Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

OR

 

¨ 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)

 

 

 

Delaware   26-2994223

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

545 Washington Boulevard

Jersey City, NJ

  07310-1686
(Address of principal executive offices)   (Zip Code)

(201) 469-2000

(Registrant’s 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  x    No  ¨

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  x    No  ¨

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.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of July 26, 2013, there was the following number of shares outstanding of each of the issuer’s classes of common stock:

 

Class

 

Shares Outstanding

Class A common stock $.001 par value

  167,915,445

 

 

 


Table of Contents

Verisk Analytics, Inc.

Index to Form 10-Q

Table of Contents

 

   

Page Number

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

 

Condensed Consolidated Balance Sheets

  1

Condensed Consolidated Statements of Operations

  2

Condensed Consolidated Statements of Comprehensive Income

  3

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

  4

Condensed Consolidated Statements of Cash Flows

  5

Notes to Condensed Consolidated Financial Statements

  6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  34

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  47

Item 4. Controls and Procedures

  47
PART II — OTHER INFORMATION

Item 1. Legal Proceedings

  48

Item 1A. Risk Factors

  48

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

  48

Item 3. Defaults Upon Senior Securities

  48

Item 4. Mine Safety Disclosures

  48

Item 5. Other Information

  48

Item 6. Exhibits

  48

SIGNATURES

 

Exhibit 31.1

 

Exhibit 31.2

 

Exhibit 32.1

 


Table of Contents

Item 1. Financial Statements

VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of June 30, 2013 and December 31, 2012

 

     2013        
     (unaudited)     2012  
     (In thousands, except for
share and per share data)
 
ASSETS   

Current assets:

    

Cash and cash equivalents

   $ 172,587      $ 89,819   

Available-for-sale securities

     4,254        4,883   

Accounts receivable, net of allowance for doubtful accounts of $4,936 and $4,753, respectively

     186,549        178,430   

Prepaid expenses

     31,048        21,946   

Deferred income taxes, net

     10,463        10,397   

Income taxes receivable

     54,013        45,975   

Other current assets

     34,695        39,109   
  

 

 

   

 

 

 

Total current assets

     493,609        390,559   

Noncurrent assets:

    

Fixed assets, net

     185,928        154,084   

Intangible assets, net

     486,532        520,935   

Goodwill

     1,249,271        1,247,459   

Other assets

     24,011        47,299   
  

 

 

   

 

 

 

Total assets

   $ 2,439,351      $ 2,360,336   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY   

Current liabilities:

    

Accounts payable and accrued liabilities

   $ 157,961      $ 187,648   

Short-term debt and current portion of long-term debt

     137,870        195,263   

Pension and postretirement benefits, current

     1,734        1,734   

Fees received in advance

     287,571        200,705   
  

 

 

   

 

 

 

Total current liabilities

     585,136        585,350   

Noncurrent liabilities:

    

Long-term debt

     1,266,910        1,266,162   

Pension benefits

     32,138        38,655   

Postretirement benefits

     2,267        2,627   

Deferred income taxes, net

     135,257        133,761   

Other liabilities

     52,138        78,190   
  

 

 

   

 

 

 

Total liabilities

     2,073,846        2,104,745   
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ equity:

    

Class A common stock, $.001 par value; 1,200,000,000 shares authorized; 544,003,038 shares issued and 167,629,024 and 167,727,073 outstanding, respectively

     137        137   

Unearned KSOP contributions

     (402     (483

Additional paid-in capital

     1,116,948        1,044,746   

Treasury stock, at cost, 376,374,014 and 376,275,965 shares, respectively

     (1,733,283     (1,605,376

Retained earnings

     1,070,443        905,727   

Accumulated other comprehensive losses

     (88,338     (89,160
  

 

 

   

 

 

 

Total stockholders’ equity

     365,505        255,591   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,439,351      $ 2,360,336   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For The Three and Six Months Ended June 30, 2013 and 2012

 

    Three Months Ended June 30,     Six Months Ended June 30,  
    2013     2012     2013     2012  
    (In thousands, except for share and per share data)  

Revenues

  $ 421,320      $ 373,226      $ 824,643      $ 719,727   
 

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

       

Cost of revenues (exclusive of items shown separately below)

    174,663        147,074        339,112        280,404   

Selling, general and administrative

    61,152        62,473        120,180        116,452   

Depreciation and amortization of fixed assets

    16,811        13,090        32,025        24,734   

Amortization of intangible assets

    17,196        12,187        34,403        20,774   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    269,822        234,824        525,720        442,364   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    151,498        138,402        298,923        277,363   
 

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

       

Interest expense

    (19,704     (17,377     (39,794     (33,762

Investment income

    40        156        88        261   

Realized gain (loss) on available-for-sale securities, net

    93        (30     (100     300   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

    (19,571     (17,251     (39,806     (33,201
 

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    131,927        121,151        259,117        244,162   

Provision for income taxes

    (47,722     (47,820     (94,401     (96,230
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 84,205      $ 73,331      $ 164,716      $ 147,932   
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income per share

  $ 0.50      $ 0.44      $ 0.98      $ 0.89   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income per share

  $ 0.49      $ 0.43      $ 0.95      $ 0.86   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding:

       

Basic

    168,147,069        165,946,009        168,112,829        165,391,500   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    172,467,688        171,901,349        172,614,164        171,626,084   
 

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

For The Three and Six Months Ended June 30, 2013 and 2012

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  
     (In thousands)  

Net income

   $ 84,205      $ 73,331      $ 164,716      $ 147,932   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax:

        

Unrealized foreign currency loss

     (275     (287     (681     (134

Unrealized holding loss on available-for-sale securities

     (84     (116     (314     (313

Pension and postretirement unfunded liability adjustment

     948        452        1,817        1,380   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

     589        49        822        933   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 84,794      $ 73,380      $ 165,538      $ 148,865   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

For The Year Ended December 31, 2012 and The Six Months Ended June 30, 2013

 

    Class A
Common Stock
    Par Value     Unearned
KSOP
Contributions
    Additional
Paid-in
Capital
    Treasury
Stock
    Retained
Earnings
    Accumulated
Other
Comprehensive
Losses
    Total
Stockholders’
Equity (Deficit)
 
    (In thousands, except for share data)  

Balance, December 31, 2011

    544,003,038      $ 137      $ (691   $ 874,808      $ (1,471,042   $ 576,585      $ (78,287   $ (98,490

Net income

    —          —          —          —          —          329,142        —          329,142   

Other comprehensive loss

    —          —          —          —          —          —          (10,873     (10,873

Treasury stock acquired (3,491,591 shares)

    —          —          —          —          (162,586     —          —          (162,586

KSOP shares earned

    —          —          208        12,903        —          —          —          13,111   

Stock options exercised, including tax benefit of $88,185 (6,880,678 shares reissued from treasury stock)

    —          —          —          131,824        28,039        —          —          159,863   

Restricted stock lapsed, including tax benefit of $202 (41,908 shares reissued from treasury stock)

    —          —          —          34        167        —          —          201   

Employee stock purchase plan (6,074 shares issued from treasury stock)

    —          —          —          268        26        —          —          294   

Stock based compensation

    —          —          —          24,696        —          —          —          24,696   

Other stock issuances (4,777 shares reissued from treasury stock)

    —          —          —          213        20        —          —          233   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2012

    544,003,038        137        (483     1,044,746        (1,605,376     905,727        (89,160     255,591   

Net income

    —          —          —          —          —          164,716        —          164,716   

Other comprehensive income

    —          —          —          —          —          —          822        822   

Treasury stock acquired (2,326,130 shares)

    —          —          —          —          (137,634     —          —          (137,634

KSOP shares earned

    —          —          81        7,276        —          —          —          7,357   

Stock options exercised, including tax benefit of $31,242 (2,075,394 shares reissued from treasury stock)

    —          —          —          52,759        9,062        —          —          61,821   

Restricted stock lapsed, including tax benefit of $969 (136,940 shares reissued from treasury stock)

    —          —          —          375        594        —          —          969   

Employee stock purchase plan (15,173 shares issued from treasury stock)

    —          —          —          805        68        —          —          873   

Stock based compensation

    —          —          —          10,955        —          —          —          10,955   

Other stock issuances (574 shares reissued from treasury stock)

    —          —          —          32        3        —          —          35   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2013

    544,003,038      $ 137      $ (402   $ 1,116,948      $ (1,733,283   $ 1,070,443      $ (88,338   $ 365,505   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For The Six Months Ended June 30, 2013 and 2012

 

     2013     2012  
     (In thousands)  

Cash flows from operating activities:

    

Net income

   $ 164,716      $ 147,932   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization of fixed assets

