced temporary agency costs, which
represented 66% and 65% of our total expenses for the three months ended March 31, 2011 and 2010,
respectively.
We allocate personnel expenses between two categories, cost of revenues and selling, general
and administrative costs, based on the actual costs associated with each employee. We categorize
employees who maintain our solutions as cost of revenues, and all other personnel, including
executive managers, sales people, marketing, business development, finance, legal, human
resources, and administrative services, as selling, general and administrative expenses. A
significant portion of our other operating costs, such as facilities and communications, are also
either captured within cost of revenues or selling, general and administrative expense based on
the nature of the work being performed.
While we expect to grow our headcount over time to take advantage of our market
opportunities, we believe that the economies of scale in our operating model will allow us to grow
our personnel expenses at a lower rate than revenues. Historically, our EBITDA margin has improved
because we have been able to increase revenues without a proportionate corresponding increase in
expenses.
Cost of Revenues. Our cost of revenues consists primarily of personnel expenses. Cost of
revenues also includes the expenses associated with the acquisition and verification of data, the
maintenance of our existing solutions and the development and enhancement of our next-generation
solutions. Our cost of revenues excludes depreciation and amortization.
Selling, General and Administrative Expense. Our selling, general and administrative expense
also consists primarily of personnel costs. A portion of the other operating costs such as
facilities, insurance and communications are also allocated to selling, general and administrative
costs based on the nature of the work being performed by the employee. Our selling, general and
administrative expense excludes depreciation and amortization.
Description of Acquisitions
Since January 1, 2010 we acquired three businesses. As a result of these acquisitions,
our consolidated results of operations may not be comparable between periods.
On December 16, 2010, we acquired 100% of the common stock of 3E Company, or 3E, a global
source for a comprehensive suite of environmental health and safety compliance solutions. Within
our Decision Analytics segment, 3E overlaps the customer sets served by our other supply chain risk
management solutions and helps our customers across a variety of vertical markets address their
environmental health and safety issues.
On December 14, 2010, we acquired 100% of the common stock of Crowe Paradis Services
Corporation, or CP, a leading provider of claims analysis and compliance solutions for the P&C
insurance industry. Within our Decision Analytics segment, CP offers solutions for complying with
the Medicare Secondary Payer (MSP) Act, provides services to many of the largest workers
compensation insurers, third-party administrators (TPAs), and self-insured companies which enhances
solutions we currently offer.
26
On February 26, 2010, we acquired 100% of the common stock of Strategic Analytics, Inc.,
or SA, a privately owned provider of credit risk and capital management solutions to consumer and
mortgage lenders. Within our Decision Analytics segment, SAs solutions and application set will
allow our customers to take advantage of state-of-the-art loss forecasting, stress testing, and
economic capital requirement tools to better understand and forecast the risk associated within
their credit portfolios.
Equity Compensation Costs
We have a leveraged employee stock ownership plan, or ESOP, funded with intercompany debt
that includes 401(k), ESOP and profit sharing components to provide employees with equity
participation. We make quarterly cash contributions to the plan equal to the debt service
requirements or as needed to fund employee benefits. As the debt is repaid, a percentage of the
ESOP loan collateral is released to the ESOP to fund 401(k) matching and profit sharing
contributions and the remainder, if any, is allocated annually to active employees in proportion
to their eligible compensation in relation to total participants eligible compensation. We had no
ESOP allocation expense for the three month periods ended March 31, 2011 and 2010. We accrue
compensation expense over the reporting period equal to the fair value of the ESOP loan collateral
to be released to the ESOP.
The amount of our ESOP costs recognized for the three months ended March 31, 2011 and 2010 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
ESOP costs by contribution type: |
|
|
|
|
|
|
|
|
401(k) matching contribution expense |
|
$ |
2,655 |
|
|
$ |
2,353 |
|
Profit sharing contribution expense |
|
|
456 |
|
|
|
497 |
|
|
|
|
|
|
|
|
Total ESOP costs |
|
$ |
3,111 |
|
|
$ |
2,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP costs by segment: |
|
|
|
|
|
|
|
|
Risk Assessment ESOP costs |
|
$ |
1,748 |
|
|
$ |
1,727 |
|
Decision Analytics ESOP costs |
|
|
1,363 |
|
|
|
1,123 |
|
|
|
|
|
|
|
|
Total ESOP costs |
|
$ |
3,111 |
|
|
$ |
2,850 |
|
|
|
|
|
|
|
|
In addition, the portion of the ESOP allocation expense related to the appreciation of
the value of the ESOP loan collateral in the ESOP above the value of the contribution made when
the ESOP was first established is not tax-deductible. As such, an increase in our ESOP costs would
cause an increase in our effective tax rate.
Under the terms of our approved compensation plans, stock options and other award types may be
provided to employees. Prior to our IPO, we granted to key employees nonqualified stock options
covered under the Insurance Services Office, Inc. 1996 Incentive Plan, or the Option Plan.
Subsequent to the IPO, nonqualified stock options granted to key employees are covered under the
Verisk Analytics, Inc. 2009 Equity Incentive Plan, or the Incentive Plan. All of the Companys
outstanding stock options are covered under the Incentive Plan or the Option Plan. On April 1,
2011, we granted nonqualified stock options and restricted stock to key employees as part of our
annual equity compensation plan. See Note 10 in our condensed consolidated financial statements
included in this quarterly report on Form 10-Q.
27
Condensed Consolidated Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Percentage |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(In thousands, except for share and per share data) |
|
|
|
|
Statement of income data: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues : |
|
|
|
|
|
|
|
|
|
|
|
|
Risk Assessment revenues |
|
$ |
140,543 |
|
|
$ |
134,578 |
|
|
|
4.4 |
% |
Decision Analytics revenues |
|
|
172,326 |
|
|
|
141,576 |
|
|
|
21.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
312,869 |
|
|
|
276,154 |
|
|
|
13.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of items shown separately
below) |
|
|
124,556 |
|
|
|
114,993 |
|
|
|
8.3 |
% |
Selling, general and administrative |
|
|
49,256 |
|
|
|
37,514 |
|
|
|
31.3 |
% |
Depreciation and amortization of fixed assets |
|
|
11,305 |
|
|
|
9,929 |
|
|
|
13.9 |
% |
Amortization of intangible assets |
|
|
8,455 |
|
|
|
7,304 |
|
|
|
15.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
193,572 |
|
|
|
169,740 |
|
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
119,297 |
|
|
|
106,414 |
|
|
|
12.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income/(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Investment income |
|
|
10 |
|
|
|
32 |
|
|
|
(68.8 |
)% |
Realized gains on securities, net |
|
|
362 |
|
|
|
32 |
|
|
|
1031.3 |
% |
Interest expense |
|
|
(9,615 |
) |
|
|
(8,466 |
) |
|
|
13.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
|
(9,243 |
) |
|
|
(8,402 |
) |
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
110,054 |
|
|
|
98,012 |
|
|
|
12.3 |
% |
Provision for income taxes |
|
|
(44,178 |
) |
|
|
(42,637 |
) |
|
|
3.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
65,876 |
|
|
$ |
55,375 |
|
|
|
19.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
0.39 |
|
|
$ |
0.31 |
|
|
|
25.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share |
|
$ |
0.37 |
|
|
$ |
0.29 |
|
|
|
27.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
169,030,227 |
|
|
|
180,053,550 |
|
|
|
(6.1 |
)% |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
176,964,192 |
|
|
|
189,454,756 |
|
|
|
(6.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The financial operating data below sets forth the information we believe is useful for investors in evaluating our overall financial
performance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (1): |
|
|
|
|
|
|
|
|
|
|
|
|
Risk Assessment EBITDA |
|
$ |
74,159 |
|
|
$ |
65,496 |
|
|
|
13.2 |
% |
Decision Analytics EBITDA |
|
|
64,898 |
|
|
|
58,151 |
|
|
|
11.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
139,057 |
|
|
$ |
123,647 |
|
|
|
12.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of net income to EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
65,876 |
|
|
$ |
55,375 |
|
|
|
19.0 |
% |
Depreciation and amortization |
|
|
19,760 |
|
|
|
17,233 |
|
|
|
14.7 |
% |
Investment income and realized gains on securities, net |
|
|
(372 |
) |
|
|
(64 |
) |
|
|
481.3 |
% |
Interest expense |
|
|
9,615 |
|
|
|
8,466 |
|
|
|
13.6 |
% |
Provision for income taxes |
|
|
44,178 |
|
|
|
42,637 |
|
|
|
3.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
139,057 |
|
|
$ |
123,647 |
|
|
|
12.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
EBITDA is the financial measure which management uses to evaluate the performance of
our segments. EBITDA is defined as net income before investment income and realized
(gains)/losses on securities, net, interest expense, provision for income taxes,
depreciation and amortization of fixed and intangible assets, and acquisition related
liabilities adjustment. In addition, this Managements Discussion and Analysis includes
references to EBITDA margin, which is computed as EBITDA divided by revenues. See Note 12 of
our condensed consolidated financial statements included in this Form 10-Q filing. |
28
Although EBITDA is a non-GAAP financial measure, EBITDA is frequently used by securities
analysts, lenders and others in their evaluation of companies. EBITDA has limitations as an
analytical tool, and should not be considered in isolation, or as a substitute for an analysis
of our results of operations or cash flow from operating activities reported under GAAP.