     32,025        24,734   

Amortization of intangible assets

     34,403        20,774   

Amortization of debt issuance costs and original issue discount

     1,368        1,096   

Allowance for doubtful accounts

     633        461   

KSOP compensation expense

     7,357        6,186   

Stock based compensation

     10,955        13,653   

Realized loss (gain) on available-for-sale securities, net

     100        (300

Deferred income taxes

     1,007        (535

Loss on disposal of fixed assets

     428        21   

Excess tax benefits from exercised stock options

     (63,934     (31,624

Other operating activities, net

     28        (18

Changes in assets and liabilities, net of effects from acquisitions:

    

Accounts receivable

     (8,752     (13,652

Prepaid expenses and other assets

     (1,696     4,289   

Income taxes

     24,171        59,929   

Accounts payable and accrued liabilities

     (12,833     (24,124

Fees received in advance

     86,866        77,038   

Pension and postretirement benefits

     (4,099     (90,808

Other liabilities

     (26,052     (7,617
  

 

 

   

 

 

 

Net cash provided by operating activities

     246,691        187,435   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Acquisitions, net of cash acquired of $0 and $29,387, respectively

     (983     (331,330

Purchase of non-controlling interest in non-public companies

     —          (2,000

Earnout payments

     —          (250

Proceeds from release of acquisition related escrows

     192        —     

Escrow funding associated with acquisitions

     —          (17,000

Purchases of fixed assets

     (63,505     (36,532

Purchases of available-for-sale securities

     (4,967     (1,128

Proceeds from sales and maturities of available-for-sale securities

     5,826        1,203   

Other investing activities, net

     439        —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (62,998     (387,037
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Repayment of current portion of long-term debt

     (45,000     —     

(Repayment) proceeds of short-term debt, net

     (10,000     150,000   

Excess tax benefits from exercised stock options

     63,934        31,624   

Repurchase of common stock

     (135,595     (106,305

Proceeds from stock options exercised

     30,528        33,453   

Other financing activities, net

     (4,111     (3,441
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (100,244     105,331   
  

 

 

   

 

 

 

Effect of exchange rate changes

     (681     (134
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     82,768        (94,405

Cash and cash equivalents, beginning of period

     89,819        191,603   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 172,587      $ 97,198   
  

 

 

   

 

 

 

Supplemental disclosures:

    

Taxes paid

   $ 71,029      $ 37,736   
  

 

 

   

 

 

 

Interest paid

   $ 39,029      $ 26,619   
  

 

 

   

 

 

 

Noncash investing and financing activities:

    

Repurchase of common stock included in accounts payable and accrued liabilities

   $ 3,550      $ 1,936   
  

 

 

   

 

 

 

Deferred tax asset (liability) established on date of acquisition

   $ 343      $ (40,358
  

 

 

   

 

 

 

Capital lease obligations

   $ 2,106      $ 3,043   
  

 

 

   

 

 

 

Capital expenditures included in accounts payable and accrued liabilities

   $ 3,426      $ 1,864   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

VERISK ANALYTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(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, financial services, and healthcare industries and sophisticated methods to predict and quantify loss in diverse contexts ranging from natural catastrophes to supply chain 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 to serve as the parent holding company of Insurance Services Office, Inc. (“ISO”). 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. Verisk’s common stock trades under the ticker symbol “VRSK” on the NASDAQ Global Select Market.

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, 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. Certain combinations have been made related to federal and state income taxes and to the segment reporting within revenue categories in the condensed consolidated financial statements and the notes to conform to the respective 2013 presentation.

The condensed consolidated financial statements as of June 30, 2013 and for the three and six months ended June 30, 2013 and 2012, in the opinion of management, include all adjustments, consisting of normal recurring accruals, to present fairly the Company’s financial position, results of operations and cash flows. The operating results for the three and six months ended June 30, 2013 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 and six months ended June 30, 2013 have been prepared on the same basis as and should be read in conjunction with the annual report on Form 10-K for the year ended December 31, 2012. 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.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU No. 2013-02”). Under ASU No. 2013-02, an entity is required to provide information about the

 

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amounts reclassified out of accumulated other comprehensive income by component, either on the face of the financial statement where net income is presented or in the notes thereto. ASU No. 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. ASU 2013-02 was adopted by the Company on January 1, 2013. The Company elected to present the information as a separate disclosure in the notes to the condensed consolidated financial statements. Refer to Note 9 for further discussion.

In February 2013, the FASB issued ASU No. 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (“ASU No. 2013-04”). Under ASU No. 2013-04, an entity is required to measure and disclose the amounts and nature of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. ASU No. 2013-04 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. Early adoption is permitted. The Company has elected not to early adopt. The adoption of ASU 2013-04 will not have a material impact on the Company’s condensed consolidated financial statements as the long-term debt resulting from joint and several liability arrangements has been measured on a gross basis and disclosed in Note 8. Other obligations resulting from joint and several liability arrangements, such as contingencies, retirement benefits and income taxes, are excluded from the scope of this ASU.

In March 2013, the FASB issued ASU No. 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (“ASU No. 2013-05”). Under ASU No. 2013-05, an entity is required to release any related cumulative translation adjustment into net income upon cessation to have a controlling financial interest in a subsidiary or group of assets within a foreign entity. ASU 2013-05 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. Early adoption is permitted. The Company has elected not to early adopt. The adoption of ASU 2013-05 is not expected to have a material impact on the Company’s condensed consolidated financial statements.

3. Investments:

Available-for-sale securities consisted of the following:

 

     Adjusted
Cost
     Gross
Unrealized
Gain
     Gross
Unrealized
Loss
    Fair Value  

June 30, 2013

          

Registered investment companies

   $ 4,710       $   —         $ (456   $ 4,254   
  

 

 

    

 

 

    

 

 

   

 

 

 

December 31, 2012

          

Registered investment companies

   $ 4,830       $ 53       $ —        $ 4,883   
  

 

 

    

 

 

    

 

 

   

 

 

 

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 Accounting Standards Codification (“ASC”) 323-10-25, The Equity Method of Accounting for Investments in Common Stock. At June 30, 2013 and December 31, 2012, the carrying value of such securities was $3,737 and $5,015, respectively, and has been included in “Other assets” in the accompanying condensed consolidated balance sheets.

 

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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”), established 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 are internally-developed, and considers risk premiums that market participant would require.

The following table provides information for such assets and liabilities as of June 30, 2013 and December 31, 2012. The fair values of cash and cash equivalents (other than money-market funds, which are recorded on a reported net asset value basis disclosed below), accounts receivable, accounts payable and accrued liabilities, acquisition related liabilities prior to the adoption of ASC 805, Business Combinations (“ASC 805”), short-term debt, and short-term debt expected to be refinanced approximate their carrying amounts because of the short-term nature of these instruments.

 

     Total      Quoted Prices
in Active Markets
for Identical
Assets (Level 1)
     Significant Other
Observable
Inputs (Level 2)
 

June 30, 2013

        

Cash equivalents - money-market funds

   $ 1,439       $ —         $ 1,439   

Registered investment companies (1)

   $ 4,254       $ 4,254       $ —     

December 31, 2012

        

Cash equivalents - money-market funds

   $ 760       $ —         $ 760   

Registered investment companies (1)

   $ 4,883       $ 4,883       $ —     

 

(1) Registered investment companies are classified as available-for-sale securities and are valued using quoted prices in active markets multiplied by the number of shares owned.

The Company has not elected to carry its long-term debt at fair value. The carrying value of the long-term debt represents amortized cost. The Company assesses the fair value of its long-term debt based on quoted market prices if available, and if not, an estimate of interest rates available to the Company for debt with similar features, the Company’s current credit rating and spreads applicable to the Company. The fair value of the long-term debt would be a Level 2 liability if the long-term debt was measured at fair value on the condensed consolidated balance sheets. The following table summarizes the carrying value and estimated fair value of the long-term debt as of June 30, 2013 and December 31, 2012, respectively:

 

    2013     2012  
    Carrying
Value
    Estimated
Fair Value
    Carrying
Value
    Estimated
Fair Value
 

Financial instrument not carried at fair value:

       

Long-term debt excluding capitalized leases

  $ 1,399,769      $ 1,496,142      $ 1,454,409      $ 1,575,950   

 

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5. Acquisitions:

2012 Acquisitions

On December 20, 2012, the Company acquired the net assets of Insurance Risk Management Solutions (“IRMS”). IRMS provided integrated property risk assessment technology underlying one of the Company’s geographic information system (“GIS”) underwriting solutions. At the end of 2012, the long-term contract with IRMS was expiring and precipitated a change in the business relationship. Instead of continuing forward with a new service agreement, the Company acquired IRMS as this will enable the Company to better manage, enhance and continue to use the solutions as part of its Risk Assessment segment. The Company paid a net cash purchase price of $26,422 and funded $1,000 of indemnity escrows.