Management uses EBITDA in conjunction with traditional GAAP operating performance measures as
part of its overall assessment of company performance. Some of these limitations are:
|
|
|
EBITDA does not reflect our cash expenditures, or future requirements for
capital expenditures or contractual commitments; |
|
|
|
EBITDA does not reflect changes in, or cash requirements for, our working
capital needs; |
|
|
|
Although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized often will have to be replaced in the future and EBITDA does
not reflect any cash requirements for such replacements; and |
|
|
|
Other companies in our industry may calculate EBITDA differently than we do,
limiting its usefulness as a comparative measure. |
Consolidated Results of Operations
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
Revenues
Revenues were $312.9 million for the three months ended March 31, 2011 compared to $276.2
million for the three months ended March 31, 2010, an increase of $36.7 million or 13.3%. In
2010, we acquired three companies, Strategic Analytics, Crowe Paradis and 3E, collectively
referred to as recent acquisitions, which accounted for an increase of $18.6 million in revenues
for the three months ended March 31, 2011. Excluding recent acquisitions, revenues increased
$18.1 million, which included an increase in our Risk Assessment segment of $6.0 million and an
increase in our Decision Analytics segment of $12.1 million.
Cost of Revenues
Cost of revenues was $124.6 million for the three months ended March 31, 2011 compared to
$115.0 million for the three months ended March 31, 2010, an increase of $9.6 million or 8.3%.
Recent acquisitions accounted for an increase of $6.7 million in cost of revenues for the three
months ended March 31, 2011. The remaining increase was primarily due to an increase in salaries
and employee benefits costs of $3.7 million, which include annual salary increases and medical
costs. Other operating costs also increased by $1.0 million. These increases were partially
offset by a decrease in data costs of $1.6 million primarily in our Decision Analytics segment,
and a decrease in rent and maintenance fees of $0.2 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, or SGA, were $49.3 million for the three
months ended March 31, 2011 compared to $37.5 million for the three months ended March 31, 2010,
an increase of $11.8 million or 31.3%. Recent acquisitions accounted for an increase of $8.7
million in SGA for the three months ended March 31, 2011. The remaining increase was primarily
due to increased salaries and employee benefits costs of $2.3 million, which include annual
salary increases, medical costs, commissions, and stock option expense. Other increases were
costs attributable to legal costs of $0.5 million and other general expenses of $0.3
million.
Depreciation and Amortization of Fixed Assets
Depreciation and amortization of fixed assets was $11.3 million for the three months ended
March 31, 2011 compared to $9.9 million for the three months ended March 31, 2010, an increase of
$1.4 million or 13.9%. Depreciation and amortization of fixed assets includes depreciation of
furniture and equipment, software, computer hardware, and related equipment. The majority of the
increase relates to software and hardware costs to support data capacity expansion and revenue
growth.
Amortization of Intangible Assets
Amortization of intangible assets was $8.5 million for the three months ended March 31, 2011
compared to $7.3 million for the three months ended March 31, 2010, an increase of $1.2 million
or 15.8%. The increase was primarily related to intangible assets associated with new
acquisitions in 2010 accounting for $2.5 million. This increase was offset by a decrease of $1.3
million of amortization of intangible assets associated with prior acquisitions that have been
fully amortized.
Investment Income and Realized Gains on Securities, Net
Investment income and realized gains on securities, net was $0.4 million for the
three months ended March 31, 2011 compared to a gain of $0.1 million for the three months ended
March 31, 2010, an increase of $0.3 million.