On August 31, 2012, the Company acquired Argus Information & Advisory Services, LLC (“Argus”), a provider of information, competitive benchmarking, scoring solutions, analytics, and customized services to financial institutions and regulators in North America, Latin America, and Europe, for a net cash purchase price of approximately $404,995 and funded $20,000 of indemnity escrows. Argus leverages its comprehensive payment data sets and provides proprietary solutions to a client base that includes credit and debit card issuers, retail banks and other consumer financial services providers, payment processors, insurance companies, and other industry stakeholders. Within the Company’s Decision Analytics segment, this acquisition enhances the Company’s position as a provider of data, analytics, and decision-support solutions to financial institutions globally.

On July 2, 2012, the Company acquired the net assets of Aspect Loss Prevention, LLC (“ALP”), a provider of loss prevention and analytic solutions to the retail, entertainment, and food industries, for a net cash purchase price of approximately $6,917 and funded $800 of indemnity escrows. Within the Company’s Decision Analytics segment, ALP further advances the Company’s position as a provider of data, crime analytics, and decision-support solutions.

On March 30, 2012, the Company acquired 100% of the stock of MediConnect Global, Inc. (“MediConnect”), a service provider of medical record retrieval, digitization, coding, extraction, and analysis, for a net cash purchase price of approximately $331,405 and funded $17,000 of indemnity escrows. Within the Company’s Decision Analytics segment, MediConnect further supports the Company’s objective as the leading provider of data, analytics, and decision-support solutions to the healthcare and property casualty industry.

The preliminary allocations of the purchase prices for IRMS, Argus and ALP as disclosed as of December 31, 2012 are all subject to revisions as additional information is obtained about the facts and circumstances that existed as of the acquisition dates. The revisions may have an impact on the condensed consolidated financial statements. The allocations of the purchase prices will be finalized once all information is obtained, but not to exceed one year from the acquisition dates.

Supplemental information on an unaudited pro forma basis is presented below as if the acquisition of Argus occurred at the beginning of the year 2012. The pro forma information for the six months ended June 30, 2012 presented below is based on estimates and assumptions, which the Company believes are reasonable and not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been realized had these acquisitions been completed at the beginning of 2012. The unaudited pro forma information includes intangible asset amortization charges and incremental borrowing costs as a result of the acquisitions, net of related tax, estimated using the Company’s effective tax rate for continuing operations for the six months ended June 30:

 

     2012  
     (unaudited)  

Pro forma revenues

   $ 747,161   

Pro forma net income

   $ 142,813   

Pro forma basic income per share

   $ 0.86   

Pro forma diluted income per share

   $ 0.83   

 

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Table of Contents

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 dates, as well as a portion of the contingent payments. At June 30, 2013 and December 31, 2012, the current portion of the escrows amounted to $31,716 and $29,277, and the noncurrent portion of the escrow amounted to $5,000 and $26,803, respectively. The current and noncurrent portions of the escrows have been included in “Other current assets” and “Other assets” in the accompanying condensed consolidated balance sheets, respectively.

6. Goodwill and Intangible Assets:

The following is a summary of the change in goodwill from December 31, 2012 through June 30, 2013, both in total and as allocated to the Company’s operating segments:

 

     Risk
Assessment
     Decision
Analytics
     Total  

Goodwill at December 31, 2012 (1)

   $ 55,555       $ 1,191,904       $ 1,247,459   

Current year acquisition

     —           705         705   

Purchase accounting reclassifications

     —           1,107         1,107   
  

 

 

    

 

 

    

 

 

 

Goodwill at June 30, 2013 (1)

   $ 55,555       $ 1,193,716       $ 1,249,271   
  

 

 

    

 

 

    

 

 

 

 

(1) These balances are net of accumulated impairment charges of $3,244 that occurred prior to December 31, 2012.

The Company finalized the purchase accounting for the acquisition of MediConnect during the quarter ended March 31, 2013. The impact of the finalization of the purchase accounting for MediConnect was immaterial to the condensed consolidated statements of operations for the three and six months ended June 30, 2013.

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. Goodwill impairment 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 unit’s net assets including goodwill exceeds the fair value of the reporting unit, then the Company will determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s 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. The Company completed the required annual impairment test as of June 30, 2013, which resulted in no impairment of goodwill.

 

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The Company’s intangible assets and related accumulated amortization consisted of the following:

 

     Weighted
Average
Useful Life
     Cost      Accumulated
Amortization
    Net  

June 30, 2013

          

Technology-based

     8 years       $ 313,590       $ (190,837   $ 122,753   

Marketing-related

     5 years         79,101         (46,703     32,398   

Contract-based

     6 years         6,555         (6,555     —     

Customer-related

     13 years         413,043         (81,662     331,381   
     

 

 

    

 

 

   

 

 

 

Total intangible assets

      $ 812,289       $ (325,757   $ 486,532   
     

 

 

    

 

 

   

 

 

 

December 31, 2012

          

Technology-based

     8 years       $ 313,590       $ (177,929   $ 135,661   

Marketing-related

     5 years         79,101         (41,079     38,022   

Contract-based

     6 years         6,555         (6,555     —     

Customer-related

     13 years         413,043         (65,791     347,252   
     

 

 

    

 

 

   

 

 

 

Total intangible assets

      $ 812,289       $ (291,354   $ 520,935   
     

 

 

    

 

 

   

 

 

 

Amortization expense related to intangible assets for the three months ended June 30, 2013 and 2012 was $17,196 and $12,187, respectively. Amortization expense related to intangible assets for the six months ended June 30, 2013 and 2012 was $34,403 and $20,774, respectively. Estimated amortization expense in future periods through 2018 and thereafter for intangible assets subject to amortization is as follows:

 

Year

   Amount  

2013

   $ 29,903   

2014

     57,168   

2015

     51,252   

2016

     49,421   

2017

     48,518   

2018 and Thereafter

     250,270   
  

 

 

 
   $ 486,532   
  

 

 

 

7. Income Taxes:

The Company’s effective tax rate for the three and six months ended June 30, 2013 was 36.17%, and 36.43%, respectively, compared to the effective tax rate for the three and six months ended June 30, 2012 of 39.47% and 39.41%, respectively. The effective tax rate for the three and six months ended June 30, 2013 is lower than the June 30, 2012 effective tax rate primarily due to the continued execution of tax planning strategies and the benefits of the Research & Development (“R&D”) tax credit. The American Taxpayer Relief Act of 2012 was enacted on January 2, 2013, which retroactively extended the R&D tax credit for the years 2012 and 2013 and enabled the Company to recognize the tax benefit of the 2012 credit in the first quarter of 2013. The difference between statutory tax rates and the Company’s effective tax rate is primarily attributable to state taxes and nondeductible share appreciation from the ISO 401(k) Savings and Employee Stock Ownership Plan (“KSOP”).

 

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8. Debt:

The following table presents short-term and long-term debt by issuance as of June 30, 2013 and December 31, 2012:

 

     Issuance
Date
     Maturity
Date
     2013      2012  

Short-term debt and current portion of long-term debt:

           

Syndicated revolving credit facility

     Various         Various       $ —         $ 10,000   

Aviva Investors senior notes:

           

6.46% Series A senior notes

     4/27/2009         4/27/2013         —           30,000   

New York Life senior notes:

           

5.87% Series A senior notes

     10/26/2007         10/26/2013         17,500         17,500   

Principal senior notes:

           

6.16% Series B senior notes

     8/8/2006         8/8/2013         25,000         25,000   

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   

6.28% Series I senior notes

     4/29/2008         4/29/2013         —           15,000   

Capital lease obligations

     Various         Various         2,870         5,263   
        

 

 

    

 

 

 

Short-term debt and current portion of long-term debt

           137,870         195,263   
        

 

 

    

 

 

 

Long-term debt:

           

Verisk senior notes:

           

5.800% senior notes, less unamortized discount of $810 and $862, respectively

     4/6/2011         5/1/2021         449,190         449,138   

4.875% senior notes, less unamortized discount of $1,867 and $2,037, respectively

     12/8/2011         1/15/2019         248,133         247,963   

4.125% senior notes, less unamortized discount of $2,554 and $2,692, respectively

     9/12/2012         9/12/2022         347,446         347,308   

New York Life senior notes:

           

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   

Prudential senior notes:

           

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         4/29/2015         85,000         85,000   

6.85% Series J senior notes

     6/15/2009         6/15/2016         50,000         50,000   

Capital lease obligations

     Various         Various         2,141         1,753   
        

 

 

    

 

 

 

Long-term debt

           1,266,910         1,266,162   
        

 

 

    

 

 

 

Total debt

         $ 1,404,780       $ 1,461,425   
        

 

 

    

 

 

 

As of June 30, 2013, the Company has an $850,000 committed senior unsecured Syndicated Revolving Credit Facility (the “Credit Facility”) with Bank of America N.A., JPMorgan Chase Bank N.A., and a syndicate of banks. Borrowings may be used for general corporate purposes, including working capital needs and capital expenditures, acquisitions and the share repurchase program (the “Repurchase Program”). As of June 30, 2013 and December 31, 2012, the Company had $0 and $10,000, respectively, outstanding under the Credit Facility.

9. Stockholders’ Equity:

The Company has 1,200,000,000 shares of authorized Class A common stock. The 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 all twelve members of the board of directors.

 

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Table of Contents

Share Repurchase Program

The Company has authorized repurchases up to $1,200,000 of its common stock through its Repurchase Program, including the additional $300,000 authorized by the board of directors in June 2013. As of June 30, 2013, the Company had $306,557 available to repurchase shares. 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 2013 Equity Incentive Plan (the “2013 Incentive Plan”), the Verisk 2009 Equity Incentive Plan (the “2009 Incentive Plan”), and the ISO 1996 Incentive Plan (the “1996 Incentive Plan”), while providing flexibility to repurchase additional shares if warranted. This authorization has no expiration date and may be increased, reduced, 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.

During the six months ended June 30, 2013, the Company repurchased 2,326,130 shares of common stock as part of this program at a weighted average price of $59.17 per share. The Company utilized cash from operations to fund these repurchases. As treasury stock purchases are recorded based on trade date, the Company has included $3,550 in “Accounts payable and accrued liabilities” in the accompanying condensed consolidated balance sheets for those purchases that have not settled as of June 30, 2013.

Treasury Stock

As of June 30, 2013, the Company’s treasury stock consisted of 376,374,014 shares of common stock. During the six months ended June 30, 2013, the Company reissued 2,228,081 shares of common stock from the treasury shares at a weighted average price of $4.37 per share.

Earnings Per Share (“EPS”)

Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. 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, including stock options and nonvested restricted stock, had been issued.

The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the three and six months ended June 30, 2013 and 2012:

 

    For the Three Months Ended
June 30,
    For the Six Months Ended
June 30,
 
    2013     2012     2013     2012  

Numerator used in basic and diluted EPS:

       

Net income

  $ 84,205      $ 73,331      $ 164,716      $ 147,932   
 

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

       

Weighted average number of common shares used in basic EPS

    168,147,069        165,946,009        168,112,829        165,391,500   

Effect of dilutive shares:

       

Potential common shares issuable from stock options and stock awards

    4,320,619        5,955,340        4,501,335        6,234,584   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of common shares and dilutive potential common shares used in diluted EPS

    172,467,688        171,901,349        172,614,164        171,626,084   
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income per share

  $ 0.50      $ 0.44      $ 0.98      $ 0.89   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income per share

  $ 0.49      $ 0.43      $ 0.95      $ 0.86   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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The potential shares of common stock that were excluded from diluted EPS were 925,109 and 781,505 for the six months ended June 30, 2013 and 2012, 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 as of June 30, 2013 and December 31, 2012:

 

     2013     2012  

Unrealized foreign currency losses

   $ (1,641   $ (960

Unrealized (losses) gains on available-for-sale securities, net of tax

     (242     72   

Pension and postretirement unfunded liability adjustment, net of tax

     (86,455     (88,272
  

 

 

   

 

 

 

Accumulated other comprehensive losses

   $ (88,338   $ (89,160
  

 

 

   

 

 

 

The before tax and after tax amounts of other comprehensive income for the six months ended June 30, 2013 and 2012 are summarized below:

 

     Before Tax     Tax Benefit (Expense)     After Tax  

June 30, 2013

      

Unrealized foreign currency loss

   $ (681   $ —        $ (681
  

 

 

   

 

 

   

 

 

 

Unrealized loss on available-for-sale securities before reclassifications

     (1,248     477        (771

Amount reclassified from accumulated other comprehensive income (1)

     739        (282     457   
  

 

 

   

 

 

   

 

 

 

Unrealized loss on available-for-sale securities

     (509     195        (314
  

 

 

   

 

 

   

 

 

 

Pension and postretirement unfunded liability adjustment before reclassifications

     5,555        (2,023     3,532   

Amortization of prior service credit reclassified from accumulated other comprehensive income (2)

     75        (29     46   

Amortization of net actuarial loss reclassified from accumulated other comprehensive income (2)

     (2,852     1,091        (1,761
  

 

 

   

 

 

   

 

 

 

Pension and postretirement unfunded liability adjustment

     2,778        (961     1,817   
  

 

 

   

 

 

   

 

 

 

Total other comprehensive income

   $ 1,588      $ (766   $ 822   
  

 

 

   

 

 

   

 

 

 

June 30, 2012

      

Unrealized foreign currency loss

   $ (134   $ —        $ (134
  

 

 

   

 

 

   

 

 

 

Unrealized loss on available-for-sale securities before reclassifications

     (809     314        (495

Amount reclassified from accumulated other comprehensive income (1)

     300        (118     182   
  

 

 

   

 

 

   

 

 

 

Unrealized loss on available-for-sale securities

     (509     196        (313
  

 

 

   

 

 

   

 

 

 

Pension and postretirement unfunded liability adjustment before reclassifications

     4,836        (1,962     2,874   

Amortization of prior service credit reclassified from accumulated other comprehensive income (2)

     208        (79     129   

Amortization of net actuarial loss reclassified from accumulated other comprehensive income (2)

     (2,626     1,003        (1,623
  

 

 

   

 

 

   

 

 

 

Pension and postretirement unfunded liability adjustment

     2,418        (1,038     1,380   
  

 

 

   

 

 

   

 

 

 

Total other comprehensive income

   $ 1,775      $ (842   $ 933   
  

 

 

   

 

 

   

 

 

 

 

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Table of Contents

 

(1) This accumulated other comprehensive loss component, before tax, is included under “Realized gain (loss) on available-for-sale securities, net” in the accompanying condensed consolidated statements of operations.
(2) These accumulated other comprehensive loss components, before tax, are included under “Cost of revenues” and “Selling, general and administrative” in the accompanying condensed consolidated statements of operations. These components are also included in the computation of net periodic (benefit) cost (see Note. 11 Pension and Postretirement Benefits for additional details).

10. Equity Compensation Plans:

All of the Company’s outstanding equity awards, including stock options and restricted stock, are covered under the 2013 Incentive Plan, 2009 Incentive Plan or 1996 Incentive Plan. Awards under the 2013 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 (including cash), and (vi) other share based awards. Employees, directors and consultants are eligible for awards under the 2013 Incentive Plan. The Company issued common stock under these plans from the Company’s treasury shares. On May 15, 2013, the Company’s shareholders approved the 2013 Incentive Plan effective March 15, 2013. There are 15,700,000 shares of common stock available for issuance under the 2013 Incentive Plan. Shares subject to awards granted subsequent to March 15, 2013, whether under the 2013 Incentive Plan or the 2009 Incentive Plan, with certain exceptions, will reduce the number of shares available for issuance under the 2013 Incentive Plan. Cash received from stock option exercises for the six months ended June 30, 2013 and 2012 was $30,528 and $33,453, respectively.

On April 1, 2013, the Company granted 804,726 nonqualified stock options and 208,881 shares of restricted stock to key employees, as well as 20,445 deferred stock units to the directors of the Company. The nonqualified stock options have an exercise price equal to the closing price of the Company’s 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 Company’s common stock on the grant date and has a service vesting period of four years. The Company recognizes the expense of the restricted stock ratably over the vesting period. The restricted stock is not assignable or transferrable until it becomes vested. The deferred stock units are valued at the closing price of the Company’s common stock on the grant date, have a one-year vesting period, and will be distributed to the directors upon retirement or other separation from the board of directors.

On July 1, 2013, the Company granted 7,535 shares of common stock, 27,494 nonqualified stock options that were immediately vested, 54,032 nonqualified stock options with a one-year service vesting period, and 11,319 deferred stock units to the directors of the Company. The nonqualified stock options have an exercise price equal to the closing price of the Company’s common stock at the grant date and a ten-year contractual term. As of June 30, 2013, there were 14,419,876 shares of common stock reserved and available for future issuance under the 2013 Incentive Plan.

The fair value of the stock options granted during the six months ended June 30, 2013 and 2012 was estimated using a Black-Scholes valuation model that uses the weighted average assumptions noted in the following table:

 

     2013     2012  

Option pricing model

     Black-Scholes        Black-Scholes   

Expected volatility

     29.84     32.25

Risk-free interest rate

     0.66     0.97

Expected term in years

     4.5        4.8   

Dividend yield

     0.00     0.00

Weighted average grant date fair value per stock option

   $ 15.87      $ 13.70   

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

 

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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 Company’s peers, calculated using historical daily closing prices over the most recent period that is commensurate with the expected term of the stock option award. The expected dividend yield was based on the Company’s expected annual dividend rate on the date of grant.