Interest Expense
Interest expense was $9.6 million for the three months ended March 31, 2011 compared to $8.5
million for the three months ended March 31, 2010, an increase of $1.1 million or 13.6%. This
increase is primarily due to increased interest costs as a result of an increase in average debt
outstanding during the three months ended March 31, 2011 as compared to the three months ended
March 31, 2010.
29
Provision for Income Taxes
The provision for income taxes was $44.2 million for the three months ended March 31, 2011
compared to $42.6 million for the three months ended March 31, 2010, an increase of $1.6 million
or 3.6%. The effective tax rate was 40.1% for the three months ended March 31, 2011 compared to
43.5% for the three months ended March 31, 2010. The effective rate for the three months ended
March 31, 2011 was lower due to a non-cash tax charge of $2.4 million resulting from reduced tax
benefits of Medicare subsidies associated with legislative changes in the prior period. Excluding
this charge, the effective rate for the prior period would have been 41.1%. The March 31, 2011
effective tax rate is also lower than the March 31, 2010 effective tax rate due to favorable state
audit settlements, the continued execution of tax planning strategies and the benefits associated
with enacted R&D legislation.
EBITDA Margin
The EBITDA margin for our consolidated results was 44.4% for the three months ended March 31,
2011 compared to 44.8% for the three months ended March 31,
2010. Recent acquisitions mitigated our margin expansion by 1.8%.
Results of Operations by Segment
Risk Assessment Results of Operations
Revenues
Revenues were $140.6 million for the three months ended March 31, 2011 compared to $134.6
million for the three months ended March 31, 2010, an increase of $6.0 million or 4.4%. The
increase within our industry-standard insurance programs primarily resulted from an increase in
prices derived from continued enhancements to the content of our solutions and increased
penetration with our existing customers.
Our revenue by category for the periods presented is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Percentage |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(In thousands) |
|
|
|
|
Industry-standard insurance programs |
|
$ |
92,857 |
|
|
$ |
88,044 |
|
|
|
5.5 |
% |
Property-specific rating and underwriting information |
|
|
34,497 |
|
|
|
33,959 |
|
|
|
1.6 |
% |
Statistical agency and data services |
|
|
7,742 |
|
|
|
7,179 |
|
|
|
7.8 |
% |
Actuarial services |
|
|
5,447 |
|
|
|
5,396 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total Risk Assessment |
|
$ |
140,543 |
|
|
$ |
134,578 |
|
|
|
4.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues
Cost of revenues for our Risk Assessment segment was $47.3 million for the three months ended
March 31, 2011 compared to $49.9 million for the three months ended March 31, 2010, a decrease of
$2.6 million or 5.3%. The decrease was primarily due to a decrease in salaries and employee
benefits costs of $1.6 million, primarily related to lower pension cost of $0.7 million. Salaries
and employee benefits costs also decreased due to a reallocation of information technology
resources to our Decision Analytics segment and a slight reduction in headcount. Other decreases
were attributable to rent and maintenance expense of $0.4 million and other operating expenses of
$0.9 million. This decrease was partially offset by an increase in data and consultant costs of
$0.3 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for our Risk Assessment segment were $19.2
million for the three months ended March 31, 2011 compared to $19.2 million for the three months
ended March 31, 2010. The fluctuations within selling, general and administrative expenses were a
decrease in salaries and employee benefit costs of $0.3 million, and a decrease in other expenses
of $0.2 million, which was offset by an increase in legal costs of $0.5 million. The decrease in
salaries and employee benefit cost is partially attributable to reallocations of corporate resources to
Decision Analytics segment due to our increased focus to expand growth within that segment.
30
EBITDA Margin
The EBITDA margin for our Risk Assessment segment was 52.8% for the three months ended March
31, 2011 compared to 48.7% for the three months ended March 31, 2010. The increase in margin is
primarily attributed to operating leverage in the segment as well as cost efficiencies and a
reallocation of information technology and corporate resources to Decision Analytics segment, all
of which impacted our margin by 2.1%.