A summary of the stock options outstanding as of December 31, 2012 and June 30, 2013 and changes during the interim period are presented below:

 

     Number
of Options
    Weighted
Average
Exercise Price
     Aggregate
Intrinsic
Value
 

Outstanding at December 31, 2012

     12,573,298      $ 22.21       $ 361,653   
       

 

 

 

Granted

     804,726      $ 61.14      

Exercised

     (2,075,394   $ 14.74       $ 89,711   
       

 

 

 

Cancelled or expired

     (97,689   $ 40.56      
  

 

 

      

Outstanding at June 30, 2013

     11,204,941      $ 26.23       $ 375,068   
  

 

 

      

 

 

 

Options exercisable at June 30, 2013

     8,645,315      $ 21.42       $ 330,913   
  

 

 

      

 

 

 

Options exercisable at December 31, 2012

     8,796,996      $ 18.37       $ 286,806   
  

 

 

      

 

 

 

Intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the quoted price of the Company’s common stock as of the reporting date. 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 income 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 as a financing cash inflow within the accompanying condensed consolidated statements of cash flows. For the six months ended June 30, 2013 and 2012, the Company recorded excess tax benefit from stock options exercised of $32,211 and $49,974, respectively. The Company realized $63,934 and $31,624 of tax benefit within the Company’s quarterly tax payments through June 30, 2013 and 2012, respectively.

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.

A summary of the status of the restricted stock awarded as of December 31, 2012 and June 30, 2013 and changes during the interim period is presented below:

 

     Number
of Shares
    Weighted Average Grant
Date Fair Value Per Share
 

Outstanding at December 31, 2012

     331,013      $ 42.78   

Granted

     208,881      $ 61.14   

Vested

     (131,831   $ 42.08   

Forfeited

     (14,944   $ 52.61   
  

 

 

   

Outstanding at June 30, 2013

     393,119      $ 52.40   
  

 

 

   

As of June 30, 2013, there was $50,716 of total unrecognized compensation costs, exclusive of the impact of vesting upon retirement eligibility, related to nonvested share-based compensation arrangements granted under

 

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the 2009 and 2013 Incentive Plans. That cost is expected to be recognized over a weighted average period of 2.85 years. As of June 30, 2013, there were 2,559,626 and 393,119 nonvested stock options and restricted stock, respectively, of which 2,116,211 and 316,002 are expected to vest. The total grant date fair value of options vested during the six months ended June 30, 2013 and 2012 was $8,581 and $10,053, respectively. The total grant date fair value of restricted stock vested during the six months ended June 30, 2013 and 2012 was $2,849 and $1,263, respectively.

The Company’s employee stock purchase plan (“ESPP”) commenced on October 1, 2012 and offers eligible employees the opportunity to authorize payroll deductions of up to 20.00% of their regular base salary and up to 50.00% of their short-term incentive compensation, both of which in total may not exceed $25 in any calendar year, to purchase shares of the Company’s common stock at a 5.00% discount of its fair market value at the time of purchase. In accordance with ASC 718, the ESPP is noncompensatory as the purchase discount is 5.00% or less from the fair market value, substantially all employees that meet limited employment qualifications may participate, and it incorporates no option features. During the six months ended June 30, 2013, the Company issued 15,173 shares of common stock at a weighted discounted price of $57.56.

On April 20, 2013, the employee stock ownership plan (“ESOP”) refinanced its intercompany loan between the Company and the KSOP, thereby extending the allocation of the remaining unreleased shares through 2016. As a part of this new loan agreement, the Company is required to contribute an additional $9,000, plus interest, of cash or shares to the ESOP by 2016. Earlier contribution is at the Company’s discretion.

11. Pension and Postretirement Benefits:

The Company maintained a qualified defined benefit pension plan for certain of its employees through membership in the Pension Plan for Insurance Organizations (the “Pension Plan”), a multiple-employer trust. The Company has applied a cash balance formula to determine future benefits. 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 the previous year-end cash balance. The Company also has a non-qualified supplemental cash balance plan (“SERP”) for certain employees. The SERP is funded from the general assets of the Company. Effective February 29, 2012, the Company instituted a hard freeze, which eliminated all future compensation and service credits, to all participants in the Pension Plan and SERP.

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.

The components of net periodic (benefit) cost for the three and six months ended June 30 are summarized below:

 

     Pension Plan and SERP     Postretirement Plan  
     For the Three Months Ended June 30,  
         2013             2012             2013             2012      

Service cost

   $ —        $ —        $ —        $ —     

Interest cost

     4,496        4,883        150        175   

Expected return on plan assets

     (7,643     (7,279     (213     (120

Amortization of prior service credit

     —          —          (37     (37

Amortization of net actuarial loss

     1,263        610        150        137   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic (benefit) cost

   $ (1,884   $ (1,786   $ 50      $ 155   
  

 

 

   

 

 

   

 

 

   

 

 

 

Employer contributions

   $ 101      $ 72,362      $ 235      $ 5,583   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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     For the Six Months Ended June 30,  
     2013     2012     2013     2012  

Service cost

   $ —        $ 282      $ —        $ —     

Interest cost

     8,923        10,037        300        350   

Expected return on plan assets

     (15,240     (14,347     (425     (120

Curtailment gain

     —          (779     —          —     

Amortization of prior service credit

     —          (133     (75     (75

Amortization of net actuarial loss

     2,552        2,351        300        275   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic (benefit) cost

   $ (3,765   $ (2,589   $ 100      $ 430   
  

 

 

   

 

 

   

 

 

   

 

 

 

Employer contributions

   $ 201      $ 79,355      $ 235      $ 9,652   
  

 

 

   

 

 

   

 

 

   

 

 

 

The expected contributions to the Pension Plan, SERP and Postretirement Plan for the year ending December 31, 2013 are consistent with the amounts previously disclosed as of December 31, 2012.

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 Company’s Chief Executive Officer and President is identified as the CODM as defined by ASC 280-10. To align with the internal management of the Company’s business operations based on service offerings, the Company is organized into the following two operating segments, which are also the Company’s reportable segments:

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 Company’s combination of algorithms and analytic methods incorporates its proprietary data to generate solutions in each of these three categories. In most cases, the Company’s 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 Company discloses revenue within this segment based on the industry vertical groupings of insurance, financial services, healthcare and specialized markets.

Risk Assessment: The Company is the leading provider of statistical, actuarial and underwriting data for the U.S. P&C insurance industry. The Company’s 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. Effective December 31, 2012, the Company combined the statistical agency and data services and actuarial services into industry-standard insurance programs within the Risk Assessment segment. There have been no changes in reportable segments in accordance with ASC 280-10 for the three and six months ended June 30, 2012.

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

 

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performance and allocate resources. The Company uses EBITDA as the profitability measure for making decisions regarding ongoing operations. EBITDA is net income before interest expense, provision for income taxes, depreciation and amortization of fixed and intangible assets. EBITDA is the measure of operating results used to assess corporate performance and optimal utilization of debt and acquisitions. 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 interest expense and provision for income taxes, since these items are not considered in evaluating the segment’s 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 1.00% or more of the Company’s consolidated revenue for the three and six months ended June 30, 2013 or 2012. No individual country outside of the U.S. accounted for 1.00% or more of total consolidated long-term assets as of June 30, 2013 or December 31, 2012.

The following table provides the Company’s revenue and operating income by reportable segment for the three and six months ended June 30, 2013 and 2012, as well as reconciliations to income before income taxes for all periods presented in the accompanying condensed consolidated statements of operations:

 

    For the Three Months Ended
June 30, 2013
    For the Three Months Ended
June 30, 2012
 
    Decision
Analytics
    Risk
Assessment
    Total     Decision
Analytics
    Risk
Assessment
    Total  

Revenues

  $ 267,061      $ 154,259      $ 421,320      $ 229,037      $ 144,189      $ 373,226   

Expenses:

           

Cost of revenues (exclusive of items shown separately below)

    126,204        48,459        174,663        101,769        45,305        147,074   

Selling, general and administrative

    41,549        19,603        61,152        39,562        22,911        62,473   

Investment income and realized gain on available-for-sale securities, net

    —          (133     (133     —          (126     (126
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    99,308        86,330        185,638        87,706        76,099        163,805   

Depreciation and amortization of fixed assets

    13,141        3,670        16,811        9,021        4,069        13,090   

Amortization of intangible assets

    17,108        88        17,196        12,187        —          12,187   

Investment income and realized gain on available-for-sale securities, net

    —          133        133        —          126        126   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

  $ 69,059      $ 82,439        151,498      $ 66,498      $ 71,904        138,402   
 

 

 

   

 

 

     

 

 

   

 

 

   

Investment income and realized gain on available-for-sale securities, net

        133            126   

Interest expense

        (19,704         (17,377
     

 

 

       

 

 

 

Income before income taxes

      $ 131,927          $ 121,151   
     

 