Decision Analytics Results of Operations
Revenues
Revenues for our Decision Analytics segment were $172.3 million for the three months ended
March 31, 2011 compared to $141.6 million for the three months ended March 31, 2010, an increase
of $30.7 million or 21.7%. Recent acquisitions accounted for an increase of $18.6 million in
revenues for the three months ended March 31, 2011, of which $11.3 million relates to loss
prediction revenues and $7.3 million relates to fraud identification and detection solutions
revenues. Excluding the impact of recent acquisitions, revenue increased $12.1 million for the
three months ended March 31, 2011. Our loss quantification solution revenues increased $7.0
million as a result of new customer contracts and volume increases associated with severe weather
conditions and other damages experienced in the United States. Our loss prediction solutions
revenue, excluding recent acquisitions, increased $4.7 million primarily from increased
penetration of our existing customers and new projects. Our fraud identification and detection
solutions revenue, excluding recent acquisitions, increased $0.4 million due to an increase in
insurance and healthcare fraud services offset by lower revenues in forensic and underwriting
mortgage solutions.
Our revenue by category for the periods presented is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Percentage |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
(In thousands) |
|
|
|
|
Fraud identification and detection solutions |
|
$ |
86,586 |
|
|
$ |
78,795 |
|
|
|
9.9 |
% |
Loss prediction solutions |
|
|
52,941 |
|
|
|
36,928 |
|
|
|
43.4 |
% |
Loss quantification solutions |
|
|
32,799 |
|
|
|
25,853 |
|
|
|
26.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total Decision Analytics |
|
$ |
172,326 |
|
|
$ |
141,576 |
|
|
|
21.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues
Cost of revenues for our Decision Analytics segment was $77.3 million for the three months
ended March 31, 2011 compared to $65.1 million for the three months ended March 31, 2010, an
increase of $12.2 million or 18.7%. The increase included $6.7 million in costs attributable to
recent acquisitions. Excluding the impact of recent acquisitions, cost of revenues increased $5.5
million, primarily due to an increase in salaries and employee benefits of $5.3 million, which
include annual salary increases and increased medical costs and the reallocation of information
and technology resources from Risk Assessment. Other increases include office maintenance costs of
$0.2 million and an increase in other operating expenses of $1.9 million, which includes travel
and software maintenance costs. The increases were partially offset by a decrease in data costs
of $1.9 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $30.1 million for the three months ended
March 31, 2011 compared to $18.3 million for the three months ended March 31, 2010, an increase of
$11.8 million or 64.4%. The increase included $8.7 million in costs attributable to recent
acquisitions. The remaining increase was due to an increase in salaries and employee benefits
costs of $2.6 million, which include annual salary increases, medical costs, commissions, and
stock option expense. In addition, the increase in salaries and employee benefit cost is
attributable to increased reallocation of corporate resources due to our augmented
effort to expand growth within this segment. Other increases include an increase in general
expenses of $0.5 million.
EBITDA Margin
The EBITDA margin for our Decision Analytics segment was 37.7% for the three months ended
March 31, 2011 compared to 41.1% for the three months ended March 31, 2010. Recent acquisitions
mitigated our margin expansion by 2.6% and the reallocation of corporate resources mitigated our
margin expansion by 0.7%.
Liquidity and Capital Resources
As of March 31, 2011 and December 31, 2010, we had cash and cash equivalents and
available-for sale securities of $106.8 million and $60.6 million, respectively. Subscriptions for
our solutions are billed and generally paid in advance of rendering services either quarterly or
in full upon commencement of the subscription period, which is usually for one year, and they are
automatically renewed at the beginning of each calendar year. We have historically generated
significant cash flows from operations. As a result of this factor, as well as the availability of
funds under our revolving credit facility, we believe we will have sufficient cash to meet our
working capital and capital expenditure needs, including acquisition contingent payments and to
fuel our future growth plans.
31
We have historically managed the business with a working capital deficit due to the fact
that, as described above, we offer our solutions and services primarily through annual
subscriptions or long-term contracts, which are generally prepaid quarterly or annually in advance
of the services being rendered. When cash is received for prepayment of invoices, we record an
asset (cash and cash equivalents) on our balance sheet with the offset recorded as a current
liability (fees received in advance). This current liability is deferred revenue that does not
require a direct cash outflow since our customers have prepaid and are obligated to purchase the
services. In most businesses, growth in revenue typically leads to an increase in the accounts
receivable balance causing a use of cash as a company grows. Unlike these businesses, our cash
position is favorably affected by revenue growth, which results in a source of cash due to our
customers prepaying for most of our services.
Our capital expenditures, which include non-cash purchases of fixed assets, as a percentage
of revenues for the three months ended March 31, 2011 and 2010, were 6.0% and 3.2%, respectively.
Expenditures related to developing and enhancing our solutions are predominately related to
internal use software and are capitalized in accordance with the accounting guidance for costs of
computer software developed or obtained for internal use. The amounts capitalized in accordance
with the accounting guidance for software to be sold, leased or otherwise marketed are not
significant to the financial statements.
We historically used a portion of our cash for repurchases of our common stock from our
stockholders. During the three months ended March 31, 2011, we repurchased $73.4 million of our
common stock. We did not repurchase any common stock during the three months ended March 31, 2010.
On March 11, 2011, our board of directors authorized an
additional $150.0 million of share repurchases under the Repurchase Program. See Note 9 to our
condensed consolidated financial statements included in this quarterly report on Form 10-Q.
We provide pension and postretirement benefits to certain qualifying active employees and
retirees. Based on the pension funding policy, we contributed $6.2 and $4.2 million to the pension
plan in the three months ended March 31, 2011 and 2010 and expect to contribute approximately $19.6
million to the pension plan in remaining periods of 2011. Under the postretirement plan, we provide
certain healthcare and life insurance benefits to qualifying participants; however, participants
are required to pay a stated percentage of the premium coverage. We contributed approximately $0.3
and $0.8 million to the postretirement plan in the three months ended March 31, 2011 and 2010 and
expect to contribute approximately $3.9 million in the remaining periods of 2011. See Note 11 to
our condensed consolidated financial statements included in this quarterly report on Form 10-Q.
Financing and Financing Capacity
We had total debt, excluding capital lease and other obligations, of $820.0 million and $835.0
million at March 31, 2011 and December 31, 2010, respectively. The debt at March 31, 2011 primarily consisted of long-term loan senior debt and facilities drawn to finance our stock repurchases and acquisitions.
On April 6, 2011, we completed an issuance of senior notes in the aggregate principal
amount of $450.0 million. These senior notes are due on May 1, 2021 and accrue interest at 5.80%.
We received net proceeds of $446.0 million after deducting
original issue discount, underwriting
discount, and commissions of $4.0 million. The senior notes are fully and unconditionally
guaranteed, jointly and severally, on an unsecured and unsubordinated basis by ISO and certain
subsidiaries that guarantee our
syndicated revolving credit facility or any amendment, refinancing or replacement thereof.
Interest will be payable semi-annually on May 1st and November 1st of each year, beginning on
November 1, 2011. Interest accrues from April 6, 2011. We intend to use the net proceeds
for general corporate purposes, including the repayment of indebtedness and/or acquisitions.
Although we intend to initially use a portion of the proceeds to repay amounts outstanding under
our revolving credit facility, we expect to redraw from our syndicated revolving credit facility
over time as needed for our corporate strategy, including for general corporate purposes and/or
acquisitions. On April 6, 2011, we used a portion of the proceeds to refinance on a long term basis the outstanding
balance of our syndicated revolving credit facility in an amount of $295.0 million and used a
portion of the proceeds to finance the acquisition of Bloodhound Technologies, Inc. on
April 27, 2011. (See Note 16 to our condensed consolidated financial statements included in
this quarterly report on Form 10-Q for further information on the
acquisition). The indenture
governing the senior notes restricts our ability and our subsidiaries'
ability to, among other
things, create certain liens, enter into sale/leaseback transactions and consolidate with, sell,
lease, convey or otherwise transfer all or substantially all of our assets, or merge with or into,
any other person or entity.
We have a $600.0 million committed revolving credit facility with a syndicate of lenders due September 2014. On March 16, 2011, The Northern Trust Company joined the syndicated revolving credit
facility to increase the capacity by $25.0 million, for a $600.0 million total commitment. On
March 28, 2011, we entered into amendments to our revolving credit facility and our master shelf
agreements to, among other things, permit the issuance of the senior notes and guarantees noted above.
The $600.0 million syndicated revolving credit facility contains certain customary
financial and other covenants that, among other things, impose certain restrictions on
indebtedness, liens, investments, and capital expenditures. These covenants also place restrictions
on asset sales, sale and leaseback transactions, payments between us and our subsidiaries, cross
defaults, and certain transactions with affiliates. The financial covenants require that, at the
end of any fiscal quarter, we have a consolidated interest coverage ratio of at least 3.0 to 1.0
and that during any period of four fiscal quarters we maintain a consolidated funded debt leverage
ratio of below 3.0 to 1.0. We were in compliance with all debt covenants under the credit facility
as of March 31, 2011.