 

       

 

 

 

Capital expenditures, including noncash purchases of fixed assets and capital lease obligations

  $ 29,542      $ 6,022      $ 35,564      $ 16,425      $ 5,645      $ 22,070   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    For the Six Months Ended
June 30, 2013
    For the Six Months Ended
June 30, 2012
 
    Decision
Analytics
    Risk
Assessment
    Total     Decision
Analytics
    Risk
Assessment
    Total  

Revenues

  $ 517,771      $ 306,872      $ 824,643      $ 430,569      $ 289,158      $ 719,727   

Expenses:

           

Cost of revenues (exclusive of items shown separately below)

    243,836        95,276        339,112        189,667        90,737        280,404   

Selling, general and administrative

    81,004        39,176        120,180        73,939        42,513        116,452   

Investment income and realized loss (gain) on available-for-sale securities, net

    —          12        12        —          (561     (561
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    192,931        172,408        365,339        166,963        156,469        323,432   

Depreciation and amortization of fixed assets

    25,017        7,008        32,025        17,506        7,228        24,734   

Amortization of intangible assets

    34,227        176        34,403        20,774        —          20,774   

Investment income and realized (loss) gain on available-for-sale securities, net

    —          (12     (12     —          561        561   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

  $ 133,687      $ 165,236        298,923      $ 128,683      $ 148,680        277,363   
 

 

 

   

 

 

     

 

 

   

 

 

   

Investment income and realized (loss) gain on available-for-sale securities, net

        (12         561   

Interest expense

        (39,794         (33,762
     

 

 

       

 

 

 

Income before income taxes

      $ 259,117          $ 244,162   
     

 

 

       

 

 

 

Capital expenditures, including noncash purchases of fixed assets and capital lease obligations

  $ 50,732      $ 13,359      $ 64,091      $ 29,657      $ 8,345      $ 38,002   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating segment revenue by type of service is provided below for the three and six months ended June 30:

 

     For the Three Months
Ended
     For the Six Months
Ended
 
     2013      2012      2013      2012  

Decision Analytics:

           

Insurance

   $ 133,785       $ 122,210       $ 260,334       $ 238,546   

Financial services

     50,529         35,299         94,437         69,574   

Healthcare

     61,087         50,381         120,136         80,829   

Specialized markets

     21,660         21,147         42,864         41,620   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Decision Analytics

     267,061         229,037         517,771         430,569   
  

 

 

    

 

 

    

 

 

    

 

 

 

Risk Assessment:

           

Industry-standard insurance programs

     117,289         111,730         233,739         224,142   

Property-specific rating and underwriting information

     36,970         32,459         73,133         65,016   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Risk Assessment

     154,259         144,189         306,872         289,158   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 421,320       $ 373,226       $ 824,643       $ 719,727   
  

 

 

    

 

 

    

 

 

    

 

 

 

13. Related Parties:

The Company considers its stockholders that own more than 5.00% of the outstanding common stock to be related parties as defined within ASC 850, Related Party Disclosures. As of June 30, 2013 and December 31, 2012, the Company had no related parties owning more than 5.00% of its common stock.

 

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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 the matters described below. With respect to ongoing matters, 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 it may have on the Company’s results of operations, financial position or cash flows. This is primarily because the matters are in early stages and discovery has either not commenced or been completed. Although the Company believes it has strong defenses and intends to vigorously defend these matters, 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.

Intellicorp Records, Inc. Litigation

On April 20, 2012, the Company was served with a class action complaint filed in Alameda County Superior Court in California naming the Company’s subsidiary Intellicorp Records, Inc. (“Intellicorp”) titled Jane Roe v. Intellicorp Records, Inc. The complaint alleged violations of the Fair Credit Reporting Act (“FCRA”) and claimed that Intellicorp failed to implement reasonable procedures to assure maximum possible accuracy of the adverse information contained in the background reports, failed to maintain strict procedures to ensure that criminal record information provided to employers is complete and up to date, and failed to notify class members contemporaneously of the fact that criminal record information was being provided to their employers and prospective employers. Intellicorp removed the case to the United States District Court of the Northern District of California. The California Court later granted Intellicorp’s motion to transfer the case, which is now pending in the United States District Court for the Northern District of Ohio. On October 24, 2012 plaintiffs served their First Amended Complaint (the “Roe Complaint”) alleging a nationwide putative class action on behalf of all persons who were the subject of a Criminal SuperSearch or other “instant” consumer background report furnished to a third party by Intellicorp for employment purposes, and whose report contained any negative public record of criminal arrest, charge, or conviction without also disclosing the final disposition of the charges during the 5 years preceding the filing of this action through the date class certification is granted. The Roe Complaint seeks statutory damages for the class in an amount not less than one hundred dollars and not more than one thousand dollars per violation, punitive damages, costs and attorneys’ fees. On February 4, 2013, the Court granted plaintiffs’ motion to amend the Roe Complaint to eliminate the named plaintiff’s individual claim for compensatory damages. This amendment did not change the breadth or scope of the request for relief sought on behalf of the proposed class. Plaintiffs later amended their class definition in their motion for class certification to include only those consumers whose (1) Criminal SuperSearch returned results, but Single County search returned no result; (2) Criminal SuperSearch returned one or more criminal charges without a disposition, but the Single County search returned a disposition other than “conviction” or “guilty” and (3) Criminal SuperSearch returned a higher level of offense (felony or misdemeanor) for one or more criminal charges than the Single County search (misdemeanor or infraction.) This amendment reduces the size of the potential class, but does not alter the time period for which the plaintiffs seek to certify a class or the scope of the request for relief sought on behalf of the proposed class. Plaintiffs’ motion for class certification was fully submitted on March 18, 2013 and oral argument was heard by Judge Gwin on June 27, 2013.

On November 1, 2012, the Company was served with a complaint filed in the United States District Court for the Northern District of Ohio naming the Company’s subsidiary Intellicorp Records, Inc. titled Michael R. Thomas v. Intellicorp Records, Inc. On January 7, 2013 plaintiff served its First Amended Complaint (the “Thomas Complaint”) to add Mark A. Johnson (the plaintiff in the Johnson v. iiX matter described below) as a named plaintiff. The Thomas Complaint alleges a nationwide putative class action for violations of FCRA on behalf of “[a]ll natural persons residing in the United States (a) who were the subject of a report sold by Intellicorp to a third party, (b) that was furnished for an employment purpose, (c) that contained at least one public record of a criminal conviction or arrest, civil lien, bankruptcy or civil judgment, (d) within five years next preceding the filing of this action and during its pendency, and (e) to whom Intellicorp did not place in the United States mail postage-prepaid, on the day it furnished any part of the report, a written notice that it was furnishing the subject report and containing the name of the person that was to receive the report.” The Thomas

 

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Complaint proposes an alternative subclass as follows: “[a]ll natural persons residing in Ohio or Tennessee (a) who were the subject of a report sold by Intellicorp to a third party, (b) that was furnished for an employment purpose, (c) that contained at least one public record of a criminal conviction or arrest, civil lien, bankruptcy or civil judgment, (d) within five years next preceding the filing of this action and during its pendency, (e) when a mutual review of the record would reveal that the identity associated with the public record does not match the identity of the class member about whom the report was furnished, and (f) to whom Intellicorp did not place in the United States mail postage pre-paid, on the day it furnished any part of the report, a written notice that it was furnishing the subject report and containing the name of the person that was to receive the report.” Similar to the Roe action, the Thomas Complaint alleges that Intellicorp violated the FCRA, asserting that Intellicorp violated section 1681k(a)(1) of the FCRA because it failed to provide notice to the plaintiffs “at the time” the adverse public record information was reported. The named plaintiffs also allege individual claims under section 1681e(b) claiming that Intellicorp failed to follow reasonable procedures to assure maximum possible accuracy in the preparation of the consumer report it furnished pertaining to plaintiffs. The Thomas Complaint seeks statutory damages for the class in an amount not less than one hundred dollars and not more than one thousand dollars per violation, punitive damages, costs and attorneys’ fees, as well as compensatory and punitive damages on behalf of the named plaintiffs.

At this time, it is not possible to determine the ultimate resolution of, or estimate the liability related to these matters.

iiX Litigation

On January 3, 2013 the Company received service of a complaint filed in the United States District Court for the Southern District of Ohio naming the Company’s subsidiary Insurance Information Exchange (“iiX”) titled Mark A. Johnson v. Insurance Information Exchange, LLC (the “Johnson Complaint”). The Johnson Complaint alleges a nationwide putative class action on behalf of “[a]ll natural persons residing in the United States who were the subject of a consumer report prepared by iiX for employment purposes within five (5) years prior to the filing of this Complaint and to whom iiX did not provide notice of the fact that public record information which is likely to have an adverse effect upon the consumer’s ability to obtain employment, is being reported by iiX, together with the name and address of the person to whom such information is being reported at the time such public record information is reported to the user of such consumer report.” Similar to the Thomas matter, the Johnson Complaint alleges violations of section 1681k(a) of the FCRA claiming that iiX failed to notify customers contemporaneously that criminal record information was provided to a prospective employer and failed to maintain strict procedures to ensure that the information reported is complete and up to date. The Johnson Complaint seeks statutory damages for the class in an amount not less than one hundred dollars and not more than one thousand dollars per violation, punitive damages, costs and attorneys’ fees.