32
We also have long-term loan facilities under uncommitted master shelf agreements with
Aviva Investors North America, or Aviva, New York Life and Prudential Capital Group, or Prudential,
with capacities at March 31, 2011 in the amounts of $20.0 million, $30.0 million and $115.0
million, respectively. We can borrow under the Aviva Master Shelf Agreement until December 10,
2011, the New York Life Master Shelf Agreement until March 16, 2013 and the Prudential Master Shelf
Agreement until August 30, 2013.
The notes outstanding under these facilities mature over the next five years. Individual
borrowings are made at a fixed rate of interest determined at the time of the borrowing and
interest is payable quarterly. The weighted average rate of interest with respect to our
outstanding borrowings under these facilities was 6.07% for the three months ended March 31, 2011.
The uncommitted master shelf agreements contain certain covenants that limit our ability to create
liens, enter into sale and leaseback transactions and consolidate, merge or sell assets to another
company. The Aviva, New York Life Master Shelf and the Prudential Master Shelf agreements also
contains financial covenants that require that, at the end of any fiscal quarter, we have a
consolidated interest coverage ratio of at least 3.0 to 1.0 and a leverage ratio of below 3.0 to
1.0 at the end of any fiscal quarter. We were in compliance with all debt covenants under our
master shelf agreements as of March 31, 2011.
Cash Flow
The following table summarizes our cash flow data for the three months ended March 31, 2011 and
2010.
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
145,581 |
|
|
$ |
137,189 |
|
Net cash used in investing activities |
|
$ |
(13,454 |
) |
|
$ |
(14,929 |
) |
Net cash used in financing activities |
|
$ |
(86,201 |
) |
|
$ |
(62,798 |
) |
Operating Activities
Net cash provided by operating activities increased to $145.6 million for the three months
ended March 31, 2011 from $137.2 million for the three months ended March 31, 2010. The increase in
net cash provided by operating activities was principally due to an increase in cash receipts from
customers during the three months ended March 31, 2011. This increase was partially offset by an
increase in operating expense payments primarily related to increased pension contributions during
the three months ended March 31, 2011 compared to the three months ended March 31, 2010.
Investing Activities
Net cash used in investing activities was $13.5 million for the three months ended March 31,
2011 compared to $14.9 million for the three months ended March 31, 2010. The decrease in net cash
used in investing activities was principally due to a decrease in acquisition and escrow related
payments of $7.7 million, primarily related to the acquisition of Strategic Analytics in the first
quarter of 2010, partially offset by an increase in purchases of fixed assets of $6.2 million
during the three months ended March 31, 2011 compared to the three months ended March 31, 2010.
Financing Activities
Net cash used in financing activities was $86.2 million for the three months ended March 31,
2011 and $62.8 million for the three months ended March 31, 2010. Net cash used in financing
activities for the three months ended March 31, 2011 included
repurchases of Verisk Class A common stock of $73.6 million and a decrease in total debt of
$15.9 million. Net cash used in financing activities for the three months ended March 31, 2010
was primarily related to a decrease in total debt of $62.9 million.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Contractual Obligations
There have been no material changes to our contractual obligations outside the ordinary course
of our business from those reported in our annual report on Form 10-K and filed with the Securities
and Exchange Commission on February 28, 2011 except as noted below.
On April 6, 2011,
we completed an issuance of senior notes in the aggregate principal amount of $450.0 million.
These senior notes are due on May 1, 2021 and accrue interest at 5.80%. We received net
proceeds of $446.0 million after deducting discounts and commissions of $4.0 million.
The senior notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured
and unsubordinated basis by ISO and certain subsidiaries that guarantee our syndicated revolving
credit facility or any amendment, refinancing or replacement thereof. Interest is payable
semi-annually on May 1st and November 1st of each year, beginning on November 1, 2011.
Interest accrues from April 6, 2011.
33
Critical Accounting Estimates
Our managements discussion and analysis of financial condition and results of operations are
based on our condensed consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The preparation of these
financial statements require management to make estimates and judgments that affect reported
amounts of assets and liabilities and related disclosures of contingent assets and liabilities at
the dates of the financial statements and revenue and expenses during the reporting periods. These
estimates are based on historical experience and on other assumptions that are believed to be
reasonable under the circumstances. On an ongoing basis, management evaluates its estimates,
including those related to revenue recognition, goodwill and intangible assets, pension and other
post retirement benefits, stock-based compensation, and income taxes. Actual results may differ
from these assumptions or conditions. Some of the judgments that management makes in applying its
accounting estimates in these areas are discussed under the heading Managements Discussion and
Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K dated
and filed with the Securities and Exchange Commission on February 28, 2011. Since the date of our
annual report on Form 10-K, there have been no material changes to our critical accounting
estimates.