At this time, it is not possible to determine the ultimate resolution of, or estimate the liability related to this matter.

Interthinx, Inc. Litigation

On May 13, 2013 the Company was served with a putative class action titled Celeste Shaw v. Interthinx, Inc., Verisk Analytics, Inc. and Jeffery Moyer. The plaintiff is a current employee of the Company’s subsidiary Interthinx, Inc. based in Colorado, who filed the class action in the United States District Court for the District of Colorado on behalf of all fraud detection employees who have worked for Interthinx for the last three years nationwide and who were classified as exempt employees. The class complaint claims that the fraud detection 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. It pleads three causes of action against defendants: (1) Collective Action under section 216(b) of the Fair Labor Standards Act for unpaid overtime (nationwide class); (2) A Fed. R. Civ. P. 23 class action under the Colorado Wage Act and Wage Order for unpaid overtime and (3) A Fed. R. Civ. P. 23 class action under Colorado Wage Act for unpaid commissions/nondiscretionary bonuses (Colorado class). The complaint seeks compensatory damages, penalties that are associated with the various statutes, declaratory and injunctive relief interest, costs and attorneys’ fees.

 

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On July 2, 2013 the Company was served with a putative class action titled Shabanam Shelia Dehdashtian v. Interthinx, Inc. and Verisk Analytics, Inc. in the United States District Court for the Central District of California. The plaintiff, Shabnam Shelia Dehdashtian, a former mortgage auditor at the Company’s subsidiary Interthinx, Inc. in California, filed the class action on behalf of all persons who have been employed by Interthinx as auditors, mortgage compliance underwriters and mortgage auditors nationwide at anytime (i) within 3 years prior to the filing of this action until trial for the Fair Labor Standards Act (FLSA) class and (ii) within 4 years prior to the filing of the initial complaint until trial for the California collective action. The class complaint claims that the defendants failed to pay overtime compensation, to provide rest and meal periods, waiting time penalties and to provide accurate wage statements to the plaintiffs as required by federal and California law. It pleads seven causes of action against defendants: (1) Failure to pay overtime compensation in violation of the FLSA for unpaid overtime (nationwide class); (2) Failure to pay overtime compensation in violation of Cal. Lab. Code sections 510, 1194 and 1198 and IWC Wage Order No. 4; (3) Failure to pay waiting time penalties in violation of Cal. Lab. Code sections 201-203; (4) Failure to provide itemized wage statements in violation of Cal. Lab. Code section 226 and IWC Order No. 4; (5) Failure to provide and or authorize meal and rest periods in violation of Cal. Lab. Code section 226.7 and IWC Order No. 4; (6) Violation of California Business and Professions Code sections 17200 et seq; and (7) a Labor Code Private Attorney General Act (PAGA) Public enforcement claim, Cal. Lab. Code section 2699 (California class). The complaint seeks compensatory damages, penalties that are associated with the various statutes, equitable and injunctive relief, interest, costs and attorneys’ fees.

At this time, it is not possible to determine the ultimate resolution of, or estimate the liability related to these matters.

Mariah Re Litigation

On July 8, 2013 the Company was served with a summons and complaint filed in the United States District Court for the Southern District of New York in an action titled Mariah Re LTD. v. American Family Mutual Insurance Company, ISO Services, Inc. and AIR Worldwide Corporation. Plaintiff Mariah is a special purpose vehicle established to provide reinsurance to defendant American Family Insurance. Mariah entered into contracts with the Company’s ISO Services, Inc. and AIR Worldwide Corporation subsidiaries, pursuant to which, among other things, Mariah (i) licensed the right to utilize information published in Catastrophe Bulletins issued by the Property Claims Services division of ISO Services, Inc. and (ii) and engaged AIR Worldwide Corporation as Calculation Agent to compute certain reinsured losses. The complaint alleges the following causes of action: (1) breach of contract against ISO Services, Inc. and AIR Worldwide Corporation; (2) unjust enrichment against American Family; (3) conversion against American Family; (4) tortuous interference with contract against American Family; (5) declaratory judgment against all defendants and (6) specific performance against all defendants. The complaint seeks declaratory relief, specific performance, restitution, monetary damages and attorneys’ fees.

At this time, it is not possible to determine the ultimate resolution of, or estimate the liability related to this matter.

15. Condensed Consolidated Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries

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 the 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, as of June 30, 2013 and December 31, 2012 and for the three and six months ended June 30, 2013 and 2012. 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.

 

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CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)

As of June 30, 2013

 

     Verisk
Analytics, Inc.
     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminating
Entries
    Consolidated  
     (In thousands)  
ASSETS              

Current assets:

             

Cash and cash equivalents

   $ 40,189       $ 60,012       $ 72,386       $ —        $ 172,587   

Available-for-sale securities

     —           4,254         —           —          4,254   

Accounts receivable, net

     —           121,821         64,728         —          186,549   

Prepaid expenses

     —           27,979         3,069         —          31,048   

Deferred income taxes, net

     —           375         10,088         —          10,463   

Income taxes receivable

     10,047         59,545         —           (15,579     54,013   

Intercompany receivables

     522,777         398,269         213,356         (1,134,402     —     

Other current assets

     2,870         29,243         2,582         —          34,695   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     575,883         701,498         366,209         (1,149,981     493,609   

Noncurrent assets:

             

Fixed assets, net

     —           150,738         35,190         —          185,928   

Intangible assets, net

     —           56,706         429,826         —          486,532   

Goodwill

     —           516,410         732,861         —          1,249,271   

Deferred income taxes, net

     —           815         —           (815     —     

Investment in subsidiaries

     1,129,374         911,819         —           (2,041,193     —     

Other assets

     13,343         9,451         1,217         —          24,011   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,718,600       $ 2,347,437       $ 1,565,303       $ (3,191,989   $ 2,439,351   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY              

Current liabilities:

             

Accounts payable and accrued liabilities

   $ 22,773       $ 76,053       $ 59,135       $ —        $ 157,961   

Short-term debt and current portion of long-term debt

     —           137,701         169         —          137,870   

Pension and postretirement benefits, current

     —           1,734         —           —          1,734   

Fees received in advance

     —           243,153         44,418         —          287,571   

Intercompany payables

     285,553         684,401         164,448         (1,134,402     —     

Income taxes payable

     —           —           15,579         (15,579     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     308,326         1,143,042         283,749         (1,149,981     585,136   

Noncurrent liabilities:

             

Long-term debt

     1,044,769         221,734         407         —          1,266,910   

Pension and postretirement benefits

     —           34,405         —           —          34,405   

Deferred income taxes, net

     —           —           136,072         (815     135,257   

Other liabilities

     —           40,665         11,473         —          52,138   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     1,353,095         1,439,846         431,701         (1,150,796     2,073,846   

Total stockholders’ equity

     365,505         907,591         1,133,602         (2,041,193     365,505   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,718,600       $ 2,347,437       $ 1,565,303       $ (3,191,989   $ 2,439,351   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2012

 

     Verisk
Analytics, Inc.
     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminating
Entries
    Consolidated  
     (In thousands)  
ASSETS              

Current assets:

             

Cash and cash equivalents

   $ 128       $ 35,571       $ 54,120       $ —        $ 89,819   

Available-for-sale securities

     —           4,883         —           —          4,883   

Accounts receivable, net

     —           124,212         54,218         —          178,430   

Prepaid expenses

     —           19,340         2,606         —          21,946   

Deferred income taxes, net

     —           375         10,022         —          10,397   

Income taxes receivable

     15,834         37,180         —           (7,039     45,975   

Intercompany receivables

     424,927         206,165         211,792         (842,884     —     

Other current assets

     12,008         19,124         7,977         —          39,109   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     452,897         446,850         340,735         (849,923     390,559   

Noncurrent assets:

             

Fixed assets, net

     —           126,481         27,603         —          154,084   

Intangible assets, net

     —           66,045         454,890         —          520,935   

Goodwill

     —           515,705         731,754         —          1,247,459   

Deferred income taxes, net

     —           2,584         —           (2,584     —     

Investment in subsidiaries

     946,612         904,198         —           (1,850,810     —     

Other assets

     13,896         31,801         1,602         —          47,299   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,413,405       $ 2,093,664       $ 1,556,584       $ (2,703,317   $ 2,360,336   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY              