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
Market risks at March 31, 2011 have not materially changed from those discussed under Item 7A
in our annual report on Form 10-K dated and filed with the Securities and Exchange
Commission on February 28, 2011.
|
|
|
Item 4. |
|
Controls and Procedures |
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in
Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) that
are designed to ensure that information required to be disclosed in our reports under the Exchange
Act is recorded, processed, summarized, and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosures. Any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives.
Our management, with the participation of the Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
quarterly report on Form 10-Q. Based upon the foregoing assessments, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of March 31, 2011, our disclosure controls and
procedures were effective.
Changes in Internal Control over Financial Reporting
During the three month period ending March 31, 2011, there has
been no change in our internal control over financial reporting
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
34
PART II OTHER INFORMATION
|
|
|
Item 1. |
|
Legal Proceedings |
We are party to legal proceedings with respect to a variety of matters in the ordinary course
of business. See Part I Item 1. Note 14 to our condensed consolidated financial statements for the three months ended
March 31, 2011 for a description of our significant current legal proceedings, which is
incorporated by reference herein.
There has been no material change in the information provided under the heading Risk
Factors in our annual report on
Form 10-K dated and filed with the Securities and Exchange
Commission on February 28, 2011.
|
|
|
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
Recent Sales of Unregistered Securities
There were no unregistered sales of equity securities by the Company during the period covered
by this report.
Issuer Purchases of Equity Securities
On April 29, 2010, our board of directors authorized a $150.0 million share repurchase
program, or the Repurchase Program, of our common stock. On October 19, 2010 and March 11, 2011,
our board of directors authorized an additional capacity of $150.0 million and $150.0 million,
respectively, for the Repurchase Program for a total of $450.0 million. Under the Repurchase
Program, we may repurchase stock in the open market or as otherwise determined by us. These
authorizations have no expiration dates, although they may be suspended or terminated at any time.
Our shares repurchased for the quarter ended March 31, 2011 are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Dollar |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Value of Shares that |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
|
May Yet Be |
|
|
|
Total Number |
|
|
Average |
|
|
as Part of Publicly |
|
|
Purchased Under the |
|
|
|
of Shares |
|
|
Price Paid |
|
|
Announced Plans |
|
|
Plans or Programs |
|
Period |
|
Purchased |
|
|
per Share |
|
|
or Programs |
|
|
(in thousands) |
|
January 1, 2011 through January 31, 2011 |
|
|
703,963 |
|
|
$ |
34.04 |
|
|
|
703,963 |
|
|
$ |
63,527 |
|
February 1, 2011 through February 28,
2011 |
|
|
580,455 |
|
|
$ |
32.82 |
|
|
|
580,455 |
|
|
$ |
44,477 |
|
March 1, 2011 through March 31, 2011 |
|
|
959,164 |
|
|
$ |
31.67 |
|
|
|
959,164 |
|
|
$ |
164,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,243,582 |
|
|
|
|
|
|
|
2,243,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 3. |
|
Defaults Upon Senior Securities |
None.
|
|
|
Item 4. |
|
[Removed and Reserved] |
|
|
|
Item 5. |
|
Other Information |
None.
See Exhibit Index.
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
Verisk Analytics, Inc.
(Registrant) |
|
|
|
|
|
|
|
by:
|
|
/s/ Mark V. Anquillare |
|
|
|
|
Date: May 3, 2011
|
|
|
|
Mark V. Anquillare |
|
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
(Principal Financial Officer and Duly Authorized Officer) |
36
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
|
Number |
|
|
Description |
|
|
|
|
|
|
31.1 |
|
|
Certification of the Chief Executive Officer of Verisk Analytics, Inc. pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934.* |
|
31.2 |
|
|
Certification of the Chief Financial Officer of Verisk Analytics, Inc. pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934.* |
|
32.1 |
|
|
Certification of the Chief Executive Officer and Chief Financial Officer of Verisk
Analytics, Inc. pursuant to
18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.* |