Current liabilities:

             

Accounts payable and accrued liabilities

   $ 14,638       $ 113,512       $ 59,498       $ —        $ 187,648   

Short-term debt and current portion of long-term debt

     —           194,980         283         —          195,263   

Pension and postretirement benefits, current

     —           1,734         —           —          1,734   

Fees received in advance

     —           167,962         32,743         —          200,705   

Intercompany payables

     98,768         575,907         168,209         (842,884     —     

Income taxes payable

     —           —           7,039         (7,039     —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     113,406         1,054,095         267,772         (849,923     585,350   

Noncurrent liabilities:

             

Long-term debt

     1,044,408         221,706         48         —          1,266,162   

Pension and postretirement benefits

     —           41,282         —           —          41,282   

Deferred income taxes, net

     —           —           136,345         (2,584     133,761   

Other liabilities

     —           46,892         31,298         —          78,190   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     1,157,814         1,363,975         435,463         (852,507     2,104,745   

Total stockholders’ equity

     255,591         729,689         1,121,121         (1,850,810     255,591   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $  1,413,405       $ 2,093,664       $ 1,556,584       $ (2,703,317   $ 2,360,336   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)

For The Three Months Ended June 30, 2013

 

     Verisk
Analytics, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminating
Entries
    Consolidated  
     (In thousands)  

Revenues

   $ —        $ 338,805      $ 86,946      $ (4,431   $ 421,320   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

          

Cost of revenues (exclusive of items shown separately below)

     —          134,191        42,497        (2,025     174,663   

Selling, general and administrative

     —          49,272        14,286        (2,406     61,152   

Depreciation and amortization of fixed assets

     —          13,475        3,336        —          16,811   

Amortization of intangible assets

     —          4,659        12,537        —          17,196   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     —          201,597        72,656        (4,431     269,822   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     —          137,208        14,290        —          151,498   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

          

Interest expense

     (13,639     (6,031     (34     —          (19,704

Investment income (loss)

     5        44        (9     —          40   

Realized gain on available-for-sale securities, net

     —          93        —          —          93   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (13,634     (5,894     (43     —          (19,571
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before equity in net income of subsidiaries and income taxes

     (13,634     131,314        14,247        —          131,927   

Equity in net income of subsidiaries

     92,805        6,592        —          (99,397     —     

Provision for income taxes

     5,034        (47,807     (4,949     —          (47,722
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 84,205      $ 90,099      $ 9,298      $ (99,397   $ 84,205   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)

For The Six Months Ended June 30, 2013

 

     Verisk
Analytics, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminating
Entries
    Consolidated  
     (In thousands)  

Revenues

   $ —        $ 667,831      $ 166,166      $ (9,354   $ 824,643   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

          

Cost of revenues (exclusive of items shown separately below)

     —          260,759        82,712        (4,359     339,112   

Selling, general and administrative

     —          96,169        29,006        (4,995     120,180   

Depreciation and amortization of fixed assets

     —          25,568        6,457        —          32,025   

Amortization of intangible assets

     —          9,339        25,064        —          34,403   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     —          391,835        143,239        (9,354     525,720   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     —          275,996        22,927        —          298,923   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

          

Interest expense

     (27,276     (12,479     (39     —          (39,794

Investment income

     5        44        39        —          88   

Realized loss on available-for-sale securities, net

     —          (100     —          —          (100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (27,271     (12,535     —          —          (39,806
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before equity in net income of subsidiaries and income taxes

     (27,271     263,461        22,927        —          259,117   

Equity in net income of subsidiaries

     181,940        7,865        —          (189,805     —     

Provision for income taxes

     10,047        (94,299     (10,149     —          (94,401
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $  164,716      $ 177,027      $ 12,778      $ (189,805   $ 164,716   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)

For The Three Months Ended June 30, 2012

 

     Verisk
Analytics, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminating
Entries
    Consolidated  
     (In thousands)  

Revenues

   $ —        $ 319,254      $ 60,782      $ (6,810   $ 373,226   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

          

Cost of revenues (exclusive of items shown separately below)

     —          121,813        28,828        (3,567     147,074   

Selling, general and administrative

     —          51,202        14,514        (3,243     62,473   

Depreciation and amortization of fixed assets

     —          10,817        2,273        —          13,090   

Amortization of intangible assets

     —          4,892        7,295        —          12,187   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     —          188,724        52,910        (6,810     234,824   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     —          130,530        7,872        —          138,402   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

          

Interest expense

     (9,875     (7,488     (14     —          (17,377

Investment income

     18        26        112        —          156   

Realized loss on available-for-sale securities, net

     —          (30     —          —          (30
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other (expense) income, net

     (9,857     (7,492     98        —          (17,251
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before equity in net income of subsidiary and income taxes

     (9,857     123,038        7,970        —          121,151   

Equity in net income of subsidiary

     79,571        2,967        —          (82,538     —     

Provision for income taxes

     3,617        (48,475     (2,962     —          (47,820
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $  73,331      $ 77,530      $ 5,008      $ (82,538   $ 73,331   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)

For The Six Months Ended June 30, 2012

 

     Verisk
Analytics, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminating
Entries
    Consolidated  
     (In thousands)  

Revenues

   $ —        $ 626,353      $ 104,383      $ (11,009   $ 719,727   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

          

Cost of revenues (exclusive of items shown separately below)

     —          238,152        48,200        (5,948     280,404   

Selling, general and administrative

     —          94,539        26,974        (5,061     116,452   

Depreciation and amortization of fixed assets

     —          20,368        4,366        —          24,734   

Amortization of intangible assets

     —          9,820        10,954        —          20,774   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     —          362,879        90,494        (11,009     442,364   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     —          263,474        13,889        —          277,363   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

          

Interest expense

     (19,744     (13,995     (23     —          (33,762

Investment income

     36        100        125        —          261   

Realized gain on available-for-sale securities, net

     —          300        —          —          300   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other (expense) income, net

     (19,708     (13,595     102        —          (33,201
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before equity in net income of subsidiary and income taxes

     (19,708     249,879        13,991        —          244,162   

Equity in net income of subsidiary

     160,407        3,253        —          (163,660     —     

Provision for income taxes

     7,233        (96,795     (6,668     —          (96,230
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $  147,932      $ 156,337      $ 7,323      $ (163,660   $ 147,932   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

For The Three Months Ended June 30, 2013

 

    Verisk
Analytics,  Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminating
Entries
    Consolidated  
    (In thousands)  

Net income

  $ 84,205      $ 90,099      $ 9,298      $ (99,397   $ 84,205   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax:

         

Unrealized foreign currency loss

    (275     (357     (217     574        (275

Unrealized holding loss on available-for-sale securities

    (84     (84     —          84        (84

Pension and postretirement unfunded liability adjustment

    948        948        —          (948     948   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

    589        507        (217     (290     589   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

  $ 84,794      $ 90,606      $ 9,081      $ (99,687   $ 84,794   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

For The Six Months Ended June 30, 2013

 

    Verisk
Analytics, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminating
Entries
    Consolidated  
    (In thousands)  

Net income

  $ 164,716      $ 177,027      $ 12,778      $ (189,805   $ 164,716   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax:

         

Unrealized foreign currency loss

    (681     (628     (602     1,230        (681

Unrealized holding loss on available-for-sale securities

    (314     (314     —          314        (314

Pension and postretirement unfunded liability adjustment

    1,817        1,817        —          (1,817     1,817   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

    822        875        (602     (273     822   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

  $ 165,538      $ 177,902      $ 12,176      $ (190,078   $ 165,538   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

For The Three Months Ended June 30, 2012

 

    Verisk
Analytics, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminating
Entries
    Consolidated  
    (In thousands)  

Net income

  $ 73,331      $ 77,530      $ 5,008      $ (82,538   $ 73,331   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax:

         

Unrealized foreign currency loss

    (287     (248     (254     502        (287

Unrealized holding loss on available-for-sale securities

    (116     (116     —          116        (116

Pension and postretirement unfunded liability adjustment

    452        452        —          (452     452   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

    49        88        (254     166        49   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

  $ 73,380      $ 77,618      $ 4,754      $ (82,372   $ 73,380   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

For The Six Months Ended June 30, 2012

 

    Verisk
Analytics, Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminating
Entries
    Consolidated  
    (In thousands)  

Net income

  $ 147,932      $ 156,337      $ 7,323      $ (163,660   $ 147,932   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax:

         

Unrealized foreign currency loss

    (134     (96     (113     209        (134

Unrealized holding loss on available-for-sale securities

    (313     (313     —          313        (313

Pension and postretirement unfunded liability adjustment

    1,380        1,380        —          (1,380     1,380   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

    933        971        (113     (858     933   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

  $ 148,865      $ 157,308      $ 7,210      $ (164,518   $ 148,865   
 

 

 

  &nb